25-Nov (IBTimes) — A panel of economic experts at the Institute of Economic Affairs (IEA) have said that the euro “will be scrapped within months.”

The panellists, which included the economics editor of Sky News, Ed Conway, Conservative MPs Bill Cash and Dominic Raab, as well as the former MEP John Stevens, offered a stark warning over the future of the EU saying that it is now paying back years of mismanagement from the top down.

Although many had varying opinions of the EU and why it has been brought to the point of the breakup, the panel unanimously agreed that the euro would be scrapped, with Mr Conway saying that it “could potentially be gone within months.” Although members of the audience challenged the panel, claiming that the single currency had remained strong, the experts said that it was “inevitable”.

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PG View: Market likely got a whiff of this and probably was more a factor in the intraday retreat in euro, gold and stocks than the SNB failing to confirm euro buying.

25-Nov (RTTNews) — The Swiss franc edged sharply lower against its major rivals on Friday morning in New York amid rumors that the Swiss National Bank might have intervened in the foreign exchange market.

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25-Nov (Reuters) — Spain’s new centre-right government, due to be officially sworn in mid-December, is considering applying for international aid as one of its options to shore up its finances, sources close to the party say.

The People’s Party (PP) inherits an economy on the verge of recession, a tough 2012 public deficit target, rising financing costs on nervous debt markets and a battered bank sector with billions of euros of troubled assets on its books.

“I don’t believe the decision (to seek aid) has been made .. but it is one of the options on the table, because I’ve been asked about it. But we need more time and more information on the current state of things,” one source told Reuters.

If extra funding is needed, either from the European Financial Stability Facility (EFSF) or a credit line from the International Monetary Fund, it would be politically preferable to make the decision independently and quickly, rather than being compelled by market forces at a later date.

“If we have to do it, we have to do it now,” the source said.

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25-Nov (USAGOLD) — Gold rebounded in thin holiday trading as rumors of SNB intervention lifted the single currency from new 7-week lows, tempering the latest bid in the dollar. The FT also reported today that the BoJ has been querying commercial banks about how they might assist the central bank in intervening to weaken the yen. The currency wars continue to ramp.

The situation in euroland continues to deteriorate as officials concede that market activity over the past month has pretty significantly eroded the expected boost in firepower of a leveraged EFSF bailout fund. Speculation is that the firepower could be as little as half what was originally expected.

It would seem that dithering on this front has frittered away any potential advantage of gearing-up the bailout fund. This further narrows the field of viable options to direct ECB bond purchases and issuance of eurobonds, both of which are still adamantly opposed by the Germans.

Yields have risen across the eurozone and Reuters is reporting that Spain’s new government is already contemplating seeking international aid. With the EFSF emasculated, Spain may seek to access the new IMF credit lines that were announced on Tuesday.

25-Nov (Financial Times) — A plan to boost the firepower of the eurozone’s €440bn rescue fund could deliver as little as half what the bloc’s leaders had hoped for because of a sharp deterioration in market conditions over the past month, according to several senior eurozone government officials.

European leaders hailed a scheme to offer insurance on losses for investors buying troubled eurozone bonds as a means of leveraging the €250bn spare capacity of the rescue fund four or five fold, to more than €1,000bn.

But the dramatic spike in borrowing costs for Italy since the summit is likely to force the European Financial Stability Facility to sweeten the deal offered to investors, which will limit the number of bonds the insurance would cover.

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PG View: Whether you believe expansion of the bailout facility is an appropriate response to the eurozone crisis or not, continued dithering is narrowing the options that just might prevent a complete collapse of the EU.

25-Nov (AP) — Hungary has slammed Moody’s decision to downgrade its credit rating to junk status, describing it Friday as another unjustified financial attack against the country.

Hungary, which last week asked the International Monetary Fund and the European Union for possible financial help, is feeling the fallout from the debt crisis in the 17-country eurozone, even though it does not use the euro. Its economy has not grown as much as hoped and its debt burden remains relatively high.

Late Thursday, Moody’s, one of the three major international credit rating agencies, cut its view on Hungary’s government bonds by one notch, from Baa3 to Ba1 and maintained its negative outlook. The move to junk status could mean that Hungary will find it increasingly difficult to borrow in money markets as well as having to pay a higher premium.

The country’s finance ministry was furious at the decision.

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25-Nov (Bloomberg) — Russia, Kazakhstan, Colombia, Belarus and Mexico added a combined 25.7 metric tons of gold valued at $1.38 billion to reserves in October, a month after prices rose to a record.

Russia’s bullion reserves rose 19.5 tons to 871.1 tons last month, according to data on the International Monetary Fund’s website. Kazakhstan’s assets increased 3.2 tons to 73.6 tons, Colombia’s gained 1.2 tons to 10.4 tons, Belarus expanded assets by 1 ton to 31.9 tons and Mexico added 0.9 ton to take holdings to 106.3 tons, the data show. Germany cut reserves by 4.7 tons to mint commemorative coins and Tajikistan cut 0.4 ton of gold.

Central banks are expanding reserves for the first time in a generation as prices head for an 11th straight annual gain and assets in exchange-traded products rose to an all-time high. Purchases may reach 450 tons this year, according to Marcus Grubb, managing director of investment research at the London- based World Gold Council. Central banks and government institutions bought 142 tons last year, IMF data show.

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25-Nov (The Wall Street Journal) — The Bank of Japan has sent a questionnaire to major banks asking whether they can help it intervene in currency markets overseas—a move seen as a “new front” in the central bank’s campaign against the strong yen.

The central bank has been polling financial institutions in Tokyo for about the past two weeks, both in writing and verbally, according to people familiar with the matter.

The brief survey asks several questions about how the bank can help the BOJ with its intervention, which is carried out under the control of the Ministry of Finance.

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PG View: One has to wonder what might be in this for the banks, but also what fiduciary conflicts might arise regarding the banks’ FX desk customers.

23-Nov (The Wall Street Journal) — Germany maintained its opposition to common euro-zone bonds Wednesday as the European Union’s executive arm announced a reform package that includes the issuance of euro bonds along with new powers to intervene in national budgets.

The European Commission’s proposal to introduce common bonds in the euro zone comes at an inappropriate time, German Chancellor Angela Merkel said just before the announcement was made. She insisted that first the treaty governing the EU should be amended to make it possible to bring fiscal offenders into line.

Germany has long argued that collective euro bonds are not a cure to the currency bloc’s current debt crisis, and could only work at the end of a lengthy process of narrowing the gaps in economic competitiveness among the 17 euro members.

…”Of course, the situation on financial markets would calm down for a couple of months,” Schaeuble said, but added that after that a loss in confidence in the euro zone would actually accelerate.

“Therefore, we won’t go down that path,” Schaeuble said.

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PG View: The first highlighted quote from Schaeuble was circulated earlier as an indication that Germany might be warming to the idea of eurobonds. Of course nothing could be further from the truth; and the second highlighted quote, which slams the door on the notion, somehow got separated from the first…

23-Nov (Reuters) — Belgium is leaning on France to pay more into emergency support for failed lender Dexia, newspapers reported, spooking investors who thought a 90 billion euro ($120 billion) rescue deal only needed rubber stamping.

The countries are wrangling about short-term funding guarantees meant to wean Dexia’s “bad bank” off emergency liquidity and allow it to re-enter financial markets, two Belgian newspapers reported.

“Belgium wanted Paris to guarantee more than had been agreed so far, because France can fund itself at a cheaper rate than our country,” Belgian daily De Tijd said, following a similar report in De Standaard.

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PG View: The take away here is that the only way either country can fund the bailout of Dexia is through additional borrowing. And as is becoming clearly evident, going deeper and and deeper into debt to finance bailouts solves none of the underlying problems. It buys time, but leaves you with bigger problems down the road.

23-Nov (The Economist) ONE can almost hear the gates clanging: one after the other the sources of funding for Europe’s banks are being shut. It is a result of the highly visible run on Europe’s government bond markets, which today reached the heart of the euro zone: an auction of new German bonds failed to generate enough demand for the full amount, causing a drop in bond prices (and prompting the Bundesbank to buy 39% of the bonds offered, according to Reuters).

Now another run—more hidden, but potentially more dangerous—is taking place: on the continents’ banks. People are not yet queuing up in front of bank branches (except in Latvia’s capital Riga where savers today were trying to withdraw money from Krajbanka, a mid-sized bank, pictured). But billions of euros are flooding out of Europe’s banking system through bond and money markets.

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PG View: Evidence of a developing bank run is generally a harbinger of even worse things to come. Truth be told though, there’s still plenty of risk whether your euros are in the bank or under your mattress. The same can be said even if you convert your euros to dollars. Gold is likely to garner increasing interest as the asset of choice for wealth preservation amid the worsening turmoil in the eurozone.

23-Nov (Der Spiegel) — Germany has been considered a safe haven of financial stability amid the ongoing euro crisis — but that may be changing. Growing mistrust from investors seems apparent after what has been described as a “disastrous” government bond auction on Wednesday. Just two-thirds of the German bonds sold, leaving analysts concerned but not panicked.

Investors seem to have lost their taste for Germany’s once much sought-after government bonds. At an auction on Wednesday of the country’s 10-year bonds, one-third went unsold according to the German Finance Agency, which manages the nation’s debts. The federal government had initially intended to sell bond issues worth some €6 billion (around $8 billion), but managed to garner just €3.89 billion.

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23-Nov (The Wall Street Journal) — he Dow’s steep losses this week put it on track for its worst Thanksgiving week since 1973, according to the WSJ Market Data Group.

Back in 1973, the Dow fell 4.2% during Thanksgiving week. The index was recently off by just about that amount for this week, with the index down by about 180 today at 11313.

In fact, Thanksgiving has been a turkey in recent years — the Dow fell during the holiday week in 2009 and 2010.

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23-Nov (USAGOLD) — Gold is defensive within the range once again after a terrible German bund auction — suggesting core contagion — pushed the EUR-USD rate to 7-week lows below 1.3400. The corresponding rise in the dollar has the yellow metal trading back below $1700.00.

Generally weak PMI data out of Europe added to the worries presented by the bund auction. In fact, equity markets were already on the ropes before the European open in the wake of weaker than expected manufacturing data out of China. HSBC/Markit Flash Manufacturing PMI fell to 48.0 in November, the weakest reading since March 2009.

Here in the States, initial jobless claims edged higher and durable goods orders fell. While personal income rose slightly more than expected, weak PCE suggests consumers are hunkering down going into the critical Christmas shopping season.

• University of Michigan consumer sentiment (final) revised a tick lower to 64.1 in Nov, below expectations of 64.5, vs 64.2 prelim read.
• US durable goods orders -0.7% in Oct, above market expectations of -1.0%; +0.7% ex-trans.
• US personal income +0.4% in Oct, just above expectations of +0.3%; PCE +0.1%, b elow expectations of +0.4%.
• US initial jobless claims +2k to 393k for the week ended 12-Nov, above market expectations of 390k, vs upward revised 391k in previous week.
• Eurozone Reuters Composite PMI (advance) fell to 46.2 in Nov, vs 46.5 in Oct. Manufacturing falls to 46.4. Services better at 47.8.
• Germany Reuters Manufacturing PMI (advance) fell to 47.9 in Nov, below market expectations of 48.5, vs 49.1 in Oct. Services rises to 51.4.
• France Reuters Manufacturing PMI (advance) fell to 47.6 in Nov, below market expectations of 48.0, vs 48.5 in Oct. Services rises to 49.3.
• France business confidence falls to 95 in Nov, vs 97 in Oct.
• France production outlook falls to -35 in Nov, vs -29 in Oct.
• China HSBC/Markit Flash Manufacturing PMI fell to 48.0 in Nov, vs negative revised 51.0 in Oct.
• Singapore CPI eases in Oct to 5.4% y/y, vs 5.5% y/y in Sep.
• Taiwan industrial output 1.4% y/y in Oct, vs positively revised 1.8% in Sep.
• Malaysia CPI steady at 3.4% y/y in Oct.

23-Nov (The Wall Street Journal) — The European debt crisis appeared to escalate after a failed German government-bond auction Wednesday, indicating that investors are now demanding higher risk compensation even at the heart of the currency bloc’s debt market.

German government bonds, or bunds, carry low yields but are deemed the safest haven in the euro-zone bond market. Germany has fallen short of a targeted bond sale before because of its super-low yields, but that size of the shortfall was stunning in a market already rapidly losing confidence in European Union proposals to contain the debt crisis.

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PG View: The bund auction failure is indicative of contagion to the core of Europe and pushed the EUR-USD rate to new 7-week lows below 1.3400.

22-Nov (Bloomberg) — Pacific Investment Management Co.’s Chief Executive Officer Mohamed A. El-Erian said U.S. economic conditions are “terrifying” as the nation struggles to recover from recession.

The odds of the U.S. returning to recession are as high as 50 percent, El-Erian said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu. U.S. economic growth was worse than expected and congressional policy makers are gridlocked over what to do about the economy and the deficit, which risk exacerbating an already weak recovery, he said.

“We have less economic momentum than we thought we had and we have no policy momentum,” said El-Erian, who also serves as co-chief investment officer with Pimco founder Bill Gross at the world’s largest manager of bond funds.

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22-Nov (HousingWire) — The U.S. and other major industrialized economies face more pain ahead, with the world “in a balance-sheet depression” that could make another credit crisis likely.

The world economy will go through a period of deleveraging through at least the year 2018. In the meantime, the U.S. is predicted to slip into another recession either in 2012 or 2013, according to a November-December economic report from Simon Hunt Strategic Services, based in Surrey, England.

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22-Nov (CNBC) — The debt situation on either side of the Atlantic is unlikely to improve for some time, but the United States remains the key engine for growth in the world, albeit hampered by political partisanship, while Europe will continue to suffer because of lack of liquidity in the banking system, Anthony Fry, UK Chairman of Espirito Santo Investment Bank told CNBC.

On the collapse of the so-called “super committee” of Congressional Democrats and Republicans tasked with devising a bi-partisan plan to drive down the US deficit, Fry said it was important to consider the context, particularly the Presidential election next year.

“We are within 12 months of a US presidential election and there’s a lot of politics going on and the combination of high politics and economic crisis is a potentially toxic one,” Fry said.

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22-Nov (International Monetary Fund) — The Executive Board of the International Monetary Fund (IMF) approved on November 21 a set of reforms designed to bolster the flexibility and scope of the Fund’s lending toolkit to provide liquidity and emergency assistance more effectively to the Fund’s global membership. These reforms, which have been under preparation for some time, will enable the Fund to respond better to the diverse liquidity needs of members with sound policies and fundamentals, including those affected during periods of heightened economic or market stress—the crisis-bystanders—and to address urgent financing needs arising in a broader range of circumstances than natural disasters and post-conflict situations previously covered.

“I commend the Executive Board for the expeditious response to support the membership in these difficult times,” said IMF Managing Director Christine Lagarde following the Executive Board meeting. “The Fund has been asked to enhance its lending toolkit to help the membership cope with crises. We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership.

“The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution. This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness,” she added.

The reform replaces the Precautionary Credit Line (PCL) with the more flexible Precautionary and Liquidity Line (PLL), which can be used under broader circumstances, including as insurance against future shocks and as a short-term liquidity window to address the needs of crisis bystanders during times of heightened regional or global stress and break the chains of contagion. The Fund’s current instruments for emergency assistance (Emergency Natural Disaster Assistance and the Emergency Post-Conflict Assistance) are consolidated under the new Rapid Financing Instrument (RFI), which may be used to support a full range of urgent balance of payments needs, including those arising from exogenous shocks.

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PG View: Yes! More credit is the answer! Why didn’t someone think of this sooner?

22-Nov (Fed) — A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, November 1, 2011, at 10:30 a.m. and continued on Wednesday, November 2, 2011, at 8:30 a.m.

…Regarding their overall outlook for economic activity, participants generally agreed that, even with the positive news received over the intermeeting period, the most probable outcome was a moderate pace of economic growth over the medium run with only a gradual decline in the unemployment rate.

…A few participants felt that the continuation of the current stance of monetary policy, coupled with the possibility of a rebound in energy and commodity prices, posed some upside risks to inflation.

…A few members indicated that they believed the economic outlook might warrant additional policy accommodation.

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Gold Rebounds Into Range

22-Nov (USAGOLD) — Retreats in the gold price continue to attract buying interest amid safe-haven demand associated with the turmoil in Europe and the latest failure of lawmakers in the US to get a handle on our own exploding debt. Yesterday’s retreat was broadly associated with deleveraging and a fairly typical attack on the price of gold going into options expiry. The yellow metal has probed back above $1700 level intraday.

While it is likely that we will continue to see these periodic bouts of delveraging as the debt/liquidity crisis in Europe continues to manifest, such retreats have pretty consistently proven to be good buying opportunities. The negative pressures are being offset by the creeping reality that in a world overburdened by too much debt, the easiest solution is increasingly seen to be printing fiat currency and monetizing said debt. This same reality is what’s driving the marked rise in central bank interest in gold.

Bolstering holdings of hard assets is a perfectly logical response to a world where many industrialized nations are trying to devalue their currencies simultaneously, while also paying yields that don’t remotely reflect the real risk of sovereign debt. That logic holds true whether your a central bank, a sovereign wealth fund, or your average individual investor.

One can also reasonably assume that in the absence of much needed fiscal reform here in the US, the ball has been lobbed back into the Fed’s court. With our interest rates already at 0-0.25%, there aren’t really any other options that more easing of the quantitative kind. If the US falls back into recession on its own fundamentals, or whether a collapse of Europe drags America back into recession, the Fed is likely to try and fulfill its dual mandate by buying printing and buying more assets.

The recent dollar strength — and ongoing delusion that Treasuries are a safe-haven — perhaps makes a QE3 even more appealing. If a European collapse (or fear thereof) prompts both the ECB and the Fed to flood the market with liquidity — even as the BoE and BoJ remain in QE mode — imagine the spectacular rise in gold and other hard assets that would likely result…