I would be remiss if I didn’t say a word publicly about Steve Jobs.

For me and for a lot of us, his passing is a personal matter. I can’t quantify the contribution he made to my life and this website. Without him and Apple, I don’t know if any of this would have happened. His genius was to simplify the complex so that all of us could use it in our daily lives — something he did consistently from the first Mac computer to the I-Pad and now the latest version of I-Phone. I am glad he got these last seven years. He made the most of it.

My start with Apple occurred in the early 1980s. I may have been one of the first people in Colorado to own a Macintosh computer. A friend and client who owned a successful high-end audio outlet called me and said that he was going to send me a computer from one of his stores outside of Colorado for me to test drive. “This is something,” he said, “you aren’t going to believe.” I said “OK, if you feel that way about it, send it to me.” I got my Macintosh a few days later, locked myself in a room for a week and learned how to operate it (staring at that tiny black and white screen). The rest is history. It changed my life and contributed mightily to who I am. My friend — and Steve Jobs — dropped the computer age on my front doorstep and opened a whole new world to me that I still appreciate beyond words. USAGOLD might not have happened without Steve Jobs — and I am sure there are good many others who are thinking the same thing tonight.

We’ll miss you, Steve Jobs. God be with you, and thanks. . . .

Mike Kosares

06-Oct (Financial Times) — “We told you so”. That captures the reaction of many American bankers and policymakers towards Europe these days. Ever since America unveiled its own troubled asset relief programme in 2008, observers in Washington and New York have muttered darkly about Europe’s failure to grasp its banking nettle.

More specifically, it has long been suspected that Europe’s banks were shying away from revealing their bad loans; it has also been clear that some banks would need more capital, particularly if they had to write down deteriorating sovereign debt. Thus the obvious solution to some is what might be called euro Tarp – or a eurozone version of the capital injections and stress tests that in effect halted the American banking crisis back in late 2008 and 2009.

This may yet occur. This week eurozone leaders signalled that they are – belatedly – moving that way.

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Bloomberg (Oct 5)
Video – 4 min

[Source]

Let the QE Roll

06-Oct (USAGOLD) — The Bank of England held the repo rate steady at 0.5% and announced an additional £75 bln in quantitative easing this morning. This was bigger and sooner than the market was expecting. Caught off-guard, Gilts surged and Sterling tumbled to a new 15-month low. The BoE cited strains in the bank funding market as the catalyst for their decision, but the central bank is also apparently worried that inflation will drop below the 2.0% target in 2012. The sovereign debt turmoil across the channel on the continent of Europe undoubtedly factored into the BoE decision as well.

While the economic outlook in the UK may indeed be grim, that second part of the BoE’s justification is dubious at best. Inflation is presently running at more than twice their target and is likely to hit 5% before the end of this year. If UK policymakers really believe the January VAT hike (in conjunction with lower energy and commodity prices) will tank consumption enough to net a 300 bps (or more) decline in inflation, they’d be better off reconsidering the tax hike than increasing asset purchases.

There is a considerable and growing record from a number of major economies that pretty decisively shows that QE has very little stimulative impact. Nonetheless, the absence of meaningful fiscal action on the part of lawmakers in industrial nations — because it will be painful to some of their constituency — means central banks must at least make some effort to stimulate via monetary policy…even if it is largely pointless.

The ECB also held steady on rates today and edged further down the QE path. In his last press conference as President, Jean-Claude Trichet also painted a bleak picture of Europe’s economy, saying, “The economic outlook remains subject to particularly high uncertainty and intensified downside risks.” He also anticipates that inflation will remain elevated in the months ahead, but will decline thereafter.

Trichet went on to announce that the Governing Council has decided to launch a new covered bond purchase program of €40 bln to be conducted in both the primary and secondary market, via direct purchases from November 2011 through October 2012. In addition to its regular and special-term refinancing operations, the ECB will also conduct two longer-term refinancing operations in October (12-month) and December (13-month).

Finally today, the Fed was a seller of $8.870 bln in shorter-term securities. The proceeds of this transaction will ultimately be used to fund the purchase of longer-dated securities as part of the Fed’s Operation Twist. While yields at the long-end of the curve have indeed come down as a result of Operation Twist, initial mortgage refinancing and new mortgage demand data suggest market reaction to the Fed’s program has been tepid, at least initially.

In testimony earlier in the week, Fed chairman Bernanke gave his own dire assessment of the US economy, saying the recovery is “close to faltering.” He hinted that the Fed had more bullets; suggesting that further monetary easing could be forthcoming. With interest rates already at zero and Operation Twist already being implemented, that further easing almost assuredly would be in the form of more full-on QE; debt monetization.

While gold’s reaction thus far has been nonplussed, the reality that the central banks seem to be spooling up their printing presses once again is likely to be seen as broadly supportive to the yellow metal. If/when it is proven that the latest measures aren’t having the desired affect, and once again in the absence of meaningful fiscal policy, do the central banks throw up their hands and say we’ve done all that we can do? Or, do they pile on additional measures? Because with an unlimited supply of ink and paper — or more appropriately computer bits and bytes — there is always more they can do…consequences be damned.

06-Oct (Reuters) — Venezuela will begin repatriating its gold reserves from Western nations by mid-November, the central bank head said on Wednesday.

“We’re in the final phase of the logistics … Soon the Venezuelan people will know when the first boat is coming,” Nelson Merentes said, according to state news agency AVN.

President Hugo Chavez announced in August that the South American OPEC member nation would bring bring home almost all its $11 billion in gold reserves held abroad — a nationalistic move that has hurt market confidence.

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05-Oct (NPR – PlanetMoney) — Europe’s banks are in trouble. They urgently need to raise money to serve as a safety cushion against losses. If private investors aren’t willing to invest, governments should step in.

That’s what Christine Lagarde, the new head of the IMF, said in a big speech this summer.

European officials immediately attacked the idea, calling it “confused” and “misguided.”

Now, just over a month later, European officials are talking about doing exactly what Lagarde said: injecting public money into Europe’s banks.

“Germany is prepared to move to recapitalization,” German Chancellor Angela Merkel said today.

“Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty,” European commissioner for economic affairs Olli Rehn told the FT.

The quick reversal explains a lot about a problem European leaders have been struggling with for more than a year now: They’re perpetually a step behind in dealing with the continent’s debt crisis.

Even when European leaders know what needs to be done, they don’t always have the power to do it. The European Union doesn’t have much central authority. Big decisions have to be separately approved by the parliament of each country in the euro zone.

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06-Oct (Der Spiegel) — After they joined the euro zone, the countries of southern Europe suddenly discovered they could borrow money at German-style rates, and any hope of sorting out their dodgy finances vanished. But it was France and Germany who set the worst example, when they broke the euro-zone rules they had forced on others.

…while central governments tried to cap their national budgets to comply with the Maastricht requirements, municipalities piled on debt that was not documented or recorded anywhere at the European level.

Low-interest loans were available everywhere, and it was all too easy to postpone their repayment to a distant future and refinance or even expand government spending.

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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.

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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.

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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.

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(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.

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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.

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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.

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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.

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Reprinted with permission.