25-Oct (The Wall Street Journal) — Stocks tumbled Tuesday following a mixed bag of corporate earnings and as hopes for a big solution to Europe’s debt crisis waned.

The Dow Jones Industrial Average dropped 207.00 points, or 1.7%, to 11706.62. The losses snapped a three-day winning streak in which the blue-chip Dow rose more than 400 points.

The action followed reports that a Wednesday meeting of EU finance ministers was cancelled, although a scheduled summit among European leaders seeking a way out of the debt crisis is still planned.

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25-Oct (CNBC) — The European Union is doomed to fail because the divide between the northern and southern countries is just too great, former Fed Chairman Alan Greenspan told CNBC in a recent interview.

“At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t,” Greenspan said. “Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits.”

Greenspan predicts that as the south’s fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe’s standard of living will go down.

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25-Oct (Reuters) — The International Monetary Fund is considering taking part in a special investment vehicle being proposed by the euro zone bailout fund but has not made a decision yet, euro zone officials said on Tuesday.

“The IMF has indicated that they are considering it — they have not taken a position,” one euro zone official said. “It will all depend on the whole package.”

Euro zone leaders are expected to approve a plan on Wednesday to increase the fire power of the European Financial Stability Facility, a 440 billion euro bailout fund, without euro zone countries having to put more money into it.

Under the plan, the EFSF would create a special purpose investment vehicle (SPIV) which would issue debt and use the proceeds to buy bonds of distressed euro zone sovereigns on the secondary market or extend loans to at-risk governments.

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25-Oct (The Wall Street Journal) — A meeting of EU finance ministers ahead of a gathering of European leaders was canceled Tuesday, raising concerns that governments are seeking more time to wrap up a deal as parts of the package to stem the region’s debt crisis remain in doubt.

The finance ministers from all 27 EU countries were to meet early Wednesday, ahead of the evening summit of EU leaders, to sign off on agreements that as of Tuesday afternoon still appeared out of reach. The meeting of EU heads of state in Brussels will proceed as scheduled,

Eurozone finance ministers have canceled a preliminary meeting that was scheduled ahead of the Wednesday Summit to End All Summits.

“Further work at the level of ministers of finance will be conducted based on the outcome of the heads-of-state meeting. The aim is to adopt all necessary elements and details concerning the package, as promptly as possible,” the government of Poland, which holds the six-month rotating EU presidency, said in a statement.

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Europe Remains in Disarray

25-Oct (USAGOLD) — Gold briefly came under modest intraday pressure after Wednesday’s EU EcoFin meeting was canceled. The euro retreated on the news, lifting the dollar in the process. The EU’s Jacek Rostowski wrote in a letter to Jean-Claude Jüncker, “As things stand at present, I understand that the full package may not be ready by Wednesday, 26 October. Were this the case, the presidency would need to postpone the Ecofin council meeting by a day or two.” However, those downticks proved short-lived as the realization that Europe may not be any closer to a solution heightened the safe-haven appeal of gold.

Officials have confirmed that while the EcoFin meeting has been canceled, the EU leadership summit will take place as scheduled. This is the summit that was hastily added after it became apparent that Sunday’s summit would fail to generate any kind of meaningful agreement on how to mitigate the European debt and banking crises. Europe is in disarray, but for some reason the single currency — and global stocks for that matter — largely been able to look past this train-wreck. All I can think is that the markets believe that the EU — and especially Germany — will ultimately bite the bullet and come in with a huge bailout. If that is indeed the case, gold would likely be a beneficiary as well.

Here in the States, the S&P/Case-Shiller home price index for 20-cities rose just 0.2% in Aug, -3.8% y/y, below market expectations. The housing market remains an anchor tied around the neck of the broader economy and even the President’s new refinance program, announced yesterday, is not likely to have a big impact on this reality.

Additionally, US consumer confidence missed expectations, plunging to 39.8 in Oct, a new 2-year low. With the critical holiday shopping season fast approaching, this is a bad omen indeed.

The still moribund housing market, along with flagging consumer confidence, has heightened expectations that the Fed will offer additional accommodations. As QE3 becomes more likely, the dominant uptrend in gold is likely to re-exert itself.

Even Canada took a more dovish tone today, removing the ‘withdrawing stimulus’ reference from its policy statement after holding rates steady at 1.00%

• US consumer confidence plunges to 39.8 in Oct, well below market expectations of 47.0, vs 46.4 in Sep.
• US S&P/Case-Shiller home prices index +0.2% (nsa) in Aug for 20-cities, below market expectations, vs 0.9% in Jul.
• BoC held policy rate steady at 1.00%, in line with expectations, but ‘withdrawing stimulus’ verbiage was dropped from statement.
• UK Q2 current account narrows to -£2.02 bln, vs -£9.35 bln in Q1.
• Germany GfK consumer confidence better than expected in Nov at 5.3.
• Italy consumer confidence (sa) falls to 92.9 in Oct, vs negatively revised 94.2 in Sep.
• Singapore manufacturing production falls to 12.8% y/y in Sep, vs upward revised 22.8% y/y in Aug.
• New Zealand Q3 CPI falls to 0.4%, vs 1.0% in Q2.

25-Oct (Financial Times) — It’s getting uncomfortably close to crunch time for eurozone leaders, with just over 24 hours left before the summit-to-end-all-summits. But will they actually be able to agree on the big euro rescue plan? A letter sent last night by Jacek Rostowski, the Polish finance minister, makes it seem doubtful.

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24-Oct (The Wall Street Journal) — Copper futures surged 7.1%, ending at a one-month high as strong manufacturing data from top consumer China and hopes for a European debt deal sent investors who had bet against the industrial metal rushing to reverse those positions.

The contract for October delivery rose 22.8 cents to settle at $3.447 a pound on the Comex division of the New York Mercantile Exchange, the highest settlement price since Sept. 22.

Copper futures have swung wildly in recent days, dropping a combined 9% on Wednesday and Thursday as investors bet that the prospects for a speedy resolution to Europe’s debt crisis were slipping, only to rise by 13% in the subsequent two sessions as those bets were reversed amid upbeat sentiment and Chinese manufacturing data.

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PG View: Inflation worries are heating up again as oil prices rose as well.

24-Oct (Der Spiegel) — Chancellor Angela Merkel has provided German party heads some details of the planned euro rescue package set for approval by European leaders on Wednesday. They include a Greek debt cut of up to 60 percent and leveraging the bailout fund to one trillion euros. The measures will be put to a full vote in German parliament on Wednesday.
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German Chancellor Angela Merkel has told German lawmakers that the financial strength of the euro rescue fund, the European Financial Stability Facility, is to be leveraged to €1 trillion ($1.39 billion), and that a Greek debt cut of up to 60 percent is planned, opposition leaders said on Monday.

The type of leveraging planned remains unclear, with a number of versions being discussed. It emerged earlier on Monday that the controversial measure to increase the firepower of the €440 billion rescue fund will be put to a full votein the German parliament on Wednesday, rather than just a vote by the budget committee as initially planned.

Given the intense public debate on boosting the EFSF, Merkel’s center-right coalition decided to seek a broader mandate than just budget committee approval.

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24-Oct (USAGOLD) — Gold is higher this morning after nothing meaningful came out of the weekend EU summit, beyond an agreement that European banks need an additional €108 bln in capital. Given the higher euro, the market seems to be holding out hope that the EU will fulfill its pledge to come up with a comprehensive solution by month-end. There is another summit scheduled for Wednesday this week.

Talk that another downgrade of the US is in the offing is keeping the dollar under pressure and buoying gold.

• Eurozone Reuters Manufacturing PMI (advance) falls to 47.3 in Oct, below market expectations, vs 48.5 in Sep; Services falls to 47.2.
• Eurozone industrial orders (sa) +1.9% m/m in Aug, vs upward revised -1.6% in Jul; 6.2% y/y, down from upward revised 8.9% y/y in Jul.
• Japan trade balance-CC (nsa) rebounded to surplus of ¥300.4 bln in Sep, vs -¥777.2 bln in Aug.
• China HSBC/Markit Flash Manufacturing PMI rebounded to 51.1 in Oct, vs 49.4 in Sep.
• Singapore CPI 5.5% y/y in Sep, vs 5.7% in Aug.
• Australia Q3 PPI +0.6%, vs 0.8% in Q2.
• New Zealand Q3 CPI +0.8%, down from 1.0% in Q2.

24-Oct (ABCNews) — The United States is in for another credit downgrade by year’s end if Congress fails to agree on a long-term plan to tame the nation’s $14.8 trillion debt, Merrill Lynch warned.

In a research note, the Bank of America unit predicts that either Moody’s or Fitch will move to downgrade the U.S. AAA rating. Standard & Poor’s cut the nation’s bond rating in August, causing the stock and bond markets to swoon, after months of bickering by Congress on how to best reduce spending and cut the deficit. The United States spends about 40 percent more annually than it collects in taxes.

“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, Merrill’s North American economist, Ethan Harris, wrote in the Friday report. ”Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes.”

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23-Oct (BBC) — Japan is prepared to take action in the foreign exchange market to stem the rising yen currency, according to its finance minister.

The remarks by Jun Azumi succeeded in weakening the value of the yen against the US dollar in Monday trading.

The yen hit a record high against the dollar in New York on Friday.

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24-Oct (Financial Times) — Europe’s big banks will be forced to find €108bn of fresh capital over the next six to nine months under a deal to strengthen the banking system that is to be unveiled by European Union leaders.

After 10 hours of talks in Brussels on Saturday, finance ministers from all 27 EU member states endorsed an estimate of the sector’s capital shortfall that is significantly higher than initial calculations. But strong reservations from southern European countries, who will have to find the lion’s share of the money, have delayed a full announcement until Wednesday, when the necessary state guarantees are set to be agreed.

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23-Oct (The Street) — As European leaders approached their deadline set by the G20 last week to come up with a comprehensive plan to prevent contagion of the European sovereign debt crisis and to protect the European financial sector, no plan was announced over the weekend during the first part of the Euro Summit. With the second part of the summit planned for this coming Wednesday, European leaders have so far agreed on further bank recapitalization, intended to cushion the stressed financial system from heavy fallout due to a Greek haircut, and urged Italy to reduce its debt level while pointing that Ireland is on the road to exiting the crisis.

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21-Oct (Financial Times) — “Securities purchases across a wide spectrum of maturities might become appropriate if evolving economic conditions called for significantly greater monetary accommodation,” Janet Yellen told an audience in Denver.

The comments highlight the continued appetite within the Fed for further action if the economy does not improve and suggest that another round of quantitative easing is the leading option. Ms Yellen has been regarded as an advocate for stimulative monetary policy during recent years.

But she did not imply that further action is imminent and did not highlight the option of buying mortgage-backed securities, as another Fed governor, Daniel Tarullo, did in a speech on Thursday.

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By RON PAUL
20-Oct (The Wall Street Journal) — To know what is wrong with the Federal Reserve, one must first understand the nature of money. Money is like any other good in our economy that emerges from the market to satisfy the needs and wants of consumers. Its particular usefulness is that it helps facilitate indirect exchange, making it easier for us to buy and sell goods because there is a common way of measuring their value. Money is not a government phenomenon, and it need not and should not be managed by government. When central banks like the Fed manage money they are engaging in price fixing, which leads not to prosperity but to disaster.

…The Fed fails to grasp that an interest rate is a price, the price of time. Attempting to manipulate that price is as destructive as any other government price control.

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21-Oct (Reuters) — The Eurogroup of euro zone finance ministers has approved the payment of the next tranche of 8 billion euros ($11 billion) under Greece’s EU/IMF bailout programme — pending approval from the International Monetary Fund, the ministers said in a statement on Friday.

“We have agreed to endorse the disbursement of the next tranche of financial assistance to Greece in the context of the current economic adjustment programme,” said the statement from the Eurogroup, which was meeting in Brussels on Friday evening.

“The disbursement is expected to take place in the first half of November, pending the approval by the Board of the International Monetary Fund,” it said.

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PG View: While it is acknowledged by the troika itself that the Greek financial situation continues to deteriorate and the country is being further hobbled by massive strikes and protests, by all-means give them another €8 bln.

21-Oct (CNBC) — France’s push to use more European Central Bank money to fight the euro zone debt crisis has run into strong resistance from Germany and other EU partners, leaving Paris increasingly isolated before a crucial summit.

The rift between Europe’s two biggest powers has already forced leaders to tack on an extra summit in the coming week. They will now meet twice — on Sunday and Wednesday — to try to adopt a comprehensive strategy to fight the crisis that began in Greece, spread to Ireland and Portugal and is now threatening to engulf bigger economies in the 17-nation currency area.

Senior European sources said Berlin and Paris were still at loggerheads on two core elements of a plan to build a firewall around Greece and stabilise bond markets — how to scale up the euro zone’s rescue fund and how to reduce Greek debt.

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21-Oct (Bloomberg) — The budget committee in Germany’s lower house of parliament approved guidelines for the region’s rescue fund that exclude proposals on how to leverage its firepower, said Ulrich Scharlack, spokesman of the parliamentary group of Chancellor Angela Merkel’s Christian Democratic Union.

“We assume that the leveraging” of the European Financial Stability Facility “will be decided at the Brussels summit on Oct. 23,” Scharlack said by telephone today, adding that this decision would then have to be presented to the budget committee in Berlin for approval before Merkel could return to Brussels for a second European summit on Oct. 26.

European leaders will hold two summits in four days in an effort to break a deadlock on how to tackle the region’s debt crisis. The budget committee called on Merkel to ensure there is no EFSF leveraging via the European Central Bank and that the fund isn’t allowed to operate as a bank.

Germany’s guarantees to the EFSF of as much as 211 billion euros ($292 billion) must not be exceeded, the committee said.

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PG View: No leverage and no additional funds from Germany…that does not bode well for the upcoming summits.

21-Oct (Bloomberg) — France is among euro-region sovereigns likely to be downgraded in a stressed economic scenario, according to Standard & Poor’s.

The sovereign ratings of Spain, Italy, Ireland and Portugal would also be reduced by another one or two levels in either of New York-based S&P’s two stress scenarios, the ratings firm said in a report dated today. These assume low economic growth and a double-dip recession in the first set of circumstances, and add an interest-rate shock to the recession in the second.

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21-Oct (USAGOLD) — Gold has rebounded strongly into the range as the dollar tumbled to new post-WWII lows against the yen. The break of key support in USD-JPY put the greenback under broader pressure. Despite the recent concession that this weekend’s EU summit will not net the promised solution for Europe’s debt/banking crisis, even the euro rebounded to pressure its 5-week high versus the dollar.

The yen has benefited from safe-haven flows in recent years, primarily because they have been living in a zero interest rate environment with high debt for two-decades. They seem comparatively stable. The yen was bolstered further when the field of safe-haven currencies was narrowed early last month with the Swiss pegging the franc to the euro. The latest record high in the yen is already heightening expectations that the BoJ will intervene to protect Japanese exporters.

We’ve made note of the global currency wars repeatedly in recent years. In a global economy, nobody wants a strong currency because it makes exported goods less competitive; and therefore a beggar-thy-neighbor race to the bottom ensues. Of course there are repercussions for currency debasement as well; most notably, higher inflation.

If policymakers in Japan move to hinder the safe-haven appeal of the yen, that all-but leaves gold as the last haven standing…

• Canada CPI +0.2% in Sep; +3.2% y/y, above market expectations. Core surged to +2.2% y/y, also above expectations.
• France business confidence fell to 97 in Oct, below market expectations, vs 99 in Sep.
• S&P: France Likely to Lose Top Rating in Stressed Economic Scenario.
• Germany Ifo business climate fell to 106.4 in Oct, above expectations, vs negative revised 107.4 in Sep; expectations falls to 97.0, current assessment drops to 116.7.

21-Oct (Bloomberg) — The amount the European Central Bank borrowed from the Federal Reserve’s dollar swap facility rose to $1.9 billion, the most in 17 months, as U.S. prime money market funds cut lending to the region’s banks.

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21-Oct (The Wall Street Journal) — Federal Reserve officials are starting to build a case for a new program of buying mortgage-backed securities to boost the ailing economy, though they appear unlikely to move swiftly.

The idea would be to target any new efforts by the central bank at the parts of the economy that are most severely impeding a recovery—the housing and mortgage markets—by working to push down mortgage rates.

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21-Oct (The Wall Street Journal) — Europe’s efforts to deliver a comprehensive plan to resolve the euro-zone debt crisis were in danger of unraveling Thursday as disagreement between Germany and France over virtually every point forced the 27-nation bloc to concede a much-anticipated summit of European Union leaders on Sunday won’t produce an agreement.

The leaders of the euro zone’s two largest economies are key to any deal on addressing the nearly two-year-old sovereign-debt crisis.

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PG View: …but, but they promised a coordinated plan by the end of the month just 2-weeks ago. What I’m hearing is there is no coordination and there is no plan.