Europe’s Lost Keynesians
23 May 2013
The euro crisis
In the euro zone, desperately in need of a boost, no news is bad news
May 25th 2013
YOU may have missed it, but the European Union held a summit this week. Taking in a nutritious working lunch, Europe’s prime ministers, presidents and chancellors devoted half of Wednesday to weighty issues of energy and taxation. Gone are the panic-stricken sessions of last year, dogged by talk of the euro’s imminent failure. Today, Europe’s leaders note, reform is under way across most of the euro zone and some southern European countries are regaining their competitiveness. The government-debt market is back in its box, where it belongs. And over the past year share prices are up by a quarter. Nobody could pretend that life is easy; Europeans understand that hard work and sacrifices lie ahead. But the worst of the crisis is now safely in the past.
It is a reassuring tale, and those worn down by the Wagnerian proportions of the euro saga (who isn’t?) are eager to believe it. Unfortunately, the idea that the euro is yesterday’s problem is a dangerous figment. In reality, Europe’s leaders are sleepwalking through an economic wasteland.
Although official interest rates are low, firms in southern Europe are suffering a cruel credit crunch. All this is causing economic hardship today and eating away at the prospects for growth tomorrow. The euro zone may not be about to collapse, but the calm in Brussels is not so much a sign of convalescence as of decay.
For everyone’s sake, Europe’s leaders must shake themselves out of their lethargy. They must grasp that if they do not act, the euro zone faces stagnation or break-up—possibly both.
After years of crisis, the to-do list is clear. The urgent task is to sever the ties between banks and governments too feeble to support them. That was the aim of the banking union agreed on last year. But, as the pressure has eased, the union has become ensnared in technicalities and a fundamental argument about how much historic bank debt, if any, should be dumped on it—how much, in other words, Germans, Finns and Dutch should bear the burden of other people’s mistakes. This delay is highly damaging. Europe’s banks need funds by whatever means. America has recovered before Europe not just because it has been less austere, but also because it rapidly sorted out its banks so that they could lend again (see Charlemagne).
In addition, the euro zone needs growth-boosting reform. The EU should extend the single market further into services. Instead of thinking up red lines, it should pursue a free-trade agreement on offer from the United States, its biggest trading partner. And it should ease austerity by slowing the pace of budget cuts and using cash from the core euro zone to pay for schemes to boost youth employment and investment in small and medium-sized firms in the periphery.
Clearly, the reason for today’s inaction is not a shortage of things to do, but a shortage of the will to do them. This hiatus is partly caused by elections due in September in Germany, the prime mover in almost any European policy these days. But there is a deeper reason, too. Across Europe voters have grown resentful of both their own politicians and the EU. In France the president, François Hollande, is paralysed by scandal and a dismal approval rating of 24%, another record. A recent survey by the Pew Research Centre found that the share of French voters who say that they look favourably on the EU has fallen from 60% in 2012 to 41% now, less even than in Eurosceptic Britain.
Italy is mired in recession, yet it cannot seem to muster a coherent political platform for change. At the same time, voters want to keep the single currency: 70% of them still support the euro in Greece, which has suffered more in the crisis than any other country. Over the past few years crunch votes in Greece, Ireland, Portugal, Spain and the Netherlands have repeatedly backed staying inside the euro zone.
This is a recipe for inaction. On the one hand, voters want the euro zone to stay together. On the other, they will not back the difficult reforms needed to pull it out of the crisis.
Time was when the bond markets would force politicians to face up to this contradiction. It was the threat of financial panic that kept euro-zone leaders up until dawn hammering out rescue deals and promises of reform. But the financial markets have been anaesthetised ever since Mario Draghi, the president of the European Central Bank (ECB), promised to “do whatever it takes” to protect the euro zone from collapse. Speculators know that to bet against the single currency would be to take on the theoretically infinite balance-sheet of the ECB—and that, at least at first, would mean heavy losses.
And if euro-zone leaders stumble on? Like Japan, Europe will be under a shadow for years to come. The cost will be measured in disillusion, blighted communities and wasted lives. Unlike Japan, though, the euro zone is not cohesive. For as long as stagnation and recession tear at democracy, the euro zone risks a fatal popular rejection. If the sleepwalkers care about their currency and their people, they need to wake up.
Precious Metals & Miners Start Bottoming Process.
May 27, 2013
Precious metals and their related mining stocks continue to underperform the broad market. This year's heavy volume breakdown below key support has many investors and trader's spooked creating to a steady stream of selling pressure for gold and silver bullion and mining stocks.
While the technical charts are telling me prices are trying to bottom we must be willing to wait for price to provide low risk entry points before getting involved. Precious metals are like any other investment in respect to trading and investing in them.
There are times when you should be long, times to be in cash and times to be short (benefit from falling prices). Right now and for the last twelve months when looking at precious metals cash has been king.
Since 2011 when gold and silver started to correct the best position has been to move to cash or to sell/write options until the next trend resumes. This is something I have been doing with my trading partner who focuses solely on Options Trading who closed three winning positions last week for big gains.
In 2008 we had a similar breakdown in price washing the market clean of investors who were long precious metals. If you compare the last two breakdowns they look very similar. If price holds true then we will see higher prices unfold at the end of 2013.
The key here is for the price to move and hold above the major resistance line. A breakout would trigger a rally in gold to $2600 - $3500 per ounce. With that being said gold and silver may be starting a bear market. Depending what the price does when the major resistance zone is touched, my outlook may change from bullish to bearish. Remember, no one can predict the market with 100% accuracy and each day, week and month that passes changes the outlook going forward.
The chart below is on I drew up on May 3rd. I was going to get a fresh chart and put my analysis on it but to be honest my price forecast/analysis has been spot on thus far and there is no need to update.
Gold Daily Technical Chart Showing Bottoming Process:
Major technical damage has been done to the chart of gold. Gold is trying to put in a bottom but still needs more time. I feel gold will make a new low in the coming month then bottom as drawn on the chart below.
Silver Daily Technical Chart Showing Bottoming Process:
Silver is in a similar as gold. The major difference between gold and silver is that silver dropped 10% early one morning this month which had very light volume. The fact that silver hit my $20 per ounce level and it was on light volume has me thinking silver has now bottomed.
But, silver may flounder at these prices or near the recent lows until its big sister (gold) puts in a bottom.
Gold Mining Stocks Monthly Investing Zone Chart:
Gold mining stocks broke down a couple months ago and continue to sell off on strong volumen. If precious metals continue to move lower then mining stocks will continue their journey lower.
This updated chart which I originally drew in February warning of a breakdown below the green support trend lines would signal a collapse in stock prices, which is exactly what has/is taking place.
While I do not try to pick bottoms (catch falling knives) I do like to watch for them so I am prepared for new positions when the time and chart turn bullish or provide a low risk probing entry point. While I focus more on analysis, forecasts and ETF trading another one of my trading partners who focuses on Trading Stocks and 3x Leveraged ETF's has been cleaning up with gold miners.
Gold, Silver and Mining Stocks Conclusion:
Precious metals continue to be trending down and while they look to be trying to bottom it is important to remember that some of the biggest percent moves take place in the last 10% of a trend. So we may be close to a bottom on the time scale but there could be sharply lower prices yet.
The time will come when another major signal forms and when it does we will be getting involved. The exciting this is that it could be just around the corner.
The Spanish economy
On being propped up
Spain’s pain is likely to continue, despite some promising reforms, unless new sources of growth emerge
May 25th 2013 | MADRID
THE gloom in Spain is almost palpable. Yet two years on from the protests begun in Madrid by young Spaniards known as los indignados, most accept their lot with resignation. The government of Mariano Rajoy is unpopular, but so is the opposition. And whereas many other stricken euro-zone countries blame the Germans for their woes, Spaniards recognise that they are paying for their own excesses, especially the burst property bubble.
The numbers are grim. The economy is in deep recession. In the first three months of the year GDP shrank for a seventh quarter in a row. The public finances remain stretched, with the budget deficit at 7% of GDP. Bond yields have fallen, but the credit crunch for small firms is worsening. Corporate bankruptcies are running at ten times pre-crisis levels. And unemployment is at a record 27%.
Spain could be the biggest test for the euro. Four countries—Greece, Ireland, Portugal and most recently Cyprus—have been bailed out and are in programmes agreed on with the “troika” of the IMF, the European Union and the European Central Bank. But Spain is the only big euro member that has come close to a bail-out. Instead, it last year took a halfway offer of €100 billion ($129 billion) support from the European bail-out fund for its banks (it drew €41 billion). Unlike France, it has made big structural reforms. Unlike Italy, it has a strong government that expects to last until the next election in late 2015.
Moreover, a few glimmers of hope can be discerned amid the gloom. Thanks to the ECB, long-term bond yields have fallen back to pre-crisis levels. Sharp fiscal consolidation has trimmed the budget deficit from 11% of GDP in 2009 to 7% this year. Overspending by fractious regions has been painfully brought under control. And Spain has been given an extra two years to hack its deficit below 3%.
The government’s programme of restructuring and reform has also started to produce results. As many as 38 financial institutions have been merged, mainly local cajas brought down by property lending. The remaining banks have been recapitalised and some €50 billion of their worst assets transferred to a bad bank, Sareb.
Provisioning against bad debts has risen sharply. Unlike many other euro-crisis countries, the public sector is shrinking: 375,000 civil-service jobs have gone.
The real economy is also showing signs of improvement. Measured by unit labour costs, Spain has done more than most to regain competitiveness (see chart). The external current account has switched from a deficit of almost 10% of GDP in 2008 to a surplus, and not only because of import compression. In 2012 exports rose faster than in any other EU country. Reforms last year made it easier to fire workers, so industry is readier to hire again. This new labour-market flexibility is one reason why many car makers are moving production from other EU countries to Spain.
Even so, three big problems could undo this limited progress. One is the credit crunch. Despite lower bond yields, credit for small and medium-sized enterprises remains scarce and expensive compared with northern Europe. And although both capital and provisioning have increased, the banks are still rolling over dodgy debts from many construction firms. Property prices are down by over a third from their peak, and ministers insist the system could absorb a drop of 50%—but if the recession continues, the fall could be larger still.
The second problem is reform fatigue. Spaniards have accepted changes, including wage cuts, to restore lost competitiveness. But more is needed: welfare reforms, a lower minimum wage in some regions, encouraging mini-jobs and part-time work and reducing the burden of pensions. It is not clear that Mr Rajoy’s government has the guts to push such reforms through. Yet without them Spain’s scary level of unemployment is likely to persist. Ministers say the jobs market is more flexible than it looks because in the boom years 5m immigrants came in, and the bust is seeing large net emigration: the population is shrinking. But long-term high unemployment will reduce the quality of the workforce.
Above all is the third problem, insufficient demand and a lack of sources of growth. With public spending, consumption and investment constrained, the government is relying on rising exports. Yet total exports are less than a third of GDP and almost two-thirds go to the recession-hit euro zone. It is hard to see how even strong exports can make up for weak domestic demand. And if GDP growth does not revive, the problems of Spanish banks and the credit crunch will quickly return.
Luis de Guindos, Spain’s finance minister, said last year that Spain was the place where the battle for the euro would be fought. It is also crucial for the future of the EU: the recent Pew report on public opinion found that the favourability rating for the EU had fallen in Spain by fully 34 points, from 80% in 2007 to only 46% now. If this most Europhile, reform-minded country cannot make it, can anybody?
24 May 2013
SINGAPORE – The time has come to think the unthinkable: the era of American dominance in international affairs may well be coming to an end. As that moment approaches, the main question will be how well the United States is prepared for it.
Kishore Mahbubani is Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is the author of The Great Convergence: Asia, the West, and the Logic of One World.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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