Reprinted with permission.

03-Oct (The Wall Street Journal) — Stocks opened the fourth quarter with a rout that left major indexes setting 2011 closing lows, as worries over Greece overshadowed stronger-than-expected U.S. manufacturing activity.

The Dow Jones Industrial Average dropped 258.08 points, or 2.4%, to 10655.30. Selling accelerated throughout the trading session, with stocks finishing at their lows of the day. The blue-chip index set a 2011 low, wiping away the previous level hit on Aug. 10.

The Standard & Poor’s 500-stock index slipped 32.19 points, or 2.9%, to 1099.23. All 10 of the index’s sectors closed in negative territory, led lower by declines in financial and energy stocks. The index, which also set a 2011 closing low, is down 19% from its high point for the year. It only is nine points from bear-market territory, considered a drop of at least 20%.

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03-Oct (ZeroHedge) — America has now officially closed the books on the 2010-2011 fiscal year. It is only fitting that the last day of the year saw the settlement of all outstanding and recently auctioned off debt. The result: a surge of $95 billion in total government debt overnight, and a fiscal year closing with the absolutely unprecedented $14,790,340,328,557.15 in debt. Net net, in the past fiscal year, the US has issued a total of $1.228 trillion in new debt and has accelerated over time. At a rate of $125 billion per month, total US debt to GDP will pass 100% in just over a month.

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PG View: As the US hurtles relentlessly toward 100% debt/GDP and beyond, at least we can take solace in the budget for this next fiscal year…oh wait…we don’t have one of those…

03-Oct (USAGOLD) — Gold is well bid within the recent range, moving back within striking distance of last week’s high in earlier trading, amid the persistent elusiveness of a solution of the Greek problem. Greece has once again acknowledged that it will miss its deficit reduction targets, which were a prerequisite of receiving the latest €8 bln bailout tranche. With the next round of bailout funds in doubt once again, talk of an impending Greek default is percolating once again, and weighing heavily on European shares.

With most of the deleveraging seemingly washed out of the market, investors are once again viewing gold as the safest of the few remaining safe-havens…if not the only remaining truly safe-haven.

• NY Fed bought $2.5 bln in Treasuries maturing between Feb 2036 and Aug 2041 in today’s Operation Twist activity.
• US ISM rebounded to 51.6 in Sep, above market expectations of 50.5, vs 50.6 in Aug.
• US construction spending +1.4% in Aug, well above market expectations of -0.2%, vs -1.4% in Jul.
• Eurozone Reuters manufacturing PMI (final) revised up to 48.5 for Sep from 48.4 previously. Germany 50.3. Italy and France revised higher too, but still contractionary.
• Switzerland retail sales -1.9% y/y in Aug, vs upward revised +2.9% in Jul.
• Switzerland SVME manufacturing PMI fell into contraction at 48.2 in Sep, below market expectations of 50.5, vs 51.7 in Aug.
• Japan Tankan Index – Large Manufacturers rose to 2 in Sep, in-line with expectations, vs -9 in Aug; Large Non-Manufacturers 1, below expectations.

By Peter Brimelow
03-Oct (MarketWatch) — Gold bugs have been shaken by the size of what they see as a manipulative bear raid, but they still believe Asian off-take underpins the market.

Gold had been declining for several days, but in the early Asian hours of Monday Sept. 26, it was struck a terrific blow, plunging $130 in a few hours before recovering.

As Australia’s The Privateer noted thoughtfully this weekend: “That plunge … brought the gold price down pretty close to its 40-week (200-day) moving average. Gold hasn’t been below that 200-day moving average by any more than a few [U.S. dollars] since late January 2009.”

…Taking the rather more calming long view, Bianco Research on Tuesday put out a piece noting that, considering the nine major breaks since gold started rising in 2001 in percentage terms, the break from the Sept. 6 Comex December gold $1,924 high to last Monday was the second shallowest, and was less severe than the previous five.

In gold, a $100 move is not what it was!

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PG View: The bolded analysis above suggests that — on a percentage basis — the recent correction is really not that big a deal.

02-Oct (Financial Times) — Watching the price of gold dive in recent weeks as the eurozone crisis worsened and economic indicators turned particularly gloomy has led some to question the yellow metal’s status as a haven asset.

…With central bankers making good use of their printing presses over the past three years, many investors are increasingly concerned about uncontrollable inflation eating into their cash piles. “Governments do not really understand the long-term effects of printing so much money,” says Dylan Grice, a global strategist at Société Générale Cross Research Alternative View.

…The recent sharp fall in the price of gold – prompted by declining fears of a surge in inflation in the US and of a collapse in the US dollar – took many analysts by surprise, yet it has done little to alter the fundamentals behind gold’s appeal versus cash today.

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03-Sep (ZeroHedge) — Tired of all the trite meaningless propaganda from Economic PhDs who crawl out of the woodwork every time there is a downtick in gold, proclaiming in big bold letters that the Gold “bubble” has burst, only to crawl right back in when gold soars $100/oz in the days following their latest terminally wrong proclamation? Or, alterantively, wondering what will happen to gold from this point on? Then the following report from Nomura is for you. As Saeed Amen analyzes: “In this article we explain why the price of gold has fallen in recent weeks. Notably, price action during Asian hours has become very bearish, which had not been the case in previous unwinds earlier in the year. In addition, it is likely that losses in risky assets such as equities helped precipitate unwinding of very heavily extended long gold positions. However, the key reasons for being bullish gold remain; namely, a very low interest rate environment and the potential for long-term demand from Asia. Also, the potential for gold’s status as a safe-haven hedge to tail risks arising from various uncertainties due to the European debt crisis is likely to be enhanced, especially now that short-term speculative positioning is relatively light. Also on a short-term basis, we have begun to see some reversal in gold back upwards during Asian hours, after the unwind.” Overall, informative but nothing new to regular readers: gold liquidations on market plunge (confirming ironically that gold is now among the most liquid types of investments in the market) as had been predicted months ago, and the same long-term fundamentals for the metal once the current stock downturn shakes out all the weak hands.

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02-Oct (The New York Times) — Europe’s long, halting struggle with deficits and debt can seem like the agonies of Macbeth: “Tomorrow, and tomorrow, and tomorrow, creeps in this petty pace from day to day, to the last syllable of recorded time.”

The 17 European Union nations that share the euro don’t have that much time, of course, to convince investors that they have a plan to hold the currency together and prevent a run on the Continent’s banks. Some analysts say they have less than five weeks, until the Group of 20 summit meeting in November; others say a bit longer.

But rapid action comes hard to a union that works in increments, with political agreement required at every step.

In the short term, Greece remains the central problem. Two bailouts have not been enough. Greek public debt continues to mount, and so does the pressure on the government to find more revenue and make more cuts.

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PG View: I loved the quote from Macbeth; which so accurately characterizes the stumbling and bumbling of European policymakers from one emergency meeting to the next in their unending search for a solution to the problem that is Greece. Tomorrow, an tomorrow, and tomorrow…

03-Oct (AP) – Stocks took another battering Monday after Greece admitted it won’t meet its deficit reduction targets, raising renewed fears that the country will not get crucial bailout loans it needs to avoid a default.

On Sunday, Greece’s finance ministry said the deficit this year will likely be 8.5% of its gross domestic product, higher than the 7.8% previously anticipated, and blamed a deeper-than-expected recession for the failure. The Greek economy is projected to shrink 5.5% this year.

The revelation that Greece is finding it increasingly difficult to reduce its borrowings in spite of all its austerity measures has raised fears that international creditors will effectively pull the plug.

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PG View: This shouldn’t have been a surprise to anyone. Greece hasn’t hit a deficit target in years and the ones that they did — before the country was invaded by troika auditors — were all fabricated…

Tentative Outright Treasury Operation Schedule

30-Sep (ChrisMartenson.com) — David Stockman, former US Representative and Director of the Office of Management and Budget under Reagan, does not mince words. He sees the monetary systems of the world coming apart.

How did we get here? He identifies the root cause as the intentional over-leveraging of world economies by central planners in a misguided effort to enjoy growth without consequence.

Some choice quotes:

“I blame it on the Fed. I blame it on the 1971 decision by Nixon to close the gold window and let the dollar float. Because out of that has evolved — or morphed — a central banking policy in the world that absorbs unlimited amounts of government debt.”

“…we got away for twenty or twenty five years with “deficits without tears.”

“As far as I’m concerned, Bernanke is the monetary Darth Vader.”

“We effectively had, over the last thirty years, a national LBO – a leveraged buyout of the whole economy.”

“Washington thinks you can kick the can down the road, the debt is more or less free, and we’ll get around to solving the problem. But today, let’s not make any tough choices. That’s where we are.”

“The banking system has been saved on the back of the savers of the United States. We have totally destroyed any incentive for thrift, for deferred gratification.”

“Gold is becoming the de facto money. We’re going to be back to a gold standard, one way or another, through the back door in only a matter of time, simply because the central banks are dominated by the ritual incantation of dying Keynesian theory. And therefore, I would say that’s what someone needs to do to protect themselves.”

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PG View: A compelling, if sobering, interview with a true political and policy insider. In that last quote, he very clearly indicates that people need to buy gold to protect themselves. Well worth listening to the entire interview.

By Michael Yoshikami
30-Sep (MarketWatch-TradingDeck) — Gold has dropped in price to around $1,600 per ounce and suddenly some say that gold is no longer a commodity that investors should embrace. I say ridiculous.

In times of panic, investors sell everything, even assets that have medium to long-term growth opportunities. The recent selling of gold was related to panic from hedge funds needing to raise money for redemptions as well as a tightening of margin requirements. This was not selling pressure based on any fundamental change in conditions or outlook.

Gold still makes sense in investors’ portfolios as a hedge against the fear and stagnation that very likely will occur over the next several years in the global economy. Affluence in China and India will continue to drive consumption, and despite the economic travails throughout the world, the desire for gold jewelry will continue to rise.

…It’s our view that sometime in the not-too-distant future, gold will reach $2,000 an ounce.

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30-Sep (MyFiances) — European stocks suffered another day of dramatic falls on the final day of the most tumultuous quarter for the markets since the credit crunch and financial meltdown of 2008.

Indeed, the falls in the value of the European stock markets are even more severe than those suffered in 2008, though the overall effect is not as serious at the moment and the share indexes have not reached the lows they experienced at that time.

However, investors believe the situation could get worse before it improves.

For the third quarter of 2011, the German Dax and the French Cac share indexes have shed more than 25 per cent of their value in the last three months. The FTSE 100 has lost 14 per cent of its value in the same period.

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PG View: Meanwhile, even with the recent retreat, gold is up 7.9% q/q.

30-Sep (The Wall Street Journal) — U.S. stocks are set to close out the worst three-month stretch since the nadir of the financial crisis. The Dow Jones Industrial Average and the Nasdaq each are down more than 10% for the third quarter, as of Thursday’s close. The S&P 500 slipped 12%.

Bank of America is “leading” the third-quarter blue-chip carnage, down 42%, followed by Alcoa’s 37% slide and the 35% stock-price decline for Hewlett-Packard.

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30-Sep (USAGOLD) — Gold remains consolidative in the recent range, with a softer intraday tone. A firmer dollar is weighing on the yellow metal after the euro was knocked by much weaker than expected retail sales in Germany. Despite the indication of weaker consumption, signs of inflation are mounting. Eurozone HICP jumped to 3.0% in Sep, well above the 2.5% the market was expecting. As we noted earlier in the week, rising inflation will give the ECB pause in lower rates again, even as growth risks mount. Additionally, Swiss KOF leading indicators fell more than expected.

While the expansion of the ESFS bailout fund cleared a major hurdle yesterday in getting the blessing of the German parliament, other EU member states must still approve. While the approval is likely to be forthcoming, the EU will then have to deal with the reality that the fund is probably still not large enough.

The IMF — perhaps recognizing the weakness of the ESFS — is looking to about double its bailout capabilities to $1.3 trillion. According to The Wall Street Journal, they are also “weighing whether to sell bonds in private markets on short notice, a move that could bolster its safety net beyond $1.3 trillion.” So the IMF will look to issue debt as a means to mitigate debt crises… Brilliant.

More paper is just what the world needs: Paper in the form of debt (bonds) and paper in the form of fiat currency. The proliferation of paper is exactly what has perpetuated the 11-year bull market in gold, which largely solidifies in my mind that the recent pullback is nothing more than another correction in that long-term uptrend.

• Chicago ISM jumped to 60.4 in Sep, well above market expectations of 55.9, vs 56.5 in Aug.
• University of Michigan sentiment (final) revised up to 59.4 in Sep, above market expectations, vs 57.8 preliminary reading.
• US personal income fell 0.1% in Aug, below market expectations of +0.1%; First drop in nearly 2-years. PCE +0.2%.
• Canada GDP +0.3% in Jul, in-line with expectations, vs +0.2% in Jun.
• Swiss KOF leading indicator fell to 1.21 in Sep, well below market expectations of 1.35, vs 1.41 in Aug.
• Eurozone HICP jumped to 3.0% y/y in Sep, above market expectations of 2.5%, vs 2.5% y/y in Aug.
• Eurozone unemployment steady at 10.0% in Aug, in-line with expectations.
• German retail sales tumbled 2.9% m/m in Aug, well below market expectations of -0.4%, vs upward revised 0.3% in Jul.
• France PPI unch in Aug; 6.3% y/y.
• Italy PPI unch in Aug; 4.5% y/y.
• Italy CPI – EU Harmonized (preliminary) +1.9% m/m in Sep; 3.5% y/y.
• China PMI (HSBC/Markit) unch at 49.9 in Sep, but better than Sep “flash” print of 49.4.
• Japan PCE -4.1% y/y in Aug, well below market expectations of -2.8%.

One by one, European parliaments are blessing a $600 billion bailout fund considered an important step in solving the region’s financial crisis.

But there is an unspoken problem: The fund may not be big enough to do a job that involves backing such major countries as Italy and Spain and boosting capital levels in the region’s financial system.

Germany’s parliament delivered an important vote of approval Thursday for the European Financial Stability Facility. But even if other governments follow suit, officials will need to pivot quickly into a contentious debate about how to boost the size of the fund to perhaps several trillion dollars.

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By Ezra Klein
30-Sep (Washington Post) — “Europe is approving a bigger bailout fund.” I feel like Wonkbook has included some version of this headline a hundred times. And here it is again. This time, the bailout fund is the European Financial Stability Facility, which is getting some new powers: it will soon be able to buy government bonds and lend directly to governments and banks. The problem is that it won’t have enough money backing its new powers to actually solve the crisis. This is a bit like empowering firefighters to go into burning buildings, but not giving them sufficient water for their hoses.

Europe is caught in a long bout of something that we’re very used to seeing after financial crises: extend and pretend. The underlying reality of their dilemma is that there are hundreds of billions — or maybe more — in losses for someone to take. If Greece and Ireland and Portugal take them, that means default and likely exit from the Euro. If they default, that means defaulting, in large part, on loans owed to German and French banks, which could cause a banking crisis in those countries. For them not to default, however, means that taxpayers in other European countries have to take those losses.

…The cost of denying the problem is to make the problem worse. But for Europe’s leaders, that is, at least for now, an easier price to pay. Actually fixing the problem might ultimately be cheaper, but it requires a wealth of political capital and continental unity that they simply don’t have.

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First decline in income in nearly 2-years.

30-Sep (MineWeb) — Gold fell over $100 last Friday, Monday continued the carnage and, while the precious metal has regained some ground since, it is still on track for an 11% decline for the week.

The question now on analysts’ minds is, where to from here?

For some, this fall is nothing more than a buying opportunity. As currencies race to the bottom and Greece edges ever closer to default, so gold remains the only safe port in a rapidly approaching storm. And, if it was attractive at 1,800 an ounce, it is even more attractive now.

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29-Sep (Yahoo Finance) — The increasing demand for silver bullion coins and bar in top retail markets comprising of North America, Western Europe, China and India, is outpacing supply, according to Dillon Gage Metals president Terry Hanlon.

Hanlon said a change of pattern was also emerging, with Indian investors who traditionally bought jewelry and silverware beginning to include small bars into their silver investment, while China investors were moving into small bars since the liberalisation of its silver market over the past two years.

…This year, US Mint sales of silver increased 26% compared to 2010, but the shortages of blanks still impede further growth.

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30-Sep (The Wall Street Journal) — The International Monetary Fund, looking to assure markets that it has the financial firepower to deal with deepening problems in Europe and also crises elsewhere, is exploring how it can have at least $1.3 trillion in lending power, according to officials involved with the discussions.

The IMF currently has about $630 billion in usable resources; about two-thirds of that could be lent under IMF rules.

Under the plan be considered, the fund would need to make permanent a $590 billion temporary lending facility that was put in place in response to the 2008 financial crisis.

…In addition, say officials involved in the discussions, the IMF is also weighing whether to sell bonds in private markets on short notice, a move that could bolster its safety net beyond $1.3 trillion.

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29-Sep (USAGOLD) — Gold has rebounded from yesterday’s soft close below $1600. While the tone remains generally defensive in the wake of recent sharp losses, the market has been buoyed by passage of the EFSF expansion by the German parliament. I think even many of the conservative mavericks in the Bundestag looked over the precipice and realized that rejection of the proposal would have precipitated a disorderly Greek default, sending all of Europe — and possibly the world — into economic turmoil.

While politicians have acknowledged the graveness of the situation in Greece and the rest of the EU periphery, make no mistake, endless can-kicking does not solve the underlying problem. German taxpayers are on the hook for an additional €91 bln in guarantees; and even so, Greece is still likely to default. Nonetheless, risk appetite has been somewhat revived as at least the immediate crisis seems to have been averted by today’s “ja” vote.

• US NAR pending home sales index -1.2% to 88.6 in Aug, vs 89.7 in Jul; +7.7% y/y.
• US BLS preliminary benchmark revisions +192k total nonfarm, 140k of which were private sector jobs.
• US initial jobless claims -37k to 391k for the week ended 24-Sep, well below market expectations, vs upward revised 428k in previous week.
• Canada IPPI +0.4% in Aug, above market expectations of -0.2%; +5.2% y/y. Strong rises in motor vehicle and chemical product prices noted.
• UK GfK consumer confidence fell to -35 in Sep, below market expectations of -34, vs -31 in Aug.
• Germany unemployment change (sa) -26K in Sep, a bigger drop than the market expected. Unemployment rate ticks lower to 6.9%.
• Eurozone economic confidence fell to 95.0 in Sep, below market expectations of 95.8, vs 98.3 in Aug; industrial confidence falls to -5.9.
• Eurozone consumer confidence fell to -19.1 in Sep, below market expectations of -18.9, vs -18.9 previously.

29-Sep (Der Spiegel) — Chancellor Angela Merkel got the majority she needed on Thursday as German parliament passed the expansion of the euro backstop fund, the EFSF. With fewer conservative renegades than feared, Merkel can breathe a sigh of relief. But with more difficult decisions approaching, the respite may not last.
Info

German parliamentarians on Thursday approved the planned expansion of the European Financial Stability Facility (EFSF) with 523 voting in favor, 85 against and three abstentions.

The bill’s passage is a vital step in euro-zone efforts to increase the fund’s lending capacity from its current €250 billion ($338 billion) to €440 billion. Germany’s share of guarantees for the fund will rise from €120 billion to €211 billion, though several other euro-zone parliaments must still vote on the expansion.

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28-Sep (The Wall Street Journal) — Emerging-market countries continued to top up their gold reserves in August, with Russia, Thailand and Bolivia among those to add to their holdings.

Central banks have bought gold as some seek to diversify foreign-exchange reserves that have grown along with emerging market export industries. The purchases have helped drive the price of gold higher, because they absorb supply and boost market sentiment.

This year, central-bank officials also began buying in earnest in reaction to the government debt woes affecting the U.S. dollar and the euro.

While central-bank officials are careful not to skew the market with huge purchases or disposals, metals consultancy GFMS Ltd. said “further large official-sector purchases should help sustain prices.”

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28-Sep (Bloomberg) — The Federal Reserve, chastised by Congress for lending money to foreign institutions including a Libyan-owned bank, is once again the lender of last resort for banks around the world it knows little about.

Three years after the collapse of Lehman Brothers Holdings Inc., money-market borrowing rates for dollars are rising, leading the Fed and European Central Bank to make the currency available to Europe’s institutions for as many as three months. U.S. prime money-market funds cut their exposure to euro-zone bank deposits and commercial paper, or short-term IOUs, to $214 billion in August from $391 billion at the end of last year, according to JPMorgan Chase & Co. data.

The failure of regulators worldwide to address European banks’ fragile dependence on short-term funding is “putting the Fed in a really awkward position,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a Washington regulatory research firm whose clients include the biggest U.S. banks. The swaps with Europe “are an extremely advantageous political football” for critics of the Fed, she said.

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28-Sep (BBC) — The 620 members of Germany’s parliament, the Bundestag, will shoulder a great weight when they enter the chamber in the old Reichstag building in Berlin on Thursday morning.

They must decide whether to block the expansion of the rescue fund for Greece.

Were they to say “no”, the whole effort to keep the eurozone intact would bump up sharp against a block.

…All the arithmetic indicates that Chancellor Angela Merkel will get the overall majority she needs. The main opposition parties, the SPD and the Greens, have indicated that they will support the expansion of the fund.

But, if the majority is untidy, with the chancellor having to rely on the votes of opponents, that might be interpreted as political weakness at the top – and, moreover, at the top of one of the countries that really matters, as the world tries to avoid a return to recession.

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