Daily Digest

Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, Benefits Cut For Austerity, Japan Recycling Minerals From Used Electronics

Tuesday, October 5, 2010, 10:44 AM
  • IMF Admits That The West Is Stuck In Near Depression
  • U.K. Banks’ Funding Gap May Force New Taxpayer Bailout
  • RIL's Crude Reservoirs Not Performing As Per Predictions
  • Monsanto’s Fortunes Turn Sour
  • U.K. 'On Cusp Of Second Banking Failure'
  • More Fallout Following House Fire
  • Britain Cuts Child Benefit Payments in Austerity Drive
  • Japan Recycles Minerals From Used Electronics

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Economy

IMF Admits That The West Is Stuck In Near Depression (pinecarr)

If you strip away the political correctness, Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain and America in slump for a long time.

U.K. Banks’ Funding Gap May Force New Taxpayer Bailout (Johan V.)

Banks’ retail and investment-banking operations should be separated and those deemed too-big-to-fail should be split up, the NEF said in the report published today. The London-based research institute, which says it seeks “well being and environmental sustainability,” also lamented a “shocking” lack of information on the expenditure of 1.2 trillion pounds in previously committed taxpayer assistance.

RIL's Crude Reservoirs Not Performing As Per Predictions (Deepak)

A company spokesperson declined to comment on the issue. Currently six wells are on production in MA field in the eastern offshore KG-DWN-98/3 (or KG-D6) block. RIL, which commenced commercial oil production from MA field in September 2008, had in its field development plan (FDP) envisaged a plateau oil output of 34,041 bpd in the 2nd year of production and 28,684 bpd in the 3rd year.

So far, the maximum production level of about 32,000 bpd was achieved for few days only during May 2010, thereafter oil production has declined gradually.

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Monsanto’s Fortunes Turn Sour (jdargis)

The company’s stock, which rose steadily over several years to peak at around $145 a share in mid-2008, closed Monday at $47.77, having fallen about 42 percent since the beginning of the year. Its earnings for the fiscal year that ended in August, which will be announced Wednesday, are expected to be well below projections made at the beginning of the year, and the company has abandoned its profit goal for 2012 as well.

U.K. 'On Cusp Of Second Banking Failure' (james_knight_chaucer)

According to its report - Where Did Our Money Go? - an estimated £1.2trillion of state cash has already been pumped into the banking system.

However, NEF has described a "shocking" lack of information about how that money has been used and demanded "urgent reform".

More Fallout Following House Fire (TG)

The homeowner, Gene Cranick, said he offered to pay whatever it would take for firefighters to put out the flames, but was told it was too late. They wouldn't do anything to stop his house from burning.

Each year, Obion County residents must pay $75 if they want fire protection from the city of South Fulton. But the Cranicks did not pay. The mayor said if homeowners don't pay, they're out of luck.

Britain Cuts Child Benefit Payments in Austerity Drive (jdargis)

Britain will cap payments to jobless families and scrap child benefits for high earners in a sweeping overhaul of the country's welfare system, Treasury chief George Osborne said Monday.

Osborne, who is seeking to save about 86 billion pounds ($135 billion) in government spending over the next five years, said the cost of welfare payments was out of control — and rewarding some people for staying out of work.

Energy

Japan Recycles Minerals From Used Electronics (jdargis)

The treasures are not copper or coal. They are rare-earth elements and other minerals that are crucial to many Japanese technologies and have so far come almost exclusively from China, the global leader in rare earth mining.

Recent problems with Chinese supplies of rare earths have sent Japanese traders and companies in search of alternative sources, creating opportunities for Kosaka.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

32 Comments

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

"TOKYO — Japan's central bank cut its key interest rate to virtually zero in a surprise move Tuesday and is looking to set up a $60 billion fund to buy government bonds and other assets as it tries to inject life into a faltering economy.

The Bank of Japan's nine-member policy board voted unanimously to set its overnight call rate target to a range of zero to 0.1 percent, returning to zero rates for the first time in more than four years."

"The Swiss franc strengthened against the dollar after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank’s first round of asset purchases improved the economy and that further buying may help more.

The franc continued a three-day appreciation versus the U.S. currency and reached a record. Bernanke said further asset purchases, or quantitative easing, by the Federal Reserve has “the ability to ease financial conditions” and praised the earlier round of stimulus as an “effective program.” Swiss inflation held at the lowest in almost a year in September."

..................2A) Bernanke calls for tougher budget rules

"WASHINGTON (MarketWatch) — Federal Reserve Chairman Ben Bernanke called on Congress on Monday to adopt tougher budget rules even as the nation’s top central banker warned against taking deficit-cutting action too soon.

Still, Bernanke also warned against tightening too quickly and reportedly said more asset purchases by the Federal Reserve could help the economy."

...................2B) Fed boss: More securities buys could help economy

"PROVIDENCE, R.I. — Federal Reserve Chairman Ben Bernanke said Monday that the economy could be helped by another round of asset purchases by the central bank.

Bernanke's comment reinforces analysts' beliefs that the Fed is likely to take action at its next meeting Nov. 2-3.

The Fed is considering launching a new program to buy government debt, a move aimed at driving down rates on mortgages, corporate loans and other debt. It's wrestling with how much it should buy.

"I do think the additional purchases — although we don't have the precise numbers for how big the effects are — I do think they have the ability to ease financial conditions," Bernanke said during a town-hall style meeting here with college students."

"WASHINGTON — Federal Reserve chairman Ben Bernanke called for quick and decisive steps to rein in the exploding US budget deficit, warning failure to act could result in a serious crisis.

Warning that surging annual deficits presented a "real and growing threat" to the US economy, Bernanke told an audience in Rhode Island that a day of reckoning would come if action is not taken.

"The only real question is whether these adjustments will take place through a careful and deliberative process... or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.""

"Illinois’s financial situation “continues to deteriorate,” according to Comptroller Daniel Hynes, who cited a 36 percent surge in bills from the past fiscal year that will be paid from current-year revenue.

The $6.4 billion in 2010 obligations that must be paid with 2011 revenue is $1.7 billion more than the $4.7 billion owed on June 30, when the fiscal year ended, Hynes said today in a report. The state also has accumulated $3.5 billion in obligations for 2011, he said.

The amount of unpaid bills for the current year may balloon to $8 billion by June 30, Hynes said. The state by then may be facing a $15 billion “working deficit” for fiscal 2012, he said, with prolonged payment of current debts “creating chaotic fiscal conditions as the situation snowballs.” "

.....................4A) Illinois Pays More Than Mexico as Cash-Strapped States Sell Bonds Overseas

"New York Mayor Michael Bloomberg said city pension funds have set unrealistically high assumed rates of return on investments, at 8 percent, which may require spending more than has been budgeted for retirement benefits.

“It’s much too high an assumption for us, I think it should be lowered,” Bloomberg said today at a news briefing, referring to the city’s five pensions holding almost $104 billion. “That’s going to require the city to put in more money. It’s very difficult to see where we could get the money to do that.”

The city, which must balance its budget or face a state takeover of operations, has to close a $3.3 billion budget gap projected for fiscal year 2012, which starts July 1. The deficit is forecast to grow to $4.8 billion in 2014, while officials expect pension costs to increase to $8 billion that year from $7.6 billion now. Last month, the state pension fund cut assumed returns to 7.5 percent from 8 percent. "

"BRUSSELS, Oct 5 (Reuters) - Euro area policymakers pressed

China on Tuesday for a faster appreciation of its currency to

help rebalance the world economy but said Chinese Prime Minister

Wen Jiabao had differed with them. The chairman of euro zone finance ministers, Jean-Claude

Juncker, told a news conference after talks with Wen in

Brussels: "China's real effective exchange rate remains

undervalued." He said the 16-nation European currency area had urged an

"orderly, significant and broad-based appreciation" of the yuan. Asked how Wen had responded, Juncker said the message came

as no surprise to the Chinese delegation, but added in French:

"The Chinese authorities do not share our view." The United States and the European Union accuse China of

keeping the yuan articifically low to boost exports, undermining

jobs and competitiveness in Western economies."

.......................6A) Chinese Premier Blasts US for 'Politicizing' Trade Deficit

"LONDON (MarketWatch) — Ireland’s Aa2 credit rating is on review for possible downgrade, Moody’s Investors Service announced Tuesday, citing the rising cost of recapitalizing the nation’s crippled banking sector, as well as an uncertain domestic outlook and rising borrowing costs.

“Ireland’s ability to preserve government financial strength faces increased uncertainty as a result of three main drivers, which together would further increase its debt and aggravate its debt affordability,” said Dietmar Hornung, the ratings agency’s lead sovereign analyst for Ireland."

"Beginning tonight at the first of six public hearings, Pittsburgh residents get a chance to have their voices heard on proposals to increase funding for the city's pension system.

Doing nothing would allow the state to assume control of the system.

"They'll hear the pros and cons, the good and the bad," City Council President Darlene Harris said. "We need to do something, and the residents should be a part of our decision."

The pension funds contain 27 percent of $1 billion in obligations for 8,000 active and retired city employees. The funds must have 50 percent by the end of the year to avoid a takeover."

"OTTAWA—Canada’s economic boom times are over, Finance Minister Jim Flaherty says.

“We’re in a different world today,” he said Monday, following a meeting with private sector economists.

In a blunt assessment, the usually optimistic Flaherty said Canadians need to rein in their hopes for the economy.

“This is not a time of booming economic growth, it’s a time of modest growth and there needs to be some adjustment of expectations.

“We’re not going to see the boom times that we saw before in the shorter term,” he said.

He said Canada’s prospects are being held hostage by the weak, uneven economic recovery in the rest of the world. “We’re in a time of high uncertainty, particularly with respect to the United States’ economy,” he said."

"Oct. 4 (Bloomberg) -- California may have to issue IOUs unless lawmakers agree to delay paying some of the bills that accumulated as Governor Arnold Schwarzenegger and legislative leaders negotiated a budget compromise, a spokeswoman for the controller's office said.

The deferrals are needed because California racked up $8.4 billion of delinquent bills as it operated without a spending plan for more than three months, said Hallye Jordan, spokeswoman for Controller John Chiang. That's more than the $5 billion bridge loan Treasurer Bill Lockyer is lining up from a group of Wall Street banks to tide the state over."

"The U.S. government’s deficit in the fiscal year 2010, which ended Sept. 30, will be almost as big a share of the economy as the $1.4 trillion 2009 shortfall, a U.S. Treasury official said today.

“Due to the deep economic recession, there has been a large imbalance between revenues and expenditures, which caused the fiscal deficit to reach nearly 10 percent of GDP in fiscal year 2009,” said Mary Miller, assistant secretary for financial markets, referring to the economy’s size as measured by gross domestic product. “We expect this year’s deficit to be a similar or slightly lower percentage of GDP,” Miller said.

Miller also said that the Federal Reserve’s decision to purchase Treasury securities in the secondary market will not affect debt management. She spoke in the text of remarks prepared for a Futures Industry Association conference in New York."

"DEMAND for gold investment products at the Perth Mint has risen as much as 25 per cent in the past month.

The demand follows the yellow metal continuing its bull run to new record highs.

"When the gold price soars we get inundated. We would have seen a 25 per cent increase in business just in the past month," said Perth Mint Depository treasurer and manager Nigel Moffatt."

"(Reuters) - The International Monetary Fund said on Tuesday that sovereign debt risk in Europe and continued real estate woes in the United States have dealt a setback to global financial stability in the past six months.

The IMF said risks to the financial sector could be reduced if legacy problem assets were cleaned up, if governments improved their fiscal positions and if more clarity were provided on global financial regulation.

"The global financial system is still in a period of significant uncertainty and remains the Achilles' heel of the economic recovery, the IMF said in its semi-annual Global Financial Stability Report.

"The recent turmoil in sovereign debt markets in Europe highlighted increased vulnerabilities of bank and sovereign balance sheets arising from the crisis," the fund added."

 

  • Other news and headlines:

S.Korea private bad bank to buy troubled loans

Australia cenbank skips rate hike, surprises many

Fed Action Likely as US Growth Slows, Pimco Says

Obama says US fiscal situation 'untenable'

BOJ Independence Challenged as Japan Deflation Continues

Petrobras May Need to Issue $60 Billion in Debt

Iceland Needs to Build Up Reserves to Pay Back Loans, IMF Says

Icelanders protest at parliament

ECB takes in almost 1.4 bln euros to offset debt purchases

Baht Rises to 13-Year High on Fund Inflows; Intervention a Risk (Thailand)

Strong Swiss franc crushes E. Europe homebuyers

Serbia's public debt reaches 36.3% of GDP

Home Loan-Linked Bond Sales Face Lingering Concern

Janet Yellen, Sarah Bloom Raskin join Fed board

Thousands of Romanian teachers protest wage cuts

Community colleges face financial crunch

Russian Regions May Default as Federal Aid Withdrawn, S&P Says

Three million London commuters hit by Tube walkout

Tax receipts for first nine months down 6.5% (Ireland)

Spanish Soccer's $800 Million in Unpaid Tax `Contaminates' Public Finances

'Skyrocketing' City Pensions Add up to Outrage (San Diego)

San Diego City Pension Excess Compared To Bell, CA

Irish pension funds looking to invest in Irish bonds

Cities in debt turn to states, adding strain

U.S. consumer bankruptcies rise

2010 could end up as worst year for hospital layoffs

Millions in Calif. Welfare Cash Spent in Hawaii, Las Vegas

Bond managers raise alarm about France downgrade

Harrisburg's Fiscal Woes Affect City's Other Debts

Europe Services, Manufacturing Cool as Periphery Saps Growth

Watchdog: Treasury bailed out 66 weaker banks

Mansfield fiscal emergency panel meets

Lawsuit claims $200M owed to La. 'rainy day' fund, says lawmakers illegally avoided payment

Europeans outraged over economy, Americans casually protest (News Video)

Florida Employees' Unfunded Pension Liabilities Grew in 2010 After Losses

Yields on Brazilian Futures Rise Most in a Week on Foreign-Investment Tax

Amherst: One out of Five Borrowers Could Lose Their Home

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

I usually scan over the the listing of links before I begin digesting the dailies. I couldn't help but be amused by saxplayer's items (2A) and (3), where Bernanke-- in true Jekyll and Hyde form as the master of the "Creature From Jekyll Island"-- calls for "quick and decisive steps to rein in the exploding US budget deficit, warning failure to act could result in a serious crisis" even as he "warned against taking deficit-cutting action too soon."

 

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Re: Headed for a Depression?

Wow! What a graph! Eye-opening!

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

May I propose a new metric:  The Saxplayer00o1 Headline Co-efficient

And based on the quantity of headlines, boy are we in for some very interesting times.....

Keep up the great work Sax. 

Warm wishes,

Joanne.

 

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

just another linked update on this fiasco:

Lender Processing Services Tries to Claim that Recent Disclosures are “Mischaracterizations” - Yves Smith - Boy, you have to love the way beleaguered companies strain to create the impression that unfavorable revelations are “mischaracterizations.” And Lender Processing Services certainly has its back to the wall. Its stock traded down 5% on Friday and another 8% today before it halted trading after hours (which seems an awfully unusual move in and of itself). (for more detail on LPS’s business model, see our related post today). Recall that over the weekend, the site 4ClosureFraud disclosed a sheet listing services offered by LPS through its subsidiary, DocX, which as we discussed in some length, included “creating,” meaning fabricating, documents out of whole cloth for the purposes of allowing foreclosures to proceed.  LPS provided a  press release attempting to rebut some of the concerns, but what was revealing was how much was tacitly admitted...

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Gartman: Gold is Hyper-Overbought

This is more than a week old, but somehow I doubt it was posted here.

“. . .we shall urge the greatest of caution upon everyone, everywhere regarding gold. It is not just over-extended to the upside; it is hyper-extended. It is not just overbought; it is hyper-overbought. We cannot strongly enough urge everyone to avoid buying gold here and we shall go so far as to suggest that those who are long begin the process of quietly heading for the exits and to reduce their positions to the most minimal ‘insurance’ positions possible. Everyone should have perhaps 5% of their liquid assets in gold, but at this point anything beyond that level is excessive.”

–Dennis Gartman, September 29 2010

http://www.ritholtz.com/blog/2010/10/gold-hyperoverbought/

Are you using gold bullion at the 'casino' ?

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Interesting JAG....I am happy people are hyper over buying gold since it has my 10% hyper....up at this moment. Nah I will not waste my Gold bullion at the Casino since I rather throw away the paper stuff there & keep the hard Gold stuff as an insurance policy if needed. Maybe shorting the GLD at some point would be a great play especially if they find out it is not fully backed by real Gold?

I think Marc Faber has the most honest answer on gold – to paraphrase “First lets ask Mr Bernanke how much he will print”.

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

One question I have, and I haven't seen any data, is how broad the market is.  Is there any evidence that the general populace has started buying bullion?  Last I heard, it was just we few (<1%).  When I see that number going up significantly and/or banks and sovereigns selling instead of buying, I'll start worrying more than I already am.

Doug

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Re: Gartman: Gold is Hyper-Overbought
JAG wrote:

This is more than a week old, but somehow I doubt it was posted here.

“. . .we shall urge the greatest of caution upon everyone, everywhere regarding gold. It is not just over-extended to the upside; it is hyper-extended. It is not just overbought; it is hyper-overbought. We cannot strongly enough urge everyone to avoid buying gold here and we shall go so far as to suggest that those who are long begin the process of quietly heading for the exits and to reduce their positions to the most minimal ‘insurance’ positions possible. Everyone should have perhaps 5% of their liquid assets in gold, but at this point anything beyond that level is excessive.”

–Dennis Gartman, September 29 2010

http://www.ritholtz.com/blog/2010/10/gold-hyperoverbought/

Are you using gold bullion at the 'casino' ?

I'll have to read the entire piece, not just this blurb. My knee jerk reaction is that it in and upon itself it contradictory. First, if everyone had 5% of their net worth in gold we wouldn't be where we are today and that is at 2% of investors holding gold. If everyone had 5% gold would be insanely expensive.

Second, by what macro fundamental - other than because he says - is gold extended? The Fed is going to print 500bn to 1 trillion for QEII, Japan has lost their CB mind. Heyperextended. No, I'd say the currency is hyper-inflating and gold is holding value. I know you hate the stuff, I do to, but paper is going to get its @$$ handed to it. 

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Re: Gartman: Gold is Hyper-Overbought

 

As recently cited in Elliot Wave International's financial forecast, Central Banks recently announced they would halt gold sales.  After ten years of a bull run, they apparently noticed it was going up.  This is as good an indication that a correction is nigh I can think of.  They sold right into the bottom in 1999-2000 (at $200-$300 levels!!!!), and now they're holding at the top.  That's as dumb as dumb gets and a pretty good indicator.  That said, I wouldn't go below 5% gold and I'm not.  But I sure as hell wouldn't buy at these levels either.

 

JAG wrote:

This is more than a week old, but somehow I doubt it was posted here.

“. . .we shall urge the greatest of caution upon everyone, everywhere regarding gold. It is not just over-extended to the upside; it is hyper-extended. It is not just overbought; it is hyper-overbought. We cannot strongly enough urge everyone to avoid buying gold here and we shall go so far as to suggest that those who are long begin the process of quietly heading for the exits and to reduce their positions to the most minimal ‘insurance’ positions possible. Everyone should have perhaps 5% of their liquid assets in gold, but at this point anything beyond that level is excessive.”

–Dennis Gartman, September 29 2010

http://www.ritholtz.com/blog/2010/10/gold-hyperoverbought/

Are you using gold bullion at the 'casino' ?

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Re: Gartman: Gold is Hyper-Overbought
Doug wrote:

One question I have, and I haven't seen any data, is how broad the market is.  Is there any evidence that the general populace has started buying bullion?  Last I heard, it was just we few (<1%).  When I see that number going up significantly and/or banks and sovereigns selling instead of buying, I'll start worrying more than I already am.

Doug

Its not the physical component of the market that worries me personally, its the ETF (or paper) component that concerns me, its a huge part of the pricing mechanism for gold. Just because someone owns physical gold, doesn't mean their capital is "outside the casino" in all but the longest timeframe. If you need proof of that fact, just take a look at what the paper component of the housing market did to house prices. 

Davos,

I don't know much about Gartman, and unfortunately it looks like that excerpt was taken from a subscription newsletter of his. I don't really hate gold, I'm just providing a counter viewpoint to the pro-gold bias on this site. I read this last week, but I waited to post it to see if anyone else would post it here. Nobody did that I saw, so once again I had to play the role of 'that guy' to keep things honest around here. 

Re your theory about gold simply "holding value" while currencies depreciate; I don't buy it. Unfortunately my investment manager (Sitka Pacific & Mish) seem to buy that argument as well. To me, there is only one reason to buy any asset; because everybody else hates it (cash anyone?). All the other reasoning is just marketing and b.s. in my experience.

With respect....Jeff

 

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Re: Gartman: Gold is Hyper-Overbought

JAG, I hate gold. I just hate the dollar worse. I've been very contrarian before. It is hard to do. I respect you for it, I just don't respect the fundamentals - hope it plays out well for you and I. Take care

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Currency Tensions Flare as Brazil, Japan Take Action http://www.cnbc.com/id/39524672

A drive by many of the world's economies to cap the strength of their currencies is gaining momentum, with Brazil firing the latest shot just days before world finance leaders meet in Washington

Ultra-low interest rates in Europe and Japan and concerns that the U.S.

Federal Reserve is about to embark on another round of money printing that could weaken the dollar have pushed currencies to the top of the agenda for the gathering of finance chiefs from the Group of Seven rich nations Friday.

The International Monetary Fund, which holds its twice-yearly meeting this weekend, is also expected to discuss foreign exchange moves as part of its mission to get countries working together toward balanced global growth.

The IMF is responsible for vetting national policies to ensure they don't clash, and will present its findings to world leaders at upcoming summits in Seoul, South Korea.

"The conversations will begin this weekend but will no doubt continue until ministers and governors meet later in Seoul," said a senior U.S. Treasury officials who spoke to reporters on condition of anonymity.

Brazil, whose finance minister has warned of an international "currency war," on Monday doubled a tax on foreign investors buying local bonds to 4 percent to curb a strong real, boosted by high domestic interest rates and a commodity boom.

Slow economic growth and high unemployment in most rich countries leave them unusually reliant on exports, and weaker currencies can provide a trade advantage. Japan intervened to weaken the yen last month and a couple of emerging economies have followed.

But emerging economies including Brazil worry that low interest rates and weak currencies in the rich world will drive investors into faster-growing emerging markets, creating an unpredictable surge of hot money that can contribute to inflation and asset price bubbles.

For the G7 and IMF, the challenge now is to ensure countries don't go rogue, adopting policies that might help at home but hurt abroad.

Nobel-winning economist Joseph Stiglitz said the Federal Reserve's actions to spur growth were doing nothing for the U.S. economy while bringing chaos to the rest of the world.

Adding to the tension, policymakers from emerging Asian economies voiced growing concerns about the risk of a flood of hot money inflows.

South Korea warned investors it might impose further limits on forward trading and India and Thailand said they were looking at steps to control speculative surges.

"I don't foresee that we're moving into an era of global currency wars but there are clearly going to be tensions," World Bank President Robert Zoellick said on Monday, calling for action to ease the tension.

"Money is chasing yield. It can't find those yields in developed economies and this is not only pushing up currency values in developing countries... (but) also pushing up prices in assets with the risk of bubbles in property and some commodities," he added.

Entrenched

Policymakers have been attacking the issue of global imbalances for years, with fundamental problems seen in the dollar's global dominance, China's under-valued yuan and Germany's lack of domestic consumption.

But entrenched positions and a scramble to lock in lower relative costs for exporters make it unlikely that officials sitting down to IMF and G7 meetings this weekend, and G20 meetings later this month, will resolve their differences.

"We are in a very extreme situation, everyone is about as far apart as they could possibly be,'' said Neil Mellor, currency strategist at Bank of New York Mellon.

"Everyone wants stability but everyone has the same objective — a weaker currency. They will make the right noises, but what can they possibly come up with?''

Despite attempts at coordination by G20 countries during the financial crisis, central banks have acted unilaterally.

U.S. Fed Chairman Ben Bernanke appeared to rubber-stamp a second round of quantitative easing on Monday, saying more asset buying could ease financial conditions further.

In a surprise move, Japan also pulled interest rates on the yen back to zero on Tuesday and pledged to pump more funds into an economy struggling to compete while the currency remains close to a 15-year high against the dollar.

Investors fleeing the dollar and yen have strengthened the euro, a bugbear for France in particular.

EU leaders on Tuesday echoed U.S. calls in urging China to allow an "orderly, significant and broad-based appreciation" of the yuan but they admitted that Chinese Prime Minister Wen Jiabao, in Brussels for a summit, did not agree.

Other G20 members have also been inching towards more action, with Turkey buying more foreign currencies and South African policymakers attempting to talk down the rand.

G7 finance ministers this week will discuss economic growth issues but they will also look at inflexible currencies, Canadian Finance Minister Jim Flaherty, chairing the gathering on Oct. 8 in Washington, has said.

1344.3
4.00
+0.3%

 

22.94
0.203
+0.89%

 

3.7445
0.018
+0.48%
1702.7
2.00
+0.12%
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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...
idoctor wrote:

"May" my, Rosies getting bullish these days.Sealed

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Speaking of Gartman.....

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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

The former chief economist of the World Bank and a Nobel prize winner also predicted that short-term speculators in the market could soon start putting pressure on Spain, which is struggling with a large deficit and high unemployment. Last week, Moody's cut the country's credit rating from AAA to Aa1.

The former adviser to President Bill Clinton also says that the banking sector has gone back to "business as usual" too quickly and that there are still risks of another financial crisis despite some improvements in regulation.

Mr Stiglitz, now a professor at Columbia Business School, makes the arguments in an updated edition of his book, Freefall, on the credit crunch. In the new material, exclusively extracted in today's Sunday Telegraph, he reveals fears that governments around the world will attempt to cut their deficits too quickly and risk a double dip recession.

Tomorrow, George Osborne will outline the Government's latest plans for multi-billion pound public sector cuts to tackle the historically-high UK deficit. He has faced criticism that the Coalition is in danger of cutting too hard and too fast but the Chancellor has said that without a credible programme for getting the UK economy into balance, interest rates will rise and growth will be choked off.

"The worry is that there is a wave of austerity building throughout Europe and even hitting America's shores," Mr Stiglitz said. "As so many countries cut back on spending prematurely, global aggregate demand will be lowered and growth will slow – even perhaps leading to a double-dip recession.

"America may have caused the global recession but Europe is now responding in kind."

Mr Stiglitz warned that Spain, similarly to Greece, was now in the speculators' sights.

"Under the rules of the game, Spain must now cut its spending, which will almost surely increase its unemployment rate still further," he said. "As its economy slows, the improvement in its fiscal position may be minimal.Spain may be entering the kind of death spiral that afflicted Argentina just a decade ago. It was only when Argentina broke its currency peg with the dollar that it started to grow and its deficit came down.

"At present, Spain has not been attacked by speculators, but it may be only a matter of time."

Turning to the euro, Mr Stiglitz said that the different needs of countries with high trade surpluses, particularly Germany, and those running deficits such as Ireland, Portugal and Greece, meant that the single currency was under intense pressure and may not survive. He suggests that one way to save the euro would be for Germany to leave the eurozone, so allowing the currency to devalue and help struggling countries with exports.

"Countries that share a currency have a fixed exchange rate with each other and thereby give up an important tool of adjustment," he said. "So long as there were no shocks, the euro would do fine. The test would come when one or more of the countries faced a downturn."

LogansRun's picture
LogansRun
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Posts: 1444
Re: Gartman: Gold is Hyper-Overbought

JAG,

It comes down to the ETF's IMO.  You know my position in PM's and that won't change, but as FB said:  "I wouldn't buy at these levels!".  When you start seeing this type of buying frenzy, you should stay away.  I think we're seeing the ETF's being played like a casino and eventually, they'll take their profits.  When they do, we'll see a retracement of $150+.  But there's always that bottom of $1080 that India bought that large amount a year or so ago.  It won't go below that unless we have a liquidity crisis such as we saw in late 2008.  Then, all bets are off.

BTW:  I don't know much about Gartman either, but I've seen him being paraded on CNBS TV as well as their website so...............?

Just my .02

JAG wrote:
Doug wrote:

One question I have, and I haven't seen any data, is how broad the market is.  Is there any evidence that the general populace has started buying bullion?  Last I heard, it was just we few (<1%).  When I see that number going up significantly and/or banks and sovereigns selling instead of buying, I'll start worrying more than I already am.

Doug

Its not the physical component of the market that worries me personally, its the ETF (or paper) component that concerns me, its a huge part of the pricing mechanism for gold. Just because someone owns physical gold, doesn't mean their capital is "outside the casino" in all but the longest timeframe. If you need proof of that fact, just take a look at what the paper component of the housing market did to house prices. 

Davos,

I don't know much about Gartman, and unfortunately it looks like that excerpt was taken from a subscription newsletter of his. I don't really hate gold, I'm just providing a counter viewpoint to the pro-gold bias on this site. I read this last week, but I waited to post it to see if anyone else would post it here. Nobody did that I saw, so once again I had to play the role of 'that guy' to keep things honest around here. 

Re your theory about gold simply "holding value" while currencies depreciate; I don't buy it. Unfortunately my investment manager (Sitka Pacific & Mish) seem to buy that argument as well. To me, there is only one reason to buy any asset; because everybody else hates it (cash anyone?). All the other reasoning is just marketing and b.s. in my experience.

With respect....Jeff

 

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LogansRun
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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Whoops.  I just saw that idoc posted a Gartman CNBS video.  I guess I stated the obvious about who he is.....

 

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alcatwize
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Re: Gartman: Gold is Hyper-Overbought

Jag,

There is just way to much on the subject of GOLD to even start going into it here.  I suggest you follow the link

http://fofoa.blogspot.com/

All you questions, doubts and more will be answered once you start down the path to enlightenment.   Do yourself a favor and read it.

 

 

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joemanc
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Posts: 834
Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Regarding whether the general public is buying gold(or not longer selling it for cash) - a few months ago, my co-worker asked me about where is the best place to sell gold jewelery. She knew I was a gold bug which is why she asked me. Anyways, I told her not to sell and that gold prices would continue to rise, but she insisted and so I gave her some suggestions, and then she asked me what the price of gold was. Not sure what it was at the time, $1125/oz? Anyways, I told her it was 1125/ounce. She said, "11 Dollars and 25 cents"? I almost fell off my chair! When I told her the correct price(in thousands), it didn't faze her at all, and she still went ahead and sold anyways. Looking back, I should have bought her gold jelewery at $11.25/oz Money mouth

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cmartenson
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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Gold?  Overbought?  Maybe, but Gartman has been so reliably wrong on gold the whole way up that I think his track record, not just his recent hyperbole, should be included in the discussion.

I can recall him stating that gold was overbought in 2008, 2009, and now 2010.  Someday he will be right, and who know? Maybe it will be this time.  But I tend to tune out the wrong-way Corrigans over time preferring those who tend towards humility coupled to a better than 50% rate of being right.

On the other side of the ledger, I might note that I consider everything to be hyper-overbought.  Bonds especially, but also stocks and probably everything else you could think of.  Such is the miracle of living in a world of massive quantitative easing and rampant liquidity.

Anybody trying to "make sense' of these current prices on the basis of 'overbought' or fundamentals is going to drive themselves nuts.  In times like these a retreat to the core fundamentals can be a mind-saver.

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JAG
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Re: Gartman: Gold is Hyper-Overbought
alcatwize wrote:

Jag,

There is just way to much on the subject of GOLD to even start going into it here.  I suggest you follow the link

http://fofoa.blogspot.com/

All you questions, doubts and more will be answered once you start down the path to enlightenment.   Do yourself a favor and read it.

Thats a joke, right? 

While its an enjoyable read, I dismissed that blog as 90% marketing last year.....to each his own, though.

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nex_s
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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

 

Economic boom times are over, Flaherty says (Canada)

.... "In the meantime, Flaherty said he is encouraged by the “significant growth” of developing countries, such as China and India. And he said it’s heartening that the U.S. economy, while weak, is showing growth."

What a bunch of hot air double talk. Another way of putting is "it's heartening that the U.S. economy while shrinking is showing growth.  The only thing showing growth is the pile of caca toro spouted by these 'economists'.  Terriers with frontal lobe labotomies could come up with better fiscal management than him.  The economists and msm will say the "the economy is growing" on changes to the upside based on monthly spans and when that doesn't hold water, it'll be weekly spans and when that doesn't hold water, they'll use days, then minutes.  Eventually they'll just turn the graph upsidedown and steady as she goes.

 

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Nacci
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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

I buy PM as a hedge against the ultimate destruction of the U.S. economy due to our inability to service our debt and secure enough energy for continued growth.  Forget the DJI, I watch the Federal reserve note that Gold is traded in and the economic health of the country that backs that currency.  The rise in Gold is not due entirely to investor demand but to the debasement of the currency which it is traded in.  In this country when will that stop?

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JAG
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Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...
cmartenson wrote:

Anybody trying to "make sense' of these current prices on the basis of 'overbought' or fundamentals is going to drive themselves nuts.  In times like these a retreat to the core fundamentals can be a mind-saver.

I would have to respectfully disagree with this ubiquitous perspective. Markets are just markets, and will always be predominantly driven by herding behavior. But if there was anyone that could convince me otherwise, it would be you Dr. M, which is why I hang around despite my reluctance to share the collective opinion. 

Your input is always appreciated...Jeff

 

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saxplayer00o1
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Posts: 4148
Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

For 10/6

"Oct. 6 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is leaving little doubt that he has enough support for more unconventional easing as soon as November.

In one week, New York Fed President William Dudley, the Boston Fed’s Eric Rosengren and Chicago’s Charles Evans advocated further Fed action. Bernanke himself said Oct. 4 that restarting large-scale asset purchases would probably spur growth, after saying last week that the central bank has a duty to aid the economy as U.S. unemployment holds near 10 percent."

"Banks and hedge funds may have to pay out on Anglo Irish Bank Corp. debt insurance after the government insisted holders of its riskiest bonds share the pain of a $47 billion bailout.

The cost of credit-default swaps protecting Anglo Irish’s subordinated notes has more than doubled since Sept. 1 on speculation of a payout. Irish Finance Minister Brian Lenihan said last week that holders of the bank’s 2.45 billion euros ($3.4 billion) of junior notes must take on some of the “burden” of the rescue, raising the prospect of the swaps being triggered."

"LONDON (MNI) - Credit rating agency Fitch downgraded Ireland's long term foreign and local currency issuer default ratings Wednesday to A+ from AA-.

The agency issued the following statement:

"Fitch Ratings has downgraded the Republic of Ireland's (Ireland) Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'A+' from 'AA-' respectively. The Outlooks on the Long-term IDRs are Negative. Fitch has simultaneously downgraded Ireland's Short-term foreign currency IDR to 'F1' from 'F1+'.

The Euro Area Country Ceiling of 'AAA' remains unchanged. The notes issued by the National Asset Management Agency (NAMA) have also been downgraded to 'A+' from 'AA-' and to 'F1' from 'F1+', in line with the sovereign ratings.

"The downgrade of Ireland reflects the exceptional and greater-than-expected fiscal cost associated with the government's recapitalisation of the Irish banks, especially Anglo Irish Bank," said Chris Pryce, Director in Fitch's Sovereign Group. "The Negative Outlook reflects the uncertainty regarding the timing and strength of economic recovery and medium-term fiscal consolidation effort." "

"Equity futures pared earlier gains after companies in the U.S. unexpectedly shed 39,000 workers last month, figures from ADP showed. Economists had forecast 20,000 jobs would be added, according to a Bloomberg survey. The release comes two days before the Labor Department’s monthly payrolls report, which is forecast to show companies added 75,000 people in September. "

..................4A) Private sector job cuts raise Fed easing chances ("as early as next month")

  • Other news, headlines and opinion:

Competitive Currency Devaluation: The Biggest Loser Wins (McAlvany audio....Skip to about 24 minutes into this to listen to the info about the competitive currency devaluations)

Irish Consumer Confidence Plunges as Fiscal Problems Spark `Great Panic'

Japan experts see economy worsening: report

Global banks face funding crunch, IMF warns

Goldman Sachs Says US Economy May Be 'Fairly Bad'

Michigan faces 'spooky' retiree health care costs (Watchdog)

S&P Downgrades $2.04 Billion More Of CDOs On Subprime Woes

US offers mortgage aid to the jobless

Soros Calls For More U.S. Stimulus Spending

Corn, Wheat Extend Gains as Dollar's Drop May Increase Demand

NJ stops 100 road, rail projects

Georgia Sells $654 Million After Postponing a Portion Amid Glut

Businesses will see unemployment insurance rate rise in January '10 (Nevada)

Slovak Government Is Set to Raise Funds Cheaper Than Spain in Bond Sale

State budget $100 million in red in last fiscal year (Louisiana)

UK families hit by cuts in welfare (Video)

Romanian teachers rally over 25% wage cuts

FDIC's Bair wonders about bond bubble caused by longterm ZIRP

Trepp: CMBS delinquency rate tops 9% for first time in September

Medicare drug costs up 10%

City Manager proposes more job cuts to close $51 million budget deficit (Tucson)

Atlantic City agrees to state control over finances

Portugal's economy expected to contract by 1.8 pct in 2011, S&P says

S. Burlington councilors want investigation into pension problems ("city's pension fund is 50 percent short")

IMF Says Public Debt, Fragile Banks Pose Risks to Global Economic Growth

California Faces Gloomy 2011 "Real estate sales in America’s largest state will decline 10 percent this year with hopes for a lackluster 2 percent rise in 2011"

Health reform to worsen doctor shortage: group

 

 

debu's picture
debu
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Posts: 228
Re: Gartman: Gold is Hyper-Overbought

I second alcatwize's recommendation of the FOFOA blog for anyone with an interest in gold.  The level of discourse by FOFOA  as well as in the comments is extraordinary and highly educational.  (Sorry Jag, but I don't at all understand your "marketing" gibe. FOFOA' s thinking is, in my view, nearer to philosophy than it is to commerce, but as you say, to each his own.)

There does seem to be a peak oil blind spot, however, which I may try to have addressed.  The other day commenter Michael H remarked:

"Peak oil and peak silver / gold are closely related, since scarcity of oil makes mining poor deposits on a large scale impossible.  Peak oil could cut two ways with regards to silver: it would make new silver very difficult to extract, but it would also remove most of the industrial demand for silver use."

This is an interesting observation that needs to be explored further.

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Quadium
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Posts: 42
Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Doug - I think you give the central banks more credit than they deserve. Historically the central banks are sell low, buy high fools. Here is an excerpt from a Blanchard article in 2007:

"Before the Washington Agreement on Gold (now referred to as the Central Bank Gold Agreement - CBGA) was implemented in 1999, CB's were free to sell gold willy-nilly into the marketplace with no thresholds on volume or timing.  Recognizing that the lack of oversight or control was destroying the value of their gold reserves, the CBGA changed that with signatories agreeing to only sell 400 tonnes annually from 1999-2004.  Those levels were augmented in the 2nd Agreement to 500 tonnes annually for the 2004-2009 period.  Starting in 1999, CBGA signatories were now restricted to only selling 12.8 million ounces and starting in 2004, 16 million ounces annually into the market.  (1 tonne = 32,150 oz.) 

Annual supply usually floats around the 120 million ounce level, so CB sales, assuming they fill their allotment each year, represent roughly 10-13% of annual supply into the gold market."

I was actively involved in the late '90s when gold was getting hammered by central banks ... selling their gold at 20-year low prices. Once the CBGA was in place, the price of gold stabilized, and, as we all know, has trended up ever since.

The questions I have are, "Why were the central banks selling, and to whom were they selling?". If I were conspiracy minded, I would say the owners and decision makers of the central banks were no dummies, so they were probably selling it to themselves, friends, and families, with the certain knowledge that once they stopped selling and implemented the CBGA, the price of gold would start rising. If this is the case, the reverse is also true. That is, when the central banks are buying, those same folks are on the other side of the trade.

Now that's just a theory, but it is a fact that the central banks don't have a great record of making wise buy/sell decisions.

quad

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Quadium
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Posts: 42
Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Clearly gold selling in the late '90s effectively increased the supply of gold, which depressed the price. The CBGA agreements #1 and #2 estabilished limits on the amount of gold the CBs could sell in a given year, which not only limited their contribution to "supply", but also made the gold market more predictable.

The IMF had a mandate to sell 400 tonnes of gold. According to this article, over half has already been sold, much of it to Asian CBs.

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=111776&sn=Detail&pid=102055

In this article the CBs are expected to be net buyers in 2011.

http://news.tradingcharts.com/futures/4/5/146055154.html

Net buying by the CBs implies a reduction in supply available to other buyers, which will excerpt upward pressure on the gold price. And, as was the case with CB selling before the CBGAs, this buying in big chunks will be unpredictable, thus we should expect a highly volatile market. And, as with the CB selling at the lows, we should see CBs buying right at the top, wherever that might be.

So we have 3 factors providing upward momentum to the gold market: 1) decreasing supply due to CBs transitioning from net sellers to net buyers, 2) increasing private demand due to flight from currencies to gold, and 3) decreasing gold supply due to peak gold.

In a rising market, there will always be higher highs. This implies that though gold is now making new highs, even if there is a correction, the next high will be even higher. And, if the gold price is following the CM exponential curve, these highs will be exponentially higher and sooner. This time a person won't have to wait 20 years for the highs to be exceeded.

A pretty strong endorsement of gold as a good investment, despite the fact that it is being agressively hyped everywhere.

quad

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Quadium
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Posts: 42
Re: Daily Digest 10/5 - U.K. On Cusp Of Banking Failure, ...

Regarding "peak gold", if the information on this site is accurate, worldwide gold mining production rose steadily from about 1980, peaked in 2000, and has declined every year until 2009. In 2009 production jumped back up to 2000 levels, no doubt because the high price of gold allowed marginal reserves to be mined. Given this, and the even higher prices in 2010, it is likely that we haven't yet hit peak gold, but eventually spikes in the price of energy will drive the costs of mining these marginal reserves so high that mining isn't feasible, even given higher gold prices. Then production will decline, and never again will gold production exceed the previous peak. I would say this will happen in the next decade, but your guess is as good as mine.

http://www.goldsheetlinks.com/production.htm

quad

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