JK Comment: Pento has long been a gold bull (about the only thing he’s bullish on), and he continues to make a strong, well-reasoned case in this video.

03-Nov (Financial Times) — George Papandreou, Greek prime minister, has scrapped a controversial plan to hold a referendum on the heavily indebted country’s membership of the European Union and eurozone.

The U-turn by the embattled premier was announced during an emergency cabinet meeting on Thursday and followed a high-pressure meeting with Nicolas Sarkozy, French president, and Angela Merkel, German chancellor in which the offer of a €8bn loan from the EU was temporarily withdrawn.

Defending his decision Mr Papandreou said: “We had a dilemma: consensus or a referendum … Failure to back the package would mean the beginning of our departure from the euro. But if we have consensus, then we don’t need a referendum.”

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PG View: Reaction of the Greek people may prove interesting…

03-Nov (Der Spiegel) — The future of the country is at stake. But for the moment, there are more questions than answers in Athens. Many Greeks are skeptical of plans for a referendum on the euro bailout. On Thursday, it appeared their prime minister might be changing his tune as well. Reports have emerged he may form an emergency government to circumvent the controversial vote.

Maria Loukos is sitting completely alone in a commuter train car staring forlornly out the window. Outside, the city passes by; it is a bright, warm early November day. But the 72 year old is unable to enjoy the ride.

She is on her way to see her daughter, a civil servant in Athens, Loukos explains with a halting voice. “We have huge worries, you know?” she says, mentioning the drastic pay cuts forced upon government employees in addition to new and higher taxes. Her family’s financial security has vanished. “We are desperate!”

But what about the referendum that may be approaching? Greek Prime Minister Giorgios Papandreou announced on Monday that voters will soon be able to decide their fate themselves in a vote on the drastic belt-tightening measures imposed on the Greek populace in the effort to save the euro. Doesn’t the referendum give her hope?

The small woman with the blue-tinted hair waves the question away. “How will a referendum help me when I don’t understand anything anyway?” she asks. Everything is so complicated, she complains, media reports are contradictory and Greece’s political parties are hopelessly at odds with one another. She simply no longer knows who to believe. “What is best for my daughter, for me, for Greece? What?”

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03-Nov (USAGOLD) — Gold extended to new 6-week highs and is nearing the 61.8% retracement level of the entire correction at 1772.88 as the chaos in Europe has hit new heights. Rumors and counter rumors of Greek PM Papandreou resigning have been rampant. As have, the rumors about what Greece’s proposed referendum might entail.

The latest suggests Papandreou will not be stepping down, but will seek to form a unity government. If that happens, some are saying that the referendum — that has thrown all of Europe into disarray — may not be necessary. If the referendum gets scrapped, it’s anybody’s guess how the Greek people might react, but I would speculate that they won’t be happy. You can’t say your going to put their future in their hands and then take it away.

The ECB cut its refi rate by 25 bp today, citing mounting headwinds for the eurozone economy, not the least of which is the mess that is Greece. Italian and Spanish yields continue to push further into euro-era record high territory. The new ECB president Mario Draghi suggested there was potential for a mild recession. The ZeroHedge blog reminded followers today that S&P has said that a eurozone recession would likely lead to a French downgrade.

Jefferies is under heavy pressure for its exposure to Europe, but claims it is not the next MF Global.

• US ISM services edged lower to 52.9 in Oct, below market expectations of 53.5, vs 53.0 in Sep.
• US factory orders +0.3% in Sep, above market expectations of -0.2%, vs 0.1% in Aug.
• ECB surprises with a 25 bp refi rate cut to 1.25%. Presser commences at 13:30GMT.
• US Q3 productivity (prelim) +3.1%, above market expectations of +2.5%, vs -0.1% in Q2.
• UK CIPS Services PMI weaker than expected at 51.3 in Oct, vs 52.9 in Sep.
• Japan Culture Day – markets were closed.

03-Nov (Bloomberg) — The European Central Bank unexpectedly cut interest rates at President Mario Draghi’s first meeting in charge after the prospect of a Greek exit from the euro region sent bond yields soaring in Italy and Spain.

ECB officials lowered the benchmark interest rate by 25 basis points to 1.25 percent, confounding 51 of 55 economists in a Bloomberg News survey. Four predicted a quarter-point move and two expected a half-point reduction. The euro fell almost a cent to $1.3729 and the yield on Italian 10-year bonds retreated to 6.14 percent after surging to a euro-era high this week.

“The ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half of the year and beyond,” Draghi said at a press conference in Frankfurt today.

European leaders last night raised the prospect of the 17- member area splintering, with France and Germany saying they would treat Greece’s surprise referendum on a second bailout as a vote on its euro membership.

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02-Nov (CNSNews.com) — The federal government’s debt increased by $203,368,715,583.63 in the month of October, according to the U.S. Treasury.

That equals about $650 per person for each of the 312,542,760 people the Census Bureau now estimates live in the United States.

At the end of September, the total national debt stood at $14,790,340,328,557.15, according to the Bureau of the Public Debt. By the end of October, it had risen to $14,993,709,044,140.78.

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03-Nov (BBC) — Greek Prime Minister George Papandreou is expected to offer his resignation within the next half-hour, sources in Athens have told the BBC.

Mr Papandreou will meet Greek President Karolos Papoulias immediately after an emergency cabinet meeting has finished.

He is expected to offer a coalition government, with former Greek central banker Lucas Papademos at the helm.

Mr Papandreou himself would stand down, the BBC understands.

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PG View: Rumor mill is in full churn mode this morning: G-Pap will resign. He won’t resign. He will resign. He won’t resign. Confidence vote on. Confidence vote off. That the referendum will happen is apparently not in dispute.

02-Oct (AP) — The Federal Reserve has lowered its growth forecasts and raised its unemployment projections, suggesting the economy has a longer path to recovery.

The central bank’s latest forecast released Wednesday predicts that the economy will grow just 1.6 percent to 1.7 percent for all of 2011. For 2012, growth will range between 2.5 percent and 2.9 percent. Both forecasts are roughly a full percentage point lower than the Fed’s projections from June.

The unemployment rate has been stuck near 9 percent for more than two years. The Fed doesn’t see that changing this year. It predicts it will fall between 8.5 percent and 8.7 percent next year. In June, the Fed had predicted unemployment would drop next year to as low as 7.8 percent.

The new forecast takes into account the substantial slowdown in growth that occurred earlier this year.

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02-Nov (CNBC) — Federal Reserve Chairman Ben Bernanke defended the central bank’s record on keeping inflation low, in the face of criticism that the central bank’s weak-dollar policies have driven up consumer prices.

Speaking at a post-Fed meeting news conference, Bernanke rejected claims that the Fed’s various moves to keep interest rates low and monetary policy accommodative will lead to high levels of inflation.

…Bernanke refused to get too far into the politics but said the committee is comfortable with the current level of inflation, which is around 2 percent excluding volatile food and energy prices but 3.9 percent including gasoline, groceries and similar items.

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02-Nov (HousingWire) — Federal Reserve Chairman Ben Bernanke said the central bank may consider purchasing more mortgage-backed securities to help further stabilize the economy and the troubled housing sector if growth is insufficient in coming quarters.

Speaking at a press conference following the most recent monetary policy decision from the Federal Open Market Committee, Bernanke said the Fed has taken the aggressive actions necessary to try and stimulate growth.

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Bloomberg (Nov 2) — The most accurate forecasters say gold will rebound from its biggest monthly plunge since 2008 and reach a record by March because economic growth is stagnating and Europe’s debt crisis is unresolved.

Futures traded in New York may rise 13 percent to $1,950 an ounce by the end of the first quarter, according to the median of estimates compiled by Bloomberg. The predictions are from eight of the top 10 analysts tracked by Bloomberg over the past eight quarters.

“When we look at gold five years from now, we will say gold was wildly cheap,” said Jason Schenker, the president of Prestige Economics LLC in Austin, Texas, and the fifth-best forecaster tracked by Bloomberg. “What happens to gold is going to hinge on what happens to the dollar, and that is going to be influenced by what happens in Europe and monetary policy.”

[Source]

Europe in Chaos

02-Nov (USAGOLD) — Gold has rebounded to approach the recent highs on ongoing uncertainty in Europe. Greek Prime Minister Papandreou is sticking by his call to submit the latest bailout deal to the citizenry, and he now has the backing of his cabinet. It is a political gamble to be sure, but Papandreou is fighting for his political life and rational thought frequently goes out the window in such circumstances. The Greek newspaper Eleftherotypia dubbed Mr. Papandreou as “The Lord of Chaos.”

Certainly he has angered much of the rest of Europe, and is expected to face the ire of German Chancellor Merkel and French President Sarkozy in advance of the G20 summit. The referendum plans delay implementation of measures that may prove critical to other EU countries. Italy leaps to mind immediately, given the continued rise in their borrowing costs, which has been exacerbated by the Greek uncertainty. If Italy plunges into the abyss, as New York Times economist Paul Krugman is anticipating, all bets are off. The EFSF, even geared up to 4x is not big enough to save the Continent’s third largest economy.

It also raises uncertainties in the banking industry, as financial institutions have already started down the path of capitalizing for a 50% haircut on Greek debt. If the impending Greek default turns disorderly, the haircut could be much bigger; as in 100%. And again, if contagion strikes Italy in any significant way, it’s game-over. Krugman may be right when he says that the only way for Europe to avert a financial apocalypse is for the ECB to “change its spots, fast.” That means print euros with abandon. If the German’s continue to oppose such measures, it’s important to remember that the true lender of last resort to the world is our very own Fed. If the ECB and/or the Fed concede once again that liquidity is the only answer…gold will likely be off to the races.

There are some lingering expectations that the Fed may announce QE3 today, with a likely focus on mortgage backed securities, at least initially. However, I believe that the October rally in stocks bought the Fed some more time. QE3 may indeed be forthcoming, but probably not today. They’ll hold steady on rates and perhaps tweak their language to be a little more accommodative.

Heightened tensions in the Middle East are likely contributing to the interest in gold as well amid reports that Israel may be preparing a preemptive strike against Iranian nuclear facilities. Such concerns crop-up periodically and have never really amounted to anything, but I have no doubt that Israel feels threatened by Iran. Given that, I don’t think such reports can be completely dismissed.

02-Nov (SkyNews) — Israeli Prime Minister Benjamin Netanyahu is trying to rally support in his cabinet for an attack on Iran, according to government sources.

The country’s defence minister Ehud Barak and the foreign minister Avigdor Lieberman are said to be among those backing a pre-emptive strike to neutralise Iran’s nuclear ambitions.

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PG View: Heightened geopolitical tensions in the Middle East are undoubtedly contributing to the bid in gold.

02-Nov (Reuters) — Greece’s prime minister faces a grilling from the leaders of Germany and France on Wednesday after fighting to win the backing of his cabinet to hold a referendum on a 130 billion-euro ($178 billion) bailout package.

French President Nicolas Sarkozy and Germany’s Angela Merkel summoned George Papandreou for crisis talks in Cannes, before a G20 summit of major world economies, to push for rapid implementation of measures to tackle the euro zone debt crisis, which Athens has thrown into doubt.

“This announcement took the whole of Europe by surprise,” Sarkozy said on the steps of the Elysee Palace in Paris. “The plan … is the only way to solve Greece’s debt problem.”

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PG View: Yeah, Mer-kozy will read G-Pap the riot act for queering the bailout “deal”, but riots are exactly what Greece will have if they try and quash the referendum now. With G-Pap fighting for his political survival, I’m not entirely sure he’s thinking all that rationally right now anyway. Berating will likely fall on deaf ears.

By Paul Krugman
01-Nov (NY Times Blogs) — Things are falling apart in Europe; the center is not holding. Papandreou is going to hold a referendum; the vote will be no. Italian 10-years at 6.29 at pixel time; that’s a level at which the cost of rolling over the existing debt will force a default, even though Italy has a primary surplus. And with everyone simultaneously pushing for fiscal austerity, a recession seems almost certain, aggravating all of the continent’s problems.

I’ve been charting this trainwreck for a couple of years, and am feeling too weary to trace through it again right now. Let’s just say that the euro was an inherently flawed idea that can work only given a strong European economy and a significant degree of inflation, plus open-ended credit to sovereigns facing speculative attack.

…The question I’m trying to answer right now is how the final act will be played. At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.

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PG View: This is indeed a pretty “apocalyptic” prediction from Mr. Krugman. His solution starts with the ECB “changing its spots”. Meaning, print euros like mad. And while that presents a whole hosts of problems as well, it may in fact be the lesser of many evils.

By Mohamed El-Erian
31-Oct (Reuters Blogs) — It is time to say goodbye to the confident reassurances from American policymakers that Japan could not “happen here.” It is also time to regret the smug assertions that Japan’s “lost decade” of growth was due to a combination of uniquely Japanese failings – from insufficient policy activism to weak corporate governance and poor political leadership.

American policymakers, together with their European counterparts, are realizing something that Japan has been experiencing for a while: It is very difficult to manage well an economy hobbled by structural impediments and balance sheet excesses. Absent a major change in the effectiveness of the policy approach, this realization will likely lead to broadening societal concerns about the possible “Japanization” of America and, with that, worries that under such circumstances the country would not be able to navigate such a phenomenon as well as Japan has.

The US continues to find it difficult to generate meaningful economic growth and to create enough jobs. Despite multiple fiscal and monetary stimulus programs – indeed, record breaking ones – the economy has failed to recover decisively from the sharp contraction that followed the global financial crisis.

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01-Nov (Financial Times) — The premium Italy pays to borrow over Germany rose to a fresh euro-era high on Tuesday, leaping over a critical level that can trigger margin payments and that has previously exacerbated crises in Portugal and Ireland.

Italy’s 10-year bond spread to German Bunds hit 454bp, above the 450bp level used by some clearing house, as investors fretted that the latest eurozone deal was coming undone after Greece called a referendum on the measure.

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President Obama will open two days of the Group of 20 economic summit in Cannes, France, on Thursday with a pair of bilateral meetings dealing with the European debt crisis, which is likely to dominate the event.

Obama is to meet with French President Nicolas Sarkozy and German Chancellor Angela Merkel, White House officials said Monday.

…“We have shared back and forth some of the experiences we had during the crisis, and in particular, the need to move with overwhelming force,” Lael Brainard, the Treasury Department’s undersecretary for international affairs, said during a White House briefing for reporters.

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PG View: “Overwhelming force” means liquidity. Lots and lots of liquidity. That’s bad for the euro, and if the US is to maintain a weaker dollar in relation to the euro, policymakers here will have to respond to weaken the greenback. QE3 should do nicely…

01-Nov (Bloomberg) — Greece’s plan to hold a referendum on Europe’s bailout for the nation poses a threat to financial stability in the region, Fitch Ratings said.

The vote “dramatically raises the stakes for Greece and the euro zone as a whole,” Fitch said in a statement today, adding that it increases the risk of a “disorderly” default.

Greek Prime Minister George Papandreou late yesterday called for a referendum on Europe’s plan to contain the country’s debt turmoil. Austerity measures by the government to reduce the deficit have eroded Papandreou’s popularity and sparked a wave of social unrest, while a poll published Oct. 29 showed most Greeks believe the new bailout package is negative.

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