Baltic Dry Index. 766 +22
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
“Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium.”
Murray N. Rothbard
We are roughly a month away from the US election, where Americans face the choice of four more years of the same, or electing a man who wonders why the windows don’t open on airplanes, and who thought that the Nazi death camps in Poland were “Polish prisons.” Stay long physical precious metals at the maximum personal prudent level.
We are fast arriving at the tipping point. Adding to the dismal prospects, global trade is continuing to slow, forget about growth lifting all ships. Europe is on suicide watch, but the watchers have all left the floor for yet another series of upcoming emergency summits. Whoever wins the spoils of the US presidency, without some compromise the US economy is headed to automatic tax hikes and spending cuts starting January 1, 2013. In China the economy has slowed to a growth rate of only 7.5%, according to official figures. Some private estimate have the Chinese economy having slowed to a growth rate of as little as 1.5%!!! China’s Communist Party leadership changeover is now scheduled to begin on November 8th. China’s incoming new leadership will probably relish the chance for a domestic attention diverting foreign policy escapade against Japan, settling some old scores.
Barring some Ryder Cup style miracle recovery at the last hour, we are at and passing the tipping point. All the BOE’s King’s horses and all Helicopters Ben’s electronic printing men, can’t put the commodity super cycle based on conspicuous consumption and cheap energy, back together again. September’s US stock market Coppock Indicators raised a red flag. The NASDAQ monthly indicator turned down, suggesting that the recent Dow Theory bear signal might be correct. October is the traditional crash season for stock markets. 2012 looks likely to add to that tradition.
Below, news for a scary Monday morning. Run do not walk for the lifeboats. Every man for themselves.
“When paper money systems begin to crack at the seams, the run to gold could be explosive.”
September 30, 2012, 9:47 p.m. ET
Trade Slows Around World
Declining Growth in Exports Dims Prospects for U.S. Economy; Europe Cuts Imports
Global trade is stalling, dimming prospects that exports will buoy the U.S. economy in the coming months.
Trade rebounded after its collapse in the recession. Now several indicators of export activity are flashing red as Europe’s recession, anaemic U.S. growth and the slowing Chinese economy damp exports world-wide.
The World Trade Organization just projected the global volume of trade in goods would expand only 2.5% this year, down from 5% last year and nearly 14% growth in 2010. A Dutch government agency, the CPB Netherlands Bureau for Economic Policy Analysis, estimates it fell outright in June and July.
—-The trade shift could take a particularly big toll on the U.S. economy. Exports had been, until recently, “a stunningly strong driver of growth,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets. Exports have accounted for almost half of U.S. growth during this recovery, compared with an average of 12% of growth in economic cycles over the past four decades, he said.
—-The trade slowdown could worsen as momentum slips across the global economy. The International Monetary Fund is lowering its forecast for global economic growth to just over 3% this year, according to projections to be released at its annual meeting in Tokyo next week.
Europe is the epicenter of the weakness radiating through the global economy. Chinese exports to the European Union—until last year its largest export market—have fallen 5% so far this year through August.
—-This slowdown is curbing exports to China from other Asian countries, such as Singapore and Thailand, which provide components for goods that end up in the hands of European consumers. Japanese exports to Europe also are tumbling.
U.S. exports to the European Union fell in July after largely holding up for two years, while overall export growth slowed to a trickle this summer. The Port of Los Angeles, the nation’s largest, said the volume of loaded outbound containers fell 10.5% in August from a year earlier.
September 30, 2012, 4:07 p.m. ET
Spain Expects a Wider Budget Gap
MADRID—The Spanish government said the effort to clean up an ailing banking system will widen its budget gap and increase its debt load.
The admission comes as concerns mount over the country’s solvency, sending its borrowing costs soaring and pushing the government of Prime Minister Mariano Rajoy closer to requesting European Union aid to help it finance itself.
The euro zone’s fourth-largest economy is grappling with the collapse of a decadelong housing boom that sent tax revenue plummeting, cratered domestic demand and saddled banks with billion of euros of bad debts.
In its 2013 budget plan presented to Parliament on Saturday, the government said that the bank aid will inflate its budget deficit to around 7.4% of gross domestic product this year, which is above the deficit target of 6.3% of GDP for 2012 it has committed to with the European Union. Spain said that if the effect of measures to help banks are excluded, it would meet its EU commitment. A spokesman for the European Commission, the EU’s executive arm, couldn’t immediately be reached for comment.
Meanwhile, the Spanish government again raised its estimate of last year’s budget deficit to 9.44% of GDP from the previously reported 8.96% of GDP, to take into account measures to help its banks. It is the second time the government restated the 2011 budget deficit.
The budget revisions come as Mr. Rajoy faces mounting social and political backlash against his austerity and economic-reform measures. On Saturday, thousands of demonstrators descended on the national Parliament in Madrid for the third time in the past week to protest against spending cuts and tax increases.
Spain to Borrow $267 Billion of Debt Amid Rescue Pressure
By Ben Sills – Sep 29, 2012 7:55 PM GMT
Spain plans to borrow 207.2 billion euros ($266.5 billion) next year, the Budget Ministry said today, as pressure builds for Prime Minister Mariano Rajoy to tap the European rescue fund instead of financial markets.
Spain’s debt will widen to 90.5 percent of gross domestic product in 2013 as the state absorbs the cost of bailing out its banks, the power system and euro-region partners Greece, Ireland and Portugal. This year’s budget deficit will be 7.4 percent of economic output, Budget Minister Cristobal Montoro said at a press conference. Spain’s 6.3 percent target will be met because it can exclude the cost of the bank rescue, he said.
Spain’s borrowing plans may test investors’ willingness to continue financing the government with the European Central Bank waiting to buy the country’s debt should Rajoy agree to conditions. The government this past week unveiled 43 measures designed to boost economic growth that Economic and Monetary Affairs Commissioner Olli Rehn said go beyond the European Union’s recommendation for Spain’s restructuring.
The budget “seemed to be an indication that Spain would be asking for some official financing soon,” Megan Greene, director of European economics at Roubini Global Economics LLC, said in a Bloomberg radio interview Sept. 28. “There’s huge political pressure on Spain already.”
Spain Bank Stress Tests Show Capital Deficit of $76 Billion
By Charles Penty and Sharon Smyth – Sep 29, 2012 2:08 PM GMT
Spain’s banks have a capital deficit of 59.3 billion euros ($76.3 billion), less than previously estimated, according to a test designed to lift doubts about the financial industry’s ability to absorb losses.
—-Spain commissioned the stress test as part of terms to win a European bailout of as much as 100 billion euros for its banking system after more than 180 billion euros of losses linked to souring real estate. Demonstrating how lenders would bear an extreme scenario — a three-year economic contraction — is part of the government’s drive to show it’s fixing the economy while debating whether to seek another rescue package.
“The tests look credible with good methodology and it’s what Spain needed to do, but the market is still going to test them,” Luis Garicano, an economy professor at the London School of Economics, said in a phone interview.
The total capital deficit is less than the 62 billion euros Oliver Wyman estimated in June that banks would need.
September 30, 2012, 6:29 p.m. ET
Greek Economy to Shrink More Than Expected Next Year
ATHENS—Greece’s economy will contract more than projected in 2013, its sixth year of recession, under the weight of the next round of austerity measures demanded by international creditors, according to a draft budget the government will submit to parliament Monday, two senior officials said.
The Greek government sees the economy contracting at an annual rate of 3.8% next year, a senior government official said, in line with private-sector economists’ expectations and suggesting that earlier forecasts from Greece’s international creditors were overly optimistic.
In the spring, the European Commission, which backs Greece’s bailout along with the International Monetary Fund, estimated a zero growth rate for the country next year, suggesting it would be poised for a modest recovery after its depression-era-like contraction.
The budget will also include a large chunk of the €13.5 billion ($17.36 billion) in required spending cuts and revenue measures that international inspectors will assess Monday as they resume meetings with Greek government officials on steps needed to open the way for the country’s next aid tranche from its second €173 billion bailout.
“Cuts of some €7.8 billion will be included in the budget on items such as government operating expenditures,” said an official from one of the parties involved in the coalition government.
—-Inspectors from the European Commission, the IMF and the ECB, also known as the troika, are to return to Athens Monday after a 10-day break. They are to meet with Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras to weigh the austerity package finalized by Greece’s three coalition party leaders last week.
The latest package includes €10.5 billion in spending cuts and €3 billion in higher taxes, according to government officials. Of the spending cuts, €6.7 billion will come from pensions and public-sector salaries and bonuses, while an additional €3.8 billion will come from government operating expenses.
‘Feeder nation’ risk for Ireland
Ireland is destined to become a “feeder nation” that is reliant on money being sent home from workers abroad, a leading hedge fund has warned.
By Jamie Dunkley, and Emma Rowley 9:45PM BST 29 Sep 2012
Toscafund, the London-based investor founded by Martin Hughes, said an exodus of Irish nationals abroad will hit the country’s economy over the next decade – dashing hopes of a return to the “Celtic Tiger” economy that fuelled growth in the lead-up to the financial crisis.
By 2020, Toscafund said Ireland’s population could be back where it stood in 2004.
Savvas Savouri, chief economist at the hedge fund, said: “The departure of Irish nationals as well as those who migrated to the Republic during more favourable economic times will pull down consumption levels and real estate prices.
“The new norm for Ireland and others across Europe will be quite literally living on reduced means and relying on a quite different economic model from their recent pasts.
“Quite different but not, we must add, altogether new. Having not depended on remittances for many decades, Ireland, like Portugal, will come to rely on these once more.”
Ireland’s “Celtic Tiger” economy, which was famed for its double-digit growth for a decade from the mid-1990s, has contracted sharply in recent years having been hit by soaring state debt, a property market meltdown and surging unemployment.
—-In a note for clients, seen by The Telegraph, Mr Savouri continued: “Having seen tourism as a bonus on top of a well-functioning internal economy, Ireland, like Spain, will see this return as fundamental in generating foreign income. Having seen the export of goods – including agricultural products – as part of a rather primitive growth model, Ireland, like Greece, will have to return to some significant form of this.
“As much as this economic repositioning will be seen as regressive and unwelcome by many, the reality is that it involves the few options the weaker members of the eurozone have, and Ireland is no exception.”
China’s Manufacturing Shrinks for 11th Month, HSBC PMI Shows
By Bloomberg News – Sep 29, 2012 5:00 PM GMT
China’s manufacturing contracted for an 11th straight month, a private survey found, increasing pressure on the government to bolster growth in the world’s second-largest economy.
The purchasing managers’ index from HSBC Holdings Plc (HSBA) and Markit Economics had a final reading of 47.9 for September, compared with 47.6 in August and a preliminary level of 47.8 released Sept. 20. New export orders declined in September at the fastest pace in 42 months and purchasing activity in manufacturing fell for a fifth consecutive month.
The data add to challenges for Chinese leaders who are preparing for a once-a-decade handover of power that begins in November and also trying to balance the priorities of growth with avoiding a resurgence in home prices. Speculation that authorities will take steps to counter a deepening slowdown spurred a 4.1 percent surge in the benchmark Shanghai Composite Index in the week’s final two trading days.
“The failure of both external and internal demand is weighing heavily on Chinese manufacturing,” said Glenn Maguire, principal at consultant Asia Sentry Advisory Pty and former Societe Generale SA chief Asia economist. “External demand recovery requires a stronger U.S., Japan and Europe – a highly unlikely dynamic in the near term. Internal demand recovery requires greater policy support.”
China’s Wealthiest Discreetly Stay Away at Party Congress
By Bloomberg News – Oct 1, 2012 6:11 AM GMT
Zong Qinghou, China’s richest man, traveled to Beijing in March to represent his home province at the annual meeting of the country’s legislature. He won’t be going to next month’s Communist Party congress that will unveil China’s new generation of leaders.
While Hurun Report data show that the number of China’s richest among its lawmakers almost doubled in the past five years, the advance of the most affluent within Communist Party ranks has been more limited. The data from Hurun, publisher of a luxury-goods magazine that tracks China’s affluent, show the number of billionaire delegates at the Party Congress will rise by at most one since 2007, when it last convened.
The contrast may reflect heightened sensitivity among Communist leaders to the spreading influence of wealth in policymaking, especially after the scandal surrounding Bo Xilai, who was expelled on Sept. 28 from the party, drew global attention to the privileges enjoyed by relatives of China’s top leaders. Over the past decade, the opening of the party to industry chiefs and entrepreneurs has coincided with an increase in the country’s income divide and in incidents of social unrest such as strikes and protests.
“The paper standard is self-destructive.”
Hans F. Sennholz
At the Comex silver depositories Friday final figures were: Registered 41.42 Moz, Eligible 100.62 Moz, Total 142.04 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
Today, so you think that Spain is bailable, if only rich Catalonia can be persuaded to remain in Spain. The money in Spain went mostly down the drain. France and Italy next.
Valencia: the ghost city that’s become a symbol of Spain’s spending woes
Valencia’s extravagant spending over the past few years epitomises all that has gone wrong with Spain
By Fiona Govan 7:30AM BST 29 Sep 2012
The gleaming metal-clad airport terminal has yet to have a single passenger pass through its doors. Weeds are poking up through the 3,000 yards of virgin runway and above it a shiny new air traffic control centre towers over fruit and olive groves.
This is Castellon Airport in Spain’s eastern Valencia region. Eighteen months after it was inaugurated with a price tag of 150 million euros (?130? million) and with no prospect of a commercial flight, it has come to epitomise the vast public overspend that has brought Spain to the brink of seeking a full bailout from Europe.
Over the past decade, the Mediterranean region of Valencia became the beacon of Spain’s new economic grandeur, gorging on cheap credit to embark on vastly extravagant projects. But as the central government announced on Thursday its fifth round of budget cuts and tax increases in just nine months, this region also symbolises all that has gone wrong in the country.
Everywhere you look, there are examples of these expensive white elephants that have left Valencia one of the most indebted regions in Spain and the first to go cap-in-hand to Madrid.
An hour south of Spain’s newest airport is the city of Valencia, the region’s capital, where protests have become an almost daily occurrence. A Formula One racing circuit snakes through the streets, hoping to emulate the more glamorous circuit in Monaco. From 2008 to 2012, it hosted the European Grand Prix, for which F1 supremo Bernie Ecclestone was paid 20 million euros annually from City Hall coffers. The grand prix has now been dropped from the 2013 season.
Then there is the new harbour area, built at a cost of 2.4 billion euros to host the 2007 America’s Cup. The modern marina, just a stone’s throw from the historic city centre, once played host to the world’s most expensive racing yachts. Today, all but a few of the berths lie vacant.
Just along the esplanade stands the glimmering centrepiece of the City of Arts and Sciences cultural complex, its auditorium, ribbed like the underbelly of a blue whale, rising above the colonnades of palm trees.
The 1.1 billion euro centre was designed by Spanish architect Santiago Calatrava to rival Sydney’s Opera House and the Guggenheim Museum in Bilbao. In 2006, the year after its completion, it was the focal point for more than one million pilgrims when Pope Benedict XVI visited the city, but with running costs of 40 million euros a year, few cultural events are now scheduled.
Such exorbitant public works projects jar with the region’s 5.1 million residents, who have watched the local economy freefall and unemployment hit 27 per cent – more than two points above the national average.
—-With debts of nearly 21 billion euros, a public deficit of 4.5 per cent of local GDP, and junk status awarded by credit rating agencies, Valencia was the first of Spain’s 17 autonomous regions to ask for a bailout from a special fund set up by the central government to help stricken regions refinance their debts. It is seeking 4.5 billion euros
As civil unrest grows across Spain, all regions are being forced to tighten their belts and cut administrative funding yet further. Valencianos have been at the forefront of the protests. Local students have staged demonstrations at education cuts that mean they are forced to bring their own lavatory paper and soap to school, pay for their exercise books and carry blankets to class when it’s cold.
“The international monetary order is more precarious by far today than it was in 1929. Then, gold was international money, incorruptible, unmanageable, and unchangeable. Today, the U.S. dollar serves as the international medium of exchange, managed by Washington politicians and Federal Reserve officials, manipulated from day to day, and serving political goals and ambitions. This difference alone sounds the alarm to all perceptive observers.”
Hans F. Sennholz
The monthly Coppock Indicators finished September:
DJIA: +66 Up. NASDAQ: +88 DOWN. SP500: +85 Up. All three indicators had reversed from down to up, but now the NASDAQ has reversed again to down. While not unprecedented, it is a warning sign a that the July reversal from up to down is about to fail.