AP (Oct 4) — “There was little question about the relevance of the debate. It happened just as France, Belgium and Luxembourg were struggling to keep Dexia bank from being the first major European lender to collapse since the end of the 2008 credit crunch.

But Europe has been slow to address a worsening crisis in its financial sector that is making banks reluctant to lend to each other and give loans to businesses, exacerbating an economic slowdown.

Three rounds of stress tests since the 2008 credit crunch have failed to restore confidence in the banking sector and Dexia was not even one of the nine banks that failed the most recent exercise in July, or among the 16 that barely passed.

While the European Commission, the EU’s executive, disputes the euro200 billion estimate that the IMF says may be needed to recapitalize banks on the continent, it does acknowledge that something needs to be done to address fallout of the worsening eurozone debt crisis.

[Source]

JK Comment: There are countless parallels between what is going on in Europe right now and our own banking crisis in 2008. And if its anything like our crisis, the first band-aids placed on the wound aren’t going to hold.

Julian Phillips – GoldSeek (Oct 5) — The I.M.F. has just warned that the developed world will enter a recession in 2012. Will that be negative for the gold market? We don’t think so. The world has seen the recovery peter out, the sovereign debt crisis arrive, and now sees the I.M.F. recommend that the Eurozone banks be recapitalized. What does this mean for precious metals?

Cast you minds back to the recapitalization of U.S. banks under the TARP measures whereby the Fed bought the toxic debt investments of the banks against fresh money. When we say fresh we mean just that, newly created money in the trillions. This did lower the perceived value of the dollar inside and outside the U.S. The effect on gold was palpable as it rose back through $1,200 and onto new highs.

Already we’re hearing rumors of an E.U. government minister’s plan to walk the same or similar road. With the recent past in mind, we’re certain that will lower the perceived value of the euro and see euro investors seek places to cling onto the value of the euro. This time round, expect markets to discount these actions in the same way. The downturn will therefore be fought with new money creation in the same way the U.S. did it from 2008 on.

[Source]

JK Comment: A good review of the causes of gold’s recent decline, and a helpful reminder: While gold initially trades “on the news”, it eventually trades the government/central bank “response to the news”. As it was in 2008, fears of a recession and bank crisis prompted a flight to liquidity and caused gold to decline (a trade “on the news”). However, the ensuing intervention by the Federal Reserve and US government to add liquidity to the banking system and stimulate the economy caused gold to rise nearly three-fold (a trade on the “response to the news”). Phillips expects Europe to respond in a similar fashion as the US did in 2008, fueling an environment that is undoubtedly pro-gold.

05-Oct (USAGOLD) — Gold remains defensive within its range after Fed chairman Bernanke gave yet another grim assessment of US growth prospects late yesterday, saying the recovery is “close to faltering.” In fact, “close to faltering” has pretty much been the norm since the recovery began. What the recovery is right now is faltering. While Bernanke went on to say that further monetary easing was an option, commodities and stocks — along with gold — retreated ahead of Tuesday’s close. The S&P 500 fell into bear market territory.

Stocks were ultimately saved by a comment from the EU’s Olli Rehn on the FT’s website late on Tuesday that eurozone finance ministers were considering a coordinated recapitalization of European banks. Shares rebounded sharply into the close on heightened risk appetite. The rumors of a new recapitalization plan have since been largely dismissed.

Bernanke’s reference to more easing seemed to have been largely dismissed as well. Perhaps the market believes that further accommodations, further QE is simply not possible. But I wouldn’t be so sure about that. Mortgage applications fell last week, suggesting that the Fed’s Operation Twist — which has successfully driven down longer term yields — has not been successful initially in spurring refinancing and new mortgage activity. With the tool box pretty depleted at this point, more full-on QE is about the only option left.

While the value of QE has proven dubious at best, the threat of a return to recession will heighten calls for the Fed to do something. Anything. If the Fed does indeed ramp up asset purchases under the cover of stimulating a moribund economy, the long-term uptrend in gold would likely re-exert itself.

• US ADP employment +91k in Sep, above market expectations of +75k, vs +89k in Aug.
• ECB Deposits Facility usage soars to 16 month high.
• UK Q2 GDP (final) unexpectedly revised lower, to just 0.1% q/q and 0.6% y/y. Q1 revised lower to 0.4%.
• Eurozone Reuters Services PMI (final) revised down to 48.8 in Sep, below market expectations, vs 49.1 previously.
• Eurozone retail sales -0.3% m/m in Aug; -1.0 y/y.
• ECB Deposits Facility usage surged to €213 bln, a 16-month high.
• Taiwan CPI 1.35% y/y in Sep.
• Australia retail trade +0.6% in Aug, above market expectations, vs upward revised +0.6% in Jul.

05-Oct (Bloomberg) — U.S. employers announced the most job cuts in more than two years in September, led by planned reductions at Bank of America Corp. (BAC) and in the military.

Announced firings jumped 212 percent, the largest increase since January 2009, to 115,730 last month from 37,151 in September 2010, according to Chicago-based Challenger, Gray & Christmas Inc. Cuts in government employment, led by the Army’s five-year troop reduction plan, and at Bank of America accounted for almost 70 percent of the announcements.

…Compared with August, job-cut announcements climbed 126 percent, the Challenger report showed.

[source]

05-Oct (Bloomberg) — The European Union doesn’t have a new plan to recapitalize banks, the European Commission said.

EU Economic and Monetary Commissioner Olli Rehn “doesn’t speak of a concrete plan in hand,” his spokesman, Amadeu Altafaj, told reporters in Brussels today. “He speaks of an initiative, of discussions in progress and he pleads for a European approach.”

Altafaj was responding to questions about Rehn’s comments to the Financial Times yesterday.

The commissioner “clearly indicated he doesn’t have a new recapitalization plan,” the commission’s chief spokeswoman, Pia Ahrenkilde Hansen, said.

[source]

PG View: Rumors of bank recapitalization lifted stocks in late trading yesterday. They remain elevated today, despite concession that there is no recapitalization plan.

05-Oct (Bloomberg) — Antonio Borges, the International Monetary Fund’s European department head, said European Union authorities are working on a plan to recapitalize the banking sector.

“There is no secret at all that European authorities and the European Commission are all working together on a plan to bring more official capital, more public-sector capital, into the banking sector, precisely to restore confidence,” Borges said today at a press conference in Brussels on the IMF’s biannual economic outlook for Europe.

[source]

04-Oct (Businessweek) — Moody’s Investors Service Monday downgraded Italy’s government bond ratings to “A2″ with a negative outlook from “Aa2,” the result of high debt, a weak global economy and political uncertainties that delay corrective action.

While the change moves the rating down three notches, it is still investment grade. Moody’s affirmed the short-term ratings at Prime-1.

Moody’s said the size of the rating action is largely driven by the sustained increase in the country’s susceptibility to financial shocks, however, the “A2″ rating indicates the risk of default by Italy remains remote.

[source]

(Reuters) – The euro zone is on track to secure approval for modifications to its bailout fund by a summit on October 18, although Slovakia, one of three countries in the 17-country bloc yet to ratify the changes, remains an obstacle.

Slovakia’s finance minister said on Monday its parliament will vote on extending the powers of the 440 billion euro European Financial Stability Fund (EFSF) next week, just days before European leaders meet in Brussels on October 17.

…One option is to turn the EFSF into a bank, so that it would be able to access European Central Bank funds, potentially giving it unlimited liquidity.

Another possibility is for the EFSF to guarantee a portion of any losses on sovereign bonds.

[source]

PG View: Looks like the plan to leverage the ESFS — which buoyed global markets last week — has fallen by the way side. Now it looks like the front-runner is to turn the ESFS into a bad bank; accumulating toxic assets with unlimited liquidity provided by the ECB. What could possibly go wrong?

04-Oct (MarketWatch) — Gold fell sharply Tuesday, after comments from Federal Reserve Chairman Ben Bernanke painted a grim picture for the U.S. economy and job growth, dulling the metal’s appeal as an inflation hedge, and as steep losses in global markets prompted investors to sell gold to raise cash.

[source]

PG View: While Bernanke was indeed quite pessimistic about the “recovery,” that prompted him to also suggest that further monetary easing may be in the cards. If further QE is indeed in the offing, that has proven to be a pretty good reason to own gold in the past.

04-Oct (Reuters) — The Federal Reserve is prepared to take further steps to help an economic recovery that is “close to faltering”, Fed Chairman Ben Bernanke said on Tuesday.

Citing anemic employment, depressed confidence and financial risks from Europe, Bernanke urged lawmakers not to cut spending too quickly in the short term even as they grapple with trimming the long-run budget deficit.

He also made clear the Fed — the U.S. central bank — stands ready to ease monetary conditions further following its launch of a new stimulus measure in September.

[source]

PG View: I’m guessing its not so much the faltering economy that has prompted Bernanke to ramp up his dovish-speak, but rather the DJIA’s proximity to 10,000 and both the Dow and the S&P flirting with bear market territory.

04-Sep (USAGOLD) — Gold has retreated into the range this morning after eking out a new 2-week high at 1678.42, but failing to clear Fibonacci resistance at 1681.68 (38.2% retracement of the decline from 1920.50 to 1534.06). The dollar and gold rose in tandem yesterday on safe-haven flows as global stocks tanked amid rising expectations that a Greek default is imminent. The dollar tacked on more gains today, after eurozone finance ministers meeting in Luxembourg indicated that the next tranche of bailout funds fore Greece were unlikely to be released before mid-November, but gold faltered intraday.

Greece had adamantly stated in the past that they would run out of money in mid-October, but miraculously Greek finance minister Venizelos now says they have adequate funding through mid-November. The markets are starting to doubt whether Greece will get that next tranche at all, which would unquestionably lead to default. Global stocks — particularly financial shares — are under pressure once again today.

Shares of French/Belgian bank Dexia plunged 38% intraday, due to the banks exposure to Greek bonds and the news that the additional €8 bln in aid for Greece would not be immediately forthcoming. Both France and Belgium quickly pledged support for Dexia, which in turn pushed up CDS premiums on the two sovereigns — Belgian CDS in particular were up markedly.

• US factory orders -0.2% in Aug, below market expectations of -0.1%; ex-transport -0.2%.
• Eurozone PPI -0.1% m/m in Aug, inside expectations of -0.2%, vs 0.5% in Jul; 5.9% y/y, down from Jul, but above expectations.
• UK CIPS Construction PMI fell to 50.1 in Sep, vs 52.6 in Aug.
• Indonesia trade balance (USD) jumped to $3.8 bln in Aug, vs $1.2 bln in Jul.
• Thailand CPI fell to 4.0% y/y in Sep, vs 4.3% in Aug.
• South Korea CPI fell to 4.5% y/y in Sep, vs 5.3% in Aug.
• Australia balance on goods and services jumped to A$3.10 bln in Aug, well above market expectations of A$1.9 bln, vs A$1.81 bln in Jul.
• RBA holds official cash rate steady at 4.75%, in-line with expectations.

04-Oct (New York Times) — Seeking to quash fears about an imminent default, Greece said Tuesday that it had enough money to pay its bills through mid-November — a month longer than previously indicated — even without the next installment of its bailout package.

At a news conference in Athens shortly after meeting with his euro zone counterparts, the Greek finance minister, Evangelos Venizelos, said the most important thing for the debt-laden Greek government was getting the broader European rescue fund up and running. European leaders agreed to a plan to bolster the fund in July, but it has yet to be ratified by all members of the Eurogroup, which is made up of the finance ministers of the 17-country euro zone.

“Until the middle of November we will have no problem,” Mr. Venizelos said. “The main issue is not the release of the sixth tranche but convincing the markets that we have reached a viable solution all together.”

[source]

04-Oct (The Wall Street Journal) — China’s angry response to a U.S. Senate vote to move ahead with a bill to punish Beijing for keeping the value of its currency low reflects domestic pressures on the leadership to act tough, but is unlikely to result in any precipitous action, analysts and economists say.

China’s reaction on Tuesday to the 79-19 vote was swift and coordinated.

The People’s Bank of China cautioned in a statement that passage of the bill won’t resolve U.S. domestic economic difficulties but could instead “seriously affect” China’s continuing exchange-rate reform and even lead to a trade war. It said that with inflation factored in, the yuan has appreciated “greatly” and is close to a balanced level.

[source]

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%.

[source]

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.

[source]

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!

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.”

[source]

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.