Are You Long Euros?

Thursday, December 16, 2010

While politicians are in deadlock about how to save the unloved Euro, Europeans take to the streets to protest the wave of austerity measures.

Mainstream Media Ignore Greek Protests

Wednesday, December 15, 2010

It is interesting to see the virtual blackout on European TV about Greek protests turning increasingly violent. As the world has started a discussion about the role of journalism here is a good example that omission of facts is still one of the most widely used tricks in the business.
Now here's a quiz: Which of the 2 following videos has not been seen by EU politicians?


General strike in Greece by France24

Isn't Greece a peaceful country, is it? You may change your opinion after the jump.

Slovak Politician Calls For Plan "B" To Ditch The Euro

Unhappy with the current deadlock in talks about a Eurozone rescue, Slovakia will be going to develop a plan "B" that would see the country abandon the Euro. According to a report from EUobserver parliamentary speaker Richard Sulik said that such a plan would ultimately lead to a return to the Slovak Koruna.
From EUobserver:
Slovakia, which joined the eurozone last year, should have a 'plan B' to return to its national currency, the country's parliamentary speaker, Richard Sulik, has said, amid frustration over the way the eurozone is handling the debt crisis.
"The time is ripe for Slovakia to stop blindly trust in what eurozone leaders say and prepare a plan B. This is the re-introduction of the Slovak koruna," Mr Sulik said in an opinion piece published in the bussiness daily Hospodarske noviny on Sunday (12 December).
He added: "As we are a country too small to significantly influence EU action, we must at least protect values created by the people living in Slovakia."

Bernie Madoff's Austrian Connections Get Sued For $59 Billion

Saturday, December 11, 2010

Sonja Kohn
Little Austria's banking world moved on the global financial radar overnight. Bloomberg reports on a 44.65€ billion lawsuit against Austrian Sonja Kohn, her Medici Bank (under state curatorship since Jan 2, 2009), Bank Austria and parent UniCredit as well as 53 other defendants. It seeks a payback plus RICO damages, as Kohn is suspected to be the mastermind of an Austrian feeder scheme for Bernie Madoff's biggest Ponzi scheme of all times.
Before I am going to have a serious discussion with my stylist about my next multi-billion hairdo I am at least happy to have found the answer to the question about whether to rob or incorporate a bank.
As it appears to the outsider Ms. Kohn has managed to pull off the biggest banking heist in Austrian history, funnelling potentially 7.57€ billion to confidante Madoffs Ponzi. 
The lawsuit filed by Court-appointed trustee Irving Picard says that her collusion was so pivotal to the fraud that Mr. Madoff tried to destroy evidence of their connection before his arrest in 2008. “In Sonja Kohn, Madoff found a criminal soul mate, whose greed and dishonest inventiveness equaled his own,” said Picard.
Kickbacks included a €405 million payment shortly before Madoff's bust, indicating a close 23-year friendship with Bernie Ponzi Madoff.
Talk in Vienna has it that this will develop into a feast for lawyers as duped investors include a good part of Austria's upper crust, Vienna's Jewish community and even many bankers themselves. Bank Austria held 25% of Bank Medici, which saw two former government ministers serving on its supervisory board. 
Denying via her office that she went AWOL last Wednesday Kohn's lawyers have not yet responded to the latest allegations. Kohn had always insisted she was a Madoff victim herself.

Euro Until The Endsieg

Friday, December 10, 2010

Breathless but futile discussions about the creation of a new layer of debt in the form of Eurozone bonds are going nowhere. Jean-Claude Juncker, head of the eurozone group of finance ministers, now clashes with France and Germany who both reject the proposal as it would raise their financing costs.
On Thursday he said in Germany's main TV news "Tagesschau" that Eurozone governments would have to finance 40% of their debts via Eurozone bonds, which would lead to a northward conversion of German yields with their weaker Euro brothers in arms.
As the Euro dream has rapidly mutated into a nightmare for Greece and Ireland, with Portugal and Spain to follow for sure,  I note a fatal tendency in EU circles to hold out for the Endsieg despite all the contrary evidence pointing to a not too distant disintegration of the common currency.
The term Endsieg was first coined by immortal social-libertarian Austrian politicial critic Karl Kraus in 1918 - he was the official Austria's pain in the a.. a century ago with his weekly newsletter "Die Fackel" - and was hijacked later by Adolf Hitler's propaganda minister Joseph Goebbels.
'Endsieg'became part of the Nazi doctrine before the ultimate downfall of the Third Reich: Temporary losses (including of civilian lives) notwithstanding, the 'Third Reich' would ultimately prevail, and thus any breakdown in allegiance to Nazi ideology was not to be tolerated. This conjuration of final victory became more desperate in 1943 when allied successes forced Germany onto the defensive. Joseph Goebbels still spoke about the 'Endsieg' as late as March 1945.



VIDEO: EU President van Rompuy: "I am convinced that the euro area will come out of the crisis stronger."
SOVXWE: EU default risk more than doubled YOY
The Euro propaganda ministry in the European Central Bank in Frankfurt frantically tries to implant the similar wrong belief that all is right with the Euro. What charts do they watch?
Maybe they take a look at ActingMan.com whose very nuanced Austrian view of the Euro's death spiral arrives at an entirely different, bleak, picture.
National politicians in many EU countries, whose borrowing costs will shoot to unaffordable levels after the first sovereign debt default next year, still appear to draw a complete blank on the severity of the financial crisis that finds its roots in too much credit and too much leverage. The times of cheap debt are over and bond markets have topped out with a high probability.
This complete cluelessness is repeated on the EU level. Just follow the MEP's aggregated Twitter feed to have a real-time insight into their thinking - and take your own clues.
Mutual political calls that no Eurozone member will default echo the same despair as can be heard in the calls for the Endsieg 65 years ago.
The facts speak a different tongue.

The ECB Is a Savings Scheme/Building Society Located In Brussels

Thursday, December 09, 2010

It is high time that educational systems introduce the subject "economy/finance". Get a grasp why people are not worried about lost billions. After all, a billion is 1,000,000 millions, isn't it:-)

GUEST POST - Why Governments Will Buy Silver

Thursday, December 02, 2010

 - by Sean Rakhimov - 
Over the last several months we have been pondering if governments will come into the silver market. Before we get into that, it is important to note that governments are very different animals and there are over two hundred of them out there. Therefore, it is a very liberal generalization to lump them all together as if their needs, objectives and agendas were the same, thus expecting them all to act in the same fashion for the same reasons, is a big stretch. That said, it's the stigma, the psychological effect, the sentiment and the message it would send to markets that prompts us to group them together in investors' minds as a market force.
This same topic has been argued in the gold space for several years and now it has come to pass that central banks worldwide have thrown in the towel and became net buyers of gold. Should it be different for silver? By the way, did you notice, how silver silently became mainstream again and more and more headlines now read "Gold and Silver..." whereas only a couple of years ago silver was nowhere in sight of anyone except the dreaded silver bugs.
Much has been made about "manipulation" in gold and, particularly of late, in the silver market. Scores of articles have been written on the subject, and things got as far Washington , DC where CFTC held hearings on the subject. We don't subscribe to the theory, or, more precisely, we don't share the conspiracy context of it. After all, few seem to care about governments' involvement in industry, stock market, banking system, housing, etc. All of that is being done openly and has been for a decades, albeit at a grander scale lately, so why is it a big deal in the silver market?
We prefer the term "managed". Markets are managed as are currencies. Silver (as gold) happens to be money, so if all other "monies" are managed, why not silver? It would be native, to say the least, to expect anything different. If something is important to your livelihood chances are you're going to pay attention to it. Well, we are here to tell you that silver is important to governments, has always been, and is about to get VERY important going forward. Government did not decide that silver is money. People - you and your ancestors - did. So why is it a revelation that governments would be involved in the silver market? Didn't you appoint them to manage the monetary system? We're not saying whether it's good or bad. It just is.
Silver - The Versatile Metal
If you are interested in silver at all, you probably know that silver is faulted for being an industrial metal, a "mere" commodity, like..., you guessed it, pork bellies! Others, more generous in their assessment, will tell you that it's both: industrial AND monetary metal. Usually, in that order. We touched on silver's monetary role. Here is short list of what else it is:

Bailout Über Alles

Friday, November 26, 2010

This is why German officials want a bailout of everybody "über alles" (above all else.)
Enjoy the weekend. It could be the last one with a 16 member strong Euro club.

CHART OF THE DAY: Why Germany And UK Insisted On The Irish Bailout

Wednesday, November 24, 2010

Chart courtesy Guardian. Click to enlarge.

China, Russia Boot The Dollar in Bilateral Trade

As another proof that EURUSD swings are merely a race to the bottom, China and Russia decided to boot Federal Reserve Notes (FRN) in bilateral trade. The move is designed to achieve a significantly bigger world market share in the currencies of the 2 countries.
From Chinadaily:

Gold Attempts To Break Out vs. Euro

Gold in Euros. Click to enlarge
Gold may be set for major break-out as the preying eyes of Eurozone investors turn from Ireland to Portugal, where spreads reached levels last seen in Greece before the EU/IMF bailout. The yellow metal rose 3% to €1,031 per ounce in the last 24 hours.
We are likely to see new record highs vs. both the $ and the € once gold clears the €1,050 handle again, proving a capital flight from all major fiat currencies.
This makes it clear that the winner in the currency wars will be the universally accepted currency of the last 2,800 years one more time again. Fiat Currencies are not floating. They only sink at different speeds.

Bankrupt Germany Now Plays The Terror (Hoax) Card To Distract From Homemade Financial Disaster And Re-Introduce Fascism

This post is essential reading for every liberty-loving human who opposes the trend of increasingly fascist governments that only focus on a bail-out of banks while completely ignoring that the people in the streets consider this the last priority in an environment where the once lauded social peace is in immediate danger to give way to a revolt of the sovereign in most European countries.
European politics has certainly descended to a new low when an essentially bankrupt Germany suddenly plays the terror hoax card to distract from the Eurosclerosis that is a direct result of irresponsible central bank policy coupled with profligate governments who have obviously totally disconnected from the needs and desires of the sovereign.
The military's involvement in the Afghanistan war is opposed by Afghans and Germans alike
Ruling with fear is a policy of tyrants but not a viable method for democratically elected governments who must not forget that historically all hardline leaders have only very rarely concluded life in peaceful retirement.
We Are All Debtors
To drive the point home: All of Europe is basically bankrupt when not even latest austerity measures help to rein galloping budget deficits that have grown to sizes that make it mathematically impossible to reduce them to sustainable levels again. Only unsuspecting politicians still hang on to a pipe dream that the Eurozone or the EU will manage to climb out of the debt hole in a foreseeable sluggish economy (at best) they had been so eager to dig in the first place.
Record unemployment almost everywhere will perpetuate soaring social expenditures and drastically rising yields will bring a European replay of the US municipal bond crash.
Remember: All Eurozone members operate on growing fiscal deficits and not a single country has such a thing called savings. We are all 4-level debtors: supranational, national, communal and in private!
Let's be realistic: There can be only one Japan in the world with a debt:GDP ratio of 200% and we have not seen the final outcome of this funny fiat money experiment.
Europe has 3 key problems that will not be solved easily and will require a rediscovery of frugality in the old world which certainly cannot be called the 1st world anymore:

Austria Blocks Funds For Greek Bailout

Tuesday, November 16, 2010

The Eurozone has another problem. While media attention focuses on Irish bailout talks, the Greek tragedy is about to bubble up again.
Following the publication of upwardly revised deficit figures for Greece, Austrian Finance Minister Josef Pröll announced on Tuesday that Austria is going to withhold a €190 million payment to Greece in December, citing unsatisfactory data and lower than projected tax revenues on behalf of Greece.
"From the current set of data we have there is no reason to release the December tranche from an Austrian perspective," Pröll said according to Austrian media reports before he left for Brussels.
Greek CDS widened to 980 basis points after Pröll's statement, albeit there were no offers.

10 Of 16 Euro Countries Exceed Inflation Limit Of 2%

Next stumbling block for the Euro: Inflation.
According to Eurostat Eurozone consumer prices rose 1.9% YOY (pdf) in October (September 1.8%, October 2009 minus 0.1%) and came close to the European Central Bank's inflation target of 2%. This is the highest value in 2 years and contradicts EU Commission president Jose Manuel Barroso who said only a day earlier that the Euro is a stable currency.

10 of the 16 European countries using the Euro already exceed the ECB's annual inflation limit of 2%. The lowest annual rates were observed in Ireland (-0.8%), Latvia (0.9%) and Slovakia (1.0%), and the highest in Romania (7.9%), Greece (5.2%) and Estonia (4.5%)
Prices accelerated fastest for transport (+4.5%), alcohol and tobacco (+3.2%) and housing (+3.2%.)
Oil's recent spurt to $88 and coming higher taxes in context of the austerity packages that will be felt in 2011 guarantee a further steepening of the inflation curve. The lowest annual rates were observed for communications (-1.1%), recreation & culture (0.1%) and clothing (0.4%).

A Brilliant Explanation of Quantitative Easing i.e. Money Printing

Saturday, November 13, 2010

Under Bush, Bernanke only blew up the US economy. Under Obama he is on the way to ruin the whole world. And Goldman Sachs collects fees on all transactions.
Worth watching to the last second (h/t John Hempton.)

41 Facts About Central Banks No Longer Taught In US Schools

Friday, November 12, 2010

From endoftheamericandream.com:
Today, most American students don't even understand what a central bank is, much less that the battle over central banks is one of the most important themes in U.S. history.
The truth is that our nation was birthed in the midst of a conflict over taxation and the control of our money. Central banking has played a key role in nearly all of the wars that America has fought. Presidents that resisted the central bankers were shot, while others shamefully caved in to their demands. Our current central bank is called the Federal Reserve and it is about as "federal" as Federal Express is. The truth is that it is a privately-owned financial institution that is designed to ensnare the U.S. government in an endlessly expanding spiral of debt from which there is no escape. The Federal Reserve caused the Great Depression and the Federal Reserve is at the core of our current economic crisis. None of these things is taught to students in America's schools today.

In 2010, young Americans are taught a sanitized version of American history that doesn't even make any sense. As with so many things, if you want to know what really happened just follow the money.

The following are 41 facts about the history of central banks in the United States that every American should know....
  1. As a result of the Seven Years War with France, King George III of England was deeply in debt to the central bankers of England.
  2. In an attempt to raise revenue, King George tried to heavily tax the colonies in America.
  3. In 1763, Benjamin Franklin was asked by the Bank of England why the colonies were so prosperous, and this was his response....
    "That is simple. In the colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one."
  4. The Currency Act of 1764 ordered the American Colonists to stop printing their own money. Colonial script (the money the colonists were using at the time) was to be exchanged at a two-to-one ratio for "notes" from the Bank of England.
  5. Later, in his autobiography, Benjamin Franklin explained the impact that this currency change had on the colonies....
    "In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed."
  6. In fact, Benjamin Franklin stated unequivocally in his autobiography that the power to issue currency was the primary reason for the Revolutionary War....
    "The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the prime reason for the Revolutionary War."
  7. Gouverneur Morris, one of the authors of the U.S. Constitution, solemnly warned us in 1787 that we must not allow the bankers to enslave us....
    "The rich will strive to establish their dominion and enslave the rest. They always did. They always will... 
    They will have the same effect here as elsewhere, if we do not, by (the power of) government, keep them in their proper spheres."

Frenemies

Wednesday, November 10, 2010

China and the USA: They are not enemies but frenemies with dependent economies.

Everything Is Up Except This Funny CPI Stuff

Looking at the graph below, depicting year-to-rate price rises in commodities, I am only left with one question: If almost everything rose 4% and much more, how can this funny US Consumer Price Index be at only 1.1% annually? Something's got to give here and I bet it will not be commodity prices.

GRAPH: Commodity price changes year-to-date as of November 9. Chart courtesy Finviz.com (Click to enlarge)

Germany Unwittingly Adopts A Silver Standard Due to Soaring Price

Monday, November 08, 2010

Silver's sky-shot to a new 30-year high of $27.73 per ounce has led to a new phenomenon in Germany. For the first time in history it is theretically possible to buy two last series of silver coins with a denomination of €10 and a silver content of 0.535 ounces for less than the silver equivalent. According to a report in German Daily "Welt" the soaring silver price has forced the German government to bring forward the starting time of sales of the 2 commemorative coins into October to save face. The coins now have a value of €10.66 but have to be sold at the denominated Euro value.
As this story is widely circulating in Germany it can be expected that these coins will be sold out by tomorrow.
Germany's time on a theoretical silver standard - the country was on a bi-metallic standard before the Weimar Republic in the 1920s - won't last long, though.
In order to counter soaring silver prices and keep the denominated value below the silver value the country has announced it will reduce the silver content to 10 grams or 0.3215 ounces in its commemorative silver coin line from January 2011.

List of Per Capita Official Gold Holdings

As World Bank president Robert Zoellick has unleashed gold's latest ascent to a new record high of $1,405.30 per ounce with his vision of a world returning to a gold standard here some facts based on per-capita-figures.
Total gold above ground is estimated at 160,000 tons or 5.144 billion ounces.
Divide this figure by a world population of 6.88 billion and you arrive at 0.75 ounces per capita.
A list compiled from World Gold Council data and Wikipedia population figures shows only 11 of the biggest gold holding nations come in above above the cutoff point at 0.75 ounces per capita.
In medieval times a man's life was considered to have the value of one ounce of gold. This was the price to get somebody off the gallows.

TABLE: In the world of official gold holdings Europe still sits comfortably on top, mixed together with resource-rich countries. These are the 30 countries with the biggest absolute official gold reserves listed by grams/ounces of gold per capita.
The table above is probably misleading, though. It only accounts for official central bank gold holdings which are estimated to be around 20% of total gold above ground. Even this figure is not undisputed. French investment house Cheuvreux suspected in 2006 (pdf) that central banks have secretly sold off or leased 10,000 to 15,000 tons, effectively halving their reserves.

Who Holds The Other 80%?

A Timeline of Gold's History As A Currency

Reuters has written up this handy timeline of gold's history as a currency going back to 1,500 BCE. This Lydian coin depicted to the left was the first bullion coin and weighs 4.71 grams, has a diameter of 13mm at its widest, and at 4mm, is thick as a nugget. It likely consists of about 55 percent gold, 43 percent silver, 2 percent copper, and trace amounts of lead and iron. It trades between $1,000 and $2,000 in numismatic cercles and has never devalued to zero purchasing power.


    Following is a timeline on gold's use as medium of exchange.

Atlantic Currency War From German Perspective: The United States Lived On Borrowed Money For Too Long

An interview with German Finance Minister Wolfgang Schäuble guarantees an entertaining week with wild FX swings. Schäuble bashes not only Ben Bernanke's QE2 in German weekly "Der Spiegel" but also lambasts Treasury Scretary Geithner for blaming Germany's trade surplus for America's economic woes.
The World Bank dropped another bombshell, essentially recommending a Bretton Woods 3 with gold as a "reference point" for valuations. Read on to find out why a gold standard would be the last life ring for the ailing dollar and could see the USA and several European countries as the winner in the coming real currency war between gold and fiat money.
Schäuble in his own words on transatlantic competitiveness:
The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses.
His other bombshell concerns QE2, essentially saying that Fed Chairman Ben Bernanke is not motivated by reason:
I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. There is no lack of liquidity in the US economy, which is why I don't recognize the economic argument behind this measure.
Schäuble may be right that US corporations sit on cash hoards, but QE2 will flow exclusively into Geithner's revival of Weimar economics in his desperate effort to save Wall Street.
Morgan Stanley noted immediately after the announcement of QE2 that the "money" is earmarked to support Treasuries almost all along the curve. The chart implies that investors shun longer dated maturities, realizing that record low yields do not fit into times of a crumbling US economy.

GRAPH: The Fed will bolster 5- to 10-year maturities, essentially buying all the net issuance of US government debt. Chart courtesy Morgan Stanley.
In terms of Ponzinomics the Fed does the right thing in trying to create a financial perpetuum mobile based on ever expanding credit: The Treasury prints bonds which it exchanges for the "money" the Fed prints.
As long as everybody believes in the illusion that it will work; it will. I doubt it though, as history lacks a successful example where a nation printed its way out of debt.
QE2 can also be seen as an attempt to hold down risk premiums i.e. interest rates. The coming wave of government bond issues in what is wrongly called the 1st world will guarantee a yield race to the upside as investors will emphasize the risks in their buy-side analysis.
One does not need a calculator to see the disparity between a disastrous financial environment on both sides of the Atlantic while interest rates hover at record lows. Recent explosions in Greek and Irish spreads are only an appetizer of what is to come next year.
The Wall Street Journal has this number of the week.
$10.2 Trillion in Global Borrowing

Governor: Cyber Attack on Austrian And Other Central Banks

Friday, November 05, 2010

Oesterreichische Nationalbank (OeNB), the central bank of Austria has come under a cyber attack earlier this week, Governor Ewald Nowotny told journalists on Thursday after the ECB council meeting press conference. It appears that hackers tried to gain access to the OENB's intranet. It was not said whether they succeeded and to what degree.
According to a 12-liner in Austrian daily "Der Standard" Nowotny disclosed that other central banks had been under attack as well. He attributed the attack to a student's hoax.
I am not buying this down-playing of such an incident in the days of the biggest financial crisis in history.

The Immediate Results of QE2 And the ECB Meeting

Thursday, November 04, 2010

Monsieur Bernanke and Mister Trichet have been at work. While the Fed takes action by digitizing another $600 billion the ECB remains on autopilot and leaves interest rates unchanged while continuing its government bond purchase programm.
Here are the results of the actions of the high priests of forever expanding debt:

GRAPH: Gold is only short a few bucks from its record high of $1,388 reached on October 14. Expect another upleg towards $1,500 in the next big move that is guaranteed as the world's prudent investors flock to the truly global currency of the past 2,800 years.

Ben "Weimar" Bernanke Sets Stage For The Dollar's Collapse

Word has probably gotten around that the Federal Reserve will buy another $600 billion in US Treasuries in the next 8 months. This figure coincides with the net issuance of US debt and is proof that the USA will go the way of the Weimar republic which is the most famous example where a country tried to substitute dwindling revenues with money fresh off the printing press.
What is different this time is the circumstance that the USA's downward spiral finds an equal counterpart in Europe. Both Federal Reserve Notes (FRN) and the Euro will continue their race to the bottom against that 2,800 year old international currency aka gold.
As the Fed's holdings of total domestic debt will grow to $2.6 Trilion or roughly one fifth of GDP, Ben "Weimar" Bernanke has shifted into the next gear of Ponzinomics where a system can only be kept alive by continuously growing. Stop the inflow of fresh money and it will collapse. It has never been different in history. As QE2 confirms expectations that the Fed will continue on the path of monetary inflation the USA will find itself beyond the point of no return.
Now the question shifts to timing the inevitable as only one thing in QE2Infinity will change: the zeroes.
We are now in the 4th year of the crisis, taking the subprime meltdown in August 2007 as a starting point.
Adding in the political factor that the result of US midterm elections effectively guarantees a political stalemate there is not much hope for any meaningful reforms that would lead to a path of more sustainable budget deficits and a deleveraging in the banking sector.
Bernanke now has added another $600 bilion to the debt balls he already juggles. Once foreign investors will demand higher yields for increasingly risky US debt it is very likely he will not be able to keep them all aloft.

VIDEO: Remember The Last Run On The Dollar?

Thursday, October 28, 2010

History repeats itself. It only gets more expensive with every time. Watch this video (h/t @fiatcurrency) on the turmoil 30 years ago when OPEC members withdrew a mere $5.5 billion in money market funds, sparking golds vertical move to $850.
This time not even $5.5 TRILLION will help if institutions like JP Morgan sit on $45 Trillion in derivatives.
And you still think there will be any other end to this than an unorderly unwind, to say the least? Think again, the flicker of bad headlines looks increasingly as history will repeat itself again.



Remember, we are now in the 4th year of the financial crisis and there has not been a single measure of regulation that has gone into effect.
Derivatives? Not a single step taken!
Hedge funds? EU regulations will come in 2018!
Banks? Basel 3 will set into motion in 2019!
But we have a crisis TODAY!
Those responsible for the crisis are still in office! Why?

Austria Gets Lower Rating From Chinese Rating Agency Dagong

Tuesday, October 26, 2010

Austria was only rated AA+ by Chinese Rating Agency Dagong, Bloomberg reported last week. Note the focus on decreased financial strength.
From Bloomberg:
Dagong Global Credit Rating Co., the Chinese firm seeking to become an alternative to Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, graded Austria’s government debt lower than that of Hong Kong.
Austria is rated AA+, Dagong’s second-highest ranking and a step below Hong Kong’s top AAA grade, the Beijing-based company said in an e-mailed statement today. Austria, Europe’s 14th- biggest economy, has the highest ratings from Moody’s, S&P and Fitch
Austria’s "financial strength has noticeably decreased. The export destination structure which relies heavily on the internal market of the eurozone encumbers its economic growth," Dagong said in the statement.

20.10.2010 - The Day The EU Started Dying

Thursday, October 21, 2010

20.10.2010. Mark this date red. It will be historically regarded as the day the concept of the European Union (EU) started dying. The old continent gets engulfed in protest waves that span from Portugal to Romania and will soon reach probably every member state with the exception of micro-sized Luxembourg once the public receives more information on austerity cuts in the 2011 budgets.
The situation is now getting hairier with every day and it exceeds this blogger's capacities to list all stumbling blocks on the way to a kind of European Orwellian integration envisioned by its leaders, but increasingly resisted by the sovereigns.
I once started this blog to be 5 years ahead of Moody's to ask whether the US' AAA-rating was in jeopardy. It was an easy world then. All you had to do was to lip-read Alan Greenspan's mysterious descriptions of markets to arrive at the conclusion that gold had only one way: upwards on the back of the decline of today's major fiat currencies.
Today's bullet points in OpenEurope's daily email digest of Europa discordia would have yielded several blog posts then. This is beyond the capacity of a single blogger.
Check yourself and remember this is only one day of bad news:
  1. The FT has a memo from Trichet’s office, which says Trichet does not like the deal on the stability pact;
  2. leak shows that there a serious differences over policy at the top level of the eurozone;
  3. Merkel has obtained an assurance from Sarkozy to support the idea of replacing the EFSF with a tough anti-crisis mechanism (in addition to a treaty change to withdraw voting rights, as already reported);
  4. vote on French pension reform is delayed, as protests continue;
  5. in Portugal, uncertainty over the budget continues;
  6. Commission proposes new EU watchdog to deal with cross-border banks in trouble;
  7. Commission also proposes EU-wide taxes to fund EU budget;
  8. Berlusconi and Tremonti plan a big reform of Italy’s budget process;
  9. James Hamilton considers the arguments against QE, and finds some of them convincing;
  10. a Spanish municipality, meanwhile, has become the first to suspend payments to its debtors.

VIDEO: Quants - The Alchemists of Wall Street

Sunday, September 26, 2010

You are recommended to watch this 47-minute video from a Dutch TV station which attempts an explanatory look into the world of Quants who base their investment decisions on complex mathematical formulas trying to outguess human behaviour.
Quotes like
"you can use formulas to hide the risk"
and
"people always wanted to think that everything was going up. I think they were blinded by their compensation"
should be enough of a primer for this docu with Wall Streets top quant gurus who pair their mathematical genius with a lot of intriguing common sense understanding of markets and humans.

In The Home Country Of Beer, Oktoberfest Prices Tell A Different Inflation Story

Wednesday, September 22, 2010

Here is one more proof that deflation (of asset prices) and inflation (in all the stuff you buy in everyday life) can exist at the same time and that official inflation figures are probably more of a kind of crapshoot than any economist wants to admit.
Hat tip goes to @fiatcurrency who published this chart via Twitter.

GRAPH: In the last 25 years the German consumer price index rose by 58.1% but a visit to the world famous Oktoberfest costs you now 152.2% more than in 1985. The calculation is based on following expenses: local public transport, 1/2 grilled chicken and 2 litres of beer (IMHO a very frugal Oktoberfest visit;-)
As I put a lot more trust into the business sense of Oktoberfest caterers than into funny official inflation data that gets contradicted every time I stop at the gas pump, eat in a restaurant or need state services I presume this Oktoberfest data reflects the true cost of living i.e. the true davaluation speed of fiat currencies much better than the data we are being fed by authorities.

Citibank Favors Euros - Escape Into Gold!
Exactly for this reason I am not buying in Citibank's Wednesday FX alert by John Englander that states 9 reasons to go long Euros (my opinion in bold italics).

Austrian Banks Carry €2.6 Trillion in Derivatives - Risk Unknown To Central Bank

Monday, September 20, 2010

Austrian banks may be sitting on a €2.6 Trillion off balance sheet derivatives time bomb and the central bank does not know how much risk is involved in these trades.
Oesterreichische Nationalbank (OeNB) governor Ewald Nowotny said in a live chat of Austrian daily "Der Standard", he could not provide a material ad hoc figure for the actual net risk of these trades.
According to a (German language only) press release from last Thursday off balance sheet derivatives volume grew a stunning 13% to a record volume of €2.586 Trillion at the end of H2 2010 in Austria. This is roughly 2.5 times as much as the nationwide balance sum of all banks which stood barely unchanged at €1.037 Trillion in the same period.
It also has to be noted that this growth comes at a time of global de-leveraging and may indicate that Austrian banks try to make up for loan losses in Central Eastern Europe with bets on interest rates and currencies.

GUEST POST - Whichever Way You Look At It, Silver Is Underpriced

-- by Lorimer Wilson --
More than 95 respected economists, academics, analysts and market commentators are of the firm opinion that gold will go to $2,500 and beyond before the parabolic peak is reached. In fact, the majority (55) think a price of $5,000 or more - even as high as $15,000 – is actually more likely! As such, just imagine what is in store for silver given its historical price relationship with gold!

Precious metal bull markets have 3 distinct demand-driven stages and we are now quickly approaching or perhaps even in the very early part of the last stage which occurs when the general public around the world starts investing in gold and this deluge of capital into gold causes it to escalate dramatically (i.e. go parabolic) in price.

Gold
Gold went up 24% in 2009 and is up 16% YTD and, as such, there are no shortage of prognosticators who see gold going parabolic reminiscent of 1979 when gold rose 289.3% in the course of just over a year (from a $216.55 closing price on Jan. 1, 1979 to a closing price of $843 per ounce barely a year later on Jan. 21, 1980) and 128% higher in a late-1979 parabolic blow-off of just under 11 weeks! A 289% increase in the price of gold from $1275 would put gold at $4,960. (More on what that might mean for the future price of silver is analyzed below.) That being the case what appear on the surface to be rather outlandish projections of what the bull market in gold will top out at don’t seem quite so far-fetched.

Silver
Silver has proven itself, time and again, to be a safe haven for investors during times of economic uncertainty and, as such, with the current economy in difficulty the silver market has become a flight to quality investment vehicle along with gold. The 49% increase in silver in 2009 (and 23% YTD) attests to that in spades. During the last parabolic phase for silver in 1979/80 it went from a low of $5.94 on January 2nd, 1979 to a close of $49.45 in early January, 1980 which represented an increase of 732.5% in just over one year. Such a percentage increase from the current price of almost $21 would represent a future parabolic top price of $175. (For what that might mean for the future price of gold see the analysis below.) Frankly, such prices seem impossible in practical terms but that is what the numbers tell us.

Gold:Silver Ratio
The current gold:silver ratio has been range-bound between 70:1 and 60:1 for quite some time which is way out of whack with the historical relationship between the two precious metals. It begs the question: “Is now the perfect time to buy silver instead of the much more expensive gold metal?”

How both gold and silver perform, in and of themselves, does not tell the complete picture by a long shot, however. More important is the price relationship – the correlation – of one to the other over time which is called the gold:silver ratio. Based on silver’s historical correlation r-square with gold of approximately 90 – 95% silver’s daily trading action almost always mirrors, and usually amplifies, underlying moves in gold. With significant increases in the price of gold expected over the next few years even greater increases are anticipated in silver’s price movement in the months and years to come because silver is currently seriously undervalued relative to gold as the following historical relationships attest.

Let’s look at the gold:silver ratio from several different perspectives:
  • Over the past 125 years the mean gold:silver ratio (i.e. 50% above and 50% below) has been 45.69 ounces of silver to 1 ounce of gold.
  • In the last 25 years (since 1985) the mean gold:silver ratio has increased to 45.69:1
  • The present gold:silver ratio has been range-bound between 60:1 and 70:1 (61.3:1 as of September 17/10).
  • Interestingly, during the build-up to the parabolic blow-off in 1979/80 silver outpaced gold going up 732.5% vs. gold’s 289.3% causing the ratio to drop from 38:1 in January 1979 to 13.99:1 at the parabolic peak for both metals in January, 1980. 
Let’s now look at the various price levels for gold and the various silver:gold ratios mentioned above one by one and see what conclusions we can draw.

Gold Chart Book

Friday, September 17, 2010

Dundee Wealth Economics has produced an extensive gold monitor chart book, looking at the yellow metal from all angles, but its price forecasts may actually be overtaken by current price action. Comex Gold hit a new ATH at $1,284.40 before retreating on stable US inflation data.
Dundee has nine bullish arguments
  1. Global fiscal and monetary reflation: PIIGS, US, etc.
  2. Global imbalances: the dollar must decline
  3. Global FX reserves are “excessive”: diversification
  4. Central bank attitudes to gold: now positive
  5. Gold is not in a bubble: room to rise
  6. Mine supply is flat: “peak” gold? 
  7. Investment demand: long-run uptrend
  8. Commodity price cycle: many years to run
  9. Geopolitical environment: positive
and six reasons for caution.
  1. Policy “exit strategies”: in US, Asia, Europe
  2. Strong dollar: gold correlation will turn negative again
  3. Deflation: government debt more attractive
  4. Liquidity of last resort: for Greece, Italy, ...?
  5. Dehedging finished: hedging to recommence? 
  6. A Chinese recession: commodity demand will decline, possibly gold demand too
Enjoy this handy compendium of gold data.
Dundee Gold Monitor Chart Book

CHART OF THE DAY: Rocketing US Consumer Loans Indicate a Double Dip

Tuesday, September 14, 2010

The US economy may be in for the dreaded double dip, consumer loan data indicates. Recording the sharpest spike since data collection began, consumers extended their credit by almost 36% YOY by August 2010.
While the absolute growth of almost $400 billion YOY looks astounding by itself in the context of consumers tightening their belts the annual rate of change signals another recession ahead based on historical observations in the chart below.

GRAPH: US consumer loans expanded more than 42% since the beginning of 2010 and 36% YOY.

EC "Non-Paper" Sheds First Light On Financial Transaction Tax

Tuesday, September 07, 2010

An internal "non-paper" (sic!) of the European Commission Services detailing proposed measures to introduce a financial transaction tax in the EU shows how torn apart Europe is over this issue.
As the document lists only 5 coutries where ideas have developed beyond the headline stage we can expect to see long term discussions.
5 different approaches in 5 countries - France, Germany, Hungary, Sweden, UK - also spotlight the fact that tax harmonization has still a long way to go.
The paper - obtained by Euractiv - stresses that this point is tantamount in order to avoid "distortions" in markets and also calls for speedy multilateral talks to eliminate double or multiple taxation for multinational banks.
EC SERVICES NON-PAPER ON BANK LEVIES FOR DISCUSS AT ECOFIN ON 7 SEPTEMBER 2010

Checking the table and especially the targetted revenues from the bank tax in countries as diverse as Germany and Hungary bulldozers will be needed to create a playing field.

Barroso's Word Cloud In His "State of the European Union"

Jon Worth produced this word cloud from European Commission (EC) President Jose Manuel Barroso's "State of the European Union." Listening to Barroso his proposal for EU project bonds for infrastructure projects stuck out in financial terms. The rest? See the word cloud.
Barroso, a non-publicly elected EC official with wide-ranging powers who directs extensive behind-the-curtain policy-making, ran into immediate opposition although the more emotional statements came in local language without subtitles or translation options; so I was not able to follow.
His main points are summarized in this letter to all MEPs.

Next Step Down: From the European Union To The Transfer Union

Emerging plans to install a EU Treasury that can issue supranational debt among plans for stronger economic cohesion in the EU are met with heavy flak from many sides while the Union faces continuing strong headwinds from a languishing economy and persistently high unemployment.
The planned debt issuing agency also strives for higher fiscal reintegration, an issue destined to fill many heated discussions among the EU strongmen France, Germany and the UK.
From the Telegraph:
Yves Leterme, the Belgian prime minister and current holder of the rotating EU presidency, plans to propose a new machinery to prevent a repeat of Europe's sovereign bond crisis.
"This should evolve into a European debt agency able to issue debt for all member states. Everybody will gain from the mechanism," he said at the annual Ambrosetti conference of global policymakers at Lake Como, Italy. The idea would be the next logical step beyond the eurozone's €440bn bail-out fund agreed in May.
"This will be a very effective tool to harmonise budget policies, but the way ahead may be very tough," he said. Germany is likely to balk at talk of an EU debt union, or "Transferunion" as it is described in Gothic terms by Germany's tabloid press.
While the dear European leader did not mention where the money for this EU Treasury will come from - even a debt issuing agency needs some - readers may be reminded that the EU has begun to ask for new taxes to raise money for its budget plans. So far the EU is primarily financed from a share of member states VAT income.
One idea for direct EU taxes is the hotly discussed banking tax and I can remember that carbon taxes may become a viability too. We can expect politicians to be most creative when levying new taxes on an already heavily strained populace.
Leterme is not the ideal person to talk about further European integration plans anyway. Over the weekend Belgium officially abandoned coalition talks, renewing calls for a division of the country along ethnic lines.
This integration stuff does not even work at the the very heart of the EU in times when countries find out that future financing needs will evolve into an interest rate competition among member states.
A EU Treasury will not help either.

Another Housing Bubble Goes Bust

Monday, September 06, 2010

If all this sounds like a Deja-vu to you, relax. It is a different country.
From a media report (source disclosed below):
No to 80% Mortage Cap On Housing 
Several groups are up in arms over a proposal to cut housing loans by 10% from the current cap of 90%, saying that the move will only discourage Xxxxxans (NOTE: redacted -:) from buying houses.
National House Buyer’s Association (HBA) and Federation of Xxxxxian Consumers Associations (Fomca) cautioned that the proposed home loan reduction to 80% would only be a burden to potential house buyers.
HBA honorary secretary-general Chang Kim Loong said the proposal would go against the Government’s plans to encourage home ownership.

VIDEO: Bank Run in Kabul

Hundreds of Afghans have been trying to withdraw money from the country's largest bank, amid concerns that it could collapse.
The panic was sparked by reports that Kabul Bank has lent millions of dollars to members of the political elite, who used the money to make risky investments. A slew of reports has come up with allegations that relatives of Afghanistan's leader Karzai and executives of the bank have sunk 100s of millions of Federal Reserve Notes (FRN) into Dubai and other property investments before prices took a sharp dive.



According to a BBC report,

Sarrazin, His Independence, And That of The Bundesbank

Monday, August 30, 2010

German Bundesbank executive Thilo Sarrazin digs his heels in deeper as calls for his resignation mounted on all sides on Monday. Presenting his new book “Germany Eliminates Itself” the controversial central banker said his ideas were scientifically founded and claims he was Anti-Semitic were "absurd".
The Bundesbank picked up the ball with a statement that certainly won't earn him a promotion there any longer:

China Ratings Agency Asks Whether Bernanke Is Up To His Job

The question whether Federal Reserve Chairman Ben Bernanke has learned the right things from his Great Depression studies becomes more widespread.
While I wonder whether Bernanke's library includes Murray N. Rothbards work America's Great Depression where he clearly points out from the Fed's 1920 figures that monetary inflation was engineered via special agencies et al, proving that deflation can only be preceded by inflation, Chinese buy-side analysis is not so gentle. 
As we know from some Fed economist who missed out on the chance to become world famous like a few bloggers who correctly predicted the US recession as early as 2005 that the Fed does not want to be bothered by blogger criticism, here comes a piece from an economist. (BTW, the Fed has taken K. A's blogger criticism offline. It is stored here for posterity.)
Feel the hot breath in this essay from former Fannie Mae chief economist Peter Treaday who now chairs research at CTRisks, in its own definition the biggest rating agency in Asia.

- by Peter Treaday -

Keynes' Most Interesting Statement

Sunday, August 29, 2010

This does not sound very earthly. From John Maynard Keynes "The General Theory of Employment, Interest and Money (London: Macmillan, 1936), p. 129."
"If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."
This is Ponzi economics at its best.

Bundesbank Executive Attacks Jews, Turks, Africans et al in Xenophobic Seizure


--UPDATED--
German Bundesbank executive Thilo Sarrazin has sparked a new uproar by saying that "all Jews share a common gene" and also attacked the Basques in Spain the same way in a newspaper interview.
This comes only a few days after Sarrazin came under fire in Germany for using shock talk about the country's Muslim immigrants, Turks, Middle Easterners and Africans when he presented a new book.
Sarrazin’s new book, whose title translates as “Germany Eliminates Itself,” sparked a heated debate. A spokesman of the Bundesbank so far only said that the book is Sarrazin's personal opinion, not exactly distancing itself from Sarrazin's xenophobic bouts.
His frothy statements were immediately rebutted by foreign minister Guido Westerwelle and minority representatives. A spokesman for chancellor Angela Merkel began his Sunday with expressions of outrage.
Sarrazin is still on the job after an interview with conservative German Sunday paper "Welt am Sonntag" where he extended his attacks to Jews.
German official news outlet Deutsche Welle was the first to report on Sarrazin's nationalistic outbreak that is destined to destroy Germany's image rebuilt in the last 65 years.
Sarrazin appears to have wild mood swings. In 2009, the central banker, who is a member of the Social Democratic Party (SPD), had said he would prefer immigration "if it was by eastern European Jews with a 15-percent-higher IQ than the German population."
His new book, to appear on shelves this week, claims that immigration from Turkey, the Middle East and Africa would dumb down his country and led him to draw a line between Christian culture and the rest.
From Deutsche Welle:

Coming Sony Pictures Movie "Inside Job" Looks like a Fed/Wall Street Thrasher

Saturday, August 28, 2010

Wow! Sony pictures, not exactly an alternative media for purists, thrashes the banker caste. Taking it from the trailer - starring Paul Volcker, George Soros, Eliot Spitzer et al - the Fed and Wall Street will not get away unscathed.



From the ad:
INSIDE JOB, the first film to expose the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. Through extensive research and interviews with major financial insiders, politicians and journalists, INSIDE JOB traces the rise of a rogue industry and unveils the corrosive relationships which have corrupted politics, regulation and academia.
Meet me at the movie house.

Update On the (Bad) Situation of Austrian Banks

Friday, August 27, 2010

Tight-lipped finance ministers from Austria, Germany, Switzerland, Liechtenstein and Luxembourg left a round table meeting in Vienna on Thursday without any statement to the public. According to Austrian Börse-Express talks centered around government budgets and bank secrecy (that's no pun.)
Austrian finance minister Josef Pröll had said earlier that Austria will not move on a loosening of bank secrecy as long as UK based trusts are able to invest anonymously and wants to shift this discussion onto the OECD level.
Conservative Pröll, currently breaching Austria's constitution with the nod of social democrat chancellor Werner Faymann, because both ruling parties want to delay the 2011 budget until after two provincial elections in October, may have other worries about the Austrian banking sector on his mind.
Recent data from Austria's central bank confirms that Austria's banks, mainly Raiffeisen group and Erste Group, are still heavily dependent on favorable forex crosses, i.e. Central Eastern European (CEE) currencies and the Swiss Franc.
The Economist today had this graph based on data from Oesterreichische Nationalbank (OeNB) that shows that CEE inhabitants are highly leveraged with foreign currency loans that become more expensive day by day as long as the Swiss Franc and the Euro rise against their domestic currencies.


The sub-headline "A slow fuse still burns on eastern Europe’s foreign-currency debts" could not be more courtly given Austria's dominant position in the foreign currency loan business in the Eurozone.
From the Economist:

Spoiling the SFR "Safe Haven" Party

Thursday, August 26, 2010

Short note to all euphoric EURSFR sellers.
This chart looks good:
CHART: Playing EURCHF on the short side has certainly be profitable fun and most recent action around the 1.30 mark is probably just a technical correction in the free fall of the Euro that began on August 10. Chart courtesy of Yahoo!
But looking at this pie chart from Credit Suisse it may be advisable to take profits.

MUST SEE VIDEO: The Capitalist Conspiracy

I am a bit preoccupied with thinking and reading these days as we are getting closer to the disintegration phase of the ongoing biggest Euro-American financial, economic and political crisis in modern history. The price of gold certainly says so as it has always been the only safe haven in history.
While I still have a problem with conspiracies and certainly want to avoid to get the nutcase brandmark being stamped on my forehead I nevertheless cannot close my eyes before the fact that this crisis was engineered primarily by central banks holding interest rates at ridiculously low levels never seen before in history, encouraging companies and people to borrow easy money to go on shopping sprees.
They were aided by the political goal to create home-ownership societies - and now these homeowners wake up to the fact that their house actually belongs to their bank and they are only debt slaves until the last mortgage installment will be paid.
This will become increasingly difficult once interest rates will rise again. They have to as we live in a Wonderland where risks have never been greater and rates never been lower.
Noting that the whole world, excluding mainstream media, begins to scratch its heads whether it all is really driven by free market forces - it is not as central banks have a monopoly on the price of money - I urge my readers to take their eyes off the charts for 48 minutes and watch this 1960s documentary "The Capitalist Conspiracy" which resulted in another bout of insomnia for me last night.
Wikipedia summarizes the movie the following way:
The film theorizes a conspiracy upheld by big government through money control by citing these books:
Tragedy and Hope by Carroll Quigley,
Philip Dru: Administrator by Edward M. House,
The Strawberry Statement by James Simon Kunen and
The Communist Manifesto by Karl Marx and Friedrich Engels.

The film is summarized in seven conclusions:
  1. There is a conspiracy among some of the richest people in the non-communist nations and that its power is protected by their respective governments. That it is perpetuating its wealth by creating money out of nothing.
  2. In the USA it is perpetuated through the Federal Reserve system. That although it appears that the executive branch controls them it is in fact the other way around.
  3. The capitalist conspiracy in the USA surfaces in the Council on Foreign Relations that influence on the public through television, education and press.
  4. The capitalist conspiracy opposes communism only on the surface because it needs the illusion of a foe. And because the chaos byproduct of the managed conflict advances its own goal of totalitarian world government. A tactic called "pressure from above and below" laid down in Edward M. House's novel Philip Dru: Administrator: Deliberately create problems and frightful domestic and foreign conditions and provide solutions that result in publicly accepted government expansion at the expense of personal liberties and national sovereignty.
  5. There is "much evidence indicating" that both the capitalist and communist conspiracy is directed by a single master conspiracy that may have continuity with The Illuminati, but that this historical question is not as important as what can be done about it.
  6. The reaction to the conspiracies should be to dismantle the big government and localizing schools and police.
  7. That the root of the evil is that money is created out of nothing. The solution is to reduce the power of the Federal Reserve and returning to the gold and silver standards and thus preventing anyone, in or out of government, to manipulate the money supply.
Exposing the conspiracy to public view, by circumventing the establishment's channels of mass communication, would cause it to collapse.
I concur. The world is not going to fare better if we only replace a collapsing fiat money system with another one as the IMF proposes. The Bancor will not work but only extend debt slavery. It is interesting that the Bancor idea never made it into MSM as a Go ogle search reveals but was mainly picked up by alternative online media.
I have ordered all 4 books linked for your convenience below.


Open Letter to Chancellor Merkel: Repeal The Financial Aid Laws To Save Germany

Wednesday, August 25, 2010

Renowned German economist Professor Wilhelm Hankel has written a second open letter to German Federal Chancellor Angela Merkel after his first plea to follow the dictates of reason and not introduce the constutionally disputed financial aid laws that will pump €750 billion into insolvent Eurozone banks while pushing Germany deeper into social and economic abyss was ignored.
Hankel has already warned in 2005 that the Euro system is unsustainable.
While I am still wondering to whom Germany will sell all the goods it now produces (and warehouses) when all important trade partners face the same economic and social problems, Hankel focuses on the adverse effects the hastily pushed through financial aid laws for Greece - which is already running into difficulties to comply with the austerity conditions that are part of the bailout - will have on Germany in the future.
He warns of dire consequences and states that Merkel may run afoul of the German constitution and her oath to stave off the German sovereign from bad damage.

Poll: 98% Want a Public Referendum on Eurozone Aid
The letter, supported by such German academic capacities like Wilhelm Nölling, Karl A. Schachtschneider and Joachim Starbatty has been co-signed by 7,315 German citizens since August 18. His first letter was co-signed by 6,128 sovereigns.
A poll on his website asking whether there should be a public referendum on Eurozone aid shows that 98% of voters are in favor of a direct democratic decision.
Here is Hankel's letter translated into English.

WSJ: Data Shows Gold Is Money

Tuesday, August 24, 2010

Photo courtesy Bloomberg
The discussion on what gold is good for appears to take a new sharp corner with every day. Only one day after German financial watchdog BaFin said gold is not money, without providing any hard facts to back up its dumb opinion, it is of all places the Wall Street Journal (WSJ) that fired a fact and data based broadside the other way a day later.
WSJ writer Jeff Opdyke simply did what needs to be done before forming an opinion and checked correlations between the global currency of the past 2,800 years, commodities and fiat money.
Opdyke has correctly noted that gold does well in both periods of inflation and deflation times.
As gold is routinely called a hedge against inflation, it is interesting to see that it stubbornly remains close to its all time high at $1,258 reached on June 18 despite continuously low (official) inflation figures and frequent deflation warnings from the Federal Reserve. Remember, President Roosevelt jacked up the gold price from $20 to $35 per ounce in the worst period of deflation the USA has ever seen.
But gold does well in inflationary periods as well. Its previous all time high of $850 in January 1980 (intraday it had shot up to $887,50 but I doubt many trades happened at that price as the fixing price was more relevant in ancient pre-realtime eras.)
Both periods had one common denominator, though: The economy sucked, driving investors out of volatile (sinking) markets and into assets that are a store of value. Gold has never lost its value as all fiat currencies did so far.
Here are Opdyke's main findings from the August 21 edition of the WSJ:

79 Common Sense Reasons For A Gold Standard

Monday, August 23, 2010

The world enters the final stage of financial destruction thanks to a one-sided application of John Maynard Keynes' equation because politicians and central bankers did a terrific job in deficit spending since the USA defaulted on its gold obligations in 1971, but never followed Keynes advice to build reserves in surplus years. This is a direct result of a fiat money system that allows to create money at essentially no cost, to quote Fed chair Ben Bernanke from his infamous 2002 speech.
IMHO the heated discussion about a new gold standard will follow philosopher Arthur Schopenhauer's saying: "All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."
Digging a little further I probably could come up with more than 79 facts debunking urban gold myths. I chose this number as gold has the atomic number 79.
  1. Gold has been voluntarily accepted worldwide since 2,800 years.
  2. All fiat currencies of the past 3 centuries have devalued to (near) zero within a human's life span.
  3. All fiat money systems were abused by irresponsible politicians who ignited credit bubbles. All credit bubbles ended with a bust.
  4. Under a gold standard. prices remained stable for more than a century in the USA.
  5. Even former Fed Chairman Alan Greenspan got it in his early years. He wrote "in the absence of the gold standard, there is no way to protect savings from confiscation through inflation" in his famous essay from 1967 titled "Gold and Economic Freedom". Anecdote to the side: When Congressman Ron Paul got a copy signed by Greenspan, the parting Fed chair said in 2005 he still stands behind this essay.
  6. In one of hist last appearances on Capitol Hill Greenspan said that in extreme time, e.g. war, gold is the only internationally accepted currency. Does anybody have a video proof of this? I watched it live but searched in vain for a video documentation.
  7. One more quote from a young and very wise Greenspan: In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
  8. Excerpt from the US Constitution, Article I, section 10: No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts....
  9. Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues.
  10. Lesson from history: ALL fiat money experiments or the debasing of gold currencies ended in complete devaluation. From Rome to Britain: every empire vanished into oblivion soon after it went off the gold standard.
  11. Gold is durable,
  12. portable,
  13. homogeneous,
  14. divisible, and, therefore, has significant advantages over all other media of exchange.
  15. Gold demand will never cease as half the globe's population intuitively prefers gold over paper. Or does your lady prefer paper over gold on her neck or her fingers?

Essential Books For The Prudent Investor

Saturday, August 21, 2010

Wikinvest Wire