Thursday, February 3, 2011
Irish bank flight quickens despite EU rescue
Irish central bank data showed losses of €40bn (£34bn) in deposits from the key banks in December, compared with €27bn a month earlier. Over the past year Irish lenders have haemorrhaged €110bn, equal to 60pc of gross national product.
"Would I want to leave money in an institution where I don't know who is making the rules?" said Gary Jenkins from Evolution Securities.
On Wednesday, Standard & Poor's cut Ireland's sovereign rating one notch to A-, citing a "weaker economic outlook, reduced prospects for bank earnings and funding difficulties of domestic banks". It also downgraded Bank of Ireland, Allied Irish, Anglo Irish and Irish Life, questioning "both the ability and willingness of the Irish government" to keep propping up lenders. The quartet remain "highly reliant on central bank funding" and have been unable to raise market funds despite state guarantees.
Investors are watching warily as Ireland prepares for an election on February 25. Leading opposition party Fine Gael said it will unpick parts of the EU-IMF bail-out for Ireland, threatening to "impose losses on bondholders who lent to collapsed domestic banks".
"Those who lent recklessly as well as those who borrowed recklessly should share the burden," said Michael Noonan, the party's finance chief. He exhorted the EU to cut the interest rate on rescue loans from 5.8pc to levels nearer the EU's borrowing cost of 2.6pc........read on
US$ OMG
By Richard Russell:
Is the US's financial position hopeless? I've studied the US finances backwards and forwards, and as I see it the US's financial position most definitely is hopeless. The actual posted national debt of the US is $14.1 trillion. However, the US reports its finances on a cash basis while omitting its unfunded obligations in such items as Social Security, Medicare and Medicaid and various other entitlements. If the entitlements are included, the total national debt including unfunded obligations would be over $100 trillion.
Wait, it gets worse. Entitlements, defense and interest on the national debt takes up 80% of the entire budget of the US. That leaves just 20% that can be sliced away if the US wants to actually cut into its deficits. So what's left to cut? Actually, nothing that's politically feasible.
To make the picture even more grotesque, the first group of baby boomers is now reaching the retirement age of 65. As they leave the nation's work force, the problem of financing Social Security becomes more difficult if not impossible.
So what in God's name is the answer to all this? How will the US's finances be handled? There are only two ways that I can come up with:
The first is -- to default, just declare that the nation is dead broke and it can't meet its obligations. That would be tantamount to admitting that the US is less than a third-rate power, a dying banana republic. Unthinkable.
The second way would be to devalue the currency to the point where obligatory dollar debts would be financed or paid off with dollars equal to pennies or nickels.
It's now really a question of timing. With the national debt compounding at rising rates, the problem of financing the debt becomes ever-more pressing. For this reason, I believe the process of devaluing the dollar will have to be speeded up.
From the government's standpoint, the deliberate devaluation strategy must be kept secret from the public. They must not be allowed to know that the currency they've worked so hard for, that the currency their savings are in, is to be crushed into a shadow of its former self. Ultimately, the awful truth must come out.
At some point the government may be forced to be honest. The phrase will be three words that I coined many years ago: "Inflate or die." And, the government's answer will be, "You wouldn't want this nation to die, would you? We have no choice, but to pay off, or carry, the debts, with a currency that must be devalued down to ten cents on the dollar.
You don't have to be a genius to read the chart below. This is the 1yr Dollar Index chart.
First we see the long decline from June to November. Then a short rally, that was interrupted by a consolidation. Most recently, the Dollar Index dropped through the bottom of the consolidation "box." This chart is one day behind. Today the cash Dollar Index plunged again (OMG) to 76.99!
At this point, the Dollar Index is oversold and probably overdue for some kind of a rally.
Well, maybe.
Richard Russell
email: Dow Theory Letters
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Gold's longer term fundamentals good - Martin Murenbeeld
Martin Murenbeeld of Dundee Wealth Economics discusses the long term outlook for the gold price, US money printing and inflation with Geoff Candy at Mine Web........listen here
Gold gives John Paulson largest one-year haul in history
From MineWeb.com:Billionaire John Paulson, who placed the bulk of his personal fortune in funds that bought securities linked to gold, made $5 billion in 2010 as gold climbed almost 30 percent last year.
The gold investments are primarily conducted through one of the largest ETFs in the world, SPDR Gold Shares, which is believed to hold near 1,230 tonnes of gold bullion. SEC filings reveal Paulson's hedge funds own 31.5 billion shares in the SPDR Gold Trust, worth an estimated $4 billion.
Citing a "person familiar with the matter," the Wall Street Journal said Paulson earned $1 billion in performance fees last year, normally a 20% cut of his funds' profits. The New York Times quoted unidentified investors in the Paulson Advantage fund who noted the gold-class shares of the Advantage fund surged 30.8% last year.
Paulson placed much of his own fortune in gold-denominated funds and a separate gold-focused fund. "Because gold rose sharply in value last year, the gold-denominated versions of his funds rose as much as 45%," the WSJ reported.
Paulson believes gold will outperform for the next year and is "the ideal vehicle to hedge against the risk of the U.S. dollar."........read in full
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