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Saturday, January 31, 2009

Hail The World's All-Time Biggest Gold Robbery

You cannot read any assessment of the rising gold market without hearing about the key role played by ETFs or Exchange Traded Funds. Demand from jewellery makers and sellers has collapsed right around the world according to the figures, India the world's largest gold jewellery market by 90% in January following on from a 50% collapse last year. Under normal circumstances and in earlier gold price run-ups as in 1981 the collapse in jewellery demand was enough to fell the gold price bull run. So as these ETFs are now the reason jewellers all over the world are being thrown out of work with bullion reaching stratopheric levels, what exactly are they? And are they actually what they claim to be anyway?

ETFs claim to hold tonnes of gold. See this extract from John Nadler's daily column on Kitco.com yesterday -

The GOLD ETFs tonnage was last seen closing in on the 845 tonne figure, having already surpassed Japan's holdings in size.

(Read John Nadler's whole article from January 30thHERE, in case I have quoted him out of context, which I can't see that I have.)

That sounds pretty exciting doesn't it.

But hang on a minute. Where are all these mega-tonnages being stored? Do the ETFs have Fort Knox storage facilities?

No they don't.

Do they have vast vaults attached to their offices?

No, they don't.

In fact do they hold any real gold at all?

My answer to that question is controversial but my opinion and that of many other observers is that they don't hold even one gram of physical gold at all.

So why the claims of a stock of nearly 1000 tonnes of gold, which incidentally even if bought all in one year would not even come close to making up for the decline in gold jewellery fabrication? In fact the 845 tonnes have been accumulated over four years.

In my opinion and that of others, the gold is held not physically at all, but as long positions in the forward market - the futures market.

So why would that matter?

It's the same effect surely.

Well, yes and no.

(FUTURES CONTRACTS EXPLAINED - The gold holders own the right and the obligation to buy gold for delivery in the future at a fixed price. But then so too does someone else obtain the right and obligation to sell it to them. These are not options, but obligations, which can be rolled forward indefinitely, each time the contract periods complete, until the buyer of the future decides to pull out.

You could buy forward at $929 on Friday, for example, but be forced to sell out at $429 later as the price falls, making a $500 an ounce loss. Over 850 tonnes the gold ETF holders could end up losing up to $14 billion, and the shorts could make the same as profit on the other side of the account. If the ETFs can drive the gold price higher before crashing it, and pull in more investors, the winnings for the shorts will be even bigger. The point is that ETF fund gold holders don't even know they are party to such a situation, imagening they are merely holding physical gold. )

Until the ETF gold holders decide to head for the exit, they might bear in mind that whoever is selling them these long positions in gold, could easily be taking up the matching short positions, or be associated with them in some way. So that when the price crashes from its unsustainable high, the ETF investor will be left holding the long position showing a stunning loss, and the ETF operator who (secretly or in another guise) kept the short positions, will cash in vast profits.

The game first requires the gold price to be run up to unsustainable levels with more and more suckers pulled in as buyers (remember oil and rice last year). Once they are pulled in, then the market manipulators can very easily pick the moment to tumble the price, and clean up on their short positions.

If you think this is a far-fetched theory, go and visit an ETF gold fund. See their nice offices and then ask them where their tons of gold are being held, and would it be possible to take a quick viewing. When they refuse that request on security grounds, then ask how much is the cost of securing the gold and which agency is responsible for carrying out the task of holding billions of $s worth of easily stealable yellow metal on their behalf.

It becomes obvious fairly quickly that they don't hold a gram. If I am wrong, I apologise in advance, but I would like to know who runs the gold ETF stock rooms. If they existed, they would be entirely uninsurable. Maybe John Nadler (Pictured) can pass on information about this conundrum in his next column, and back up his claim that ETFs actually hold physical gold. He is only repeating what the ETFs are telling him, of course.

The US government is able to stop commodity price run-ups, if it wishes, by raising the deposits required to make futures contracts. It is not doing so in all its commodity markets as they yo-yo from vast highs to amazing lows. It is always possible that the strong financial position of the US government is achieved by taking part in these commodity price games, earning trillions of $s in the process. Many financial commentators believe this to be the case.

My last word is to the gold investors.

GOLD BUGS, you are sitting in comfort in your homes imagening a nice safe pile of yellow metal held on your behalf by your ETF, adding to current demand for the metal driving up its price. But in truth you own nothing but a piece of paper promising future actions, which is as vulnerable to fraud or dastardly dealing, as all other investments. Enjoy your paper profits while they last, as your losses will be excruciatingly painful once they collapse the price on you.

It will happen incredibly fast. You will have no time to get out. The fire will consume your money and you will wonder what on earth happened to your golden investment. It's state-licensed robbery, and the heist could be happening anytime.

Gold ETF holders might like to consider two further risks they face.

Quoting from Wikipedia Unlike physical gold bullion which is held in personally allocated storage, the investor will only become a general creditor if an ETF provider went into liquidation. Gold ETFs are a form of debenture.
During an economic crisis GETF assets may be subject to a compulsory purchase by governments. Following Executive Order 6102 of 1933 and the Gold Reserve Act of 1934 private gold ownership was outlawed in the United States for over 40 years.
.

Are gold ETFs really the 'safe haven' they are being called?

MARKETS - From Commitment Of Traders analysis, the week to 27th January 2009 saw one of the fastest increases in short positions from big traders seen for a while - a rise of 22,000 short contracts in a week, while longs also rose but by a much smaller quantity.

Gold could be around three to four weeks away from a big fall if the big companies keep shorting at this rate. They could be at the critical 350,000 short contracts soon enough (currently around 260,000 but missing the last two days of the week from the figures given) from where gold usually goes into a tumble. They will push the price up as hard as they can while they're shorting it, of course, so anyone buying at the current levels, listening to all the hyperinflation hype from Morgan Stanley and so on, is taking a huge gamble.

Guido Fawkes has bought the whole story and is sending it on to his enthusiastic blog readers to lose all their savings backing this deadly game. He's featuring this FT clog article quoting Morgan Stanley's prognostications that hyperinflation will wipe out the west HERE. With debts so vast across the world, estimated at $52 trillion, the spending of the occasional $1 trillion in a bail-out here and there, isn't even going to touch the sides. Cash will be king for a long while yet, and that means US $s.

For those who still believe in coming hyperinflation, take a look at THESE CHARTS showing inflation trends over the last forty years. So much for the great Morgan Stanley, who are clearly keen to hook gold buyers and and make a killing selling them short.

Friday, January 30, 2009

Junk Status For EU Countries Lies Ahead

Sometimes political reality is so far from actual reality that a lateral approach needs to be taken. Here I quote an article written by Bill Fox, a long-time currency trader and Senior Bonds Analyst from EWI, who uses strong phrasing to express the picture he holds of the impossibility of the current stance being taken by those who see it as their responsibility to manage the eurozone. In particular he focuses on the comments made by Jean Claude Trichet, Head of the ECB.

By Bill Fox, Senior Bonds Analyst
Thu, 29 Jan 2009 15:30:00 ET

Caius Plinius Secundus, (AD 23 – August 25, 79), better known as Pliny the Elder, was a Roman military commander and philosopher; a busy and intelligent man. His greatest legacy was one of the largest written works to have survived to the modern day in its original format: Naturalis Historia, an impressive encyclopedia of the natural world, which established the scientific standard for centuries afterward.

To this day two items from Naturalis Historia remain in our everyday lexicon: first is the quote, "True glory consists in doing what deserves to be written; in writing what deserves to be read," and second is the misrepresentation of ostriches burying their heads in the sand; Pliny the Elder actually recorded they hide their head in the bushes.

As I watch the actions of Jean-Claude Trichet, the president of the European Central Bank (ECB), I am reminded of Pliny the Elder's remarks. Despite the rapidly expanding, pan-European deflationary malaise, where the banking systems of Spain, Iceland, Ireland, Greece and Hungary are totally insolvent; where Ireland's debt-GDP ratio has skyrocketed to 80% year-over-year (with an annualized budget deficit of almost 10%); where the sovereign debts of Greece and Spain have already been downgraded and ratings warnings have been issued for several other countries; where trillions of dollars of asset values have been wiped out; where government tax revenues are in decline and rising unemployment threatens to spill into the streets – against this backdrop, Mr. Trichet was quoted as saying there is “no threat” of deflation in the euro zone.!!!

Under the rules of the Stability pact, the EU member countries must adhere to the guidelines of an annual budget deficit no larger that 3% of GDP and an aggregate debt-GDP ratio of 60% or less. But few in Europe can boast even a positive GDP, while the acceleration of national debt is simply alarming. In the UK, bank and insurer bailouts already have a price tag of £500 billion; the British pound now sits at a 24-year low against the U.S. dollar, while net capital outflows are staggering. Banks in Spain, Switzerland and Italy have been also bailed out or nationalized, and the total costs of the euro zone crisis have yet to be fully realized.


My only confusion is the lack of risk premium priced into current EU debt
.

Presently, the German 10-year bond, the European benchmark, yields 3.23%, but Spanish debt only yields an extra 113 basis points (bp). In fact, with the exceptions of Ireland, Greece, Poland and Hungary, the hopelessly indebted nations of Europe are trying to attract foreign money with investment premiums of less that 150 bp over their more secure German counterparts. At some point, investors will demand higher risk premiums, and simply tighter regulations by the ECB will not stimulate foreign capital inflows into a floundering Spanish economy, nor will they inspire the German populace to spend their national gold reserves on bailing out Hungary and Italy.

I strongly believe that further sovereign downgrades to junk or third-world status lie ahead for several European countries
. What's worse, regardless of how "at the ready" Mr. Trichet is to take on the Herculean task of a pan-European reorganization, there is a very real probability of sovereign defaults in 2009. When asked about such a possibility, his response was, “I would totally exclude any kind of hypothesis such as the one you suggest.”
In response, I can only suggest revising Pliny the Elder’s quote to, “True glory consists learning what needs to be done, and saying what deserves to be said.” Mr. Trichet is now attending the World Economic Forum in Davos, where we see a fresh blanket of new snow. As much as he wishes to bury his head in the sand where sand is difficult to come by, we would be happy to deliver a bucket by overnight courier.


It's not just Trichet who has his head in the sand, Bill. Every trader dealing in the Euro is living on borrowed time, imagining it a single currency and not the bureaucratic and financial nightmare that it truly is. For those who want to get out there is still time, but probably not much more. I've done my best to advise people here and in other posts. Don't hold Euros. If you have to have them, borrow them (if you can).

Any country such as Ireland seeking to reestablish its sovereign credibility could leave its debts denominated in Euros, and relaunch its own national currency, and link that to the US Dollar. The size of the debts would shrink as the Euro shrinks.

READ TRICHET YOURSELF quoted extensively by the FT from Davos, and decide if he's got his head in the sand or not HERE

PICTURED - Jean Claude Trichet, Head of the Europan Central bank, head up, eyes forward yet unable to see the possibility of any defaults - the man of the moment.

EXTRACT from Telegraph leader January 29th 2009.

underlying the anger is a profound sense of frustration because the French, like the other 15 members of the eurozone, are all too aware that their national governments have only limited room for manoeuvre. The one-size-fits-all inflexibility of the eurozone deprives single currency members of the vital weapons of devaluation and monetary policy with which they can at least try to ameliorate the impact of the global downturn. This month the European Central Bank cut interest rates from 2.5 per cent to
2 per cent and its president, Jean-Claude Trichet, indicated that the bank is unlikely to make any further cuts.

That leaves the cost of money higher in the eurozone than in this country (where the Bank Rate is 1.5 per cent) or the United States (where the Federal Reserve has cut rates to 0.25 per cent). Such a straitjacket is exacting a heavy price. The EU's powerhouse, Germany, is deep in recession with unemployment forecast to exceed four million by the end of next year. At the other end of the scale, the Club Med countries of Greece, Spain and Portugal have all seen their international credit rating downgraded by Standard and Poor's, which has also put Ireland on "negative watch".


For critics of the single currency, the test of the euro was always going to come during a bust, not a boom. Now the bust is with us, it is evident that the strains on the currency are becoming unsustainable. Europe's leaders are blaming the Left for the kind of unrest we saw in France yesterday, and rather more bloodily in Greece last month, but that is too simplistic. The inherent contradictions of trying to run 16 national economies as one are becoming all too apparent. Europe's political elite may be in denial but the people are not. They realise that the governments they elect no longer have control of the economic levers and the consequences are proving ruinous. With the International Monetary Fund this week forecasting that it will be two years before the world economy resumes growth, it becomes increasingly difficult to envisage the euro surviving intact.

Tuesday, January 27, 2009

Euro Is the FOREX Joker In The Pack


When will reality hit home with world markets? Days come and go and prices drift one way or t'other in their usual wavy patterns. But when will folk wake up and see that one of the currencies they are trading merrily, is not a currency at all but a joker in the pack. The Euro has pretty pictures on all its notes, but crucially widening interest rates depending on which country issues them. The notes are marked with a letter which denotes whose they are. This is not a single currency but a facade, and a facade that is going to be smashed to pieces by the global downturn.

From Open Europe again -

Feldstein: "it is possible that one or more countries might actually withdraw from the Eurozone"
In an article on Vox.eu, Harvard Professor and former President of the US National Bureau of Economic Research, Martin Feldstein, states that, "the economic advantages of a single currency in promoting trade and competition would be outweighed by a higher rate of unemployment and by the risk of higher long-term inflation." He goes on to say that, "the primary motivation for the creation of the euro was political, not economic and... the creation of the euro could lead to increased conflict within Europe and with the US."

He adds that "Germany is still resisting any substantial fiscal deficits and the ECB has a much higher interest rate than the Federal Reserve or the Bank of Japan. Spain with a 13% unemployment rate and a trade deficit of 10% of GDP must want a more expansive monetary and fiscal policy than Germany. Smaller countries may now feel that they have lost control over their economic future". He concludes that "in these circumstances, it is possible that one or more countries might actually withdraw from the Eurozone".

In his FT column, Gideon Rachman describes how countries such as "Italy, Greece, Spain, Portugal and possibly Ireland would find managing their public finances ever harder...Unable to devalue their currency, weaker economies can only restore competitiveness by cutting jobs and real wages. He concludes by considering that, this "is obviously a recipe for social unrest, which leads on to the political crisis...If euro membership forces southern European countries to make deep cuts in their budgets in the midst of a recession".


If it's so flipping obvious to all these folk that the Euro's living on borrowed time, how come traders still trade it as if it was a real currency? The risks of collapse are getting higher by the day. The risk of defaults are likewise getting higher. When will reality bite?

The answer is when people are ready to see the truth. The Euro is only a series of national currencies all pegged to the Deutchmark, each operating a separate interest rate, each with a separate risk of default, and each with separately identified bank notes. Until that moment arrives, people will carry on preferring to believe in the Euro facade. The Euro is an aspirational currency - with a convincing-sounding CV and ambitions to be more than it is. But that is all. The current downturn will brutally expose the credibility gap, and billions on billions will be lost by those holding the currency.

That's the joke, you see.

Friday, January 23, 2009

Quitting The Euro Can Reduce Sovereign Debt

Of all the arguments ranged to deter countries from leaving the Euro, the primary one is that all the sovereign debt of these countries is denominated in Euros, and as they quit the currency their renewed national currencies would be perceived as weak. The result would be that their sovereign debt would balloon in value. This however might not be the case.

While the Euro was tracking ever higher against the US Dollar going from 1.20 to as high a 0.60 at its peak, the idea of the Euro ever being weak was impossible to conceive. But now with the Euro at 0.78 and with it moving each week closer to parity with the US Dollar, other options are becoming possible or ways of seeing a road back to monetary independence for individual eurozone members.

With the currency heading South, countries leaving the Euro have other alternative ways of securing their financial futures, other than slavishly following the Euro valuation to its next floor. They for example only have to seek a US $ peg, as many Asian countries have done. Or a Sterling peg if they preferred. Sterling has done the majority of its fall from bed, and will soon find a level to retrace from. The Euro has only started its tumble.

With the Euro falling ever lower weighed down by huge deficits, a move out of the Euro could actually more rapidly reduce the sovereign debt of the countries getting out of it. Now there's a thought - the fastest way of reducing your national debt is to quit the Euro, and see it lose value against your newly launched indendent currency pegged to the US$.

The ECB are always full of talk of the costs for countries quitting the Euro, as in this piece from Open Europe.

The WSJ carried out an interview with ECB Executive Board Member Lorenzo Bini-Smaghi, who said the ECB had not contemplated the eventuality of default of a member state, but that if a country did want to exit the eurozone, "The cost would surely be higher than staying. It would not only be a huge economic cost because, for instance, the [sovereign] debt is in euro, so it would [likely] increase in value. It would also imply exiting from the European Union. So it is also a huge political issue. And in the end no country would be willing to face this."

But as the Euro becomes a basket case that no one wants, that assumed cost will evaporate, as will your Euro debts as the currency itself approaches disestablishment. A country leaving the Euro could in fact be seen as finally getting its act together, and could demand respect and valuation form international markets, if it handled the move well.

Ireland could for example see its Punt, linked to the Dollar, rise against the Euro, and its soveriegn debt start to be eliminated faster than it imagined. Now that really would be worth quitting the Euro for.

Other talk on the street today reported by Open Europe is all about quitting the currency or not, as follows -

In the Irish Times, Jim O'Leary writes, "A decision to leave the euro zone would be a repudiation of such a core element of the European project it would run the risk of expulsion from the EU."In analysis in the Telegraph, Diplomatic Editor David Blair argues that for some eurozone members, the ECB's interest rate is still too high and, "The most logical option would be for Greece and Spain to leave the euro".

.....and anybody else who wants to get their economic house in order.

Wednesday, January 21, 2009

The Collapse Of The Euro Area


Cries of pain are emanating from all corners of the highly indebted eurozone, as governments in Ireland, Spain, Italy and Greece career ever closer to default. The euro is a common currency between 'our' countries, they say, and so those countries' governments should all stand or fall together, and issue debt linked together, guaranteed by all governments of the eurozone acting as one.

The Irish economist David McWilliams (see HERE) has stated recently that unless such a trans-EU debt issuance is carried out, then Ireland would do better to default and simulaneously quit the Euro, triggering a domino effect of defaults and euro secessions across Southern Europe. Such an event is said to be impossible as the economic crisis it would cause would be unparallelled in the human history. But is it impossible?

Germany, the only country which has the ability to stitch together such a joint debt issuance across all eurozone governments ain't gonna play ball, and so collapse of the eurozone is going to be the only possible outcome eventually. So why don't countries like Ireland get on with it, before the eurozone experience drags them through more and more trauma?

This report from Open Europe tells the story simply enough -

Germany rejects common issuance of debt by eurozone governments;
Almunia rejects talk of a split in the eurozone
FT Deutschland reports that Germany's Finance Minister Peer Steinbruck yesterday rejected proposals supported by Italy and some other European countries in favour of the common issuance of debt by eurozone governments, saying "I will not accept any deterioration in Germany's financing conditions". The newspaper writes that the plan to counter intra-eurozone tensions is now therefore dead.

Commenting on whether the Euro was a mistake, economist Barry Eichengreen writes on the Vox website, "The euro area will hang together, in other words, because the decision to enter is essentially irreversible. Getting out is impossible without precipitating the most serious imaginable financial crisis - something that no government is prepared to risk."

EU Commissioner for Economic and Monetary Affairs Joaquin Almunia has rejected any suggestion of a split of the eurozone. Le Monde notes that the current economic crisis is however putting the monetary union under severe strain and that certain states are asking for lower rates of borrowing than those currently in place. The paper highlights that this growing and persistent pressure could bring about the eventual demise of the monetary union.


Poor old Ireland. It looks like each Eurozone country will have to find its own solutions to its own problems. On the other hand, won't that be so much simpler?

The funny thing about Professor Barry Eichengreen saying that the collapse of the eurozone is impossible is that it was him who was giving seminars as recently as last year saying that collapse of the Euro was inevitable. I guess he's finding that telling the truth to 500 million people that they've made an almighty cock-up hasn't made his career much easier, or himself too popular.

But make no mistake, Barry Eichengreen is simply terrified of the consequences of the inevitable break-up which he's been predicting, and is running scared of the accuracy of his predictions.

PICTURED - Professor Barry Eichengreen of Berkeley University California, thinking 'Oh Shit - what have I done!!' Just to remember the old 'Euro is dead' Barry Eichengreen rather than the newly created 'The Euro cannot possibly collapse' version, see the banner for his seminar in Stanford University exactly a year ago titled boldly The Collapse Of The Euro Area. No recantation last year - why the change now, Barry?

See the same picture of Professor Barry Eichengreen not web-blocked i.e. full size HERE

SOROS

George Soros and his Quantum Fund are making headlines yesterday predicting Sterling/Dollar parity, but are they missing a trick? Maybe the big story of 2009 is going to hit George a lot closer to home. The Euro's collapse will make Sterling's fall seem like a cake walk. And the Sterling position is being misrepresented in any case. See FT HERE.

George should give Barry a call, I think.

AND REMEMBER SIR ALAN WALTERS, GEORGE.

Going back and reading this link from 2005 shows that Eichengreen was not the first to see the Euro was destined for failure.

Sir Alan Walters, Mrs Thatcher's economic guru who stood up against Geoffrey Howe's and Nigel Lawson's attempts to ram Sterling into the common European currency, could see clearly over 20 years ago in the late 1980s. the kind of problems that are becoming Euro-critical today

EXTRACT - Sir Alan Walters was Margaret Thatcher’s personal economic adviser when she was prime minister. In May 2002 he said that the euro would collapse under its own internal contradictions and strains by May 2007.

“We’re already seeing real problems for the euro,” he said. “I don’t know precisely how it will break up, but I know it will break up.”

Walters explained that euro-member countries had different growth and inflation rates, persistent high unemployment and some had severe budget deficits which would cause the instability which would lead to the collapse of the euro.

“People who think it will go on forever should think again,” he said. “Nothing lasts forever in monetary economics.”

Although the accepted wisom is that the euro is permanent, particularly since the conversion from national currencies to euro notes and coins at the start of the year, the history of monetary unions suggests a high failure rate. Any country leaving the euro would have to reissue its former currency and face significant economic dislocation.

Walters maintains that the only way that monetary unions can work is if they are preceded by political union.

In the early 1980s he helped to persuade Thatcher to push through the tough 1981 budget, which turned conventional wisdom on its head by raising taxes sharply despite the fact that the economy was in a deep recession. Many in the Treasury objected, as did 364 British economists who signed a celebrated letter predicting that the budget would condemn the economy to a prolonged depression.

The 364 economists were discredited when the budget led the way to the long economic upturn of the 1980s. Walters’s critics had missed the reason to raise taxes - to allow interest rates to be cut sharply. Interest rates are a key driver of UK economic performance because of the huge amount of debt - including mortgage borrowings for houses - dependent on short-term interest rates.

In the late 1980s, Walters, who described the ERM as “half baked”, advised Thatcher to resist pressure from Nigel Lawson, the finance minister, and Sir Geoffrey Howe, the foreign minister, to take Britain in. In 1989, Lawson insisted that Thatcher sack Walters. She refused, he resigned, and Walters went too.

A film about Sir Alan called Sir Alan Walters: An Intellectual Portrait reveals the extent of Walters’s predictive skills. In 1971-72, as an adviser to Sir Edward Heath, he told the then prime minister that within a couple of years he would be faced with 15% inflation, a record current-account deficit and the return of prices-and-incomes policies. Heath told him he was talking nonsense and that none of his other advisers were predicting anything of the sort, suggesting that he should leave. All three predictions were correct and the resulting chaos brought down the Heath government.

In 1990 Walters predicted that the ERM, which Britain was on the point of joining, was heading for a crisis. Two years later, in September 1992, there was Black Wednesday and the near-collapse of the ERM.

As in 1981, Walters is in a minority as few economists believe Europe’s monetary union will collapse outright. But many believe that strains could develop if the left wing governments of the past are replaced by governments of the right and after new and weaker economies are added to the group of countries in the euro.


I guess Sir Alan never imagined the economic boom of the last 16 years could be maintained as long as it was, which is why he predicted 2007. One reason the boom was continually recharged by world governments was to keep the impossible Euro experiment going, and hide from the consequences of its collapse. Had people listened to Sir Alan twenty years ago, the Euro might have been shelved, but after so much time, its collapse will be a worldwide crisis of unimaginable proportions. That doesn't mean its collapse won't happen. In fact, the signs are that the coming events are simply unstoppable.

And as key events turn at the point where the political and economic crises are greatest, the history of the world might yet be transformed by the independent spirit of the tiniest member of the eurozone, as pictured at the top of this post.

Monday, January 19, 2009

Ireland Becoming The Euro-Crash Detonator


Only three years ago a taxi ride in Dublin would be met with some comment from the driver such as this - 'You Brits made a big mistake not going with the Euro, didn't you?' The Irish were universally exultant at the effects of the unstoppable property boom that joining the Euro had brough them. Even then two generation 40 year mortgages were being enthusiatically taken out, and all believed that wealth beyond anyone's dreams could be had merely by being a solid EU and eurozone member. The signs of boomtime and excessive debts being taken on didn't seem to be bothering anyone.

What a difference three years can make. The people who bought property are now licking their wounds, and the economy is slumping in a sea of debt of unimaginable proportions. The Irish not unreasonably are turning to their EU partners and saying that since they got them into this mess, they in turn have to get them out of it.

But in truth the EU cannot. While interest rates can be set by the ECB, these are no longer necessarily the ones being used by lenders and borrowers in the different EU countries. The risk of the Euro splitting apart is growing by the day, and banks are pricing accordingly, with lending priced up to 150 points differently for the higher risk countries, with the price differential remorselessly growing. The EU has no central fiscal existence to send large sums of money to bail-out banks in individual countries. Maybe Ireland realises at last that in the EU brotherhood of nations, when the shit hits the fan, you're actually on your own.

At least one Irish writer can see that life outside the Euro would be far easier. See Telegraph article - Help Ireland Or It Will Quit the Euro

EXTRACT - David McWilliams, a former official at the Irish central bank, has said that Ireland could withdraw from the euro if they are not given more help.

It is essential that we go to Europe and say we have a serious problem. We say, either we default or we pull out of Europe," he told RTE radio.

"If Ireland continues hurtling down this road, which is close to default, the whole of Europe will be badly affected. The credibility of the euro will be badly affected. Then Spain might default, Italy and Greece," he said.
Mr McWilliams, a former UBS director and now prominent broadcaster, has broken the ultimate taboo by evoking threats to precipitate an EMU crisis, which would risk a chain reaction across the eurozone's southern belt, where yield spreads on state bonds are already flashing warning signals. The comments reflect growing bitterness in Dublin over the way the country has been treated after voting against the EU's Lisbon Treaty.
.

PICTURE - Dublin fair city where maids are so pretty, and where whoever he was first clapped his eyes on sweet Mary Mallone, and where taxi drivers tell a very different story to the one they were spouting about the Euro only three short years ago.

BELOW - David McWilliams the Irish economist talking of Ireland quitting the eurozone during an outside broadcast.

FOR EASY MONEY - Take a bet against the Euro. This chart shows how vulnerable the currency is. Take it at 1.30 and see it fall to parity with the dollar scooping 20% within months. WARNING - take advice from others and not just me, but anyway I am short a load of Euros you will not be surprised to hear.

GREAT IRISH ANTI-LISBON CARTOON



Caption - Ireland's love affair with the EU and the Euro hits the rocks.

To get Print copies, click HERE.

Wednesday, January 14, 2009

Euro About To FOREX-plode


This report from Open Europe gives anyone wondering why the Euro is falling fast against the US dollar the reason. The eurozone is heating up like a pressure cooker with the valve removed. All anyone can do is sit and wait until the steam pressure exceeds the strength of the steel pot and an almighty explosion occurs. Not only are a series of eurozone economies heading for sovereign debt default including Ireland, Greece and Portugal. European banks have leant vast sums to defaulting third world countries, especially in South America and Central Europe. The combination of the two financial black holes growing larger by the day will be an economic explosion never before seen on planet earth.

The Euro-sun will overnight become a supernova firing financial brimstone outwards around the globe as the Euro's energy source finally gives out. In this Open Europe report you don't even need to read between the lines about the impossibility of the Euro surviving. It's in the text.

Portugal has become the fourth eurozone country in as many days to receive a warning from Standard and Poor's that it faces a possible downgrading of its rating status because of its public finances, reports the FT. A leader in the FT warns that eurozone economies face specific problems in being unable to depreciate their currencies to help ease adjustments. The article also notes that credit risk spreads have suddenly widened in response to these warnings.

The FT Lex column argues that, because of the eurozone pressures, "The Irish referendum this autumn on the European Constitution [Lisbon Treaty] may well be an explosive vote."

Discussing the possibility that Ireland could become the "Iceland inside the Euro", David McWilliams, writing in the Irish Independent, argues that Ireland could end up defaulting on its sovereign debt. He also questions whether the EU would bail Ireland out, rather than allowing a sovereign default that could destabilise the single currency.

Eurozone President and Luxembourg Prime Minister Jean-Claude Juncker was quoted on EUobserver warning that, "The real test for the cohesion of the eurozone is still facing us...2009 is going to be an extremely difficult year."


PICTURE - A Supernova - the remains of an exploding star which has run out of fuel. The Euro will soon resemble one with the only thing visible a trail of dust.

ADVICE TO ANYONE CONTEMPLATING BUYING EUROS - DON'T!!!! See Euro chart from the beginning HERE. The only way is down.

ADDENDUM - Roger Helmer MEP adds his assessment -

THE CURRENCY THAT FELL TO EARTH

Quote of the month

"Enough idle crystal ball-gazing: here's one prediction that's being backed by millions of pounds. Hedge funds are betting on a disintegration of the eurozone, and specifically that Greece, Italy, Spain and Portugal will pull out of the Single Currency".
Louise Armitstead in the Sunday Telegraph, Jan 4th.


It's hugely dangerous to pontificate about exchange rates, because your words can be overtaken by events almost before the ink is dry. But as I write (Jan 7th) I see that the euro is worth 90.5 pence. That's down from a peak of around 98p (if I remember). Of course we could be back to parity in no time, but if I were a betting man (I'm not), I think I should bet that we'd be back to around 70p by the mid year.

What's happening? My analysis is: it soon became obvious to the markets that the UK, facing the global recession, was badly placed and in a deep hole. It was less obvious that the euro-zone was in bad shape. Now it's becoming clear that Germany and other eurozone countries are also facing a sharp down-turn, and that rifts are opening up in the single currency, so the euro is slipping against other currencies.

It is reassuring that most major newspapers are warning, rightly, against any talk of Britain joining the euro. The risk of pound/euro parity was never an economic argument for joining the euro, but it seemed to exercise a fascination for simple minds. That risk is now receding.


UPDATE Open Europe today 15th January 2009

Euro falls as rumours increase on IMF stepping in to help Ireland and Greece
The Irish Independent reports that Irish PM Brian Cowen has raised the possibility of a bail-out by the International Monetary Fund, causing the euro to fall at the prospect of a eurozone country having to call in the IMF.

Greece's borrowings were downgraded to the same level as Malaysia's debts by credit rating agency Standard and Poor's, according to Eurointelligence. The WSJ reports that Germany's GDP plunged far further than expected in the fourth quarter. Ken Wattret, economist at BNP Paribas, said it was "valid to say that there are question marks about the cohesion of the monetary union" with the region experiencing its worst downturn.

Saturday, January 10, 2009

Historian - 'War Between Britain And EU Inevitable'

Follow this link written for Conservative Homeand see how historian Rupert Matthews sees exact parallels between the descent into the American Civil War, and the situation coming into being in Europe today. The problem then and now is the lack of clarity about the rights of States to secede from the Union, creating an inevitable future confrontation. The arguments about whether States can secede from the EU or not are very similar to the ones that were being made over South Carolina in 1860.

Following the logic of the historical parallel being drawn, one is forced to the conclusion that when a country decides that it wishes to get out of the EU, the rest of the continent will use its military, secret service and State police infrastructure to suppress the political movement to leave, and do whatever it takes to block the exit route.

One might argue that such powers have already been used, as with the strange murder of Pym Fortuyn in Holland. He was about to win the election in 2002, and bring in a policy of withdrawal from the EU for Holland, but he was shot dead outside a TV studio two weeks before the election. At first the Police said he was shot by an 'animals rights activist' - who are not known for carrying out political assassinations anywhere else in the world, it has to be said. The story was later changed to an 'immigration supporter'.

Britain also has incidents where politicians have been assassinated by unknown agents. Airey Neave MP died when a bomb was planted in his car detonated by a tilt switchin 1979. The INLA agents (Irish nationalists) who undoubtedly carried out the assassination have always said that they were fed the information of how to target Neave from the 'inside' i.e. by the British or possibly American Secret Service (CIA). Neave was a war hero, and Mrs Thatcher's closest adviser. He was also a known eurosceptic who amongst other things wished to stop her signing Britain into the coming European Union. He was murdered the day after Thatcher won the vote of confidence against James Callaghan, making her Prime Ministership inevitable.

Enoch Powell believed that Neave, Mountbatten and Robert Bradford were all murdered by the CIA at a time when America saw the EU as crucial for Europe's future, and these three strong British nationalists had to be eliminated. This extract from a google search -

Powell controversially claimed in 1986 that Neave had not been murdered by the INLA 'but by 'high contracting parties' made up of MI6 and their friends'. He was referring back in part to earlier comments made in 1984 when he had said that that the CIA had been responsible for the assassination of Mountbatten, and that the two murdered MPs, Airey Neave and Robert Bradford, had both been victims of an American conspiracy. Details in 'Like The Roman', Simon Heffer's biography of Enoch Powell.

PICTURE - Enoch Powell on a pogo stick.

Coming back to today's situation, with British Navy ships operating against Somali pirates under EU command, and the European micro-Army being quietly expanded to command half of Britain's land army as agreed at the Nice Treaty by Blair (unknown still to most British citizens), those who wish for a political movement to pull Britain out of the EU, were they to win political power, would find that now even their own armed forces were ranged against them. The Police have also been brought under EU control, and the Terror laws used to arrest Damian Green MP recently would be used to suppress any secessionsist poitical movement. As for Secret Service Operations, these too could be given the go-ahead to eliminate opponents of the EU if they were to threaten its existence and integrity. In the Nice Treaty Britain agreed that the phrase 'Defence Of The Realm' applied to the EU, and no longer to Britain alone.

The inevitable consequence would be not an open 'clean' war of secession between British and European armies but a dirty war with assassinations of key collaborationists, and brutal suppression of those involved in the fight to bring freedom back to Britain. It would be a close run battle, and one with uncertain outcome. But as hostorian Rupert Matthews demonstrates, the chance for a peaceful withdrawal by Britain from the EU is well gone.

PICTURED ABOVE - The South Carolina Congressmen who triggered the American Civil War by declaring a formal secession from the United States in 1860. President Abraham Lincoln decided to fight and force them and the rest of the seceding states back into the Union. Matthews shows that the phrase 'more perfect union' was the legal justification used for the war. As the States had signed up to that phrase in the American Constitution, they were not allowed to act against it later.
The phrase 'ever closer union' is the declared phrase in the Treaty of European Union, which was ratified by the British Parliament. This phrase would be held as a binding commitment by the EU, according to Rupert Matthews, and would be used to justify use of military force and other methods of violence to block Britain from withdrawing from the EU by the European Supreme Court.

Saturday, January 03, 2009

Britain's Last And Only Hope

Britain is a sad place these days. Twelve years of Labour government (combined with the Conservatives having sold out their souls to the EU) have reduced the place to a pathetic, indebted, criminal centre for confused and demoralised people. There is no need to catalogue the elements of social collapse as they are are too well known. Not only is every social programme in crisis, with people being murdered and robbed in big numbers every week. The country's economy hovers on the brink of collapse with government debt ballooning into the stratosphere. The people who can, are all heading for the exit to get away from the unfolding collapse of this once great nation.

Cameron and the Conservatives offer little hope of anything better.

My hope is that Labour will once more win the next election, and the Conservative Party be thrown into the greatest crisis in its history. Only from such a crash in Conservative fortunes can any of the inherent good in British culture and tradition be rediscovered and released back onto the streets, into the schools, workplaces and offices of the land, and the corrupt regime that has produced the me-too Blair, David Cameron be sent packing.

If Cameron falls, one of the contenders will undoubtedly be Boris Johnson, and only he, of all Conservatives seems willing and able to address real issues and go direct to the solutions, rather than view politics as a colouring in exercise for Graduates with no experience of the real world. At least Johnson ran a business for a while and knows what the real world consists of.

If Boris were to win the leadership and become Prime Minister, many of the millions who have left Britain in the last ten years, and the millions leaving Britain today (including me) would be sorely tempted to return and live through a national revival. It might take ten years but if I have any wish for the rest of my life (now 54) it would be to see a British revival led by Boris Johnson as Prime Minister. It would certainly be worth heading home to see that happen, and be part of what could be a joyous time in our history, where the bureaucrats finally are sent packing.

Otherwise I'll carry on living overseas in a relatively government-free country, where I have no need to fill in any form or declare anything to anyone from one year to the next - the Philippines.

I felt a similar feeling to the one I have about Boris and Britain, about Benazir Bhutto and Pakistan, that she was the last hope for Pakistan to avoid catastrophe, but sadly she met her death at the hands of her enemies. Only if the strong and great individuals can live and rule once more, replacing the armies of bureaucrats, can countries find their way out of their messes, saving many lives and livelihoods in the process.

The world suffers from a vacuum of political leadership, from a lack of strong individuals able to stand tall above the politically correct mental drubbing that flows around like sewage in the water supply - the Livingstonian confusion and corruption so beloved by all media channels. Obama sounded like a new departure, but he too looks like another brilliant marketing act, colouring in but not designing the future. People who can take decisions in their own heads have become as rare as, well, rocking horse shit.

If Boris rules, Britain will live again, but not otherwise. And I for one will not be returning to witness any more of its sad decline. Only with Boris do I see any hope, and would I feel the thrill of the national pride that has now gone, as Labour and Conservative (and Lib Dem) lies have corrupted every truth we knew. Not many years ago innate pride and belief in ourselves was all part of being born in, growing up and living in Britain. Taking that away is the greatest crime, and seeing the good of our culture all wasted has been to suffer the greatest of losses. Hope still lives, but as of now, it walks in the mind of one person, and one person only.

See HERE how this person with his own strong mind deals with the issues of the day. Refreshing isn't it? The Boris Johnson miracle could yet happen. I for one, am praying for the day. Go Boris. Bring us all home again to a home worth having. Meanwhile after 12 years of Gordon Brown, Britain is heading for imminent moral and financial bankruptcy.

Newsweek interview shows Boris intends to return to Parliament after two terms as Mayor, or so HERE.

Europe On The Brink

Tucked in alongside the Economist Magazine's 'Europe section leader 'Supersarko leaves the podium' , lies an innocuous sounding piece titled 'Baltic Brink'. The focus is all on Latvia and its problems defending the Lat's link with the Euro as its economy dives from 10% growth in '07 to, so far, -5% per annum in '08. An IMF bail-out currently taking place is 'likely to amount to over $7 billion' explains the article.

It might be simpler, you might reasonably think to devalue the Lat. But here's the problem. 85% of loans to Latvian households are denominated in euros and other foreign currencies.

The other factor forcing a defence of the Lat is the exposure of banks from Sweden and Finland, whose creditworthiness would take a hit if their exposure to Latvia was perceived as sliding into trouble. Sweden has had to issue a $190 billion bank rescue package as it is.

But the real threat is to the rest of the economies of Central Europe, where maintaining exchange rate links to the Euro will be essential to avoid an almighty banking crisis. If Latvia fails to hold the line, then so too would Estonia and Lithuania fail to hold their links, and no doubt the recently patched up Hungary would be tilted into credit default along with many others in the region. The problem is the huge current account deficits of most East European countries, and the exposure of EU banks encouraged by the EU to lend to these countries. The idea was to build the notorious 'soft' power programme, hold down Central Europe and keep Russian influence at bay.

The whole Central European edifice is clearly close to collapse, and the knock-on effects across the eurozone will be highly significant, once the visible ad growing cracks turn into an uncontrollable split. The value of the euro will be strongly affected And that is before anyone mentions the words South America where European banks are also liable for 80% of banking exposure to impecunious governments.

It's funny how the most important article in the Economist this week is tucked away on page 78, and written as if the problem was all contained within one tiny Baltic country. It isn't and as the story of Europe's trillion dollar banking exposure to emerging market governments breaks, the world's financial system will take another spin as big as that caused by the collapse of Lehman Brothers.

Euro interest rates will hit the deck. The dollar will regain its top slot overnight, and there won't be a thing that Supersarko will be able to do about it.

BRITAIN

The financial problems in Britain will also rise to the top of the agenda at some point. Brown is borrowing GBP 147 billion this financial year (see three posts previous below), partly to fund his loss-making bank bail-out, but also because tax revenues are tumbling. He hopes to reduce his borrowing in the next financial year, but his plans are all based on an economic recovery in the second half of 2009. Brown's real problems will be all too visible by about July 2009 if as expected, the recession proves to be a long one.

At last the MSM seems to be gradually awakening to the precariousness of Britain's financial position. See BANKRUPT BRITAIN. The situation is so bad that in truth it could not have been created by accident, but only as part of a political programme to destroy Sterling as a currency.

ESCAPISM

The banking crisis of America and Europe could soon turn into the sovereign debt crisis of Europe. The problem will be that the IMF does not have enough money to help them all...at least not without cashing in its gold. The gold price could see $300 as the Union Bank of Switzerland predicted this week.

Taking a more sympathetic line with The Economist, this was the Special Christmas Double Issue, badged 'Why We Love Music' on its front cover. In amongst all the doom and gloom, a little escapism is certainly in order. Next week a feature on the talent of Julie Andrews would be easier to bear than any more talk of the collapse of EU soft power in the Visigrad.

Friday, January 02, 2009

Ireland Punches Above Her Weight

Feelings in Ireland are running high. The arrogance of the EU, the threats being made against Ireland by the EU, and the false promises, are starting to rile the quiet independent spirit of the Irish. This cartoonist has managed to put into picture form the anger rising in Irish hearts against the unreasonableness of the EU, and its unsuitability to act as the government of Europe. A picture is worth a thousand words. Ireland should adopt this cartoon as the banner of the movement to keep its freedom from totalitarian tyranny. Declan Ganley and other campaigners should place it in their literature. It is powerful.

This is the email text I received along with the cartoon.

I am an artist and Illustrator, I drew this
Illustration to express my feelings about the lisbon treaty.
It seems to me that there will inevitably be a second referendum
forced on the Irish people.Feel free to use the image as you see fit.
Larger more detailed versions available on request.
yours sincerely
David McDermott
davidjamesmcdermott@gmail.com


FOR PRINT COPY -
Click HERE

Nice one, David. This should be seen in every pub and shop in Ireland. Slainte!