GUEST POST: Austria Joins the PIIGS

Thursday, December 17, 2009

Finding myself in the once 6th richest country of the world that is nose-diving into the biggest crisis since WW2 I want to thank all readers who provided me with more insight on the state of economic and financial affairs in Central Eastern Europe.
While I was reading, Spain based economist Edward Hugh did another one of his great macro write-ups, this time concerning Austria, a country that suddenly find itself in the position of the sick man in Europe, almost on a par with Greece. This article first appeared at his main blog Global Economy Matters.

Is Austria Set To Join The Honourable Company of PIIGs?
by Edward Hugh
Hypo Alpe Adria bank, the Austrian arm of the Bavarian bank Bayern LB and Austria's sixth largest bank, was nationalized on Monday for the symbolic price of three euros. This unexpected action brought to the world's attention something which has been obvious to some of us for a very long time: namely that all is not well with Austria's banking system, and it is not well for one very simple reason - over-exposure to Central and East European Markets. Of course, when some of us first started pointing the problem out, we were roundly rebuked from all quarters, what a ridiculous idea! Izabella Kaminska had a reasonable review of how the arguments were being marshalled back in January here, while Paul Krugman attracted the wrath of all Austria back in April by, as this blogger puts it, stating the obvious.

When will the world of officialdom wake up to the fact that when economists warn of impending dangers, this is not done to cause harm, but in an attempt to try to stop more damage being done? The posture they should adopt is not a defensive one of rejecting criticism at all costs, but a more open one of listening to multiple opinions in an attempt to best serve the interests of the citizens they represent. So when I issued an alert back in September to the effect that - There Is Another Shoe To Drop In The Global Economic and Financial Crisis, And The Focus Will Be On Europe’s Perifery - I wasn't doing this just to cause trouble, but to warn and raise awareness. Now it is becoming increasingly obvious that I was right, but another precious three months have been lost in the meantime.

As Emma Saunders on FT Alphaville points out Austrian bank stress tests have shown that the country’s top banks would lack capital if the global economy were to double dip. And as I have pointed in out here in the case of Germany (as later confirmed here) and here in the case of Japan (as later confirmed here), the risk of a double dip is not, at this point, a negligable one.

Indeed Central bank supervisor Andreas Ittner said only recently that the Tier one ratio of the six biggest banks would drop to 5.8 per cent by the middle of 2011 under this type of scenario scenario. “Our stress tests show that capital adequacy levels must be raised further in the medium term. This applies to both the quality and the amount of banks’ own funds,” he said. And, surprise surprise, the tests show Austrian banks being particularly hard hit in Eastern Europe.

Unsurprisingly the current stress in the Austrian banking system is dragging down the euro and at the same time putting currencies from Central and Eastern Europe under growing pressure. And as analysts at PNB Paribas also point out, this pressure on bank capital can lead to weaker bank lending, which can also add to the Eurozone "underperformance" issue. That is to say, these are all self reinforcing processes.

Austria nationalising Hypo Group Alpe Adria highlights the fundamental weakness of EMU’s banking system. Bayern LB will have to write down its stake in Hypo Adria to zero increasing the hole in its balance sheet by another EUR3bln. We remain convinced that European banks will have to repatriate funds ahead of the fiscal year end, but once this operation is complete the EUR will suffer. With interest we have followed the recent speech of ECB’s Trichet, suggesting that if banks would not use their profits to bolster their equity base it could case the next crisis. The weak equity position of banks explains weak lending in Europe which itself suggests Europe will become an economic under performer.


And as Prudent Investor points out, Hypo is likely only the tip of the iceberg:

Hypo Alpe Adria is certainly one of the smaller problems that the Austrian government faces. Both exchange listed banks, Erste Group and Raiffeisen still have to come forward and announce their East European subsidiary losses which had so far been hidden under Austrian accounting rules that allow banks to keep asset prices at the purchase level as long as they are part of the fixed assets of a bank.


And only yesterday (Tuesday) Die Presse reported that the Austria's three banking supervisory authorities FMA, Fimbag and the Austrian central bank have discreetly put Oesterreichische Volksbanken, the 4th largest bank in the country, under surveillance, fearing that it may become yet another casualty of the spreading banking crisis, although news wires have reported this morning that the bank has said that there is no need for it to be nationalised.



Hypo, which is the sixth-largest bank in Austria, expanded rapidly into the Balkans in recent years, and these will be the countries most immediately affected by this weeks Austrian decision. And the Balkans, it should be remembered, is a region where Greek banks are also significantly exposed. In particular, the implications of what just happend seem to be quite important for Slovenia. Hypo (Klagenfurt) has subsidiaries in every ex-Yugoslavia state, but in Slovenia media are reporting that it is not the slovenian branch of Hypo itself which in trouble, but Hypo leasing, which has more than a 30 % market share in the Slovenian leasing business and around 60 % of the real estate and mortgage business.

Hypo have also been heavily involved in lending to the financial holding company Istrabenz which has itself been the big news local story in recent weeks, keeping bankers, polititians and most of the public in Slovenia well occupied during most of 2009. Istrabenz seems to be leveraged like a typical hedge fund, with the slight negative detail that they have almost no cashflow. A consorium of 19 banks (Slovenian and Austrian) are currently busily trying to recover something from the total of around 1 billion euros which was lent to Istrabenz.

A friend of mine who is an analyst in Slovenia sent me this mail this morning:

The whole banking system is in a mess, but so far the state has been more or less sucessful patching the leakages (issuance of govermnent bond – aprox 2 b €, issuance of bonds by banks, just now issuance of hybrid bonds and so forth…). Just today, there was an article in the press, that with before mentioned Istrabenz Holding, that a bankruptcy of Iztrabenz would pose serious problems for Probanka, Abanka and Hypo (the Slovenian one). For the others (NKBM,…) problems in construction sector could be the second biggest threat (if you ask me, waiting to happen, this troubles – on a national wide basis, most of past GDP growth was due to stimulus packages – unnecessary ones in unneeded infrastructure projects even before the crisis. This issue is connected to the fact there was election in Slovenia just before the crisis occurred and former government tried to »make up« economic situation to win again the election) – with the construction - city of Ljubljana bought half of one of the biggest residential projects here in Slovenia with the wish to help the construction investor almost going bust. Another anecdote about the real estate sector is, that banks are pressuring real estate companies to give more collateral as they have huge inventory (again prices in the balance sheets are mostly not corrected for the situation in the economy) and now the real-estate companies are assisting themselves with non cash transactions (buy from each other, thus lowering inventories and increasing receivables). That is just postponing the inevitable.


All of this sounds very much like Spain to me. And what a strange world we live in where Greece and Austria suddenly appear as the joint new "sickmen in Europe".

According to CMA DataVision, the Austria’s credit-default swap spreads widened over 8bps to 81bps on Tuesday, which means it now costs €81,000 a year to insure a notional €10 million of Austrian sovereign debt against default for five years. On Monday it would have cost €72,000.

So when will Europe's leaders finally wake up? Everything cannot simply be swept under the carpet forever. One day or another the cracks which have been slowly appearing in the whole edifice will simply become gaping holes. We need sound analysis, we need a will to do something, and we need a plan of action. Simply saying the critics do not know what they are talking about no longer holds water.

ABOUT: Edward Hugh is an independent macro economist, based in Barcelona. Edward specializes in growth and productivity theory, demographic processes and their impact on macro performance, and the underlying dynamics of migration flows. He is a regular contributor to a number of economics weblogs, including Roubini Europe Econ Monitor, A Fistful of Euros, Global Economy Matters and Demography Matters. At the present time he is focused on the economic issues arising in Eastern and Southern Europe.

Paper: Austria May Nationalize OeVAG Bank, Loss Up To €20 Billion

Tuesday, December 15, 2009

Only a few hours after the 100% nationalization of Carinthian bank Hypo Alpe Adria Austrian taxpayers face another banking disaster. According to documents obtained by the Austrian daily "Die Presse" Austria's three banking supervisory authoritities FMA, Fimbag and the Austrian central bank (OeNB) have silently put Oesterreichische Volksbanken AG (OeVAG), the 4th largest bank of the country, under surveillance, fearing that it may become a casualty of the spreading banking crisis.
None of the 3 supervisory bodies has officially publicized this warning to the public so far, continuing a trend of downplaying the grave situation of this small country's banking sector.
Hiding it under the carpet will certainly not help as institutional investors correctly request timely information and more such blunders by the 3 agencies supposed to monitor the financial stability could wreck the reputation of the Vienna capital market. This blog was unarguably the first voice of concern back in December 2007.

Authorities Looked the Other Way
OeVAG reported an accumulated loss of €607 million in the first 3 quarters of 2009 and authorities - who looked the other way too long and now begin to panic - expect credit writedowns of up to €20 billion, dwarfing the salvage of Hypo Alpe Adria which will cost taxpayers at least €450 million. OeVAG's balance sheet currently stands at €53 billion.
As blogged earlier this year, OeVAG will most likely not be able to pay a 9.3% coupon on €1 billion state-injected subordinated capital it received at the beginning of 2009. This will leave another €186 million gap in the finance ministry's empty coffers.
According to the Fimbag letter OeVAG's business deterioration has become a concern this year. The letter was signed by former OeNB Governor Klaus Liebscher and his Ex-CEO Adolf Wala who are trying to keep most Austrian banks alive.
So far only small Constantia Privatbank has gone under in Austria in 2008 but it is clear to industry insiders that the days of burgeoning business are over and the sector needs to shrink.
According to Fimbag the bank should look out for a strategic partner as both its 25% shareholder DGZ Bank and 6% shareholder Raiffeisen Zentralbank will most likely not take part in an equity issue to the tune of €400 million in 2010.
Given the unfolding scandal at Hypo Alpe Adria where both authorities and the public only begin to ask where the hell more than €3 billion went it is likely that potential bidders may push away the hot potato called OeVAG.

Nationalize, Nationalize - Let the Sovereign Pay the Bill
Recognizing the harsh reality Fimbag recommends to burden Austrian taxpayers with the irresponsible losses of OeVAG by nationalizing a part or the whole group.
It is ironic that Finance Minister Josef Pröll, a member of the conservative Volkspartei finds himself in the role of a socialist, dividing bank's losses between Austria's 4 million taxpayers. It was his party that drove the privatization wagon in the last 25 years, selling more or less all of Austria's silverware. Now the country finds itself in the poor house, with only bits of infrastructure in the hands of the sovereign left.
Add the usual global picture - rising unemployment and social transfers crash head on with lower tax revenues - and I am standing by my opinion that one should not be so mad as to own Austrian bank shares.
Authorities have always been too late on the scene of the few bank closures Austria saw since WW2.
The results of a recent "stress test" are not exactly encouraging. Citing OeNB executive Andreas Ittner Die Presse wrote that one big bank, presumably Hypo Alpe Adria, and 30 smaller banks failed the test. Another big bank, one does not have to guess that it is OeVAG, was close to failure, he said.
The recent troubles had at least one positive effect: OeNB governor Ewald Nowotny now expects no stone to be left unturned in the medium term future. Nowotny may finally improve his so far 100% wrong track record and realize that a collapse of the Austrian banking sector, laden with 20% of all Central Eastern European (CEE) risk, may lead to spontaneous social unrest in this peaceful country. Nowotny is a dyed in the wool social democrat.
Former social democrat Finance Minister Hannes Androsch, now an industrialist with his own CEE problems, had told the paper earlier that Austria needs to shrink its banking sector. "Austria has six systemic relevant banks and Switzerland has only two," he said.

No Problems At the Listed Banks???
It is a most interesting fact that media reports have not yet touched the real situation at Austria's 2 listed banks, Erste Group and Raiffeisen Group. With a cloudy outlook at best both banks have yet do digest huge writedowns within their CEE activities. Are there more hot potatoes rolling around in the chilly climate of Austria's banking world? I bet so!
While Austrian business style is historically very focused on harmony the inevitable blood-letting in the sector will most probably lead to a dog-eat-dog panic within the next 24 months. The government has so far announced €100 billion in bank deposit guarantees in order to keep wealthy foreign clients who enjoy the Austrian bank secret law. This would be €12,500 for each Austrian. It may come worse, though: Bloomberg reported in June that internal EU papers obtained in Brussels put the total risk closer to €165 billion or more than €20,000 for every breathing inhabitant.
DISCLOSURE: No positions related to Austria.

Austrian Government Nationalizes First Bank - Trichet Involved

Monday, December 14, 2009

The wheels are coming off the Austrian banking cart. On Monday morning Austria's red-eyed conservative Finance Minister Josef Pröll was happy to present a solution for ailing Carinthian Hypo Alpe Adria Bank AG whose main shareholder has been German Bayerische Landesbank.
According to his statements - a webcast (German language) is available here - Austria will take over 100% ownership of the bank that had helped the late right-wing governor of Carinthia, Jörg Haider, to finance his populist measures in Austria's most indebted province. The complete deal has a volume of €4.5 billion, counting all equity and liquidity injections.
While the finance minister was keen to point out that the damage for Austrian taxpayers may be less than the €1,800 per capita figure splashed on tabloid papers this morning, it cannot be yet said how big the damage will actually be.
According to Pröll the former owners Bayerische Landesbank, Carinthia and Austrian Insurer Grazer Wechselseitige will inject altogether €1.5 billion in equity together with the Austrian government. Bayern LB took the biggest hit in negotiations that also involved telephone conversations with ECB President Jean-Claude Trichet and promised to prop up the bank with €825 million equity and more than €3 billion in liquidity. The Austrian government will provide €450 million, the province of Carinthia will have to inject €200 million and Grazer Wechselseitige €30 million.
The salvaging package also includes further liquidity injections by Carinthia to the tune of €227 million and €100 million from Grawe. Austria's big 4 commercial banks, Unicredit, Raiffeisen, Erste Group and Cerberus-owned Bawag will contribute €500 million in liquidity to keep the bank as a going concern. Bayern LB's venture into Austria will have cost the bank a total of €2.3 billion, Austrian business daily Wirtschaftsblatt reported.
Hypo Alpe Adria has a long history of failed speculations and a mediocre loan portfolio.
Its takeover by the government for a symbolic €3 from its former owners was hailed as the best possible outcome for Hypo Alpe Adria and its clients but opens the question how Austria will manage the future of its other ailing banks who may be hit by huge loan losses after trying to financially recolonize those countries that once belonged to the Austrian empire in Central Eastern Europe. Bloomberg reported earlier this year that Austrian banks may face a fallout of up to €165 billion. This equals more than € 20,000 for every one of Austria's more than 8 million inhabitants.
Hypo Alpe Adria is certainly one of the smaller problems that the Austrian government faces. Both exchange listed banks, Erste Group and Raiffeisen still have to come forward and announce their East European subsidiary losses which had so far been hidden under Austrian accounting rules that allow banks to keep asset prices at the purchase level as long as they are part of the fixed assets of a bank. While both banks share price has risen manifold this year industry insiders doubt that this appreciation in value may be sustainable as all loan problems in Central Eastern Europe (CEE) are still around and the banks begin to face accumulating problems in Austria too, where the traditional homebuilder society is on the verge of crumbling due to wage raises below true inflation and skyrocketing unemployment.
I stay with my opinion that the worst has yet to come for the Austrian banking sector - and this will be inevitable. Austrian banks provided CEE residents with consumer loans that will be difficult to recover. Several CEE countries are drafting legislation that will tilt protection in favour of borrowers and any further deterioriation in economic circumstances is likely to provoke more voter-friendly laws. One CEE country recently changed laws that way that mortgages have to be adjusted to the equity value of the respective property. This move is deisgned to saddle banks with losses incurred by irresponsible lenders and borrowers who tried to defy economic reality past the point where they got their BMW X5 delivered.

On the Move

Tuesday, November 24, 2009

Blogging will stay on low flame as I am forced to move out of my residence where the chimney has collapsed. I hope to be back by the end of next week. As for markets, gold and silver speak a clear language that we are steering towards financial armageddon.
As I can move into my new home only in March, I'll spend the time until then in India to do a little on the ground research concerning water emergencies and the thousands of farmers suicides thanks to Monsanto seeds that have to be bought every faring season.
India has cybercafes long after the last road has come to an end. I will monitor markets from there.

GUEST POST: Silver Goes Institutional

Friday, November 20, 2009

It is a special delight to present the following guest post by Sean Rakhimov, editor of silverstrategies.com, who sees first notable moves from institutional investors into the silver sector.

The Institutionalized Silver Market
by Sean Rakhimov
  • Where were are
The new realities of the precious metal markets are inescapably obvious. In the classic - three legs up, two legs down - bull market pattern, we are undoubtedly in the second "institutional" or "big money" stage. For Elliott Wave fans this would be the 'C' wave, characterized as the longest with a potential break mid-way. Regardless of your interpretation, the evidence suggests that big money is moving into this space in earnest. One could argue that the breakdown in the second half of 2008 threw a monkey wrench into this theory. Indeed, it was a rather painful event for most investors, but in technical terms it did not look all that bad as evidenced here. If anything, it helped anchor the previous move from $253 to $1000. We're not chart experts and are only using this to establish a base for the points we really want to make.

If you're still questioning the main premise of this article, we'll briefly remind you that the likes of John Paulson, Paul Tudor Jones, David Einhorn and a host of lesser known money managers have recently joined the party as has been amply discussed by others. The purpose of this missive is to shed some light into what it might mean to you, the "average investor" and if there are angles to be exploited in that regard.

We also have to mention the blockbuster purchase of 200 metric tonnes of gold by India's Central Bank from the IMF. With that deal in the books there should be no doubt in anyone's mind that gold and silver are hitting the mainstream.
  • What does it mean?
Assuming that is the case, the logical question to ponder is: what does it mean? In other words: how will this fundamental factor impact the market, how will it manifest itself in the share price of mining companies, and how can you and I get in on the action? During this stage, we envision the emergence of two major developments that should be of interest you.

1) These early and prominent leaders into precious metals will be imitated and followed by their less bold or, if you prefer, more conservative peers. That goes for both fund managers and central banks. In that light, if there ever was a time to follow the trend/money, this would be it. We're in the early stages of acceptance of gold (to be followed by silver) by the establishment as a legitimate investment instrument. These are not yet panic days, but naming gold as an investment choice won't raise eye-brows at cocktail parties going forward. You might still get some show of bewilderment, though not far beyond this coming Christmas season. Better yet, it might buy you a few nods of approval on this stretch. Certainly, you won't be instantly discarded as a screw-loose maverick, as was the case only a couple of years ago.

Further into 2010 and beyond, it is likely to become fashionable and perhaps understood that anyone with any sense of the market "has to have SOME gold"; and if you don't, your fellow fund managers will send you condescending looks as if to say "Don't you know everyone is in on the gold game?".
But everyone won't be, it will take time for a lot of newly converted believers to move into gold space and, more importantly, there isn't enough capacity in the sector to accommodate any significant influx of money. The thing to note here is that many funds that never had any exposure to precious metals or commodities will enter this space for lack of better alternatives, at least with a portion of their portfolios.

2) Expect substantial growth in assets under management of the better established precious metal funds, due to inflow of new funds from various sources, including funds operating in other sectors. Another reason will be the rise in share prices of precious metal fund holdings, which will suddenly make them viable competitors for investment dollars with their peers. For instance, a Vanguard Gold Fund would evolve from an obscure specialty fund with comparatively measly assets under management into, at first, a solid and sizeable fund, and later, a top performer and flagship within the group.
This should happen across the board and around the globe. Since success breeds success, it should be followed by increased percentage allocation of investment portfolios to the best performing funds. Remember Fidelity's Magellan fund getting so big it had to close doors to new investors? We expect things to play out in that direction. Not right away, but somewhere on the horizon, in the mania stage.
  • What is a poor fund manager to do?
Imagine you are a fund manager in some non-hard asset sector: bonds, financials, healthcare, tech, etc. Through some soul-searching and head-scratching (and some kicking and screaming) you arrive at the idea that you have to move into hard assets. Trouble is, you have no clue where to begin and how to value resource stocks. Short of hiring a mining analyst, who will be hard to come by for a while, and seeking outside help, these are the main options we see available to ‘do it yourself’ money managers:

  1. The first thing you do is look at the ETFs and other similar vehicles that provide exposure to the sector without having to deal with the nitty-gritty picking stocks. But the space is crowded;
  2. Then you look at the indexes and drill down to the blue chips. That's nice, yet you soon discover that valuations are defying gravity;
  3. Next, you check the top holdings of the best precious metals you can find and move into them;
  4. Do your due diligence and try to make your own picks, but that is a whole lot of work.

This is where things get interesting, so let us set the stage. In the diagram below we tried to identify the dominant money flow trends and highlighted them in shades of green based on where each group of investors is likely to direct the majority of their investment capital (yes, every player in the space will be at once the recipient and allocator of capital). We intentionally downplayed the impact of retail investors at this time, as their day in the spotlight is yet to come during the final blow-off stage of this bull market.


  • How to play it
One of the biggest investment themes of the past decade has been the China play. Everyone knew there was an opportunity there, but finding a way to bet on it without excessive risk was difficult. Eventually it evolved into a "Buy what China buys" strategy. Taking a page from that book, we think a similar approach can be applied here: one should buy what the best investors are buying in the precious metals sector. When we say "best" we don't mean in absolute returns, but rather, those best equipped to identify the most attractive opportunities.

As you can see, we believe the main beneficiaries from money flow trends will be the mid-tier companies; those with established resources and production. This group should be the main focus of precious metal/resource funds and at the same time, become a takeover target for the majors. The acquisition of Canplats by Goldcorp, is a good example of what we're talking about.

The main criteria that may be helpful in spotting these companies are:
  1. Established resources in the ground. Some of the hard and fast numbers to help sort companies are 5+ million ounce gold or 100+ million ounce of silver deposits will be picked off first, however all ounces are not created equal and other considerations apply in the selection of potential takeover targets.
  2. Production profile. Ultimately, production is the goal for majors, so the closer the project is to production, the more attractive it becomes. We would be looking at companies producing 200,000+ oz of gold with 15+ year mine life.
  3. Market capitalization. Another filter investors can use when looking at these stocks is market capitalization. Mid-tier companies, depending on various factors and development stage, will usually sport market caps of $200-300 Million at the lower end for explorers, to $1-2 Billion at the higher end for producers. Certainly, these are not all-encompassing brackets, but by and large the companies discussed above will fair somewhere in that range.
Most likely, all three prerequisites listed above will be true for a good takeover candidate. There are many other considerations which may be important in each specific case – such as grade, project economics, infrastructure, access to water, power and workforce, geopolitical concerns in the country where the assets are, and so on. But we are trying to keep it simple.

We certainly don’t mean to imply that companies elsewhere in the spectrum will not perform well or should not be considered. On the contrary, rising tide will lift all boats without holes in them. Speaking of holes, this is an industry where one drill hole can change the fortunes of all but the largest companies on any given day. So, by all means, entertain all options. That said, this market has gone institutional and the trend is your friend.



Austrian Banks May Be Less Stable Than Their Figures Show

Monday, November 16, 2009

All cannot be well in the Austrian banking sector despite opposite announcements from the banks themselves. Although Raiffeisen Zentralbank (RZB), Unicredit subsidiary Bank Austria and Erste Group reported operating profits in Q3 2009 only last week (click links for quarterly reports in English,) latest events from the past weekend keep me suspicious that Austria's banks, endangered by their failing ventures in Central Eastern Europe, are far away from the financially stable positions they wish for themselves. 2 Austrian banks have already failed to pay interest on their capital injections from the Austrian government in July.

Banks Want to Keep Unlimited State Guarantees Until 2011
According to a (German) report on the website of Austrian TV broadcaster ORF banks now ask for an extension of the state's guarantee to cover all deposits at Austrian banks. This unlimited warranty was scheduled to expire by the end of 2009, only to be replaced by a warranty that will cover all bank deposits up to €100,000 per bank and account holder. According to a spokesman from the finance ministry the new scheme will cover 98% of all deposits in Austria.
Austria has long been known to be the country where foreigners can discreetly park their money. Austria strongly refuses any further loosening of its banking secrecy law, fearing that this may lead to a competitive disadvantage. Both Italian and Russian tourists can be seen frequently depositing money in their Austrian accounts or buying gold. One need not identify themselves when buying gold for up to €15,000 and bank clerks have a traditionally bad memory for faces here.
Austria has so far admitted that the banking crisis may cost taxpayers up to €100 billion. But a Bloomberg report based on internal EU figures arrived at a total cost of €165 billion or more than €20,000 for every Austrian inhabitant.
The ORF story names Bank Austria CEO Willibald Cernko as the cheerleader for a number of banks who would like to see the unlimited warranty run until 2011, indicating that the banking sector in Austria may only see the worst in the medium term future. Anecdotal evidence has it that banks have essentially stopped lending to the private sector and small companies and do not plan to come back to the credit business anytime soon.
In line with the recovery of the Vienna Stock Exchange the 2 listed banks Raiffeisen International (RI) and Erste Group have strongly recovered this year. Erste, which first fell some 90% from more than €60 to €6, recovered to €30 whereas RI, which once traded above €120, fell to less than €14 and has now recovered to €46.
Erste Group needs to hold its shares close to €33, the price at which they are booked into the assets of their largest shareholders.
Raiffeisen International may pose the same problem for its large shareholders as the sunken share price diminishes their ability to use the shares as collateral for other investments. RI is 70% owned by RZB.
Erste Group CEO Andreas Treichl announced a few days ago that the bank would issue new shares in order to raise €1.65 billion in equity and would focus the offer on retail investors. Industry insiders see this as a sign that Erste Group failed to convince institutional investor to buy the issue, not exactly an encouraging sign in these days.
Bank Austria is likely to face problems in connection with some feeder funds that filled the pockets of the so far biggest Ponzi schemer, Bernie Madoff. Media reports put the damage between €350 million and €4.5 billion. I am still in research mode on this as the range is a bit too wide for my taste. But there will probably fire where one sees only smoke so far.
DISCLOSURE: Not so mad as to own Austrian bank shares.

4 EU Countries Resist US Access on European Transaction Data

Thursday, November 12, 2009

The most highly indebted nation in the world, the USA, is running into a bulwark of resistence in its strive to record European bank transaction data, Austrian daily Kurier reported on Thursday.
According to the report the USA wants to access all money transfer data and snoop into European bank accounts, including data on domestic and international money transfers. The so called Swift agreement is now rebuked by 4 European countries. Unfortunately Kurier failed to list the other 3 countries who say that if any such kind of agreement becomes reality they want a complete reciprocity, i.e. giving European authorities the same right to check out all US based accounts.
The USA has illegally siphoned off data from Swift, Europe's biggest clearing house for money transfers since 9/11 and now hopes to retroactively legalize its illegal snooping on innocent European account holders.
A draft prepared by the EU commission and the current Swedish EU presidency says that the intrusion on banking privacy shall be limited to accounts that are associated with terrorist activity. It also says that data has to be deleted as soon as an account turns out to be not involved into terror activity. The draft includes a paragraph that requires US authorities to announce all their intended scrutinization to the authorities in the respective EU country.
It is highly questionable that the intended US move will help in reducing terorrism finance which is rather relying on inofficial channels to transfer money. After all the SEC has been unable to find out who bought put options on those US airlines that crashed in the World Trade Center towers. The USA also claims that it does not know who owns the gigantic dollar deposits in the Caribbean offshore tax havens. IMHO these are more pressing questions in order to come to a correct description of the 9/11 hoax.

Man Tries To Sell 1 Ounce Gold Coin for $50 - NO Takers

Wednesday, November 11, 2009

I am a bit busy this week, attending 2 conferences which I will cover later. One concerned "Covering the Crisis" and the other one is about "Ways to a new financial order" organized by the Vienna Institute for International Dialogue and Cooperation
In order to reassure you that we are not even in the early stage of the gold bull market, probably still years away before we will see a gold hype or bubble, I recommend to watch this 6-minute video by Resistance where a guy tries to sell a 1 ounce Canadian Maple Leaf gold coin, current value $1,117, for $ 50 - and finds NO takers.



Gold may see a correction, but this video makes me except a price above $2,000 within 18 months and those non-buyers will probably scramble in 2012 to buy such an ounce for more than $3,500 as their paper investments will have all turned further south by then. This crisis/recession is far from over and we will not see a bottom before 2011 that may be the last stage of a WL recovery.
It is interesting to watch gold zooming in parallel with the stock market these days, another paradigm shift that indicates gold will break out to new highs in all currencies soon. This will attract momentum traders into the gold play, pushing it the next 10%.
Yes, there will be sharp corrections, so buy on all dips that are certain to come. A bull always likes to travel with as little baggage as possible while scaring those sitting on its back. Stay in the saddle.

Money Creation Explained in 34 Seconds

Friday, November 06, 2009

Yeah folks, that's what central banks do.


Hat tip goes to Burning Our Money.

ECB Does Nothing, Indicates Monetary Tightening

Thursday, November 05, 2009

Leaving its key interest rate unchanged at 1% on Thursday, the European Central Bank (ECB) appears to remain in standby mode, keeping financial institutions flush with cheap liquidity. The only new twist in President Jean-Claude Trichet's repetitive flood of calming words came in the Q&A session as reported by the Wall Street Journal:
The European Central Bank will begin absorbing excess liquidity from its monetary stimulus programs in a "timely" fashion, ECB President Jean-Claude Trichet said Thursday.
"Not all liquidity measures will be needed to the same extent as in the past," Mr. Trichet told a news conference, without being more specific. "Enhanced credit support on which we embarked is not for eternity."
He added that: "We expect [past] policy action will progressively feed through to the economy."
The introductory statement offers no fresh insights save for the point that the ECB warned governments not to lower taxes before the overall picture has significantly improved. Well, we certainly need not fear lower taxes in the technically bankrupt Euro member countries.
From the statement:
...many euro area governments are faced with high and sharply rising fiscal imbalances. If not addressed by a clear and credible exit strategy, this could seriously risk undermining public confidence in the sustainability of public finances and the economic recovery.
The very large government borrowing requirements carry the risk of triggering rapid changes in market sentiment, leading to less favourable medium and long-term interest rates. This in turn would dampen private investment and thereby weaken the foundations for a return to sustained growth.
Moreover, high public deficits and debts may complicate the task of the single monetary policy to maintain price stability. The Governing Council therefore calls upon governments to communicate and implement in a timely fashion ambitious fiscal exit and consolidation strategies based on realistic growth assumptions, with a strong focus on expenditure reforms. Tax cuts should only be considered over the medium term, when countries have regained sufficient room for budgetary manoeuvre.
If there is one thing I do not fear, it is lower taxes.
The ECB may currently be in a worse position than the Federal Reserve. Although I doubt US growth figures the economic situation of most European countries is still in the process of declining to new lows.
Trichet will soon face a tricky question: How to rein monetary inflation while not killing any future green shoots with higher interest rates,
We are in a unique situation that is fundamentally different as both record recessions and interest rates are at historic lows. By doing nothing for an extended period the Eurozone members risk higher government interest rates once markets begin to question the sustainability of a recovery without jobs and without growth.
Indebted consumers are not able to assist in the recovery: Latest Eurostat figures show that retail sales (PDF) declined minus 0.7% in September MOM.

EU Commission Asks Those Banksters who Caused Crisis for Solutions, Critics Say

The EU Observer has come up with a very good question: Why are those who caused the financial crisis are now consulted by the EU Commission in order to come up with a solution?
I may add the question: Why are the bonus-greedy destroyers of global prosperity are still on their jobs at all? I expect a complete change of elites within the next 3 years as has always been the case after every financial crisis in history.
The report, prepared by 160 organisations accuses the undemocratic top echelon of the EU that they were only interested in stabilizing the banking industry and not in an improvement for the whole society.
From the report:
The vast majority of experts advising the European Commission on greater financial regulation are drawn from the same institutions that helped cause the crisis, claims a new report published on Thursday (5 November).

The document, A captive Commission - the role of the financial industry in shaping EU regulation, accuses the EU executive of listening almost exclusively to the finance industry both before and after the onset of the financial crisis over a year ago.

Its authors, the Alliance for Lobbying Transparency and Ethics Regulation (Alter-EU), a coalition of some 160 civil society groups, say the commission continues to draw insufficiently from the considerable expertise to be found in academia and civil society groups.

"The commission only seems to be interested in listening to the advice of the finance industry, rather than acting in the interests of society," said Paul de Clerck, a member of ALTER-EU's steering committee.

Mr de Clerck is also critical of the legislative proposals put forward by the commission in September and currently being analysed by the European Parliament's economic committee and member state governments.

"The commission tells us they are tightening the rules but in reality their proposals still leave many loopholes. If the commission wants to restore confidence in our financial systems, it must break free of this stranglehold of partial advice," he says.

De Larosiere Group

The draft legislation draws extensively on a February report by a high-level group set up by European Commission President Jose Manuel Barroso last October, whose board almost immediately received criticism over its make-up.

FIN-USE, a group of experts in consumer protection and small businesses that also advises the commission, wrote a letter to Mr Barroso describing the Larosiere group members as "all eminent, respected members of the financial establishment."

"However, that is the very point – they are members of the 'establishment' and none could be considered dedicated user representatives," reads the letter.
Mr Larosiere himself is an advisor to French bank BNP Paribas, while other board members also have close links to large financial institutions implicated in the crisis including Lehman Brothers (Rainer Masera), Goldman Sachs (Otmar Issing) and CitiGroup (Onno Ruding).

"A fifth, Callum McCarthy, was the head of the UK Financial Services Authority, which had been described as systematically failing during the crisis. Another member, Leszek Balcerowicz, is well-known for his opposition to regulation," says the report.

Unfair accusations?

In response, the Commission says it is unfair to concentrate solely on the financial sector, arguing that a look at a broad cross section of the EU's many expert groups reveals a balanced showing of representatives from NGOs, consumer groups, and civil society in general as well as industry officials.

Alter-EU contests the suggestion of overall balance.

"The commission hasn't provided us with any evidence that what they are saying is actually backed up by figures," Mr de Clerck told this website.

On the question of sourcing financial advice from those implicated in the crisis, the commission says many of its advisors were among those to first sound the alarm bell.

The EU executive adds that the complicated nature of financial regulation makes it imperative to seek advice from established financial figures.

"If you want financial advice you don't ask a baker," one official told EUobserver.

EU finance ministers will meet next Tuesday in Brussels to discuss the Commission's draft proposals that call for a European risk board and three supervisory authorities to be set up.

In a sign of the extensive dogfight still to come, the UK threatened this week to veto the planned overhaul of EU financial regulation if further safeguards against EU interference in national financial affairs are not added.

"There can be no interventions that have fiscal consequences for individual nations," Paul Myners, the UK City minister, told the country's treasury committee.
Alright, the fights between all and everybody are on. But who will provide real solutions?

FOMC Statement: Fed on Autopilot, Will Reduce Buying Agency Paper

Wednesday, November 04, 2009

The Federal Reserve is set to continue its ZIRP (zero interest rate policy) until spring 2010. According to the statement released after the latest 2-day meeting of the Federal Open Market Committee (FOMC) the Fed kept its key interest rate unchanged at the level of 0% to 0.25%. While the Fed sees the economy picking up I stay with my opinion that US GDP is actually still contracting were it not for the unlimited spending on killing devices.

Ben Still Doesn't Get It
As all FOMC members voted for the continuation of doing nothing despite gold showing clearly that inflation will set in next year one can expect that inflation will surge next year to levels not seen since the 1970/80s.
Contradicting itself in one sentence I advise investors to be extremely cautious as the Fed is way too optimistic in seeing a recovery:
Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.
The cryptic FOMC statement sees at least that we certainly cannot talk about a Goldilocks economy anymore:
Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
Acknowledging declining consumer demand the Fed expects inflation to remain subdued:
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
I am not sure that the gradual tightening of the Fed's purchase programs will achieve the wished result of higher ABS prices. According to the statement the Fed will slow its purchases:
To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.
Sorry, this statement is of little help for investors that want to find out whether the Fed will remain on its course of monetizing the debt or whether it may think about a real solution to fantasy security prices they pay because nobody else wants to buy these toxic assets.
Gold's surge today is a clear reminder that investors worldwide are wary about the future of the value of Federal Reserve Notes (FRN) and its potential purchasing power in the future.
Although this blog refrains to give actual investment advice I feel on the safe side to recommend precious metals again.

Worldwide Income Tax Survey

This is a most useful piece of information for all restless Internationalistas who are looking for a tax friendly residence. KPMG has done a global survey on income taxes.
As everybody's tax situation is different I recommend to download the whole PDF document and take your own conclusions.
Lastly a historic reminder: All revolutions were borne from 2 reasons: Either too high taxes or too expensive food.

IMF Sells 200 Tons of Gold to India for $6.7 Billion

Tuesday, November 03, 2009

-- CORRECTED --
The gold bull market becomes more interesting with every day. Based on disastrous economic fundamentals it now seems to be able to withstand hits of any size.
In a surprising move the IMF announced on Tuesday (CET) that it had sold 200 metric tons of gold to India in the last two weeks, valuing the sale at $6.7 billion or 4.2 billion Special Drawing Rights (SDR). The Reserve Bank of India had last released gold holdings of 357.8 metric tons as of March 2009. This purchase increases India's official gold reserves by more than 55% to 557.8 tons.
According to the release India bought the hoard between October 19 and 30 at daily market prices. The sale was executed directly after gold's new record of $1,072 per ounce on October 14, according to Bloomberg figures.

GRAPH: Who will win the bet? Checking the chart India bought the 200 tons between $1,030 and $1,066. India may see itself as a huge winner in the short, medium and long term, having upped its gold hoard by 55% to 557.8 tons according to figures from the Reserve Bank of India's (RBI) annual report 2008/2009 (PDF).
With this sale the IMF has sold half of the intended sales volume of 403 tons, announced jointly with the latest Central Bank Gold Sales Agreement in August.
It will be now most interesting to see who will grab the other 203 tons. Both Russia and China had announced in March that they will put a higher emphasis on gold reserves as a share of total forex reserves. Both countries have satisfied their demand from domestic production so far. China has become the biggest gold producer in the world, mining more than 300 tons of gold annually, outpacing energy-strapped South Africa.
The IMF's press release gives no room for speculation. IMF boss Dominique Strauss-Kahn stated,
“This transaction is an important step toward achieving the objectives of the IMF’s limited gold sales program, which are to help put the Fund’s finances on a sound long-term footing and enable us to step up much-needed concessional lending to the poorest countries."
The IMF is eager not to unsettle gold markets and will probably sell the remainder directly to central banks, it said further.
As previously announced (see Press Release No. 09/310), in accordance with the guiding principle of avoiding disruption of the gold market, the IMF’s Executive Board adopted modalities for the gold sales consistent with guidelines it had earlier established. In particular, the Fund is standing ready for an initial period to sell gold directly to central banks and other official holders that may be interested in such sales. Thereafter, on-market sales of any amounts remaining from the 403.3 tons would be conducted in a phased manner over time, following the approach adopted successfully by central banks participating in the Central Bank Gold Agreement.

Find some useful links on gold and the IMF here:
A primer: Gold Sales—FAQs
Factsheet: Gold in the IMF
Press Release on Gold Sales

The Prudent Investor Now in 3 Lists of 100 Best Financial Blogs

Friday, October 30, 2009

Although I do not accept ads to exclude any possible conflict of interest as I run this blog as a non-commercial service to help my own investment decisions, I think it is nevertheless time for a bit of shoulder patting concerning the success and reach of this blog after the first 700 posts.
Always criticizing that the current economic mess is a result of getting next to no economic knowledge in all school systems worldwide I am especially proud that onlineschools.org has listed me as the #15 - which translates into #1 in the category news blogs, 4 ranks ahead of the Wall Street Journal, in their new list of 100 blogs for future investors.
At the same time I am positively surprised that valuewiki lists me at a respectable #80 according to Alexa while their Technorati ranking puts this blog at #34.
While direct hits may lag behind other serious bloggers, I take comfort in the fact that my post get aggregated at more than 100 other websites. I have long lost count but I enjoy it tremendously to reach a worldwide audience.









Weekend Viewing: The World We Live In

This English-French rap video reflects today's world very well. Enjoy it. H/T Victor!

Dollar Danger: Iranian Oil Bourse Steps Up Activities

As Obamacare dominates the American lamestream media, the fundamentallly most important news for oil and the dollar was to be found first in the Tehran News on October 27. The Iranian Oil Bourse was finally inaugurated last Monday, after such a statement was already made in February 2008, leaving room for confusion.
According to the Tehran Times
"The Iranian Oil Bourse was inaugurated on Monday in the Persian Gulf island of Kish as a venue to export oil and petrochemical products.
National Petrochemical Company's Managing Director Adel Nejad-Salim said in the opening ceremony that all petrochemical products will be gradually offered on the market, IRNA news agency reported.
The oil bourse is intended as an exchange market for petroleum, gas, and petrochemicals in various currencies, primarily the euro and Iranian rial, and a basket of other major currencies.
On February 4, 2008 the Iranian Cabinet approved the creation of the oil bourse in two stages - first for crude and second for oil byproducts transactions.
Iran, having the world’s second largest gas reserves and third largest oil reserves, is trying to play a more active role in oil and petrochemical transactions in international markets."
These reports show that Iran is far slower progressing in its strategy to shift its oil trade from Federal Reserve Notes (FRN) to other currencies, predominantly the Euro. Iran has been selling oil in long term contracts to European buyers in Euros. Read this report from April 2006 on the Iranian Oil Bourse here that described a much more dynamic timeline.
OPEC members are required to settle oil trades in FRNs but most member states recognize the vulnewrable position of FRNs as the world's reserve currency. Any decrease in demand for FRNs will hurt the whole world - and there will be no painless way out of the current mega-giga-mess.

The Potemkin Village Called "Recovery"

So you think this spike in US economic activity in Q3 2009 is the beginning of the next upleg?
Better think twice.
Not one of the major problems like exploding deficits, unemployment, quirky wars that are now questioned by the US own top Asia specialists in a Washington Post interview, a collapsing dollar because the Fed feeds the banks with money to keep the major indices at levels that have nothing more to do with fundamental reality, has been solved.
Western "powers" keep doing what they are used to do: Come a problem, let's counter it with fresh debt.
A look at yesterday's advance estimates for US GDP growth makes me scratch my head. Adding to all problems described is the worrisome trend Obama's orgies of nationalization started. While private disposable income fell 3.4% QOQ in Q3, Federal expenditures point towards more socialization with a quarterly surge of 7.9%, only surpassed by growth in the military sector that spent 8.4% more than in the quarter before.

A 10% shrinkage of GDP is Called "Recovery"? - OK, War is Peace
A look at YOY absolute figures shows that GDP shrank more than 10% from $14.441 Trillion in 2008 to a mere $13 Trillion. Remembering home prices fell 7.8% YOY, according to this report from the Phoenix Business Journal, and seeing that the cash for clunkers initiative will cost the taxpayer $24k per car I am not at all confident that we see any fundamental turnaround but one constant: More and more GDP is created by waging wars: An F-18 crashing in Afghanistan is economically positive as it will add a billion and some change in replacement costs to the next GDP figures. This is the perversion of war: Bomb it and make money rebuilding it.
But in a time where the biggest warlord on the world, maybe a bit more eloquent than his predecessor Dubya, becomes Peace Novelist I can as well trust that all figures reported by US statistical offices are true to the 3rd digit behind the comma, can't I?
On-the-ground research offers not much hope: When did you last meet somebody discussing his next big ticket purchases as he was looking into a happy money-filled future?

Middle Class Gets Wiped Out in Europe
The middle class is getting wiped out meanwhile. One of the last surviving Slovakian car suppliers with Austrian roots told me the car market gets split into 2 segments: Ultra-compact cars and the luxury class.
But there are also glimmers of hope: By now he can undercut Chinese competitors up to a third and has the advantage of shorter transport distances. All that would be needed next is an upturn in Europe: Quiet harbors, less commercial road traffic show no such signs unfortunately.
Investmentwise I remain with my perma-preference of gold and silver as we have not yet seen the big whopper on Wall Street that will come on the same silent soles as in 1929: When nobody expects it anymore, see the most overvalued period of stocks coming to an end that is very likely to happen maybe already in November.

FOMC Minutes Show Board Split - Support My Inflationary Outlook

Wednesday, October 14, 2009

The latest FOMC Minutes from the September meeting of the Fed support my inflationary fears. While showing a rift between hawks and doves the Fed makes it clear that it will remain on the (fantasy) bid for whatever dead investment instrument comes along.
The Fed's staff forecasts is bullish as ever:
The information reviewed at the September 22-23 meeting suggested that overall economic activity was beginning to pick up...
In the forecast prepared for the September FOMC meeting, the staff raised its projection for real GDP growth over the second half of 2009 and over 2010.
The participants current outlook confirm that the Fed is a boat drifting in the mist of data. It does not sound too optimistic fine-reading this FOMC quote:
Despite these positive factors, many participants noted that the economic recovery was likely to be quite restrained.
followed by lingering fears of inflation despite a contraction in money supply M2.
A few continued to see some risk of substantial further disinflation, but that risk had eased somewhat further over the intermeeting period. Over a longer horizon, a few felt the risks were tilted to the upside.
OK, this comes long after the admission that the Fed mainly tries to contain expectation inflation expectations - all the time padding their own shoulder to have been successful on this front in the past.
It does not change my view that surging commodity prices will surprise the world within the next 12 months, re-charging inflation again with oil buldifing a base above $70 a barrel.

CONFIDENTIAL - Cheney Leads Pack for Peace Nobel Prize 2010, Bernanke Economic Nominee

Excuse my absence in recent days. Waking up to the news that US president Barack Obama was awarded the Peace Nobel Prize - is yet known to what charity he will give the $1 million coming attached with it? - I cannot resist the impression that we have landed straight in George Orwell's "1984" where war is peace in the kind of newspeak Orwell theorized about in 1948 but that has become reality today, making me doubt everything that has been accepted knowledge until last weekend.
When a guy with 2 wars on his hands he loses while inofficially entering a 3rd war in the Pakistani tribal areas gets the most prestigious peace award we have finally entered an era of created reality that comes as close to reality like same-named TV shows.

1984 Is Now
Now that Obama got his Swedish medal, I can put a new rumour into the world. Next year's leading contender for the peace Nobel will be Dick Cheney - you remember, George W. Bush's vice in every meaning of the word - simply for not being in office anymore. Cheney in retirement is certainly the best that can happen to the global peace process, so why not honor him?
Or let's have a few more drinks and become really courageous.
Isn't Fed Chairman Ben Bernanke eligible too? Mainstream media (MSM) recently portrayed Bernanke positively, wrongly claiming he had saved the financial industry in the last 12 months. So please give him a medal and some other honor to his predecessor Alan Greenspan also simply for the reason that he is not in office anymore.

Iraq to Trade Oil in Euros
All this appears to me secondary though, as the media coverage of Obama's Nobel prize swept the most important fact of news under the carpet last week had to offer in MSM.
Alternative media website Alternet informed its readers on October 9, that Iraq was going to sell its oil in Euros, nullifying the last important reasons for George Bush's invasion of Iraq who rightly feared that commodity trading in other than Federal Reserve Notes might eradicate the dollars prime status as the world's reserve currency.
Isn' it strange that all MSM missed out on this truly important fact of political news that is more important for the dollar than the numbers of medals around Obama's neck?
Investmentwise nothing has changed my outlook until 2011: Stay long gold, silver, play oil on the long side if you need to gamble.

Today's Highlight: WSJ Says "Marx Is Back in Fashion"

Thursday, October 08, 2009

Rub your eyes and read this:
Astonishingly, given the ruin associated with his name, Karl Marx is back in fashion. The global economic downturn has spurred sales of "Das Kapital" to an all-time high; Michael Moore with his latest movie rivals the Original Communist in denouncing the evils of capitalism; and for the past year the news media seem to have delighted in running obituaries for the owners of the means of production. Michael Hardt and Antonio Negri, then, are nicely positioned to take advantage of Marx's revival with the publication of "Commonwealth," which re-imagines Marxism for the 21st century.
If you mistakenly think this comes straight from the World Socialist Web Site you just lost a Tenner that should go to the charity of your choice.
No, nobody less than the Wall Street Journal's (WSJ) book reviewer Brian C. Anderson sub-headlines truly revolutionary
Down with capitalists, nations, bosses, families, etc.
in his review of Michael Hardt and Antonio Negri's book
"Commonwealth," which re-imagines Marxism for the 21st century.
According to Anderson's review titled"Brothers in Marx"
"Mr. Hardt teaches literature at Duke University and is a postmodernism-steeped radical—that is to say, he is an American college professor. Mr. Negri, a political theorist, has a more unusual background. Three decades ago, the Italian government believed that he was the secret intellectual leader of the leftist terrorists called the Red Brigades and that he was the architect of the group's 1978 kidnapping and murder of Christian Democratic Party leader Aldo Moro.
Unable to build a sufficient case to try Mr. Negri for murder—he has always denied the allegation—Italian authorities convicted him of "armed insurrection against the state." Facing 30 years in the slammer, Mr. Negri scooted to France, where he remained, a philosopher in exile, until 1997, when he returned to Italy to serve the remainder of a reduced sentence. He is a left-wing guru whose field work has occurred far from the faculty lounge.
"Commonwealth" completes a trilogy that began in 2000 with "Empire" and continued with "Multitude" in 2004.
The book is a witch's brew of contemporary radicalism. Capitalism deserves to die, Messrs. Hardt and Negri believe, for it has abused and corrupted "the common." The common isn't just "the fruits of the soil, and all nature's bounty," they tell us; it is the universe of things necessary for social life—"knowledges, languages, codes, information, affects." Under capitalism, nature is ravaged, society brutalized.
Yet the conditions for people's emancipation are budding within capitalism, the authors believe (just as Marx believed in the mid-19th century). Unlike the factory laborer of yesterday, today's knowledge worker has less and less need for a boss. Companies extract the most value from the worker, we're told, when he is left alone to create, connect and collaborate as he sees fit. This is also true of "affective labor" that offers services to the public, "even in the most constrained and exploited circumstances, such as call centers."
Messrs. Hardt and Negri propose getting rid of bosses, of course, but they also target another bugaboo of the hard left, private property. The possession of property supports unjust power structures—why not agree that the "common wealth" of the human and natural worlds should be everyone's responsibility, everyone's resource? Welcome to The Communist Manifesto 2.0.
Book ordered, although the WSJ wishes Marx back to hell:
"Commonwealth" is a dark, evil book, and it is troubling that it appears under the prestigious imprimatur of Harvard University Press. Countless millions were slaughtered by adherents of Karl Marx in the 20th century. God help us if the scourge returns in the 21st.
Marx must be a strong fear factor if the WSJ sees time already fit to warn of the devilish ideas and changes socialism could bring to its owner Rupert Murdoch.

Moody's Needs Urgent Help

Now that's a good one. Only 4 months after "Moody's Offers Training Courses on CDO/S - After Getting 99% of Ratings Wrong" there appears to be a polar reversal at the ratings agency that got 99% of its CDO/S ratings wrong.

SCREENSHOT: While once offering such courses the wizards of the ABCD world are now looking for help themselves, as this screenshot from web stats shows. Click to enlarge.
Pressed for time I refer you to the post "3 Figures Explain the Foolishness of Bankers" for one more smile.You can now get up again from rolling on the floor, laughing, and maybe utilize time with a risk assessment 101 course, if there are any offered.

Road Sign to the Property Crisis

Wednesday, October 07, 2009

"Go ogling" the terms "property crisis britain" this is my favorite as the Brits lead in coming up with a truly reasonable new traffic sign. Use it for more or less any new town worldwide that is built on debt while we face a global recession.
It is a delight to point readers to HousePriseCrash as it delivers the terrifying news on the UK property market in realtime. Stick that sign on the town of your choice.
Please fill comments with the towns you know will suffer until 2011 or longer. This is not limited to the UK, all first-hand country information welcome from everywhere.














Thousands of Analysts But Not One "Solutionist" in this World!?

Tuesday, October 06, 2009

Parsing on average 500+ news pieces on an almost daily basis and trying to keep up with the continuously growing stack of yet unread books I begin to feel a little bored of this perma-diet of geopolitical, local and economic news that are modern history.
While I have the highest respect for writers like Joseph Stiglitz, Jeffrey Sachs, Noam Chomsky, Eric Hobsbawm, George Soros, Michael Panzner, Jean Ziegler and the Viennese school of economics I am still deeply worried.
All those named and so many others may excel in analysing the crisis. This was not a difficult task as this modest blog has been proving since April 2005, this being post #694.
But my main worry is that there is a huge gap in terms of practical solutions. One may get the big picture why things have happened as they have by reading some 200 or more websites everyday (I have long stopped paying for newspapers or magazines.)
I may infuriate one or the other thinker in this world but I include myself in my criticism: There are lots of good analysts around explaining very clearly our current global, national and local problems but I very rarely catch some online or other literature that would deliver solutions to the hundreds of gargantuan problems we face.
Having long given up to find such solutions with politicians who are mainly interested in pork for their constituencies and who do not have very much time in their 4-year circles of which they spend half the time trying to ensure their reelection it becomes frustrating that there is only a handful of futurists that deliver marginal insights how humanity will govern its civilised survival in the near to medium term future.
Staying with my very bearish economic outlook the only relief I have found so far comes from Ray Kurzweil's book "The Singularity is near." Kurzweil proves that people tend to extend the growth of knowledge on a linear basis whereas human knowledge actually grows exponentially.
Thousands of think tanks are of no help to tackle future problems either. Most of them, from Tavistock to the Cato institute limit their potential with dogmatic statutes.
I won't even touch the problem of the heavy imbalance of knowledge as left wing think tanks are hopelessly outnumbered by (neo)conservative think tanks - who were the unglamorous forethinkers that led us into the current global crisis.
Check out the Council on Foreign Relations (CFR), probably the most influential of all think tanks. Their analysis of the state of global affairs offers a sometimes brillant guideline why and how it all happened (the Bank for International Settlements is about on the same level) but I could not disagree more when the CFR arrives again at a solution that has impoverished every generation since the early 18th century.
Another Fiat Reserve Currency Ain't Gonna be a Solution
Replacing Federal Reserve Notes (FRN) with another unbacked funnily coloured fiat currency will only extend the inequalities on earth. Three centuries of failed fiat money experiments compared with 5,700 years of a gold/silver standard only show that modern economic scientists are looking on the world through the wrong side of their goggles.
As long as fiat money remains the ultimate dogma for the wealthiest - the secretive shareholders of central banks - of the wealthy we may see a rapid output of more research papers telling us the same crap all over again.
From Rome to Britain: every empire vanished into oblivion soon after it went off the gold standard. It is time to recognize the obvious: Unbacked money has never worked.
NOTE TO READERS: Please disagree with me and mail me your favorite think tanks, scientists, economists and whoever else you think may be capable to leave a distinguished foot print in the name of our continuing civilization. Find my email address on my profile page.

New Media Discovers Documents that Prove Gold Price Suppression Scheme

Monday, October 05, 2009

Neither CNBC, the Bull Street Journal or the Debt Times have covered the latest earth-shaking news reported in the new media concerning gold price suppression by governments and central banks. Let me first send respectful hat tips to Zerohedge, EconomicPolicyJournal.com and GATA who all came out in the last 2 weeks with official documents that prove that especially the USA has a most vital interest to keep the price of gold as low as possible. Please check out all three sources to find links to countless official declassified documents that deal with the hot issue of gold manipulation.


Looking at the 10-year chart shows that all multi-billion operations by central banks in the gold market have led to nothing else than the current near-to-record prices although these institutions can short gold unlimited via futures markets.
They fear a gold price that would correctly mirror the uncountable money printing excesses which show us that central banks are no more than one-trick-ponies. Take away their privateering privileges of creating money out of thin air and it becomes understandable that tireless Congressman Ron Paul wants nothing less than abolishing the Fed.
While Ron Paul has still many hurdles in front of him he at least nurses a strongly growing community supporting him.
Happy USA - it has at least a few million citizens who understand the biggest ponzi scheme in history, AKA Federal Reserve Notes (FRN) created by the trillions nowadays, and who begin to fight this scheme that led to the impoverishment of every generation in the last 3 centuries.

The Situation in Europe is Sad at Best
The situation in Europe is sad at best. I presume that the number of Europeans understanding the diabolic actions of central banks which always ended in hyperinflation would not fill more than a small town concert hall.
While Fed Chairman Ben Bernanke encounters a more and more aggressive environment on his trips to Congress and Senate, ECB President Jean-Claude Trichet can still get away with such blatant disinformation in the European Parliament (EP) like the following 5 bullet points presented to EU politicians on September 28:
  1. First, we have fully accommodated banks’ liquidity needs at fixed interest rates.
  2. Second, we have further expanded the list of assets eligible as collateral.
  3. Third, we have further lengthened the maturities of our refinancing operations.
  4. Fourth, we have provided liquidity in foreign currencies, notably the US dollar, to address the need of euro area banks to fund their dollar assets.
  5. Fifth, and finally, we have launched a direct covered bonds purchase programme to support financial markets.
You don't have to be an expert to get angry on the nonsense Trichet tells a generally disinterested EP with no second-guessing of his elaborate speeches that hide the simple process of creating unbacked fiat money by the shipload below a couple of technical terms that work like Quaalude on the EP members.
Trusting that my readership knows about the undeniable fact that so far all experiments with unbacked money ended in hyperinflation I nevertheless want to point out that the abolition of metal standards - gold and/or silver - had at least one positive fact: All kingdoms and empires collapsed, beginning with the revolution in France in 1789 that became the first democratic republic and set a precedent for the rest of the world. Monarchic rulers have only survived on a representative level and they are certainly a proper looking circle for ribbon-cutting ceremonies of all kinds.
Allow me to point you again to the 3 sources in the first paragraph of this post (and save me from uploading PDFs when they can be found there easily) that show us that the real power has moved from policymakers to central banks since the USA abandoned the gold standard in 1971 under a pardoned criminal by the name of Richard Nixon.
The gold standard is most uncomfortable for politicians as it would limit their spending. After almost 4 decades where the public was talked out of gold with the main argument that gold is the relic of a past of un-sophisticated finance, gold is stronger than ever.

Gold has NEVER Lost its Value in 6,000 Years
Gold has never lost its value as all fiat currencies did and it is the last measure we have to calculate real inflation. If you were told that a bag of potatoes cost 3 guilders or 6 florins or 1 mark some decades ago you would not be able to get down to the real price. But if you are parsing historical price statistics and you find out that one troy ounce bought you 100 bags of potatoes it becomes pretty easy to compare it with current prices.
But this probably the last thing those in charge of the financial world want. Inflation can fool people for a long time as every history of a fiat currency begins with the soothing effect that everybody feels richer.
But there is also another undisputed pattern in the history of unbacked money. The trust about its purchasing power took always only a few months, e.g. Germany's hyperinflation, that collapsed in less than 2 years and set the ground for the rise of Adolf Hitler which then led to the demolition of Europe.
In my opinion it is astonishing that in the presently running ruination of the Western world because of unbacked paper money any discussion dogmatically avoids a return to metal backed money. While China's central bank governor favored a commodity based currency last March in a most interesting article I cannot agree to use a commodity basket as backing for a new international monetary system. All commodities are too volatile and can be manipulated in many ways. Just imagine Russia/China/India announcing that their grain stocks have been erased because of bacterial contamination.
There is only one solution to arrive at a stable monetary system: The paper money must be backed by gold and/or silver as they are a value in itself. This worked well for 5,700 years. It would be better for the world to return to this old fashion instead of wasting more time discussing how to repair the monetary system with the same built in weaknesses that have disowned every generation since 1720.

German Bundesbank Will Sell Only a Few Grains of Gold 2009/10

Tuesday, September 29, 2009

The German Bundesbank has announced it will sell a maximum of 6.5 tons of gold in the current fiscal year under the Central Bank Gold Sales Agreement (CBGSA.)
Germany sits on a hoard of 3,408 tons, the second largest gold stash behind the USA.
The Bundesbank has always fiercely rejected all attempts by politicians to close budget gaps through selling gold. It is the first CBGSA member to publicly announce its intentions for the running year.
The small sale of 6.5 tons will be almost exclusive used by the German mint to produce collectors gold coins.
A few weeks ago the German government admitted that part of Germany's gold hoard is on US soil, creating a minor tussle whether this is the right policy.
On a historical note France's ex president Charles de Gaulle sent a warship to New York in 1971 to pick all of Frances's gold holdings there and repatriate them to France.
Dubai had started repatriating its 114 tons of gold in May from London to Dubai.
According to German gold website Goldseiten.de Germany will offer its sales rights to other member nations or the IMF which wants to sell 403 tons of gold in the next few years. Ther IMF is not a part of the CBGSA.
Both China and Russia announced earlier this year that gold will play a vital part in its foreign currency reserves, fundamentally shifting the global importance of gold to the upside. During WW2 Germany was only able to fund its international purchases with gold as the Reichsmark was not honoured by any other government anymore.

Weekend Viewing: Creeping Corporatism/Fascism: Police Attacks Pittsburgh Students

Saturday, September 26, 2009

Pls somebody shake me awake and tell this is not ther USA 2009.


VIDEO: Pittsburgh students are attacked with non-lethal sound canons. But look at the martiality of these government's goons. The whole scene reminds me of junta-like regimes that quell any and all democracy (which is the right of the ither to speak his mind.)
Is the whole world coming to an unprecedented state of chaos as these defense expenses trillions are neither in the pockets of Congress nor in those of taxpayers? The bankrupt US(S)A has other priorities, way more pressing than to terrorize its own citizens. How many computers for school kids bought only for the total tab of this show of homemade terror paid for by tax payers who certainly have more vital agendas on their minds these days?
Their mid term most challenging task will be to find foreign nations buying bonds from a government that has been trampling on human rights for centuries now and looks maybe even ready for segregation. CHeck out some old world maps: America is only around for 400+ years. The first Iraqi chiefdoms, Chinas's emperors or the Roman empire had ruled much longer and fell for the same reasons:
Too much debt
A public standing up against either bread prices or new "taxes" has always been the breeding ground for very sudden movements of the public. As I have not come across a piece of history that would disprove of this theory, here a may-be version about the first signs that will hit citizens: ATM's won't work, banks telling will only allow maximal daily amounts.
A systemic failure would mean financial and economic chaos within 2 weeks where we may come across a new Tsunami that bankrupts companies and families bankrupt because the credit system cannot keep the money going round anymore
Enough for a late Saturday blog post. I will elaborate more on this in a timely fashion.

Fed Attorney Wants to Clarify "Yes" and "No", Does Not Rule Out Fed's Direct Intervention in All Sort of Markets

Tired of the Simpsons on morning TV for a first shot of eye-blinking humour and irony? Well, then better change to the REAL REALITY LIVE TV C-SPAN. Another good source for the best soundbites from idealess politicians is youtube.com
I normally see video as a time consuming habit. Better utilize time to read 3 hardcopy studies than listen to one of them. Well - er - there may be one adult-only TV news station designed to represent the truly booby info ;-)
Unfortunately this doesn't work in the case of a live transmit from some government venues where every irony writer/comedian will at least have leg-cramps because he could not come up with better satire.
Check out this video where Republican Congressman Alan Grayson slams Fed Attorney Alvarez for the Fed's apparent posture to block off any information claims and does not rule out that the Federal Reserve actively intervenes in all kinds of markets!!!

VIDEO: Rep. Congressman Alan Grayson owns Fed Attorney Alvarez, whose biggest skill is probably to revolutionize science about the meanings of such conundrum-like words like "yes" and "no" Video courtesy of BreakThe Matrix.
This involuntarily comedy reminds me of George Orwell's newspeak where war is peace and yes is no.
Find 100s of such inferior appearances of politicians recorded somewhere on the Web.
TV is dead. (First coz'of too many ads, now coz'of not enough ads) I prefer to get unedited cellophane (sorry, digital whatevers) versions of what had happened on the Web e.g.
Twitter has become faster than any newswires who themselves jump the bandwagon in order to show presence among millions of micro-bloggers.
The web begins to scare execs of traditional media who relied on ad incomes that now mostly go to Go Ogle ads. I cannot imagine that the traditional printed press will survive by holding on to the wrong strategy which is just another continuation what we heard n times before.

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