Tuesday, April 28, 2009
While Mexican swine flu is being used to fill newspaper headlines, one is forced to search hard to find the real stories that are being hidden away in the background. Governments are still peddling hard to try to stop the financial crisis from engulfing the 'system'. In the US, Paulson and Bernanke are in court defending their actions in the takeover of Bank Of America. In Europe who on earth knows what is going on, as little of any significance gets reported.
We are told, however, by Reuters that last week Eurozone Central Banks found it necessary to part company with 16 billion euros of reserves. That's nearly 1% of their total reserves going west in a week. If that rate is maintained for a year, the effect will be to reduce reserves by about 50% - getting close to Euros 1 trillion in a year. With no war being fought, this is a colossal figure to explain away.
ECB says gold reserves down by 823 mln euros on wk
FRANKFURT, April 28 (Reuters) - Gold and gold receivables held by euro zone central banks fell by 823 million euros ($1.1 billion) to 240.84 billion euros in the week ending April 24, the European Central Bank said on Tuesday.
Net foreign exchange reserves in the Eurosystem of central banks fell by 11.8 billion euros to 265.4 billion euros, the ECB said in its regular weekly consolidated financial statement.
Gold holdings fell because of sales by two euro zone central banks, consistent with the 2004 Central Bank Gold Agreement, the ECB said.
It added its balance sheet had decreased in size by over 16 billion euros in the last week to 1.824 trillion euros.
For details of the report, please see the website: http://www.ecb.int/press
If this rate of spend from reserves is continued, the euro might start to catch Mexican chill. Presumably there are also borrowing and tax revenues being spent in addition. Is it possible that in a year or so from now the IMF will be called to bail out the eurozone, raising money from around the globe to do so? I cannot imagine that the Chinese government or others will be too keen on the idea, pouring good money after bad.
Mexican swine fever is sure as hell filling the airwaves. This is most convenient for politicians especially those in the US who might have something to hide. According to the Wall Street Journal, the takeover of Merrill Lynch by Bank of America was carried out under duress. Bernanke and Paulson are on their way to court accused of illegally enforcing it. This has yet to be mentioned on CNN or the BBC, but ought to be big news worldwide. The story is being suppressed by those who control the media, and it is appearing as a sub-story in financial newspapers, making it appear as of minor importance.
Stock markets continue with their recovery around the globe blissfully unaware how close to collapse the American banking system had come.
Instead we are treated to endless details about a pandemic which never was. The headlines about Mexican flu in the BBC are indeed terrifying. But look at the details. It really is laughable.
In almost all swine flu cases outside Mexico, people have been only mildly ill and have made a full recovery.'
Link to Paulson/Bernanke story HERE. Pictured while testifying, Ken Lewis, Bank Of America chief executive.
Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive.
Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.
Bank of America CEO Ken Lewis testified he was pressured to keep silent about deepening financial difficulties at Merrill Lynch. Here is a art of his testimony -
Q: Were you instructed not to tell your shareholders what the transaction was going to be?
A: I was instructed that 'We do not want a public disclosure.'
Q: Who said that to you?
Q: Had it been up to you would you [have] made the disclosure?
A: It wasn't up to me.
Q: Had it been up to you.
A: It wasn't.
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren't normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill -- which eventually totaled $15.84 billion for the fourth quarter -- could have given BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead.
"Isn't that something that any shareholder at Bank of America...would want to know?" Mr. Lewis was asked by a representative of New York's attorney general, Andrew Cuomo, according to the transcript.
"It wasn't up to me," Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would "impose a big risk to the financial system" of the U.S. as a whole.
But don't think about all this. Look instead at the terrors of a flu outbreak that has yet to kill a single human being outside of Mexico. That's far more important.
The French have had enough of their beloved EU. The organisation that kept the Germans in check and guaranteed French farmers riches for eternity is no longer loved. No details are passed on in the survey reported by Open Europe below, explaining why but surely it is a most significant day when even the French have had enough of 'ever closer union'.
Le Figaro and Cevipof have undertaken a study on the changing attitudes of the French population towards the EU. The study emphasises that France and Greece have experienced the sharpest decline in confidence in the EU and also cites the Eurobarometer survey, in which only 49% of French people said that France being a member of the EU was a positive thing. In 1987, 74% said that it was a positive thing.
Sunday, April 19, 2009
I've been blogging a while, predicting various market moves. My favourite one of these is undoubtedly the sinking value of the Euro versus all other currencies. The last two months have seen the Euro moving the other way, rising a little against the dollar. But the underlying weakness of the Euro is about to send it reeling.
I am posting two charts here, one showing how the euro is moving into the next downwave. This is occurring just as capital market liquidity is collapsing. The capital market fall in liquidity in October sent the euro tumbling and the dollar on a major rise. The collapse in liquidity on this occasion is of a much greater scale as the second chart shows.
I'm not trying to be gloomy, but the coming reversals in markets are likely to be of the stunning variety, with the Euro leading the way to the floor. As for the parity with Sterling predicted by so many last January, Sterling is now 13% higher.
The only problem will be what to do with all the worthless Euro notes in circulation. Wallpaper? Not in my house,obviously, but many might be drawn to the idea.
Wednesday, April 08, 2009
Following the movements of markets is currently a challenge, it might be said. Making sense of the world's economy since around 2000 has been very hard. Years of irrational exuberance with record high valuations for stocks and commodities has turned into a long slow deflationary spiral downwards. Companies that are interested in future price movements have their work cut out in explaining it all, but one forecaster attempting to see the underlying trends in political terms this month is particularly interesting, seeing the end of the eurozone as the likely consequence of the crash.
I give you the preamble -
Taking a Hard Look at the Survivability of the European Union
The first question you have to ask yourself is, Why was the eurozone – the group of European nations that share the euro – created in 1999? What was so special about that year that made it possible?
Believe it or not, once you answer this question, you will understand not only what really holds the EU together, but also why (and when) its unity is most likely to be tested in the future.
You answer this question by plotting the recent major European social events on the chart of the DAX, Germany's main stock index. What you'll see is that, amazingly, every single major positive event in recent history occurred when stocks were rallying or near a top.
You can see this chart now, on page 2 of the April issue of EWI's European Financial Forecast. It explains at a glance why the tensions between member nations are flaring up again: With European stocks cut in half or more by this bear market, Europe's social mood is at the lowest point it's been in years.
What does it mean for European stocks? What does it mean for the future of the EU?
The Euro came out of the era of irrational exuberance. Will it now disappear in the era or more sober valuations and pessimism? It seems that the writers from Elliott Wave International think so.
PICTURE - Adelies on melting ice. I apologise to the birds for any implied suggestion that they are as dumb as the fools who constructed the eurozone.
Another aspect of the Euro's reporting in financial circles that caught my attention is that the Euro is not regarded as a currency that began in 1999, but one that started at the end of WW2 under the aegis of Konrad Adenauer. The currency is invariably referred to as the DM/Euro and long term charts going back 40 years present the currency as an unbroken single entity.
That gives a clue as to how it will unravel. The Euro will be regarded as the DM once more. Each country will have to negotiate the value of its Euro assets and debts with Germany, and the road to economic sanity will lie open for countries like Ireland to relaunch the Punt.
The exact events which EWI foresees I cannot say as I am not a subscriber to their newsletter. But I find their free tasters which arrive by email to be very enlightening. A further crash in the DAX is obviously one thing that is likely, and a falling of the value of the Euro as the banking crises and national debt crises across Europe start to impact - with no bailouts except from the IMF, which only has $500 billion on hand. The Eurozone would need five or ten times that figure, and no one in their right mind is going to bother raising that - especially Germany which has had enough of bailing people out. Investors too are already choking on excess government debt. The Euro's game is over. It's only a matter of time.
Saturday, April 04, 2009
Once again the future of Europe hangs in the balance. And once again key events are taking place in the tiny Czech Republic. A country of 10 million people, The Czech Republic has the power to drive a second nail into the Lisbon Treaty's coffin. The key point, not mentioned in many media outlets (BBC?) is that Vaclav Klaus has the power to choose the next Prime Minister now that Lisbon-favourable Topolanek has resigned.
And Klaus is unlikely to choose anyone in favour of Lisbon unless he's undergone a serious change in outlook. The Treaty has been ratified by the lower house, but has yet to clear the Senate. Even if it clears the Senate, remember that Vaclav Klaus has the right to stop the ratification as his signature as President is required for it to pass into law. It would be ironic and highly admirable if the determination of just one man was enough to stop Lisbon.
From Open Europe -
Meanwhile, the resignation of Czech Prime Minister Mirek Topolanek, current holder of the EU presidency, has the potential to impact on the ratification process in both the Czech Republic and Ireland. Czech Deputy Prime Minister Alexandr Vondra said that the government's collapse will make it harder to ratify the Treaty in the Czech Senate. "The ratification process is on track...but it will be a lot more difficult now to convince people to vote in favour," he said. In addition, it is Czech President Vaclav Klaus, a critic of the Treaty, who has the power to choose who forms the next government. (FT, 26 March)
EU Commission President Jose Barroso reacted by saying, "The Czech Republic has signed the treaty and so the Czech Republic has an obligation to ratify. I really hope that this domestic, political development is not used as a way to put in question the treaty." The President of the European Parliament, Hans-Gert Pöttering said, "I cannot imagine that 10 million Czechs will turn against (the other) 490 million EU citizens." A European Commission official has said the situation has the potential to influence a second Irish referendum in October: "if it is still stuck in the Czech Republic by then, it becomes a lot less risky for the Irish to vote against. Then they are not the only bad guy"
Imagine a country refusing to ratify Lisbon that also has an anti-Lisbon leader. Ireland is run by Euro-corrupt pigs with their snouts firmly in the trough, and can be overpowered in time. But if Vaclav Klaus can hold up the Treaty, then the German Supreme Court might find its voice and declare the Treaty either void or unconstitutional or both.
Last time Europe's freedom disappeared in 1940, the good guys were not ready in time to stop the bad guys. This time there is still a chance that they will be. No one can see any tanks or military build-up. The EU has learned from Hitler's errors. Political brinkmanship and soft power can do the work of armies more effectively. But will The Czech Republic deliver the equivalent of a Thermopylae where 300 Greek troops held up an army of 30,000 Persians in a tiny pass? If he can fell the Lisbon Monster Vaclav Klaus would be the hero of the hour for 500 million Europeans who otherwise face total subjugation.