LIR – “Capitalism’s Broken.”

Baltic Dry Index. 784 -24 

LIR Gold Target by 2019: $30,000.  Revised due to QE programs

"640K ought to be enough for anybody."

 Bill Gates, 1981

Another day, more posturing by Europe’s vainglorious inept politicians, but still no sign of relief for Club Med, nor of Club Med facing up to the reality that either they or Germany must leave the snake bit European Currency Union. We open with yesterday’s developments. For the first time Chancellor Merkel seems ready to toss the work and tax shy Greeks out of the currency union. Stay long physical precious metals. Greeks, Iberians and Italians need to get their Euros out of local banks fast. When Germany tosses Greece out of the EMU, the chaos will likely force out all of Club Med except France.

This ailing continent needs newer and better politicians. But where could we find them? There is no sign of a European Obama or anything remotely like him.

Der Spiegel

Angela Merkel casts doubt on saving Greece from financial meltdown
German chancellor speaks candidly to the Guardian and five other leading European newspapers as part of a unique collaboration to explore the EU's predicament
Wednesday 25 January 2012 10.30 GMT
Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion euro bailout coupled with savage austerity was not working after a two-year crisis that has brought the single currency to the brink of unravelling.

In an interview with the Guardian and five other leading European newspapers, the German chancellor also insisted – against widespread resistance elsewhere in the eurozone and in the UK – that the European court of justice (ECJ) be empowered to police public spending and budget policies of the 17 countries in the euro.

She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.

Days before the latest EU summit, which, at Merkel's insistence and evoking scant enthusiasm elsewhere, is to finalise an international treaty between eurozone governments entrenching German-style fiscal and budgetary rigour in all single currency countries, the chancellor admitted having doubts about the strategy she had pursued during the crisis.
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Portuguese bonds hit as traders fear default
By David Oakley and Peter Wise January 25, 2012 6:41 pm
Friday the 13th may be an unlucky omen for Portugal. On that day, almost two weeks ago, Standard & Poor’s became the last rating agency to downgrade Lisbon to junk, marking the moment for many investors when default looked inevitable for Portugal as well as Greece.

As the rating agency’s action prompted forced selling by funds not allowed to hold junk-grade bonds, other investors joined the exodus as views hardened that Portugal was heading towards a similar fate to Greece, which is expected to default imminently.

----More critically, the fear is that should Portugal follow Greece, it could spark default contagion to the bigger, more strategically important economies of Italy and Spain, which in turn would reignite fears of a eurozone break-up that undermined the markets at the end of last year.

Certainly, the markets are pricing in a Portuguese default with 10-year bonds trading at about 50 per cent of par, a deeply distressed level in the eyes of many investors.

Portugal is also the only peripheral eurozone bond market that has failed to rally since the European Central Bank announced plans to offer three-year loans to the eurozone’s banks on December 8, a move that averted a credit crunch.
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In other news, shipping lines are losing money hand over fist with oil prices at $100. Any Strait of Hormuz/Iran oil fight will likely bring on a crisis in global shipping. Below, shipping lines have now slowed down ships back to the speed of the old China clippers. The Baltic Dry Index is signalling deep trouble in world trade.  In Ritzy Davos, the mood is “capitalism’s broken,” to use fallen guru Greenspan’s 1990s phrase.

Container Lines Steam Slower to Restore Profit
By Christian Wienberg and Meera Bhatia - Jan 25, 2012 11:24 PM GMT
Container ships can’t go any slower.

Shipping lines are running out of options to stop losses as sailing speeds reach their lower limit, exhausting a solution that helped restore profitability in 2010.

The global container fleet is now cruising near record-low speeds after slowing 11 percent from August when the freight rate market collapsed, according to data compiled by Bloomberg and Lloyd’s Register. Drewry Shipping Consultants Ltd. estimates some of the smallest shipping lines will run out of cash in the second half of this year as the industry fails to adjust to overcapacity that’s allowing customers to push down rates.

“Container lines have already exhausted most of the tricks for absorbing capacity,” said Bjorn Vang Jensen, a Singapore- based vice president at Electrolux AB (ELUXBB) who oversees about 150,000 shipments a year. “Some of these container ships are now so slow that they’re close to the speeds of the old sailing ships. The clippers might actually have been faster.”

With options running out, investors in container-line stocks should brace themselves for losses.

---- With speeds unlikely to get any slower, the industry is growing more vulnerable to rising fuel costs, and all container lines are now losing money, according to BIMCO, the biggest international shipping association.
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Capitalism Seen in Crisis by Investors Citing Inequalities
By Rich Miller - Jan 25, 2012 9:20 AM GMT
International investors say capitalism is in crisis, with almost one in three backing radical changes to the system, according to a Bloomberg survey.

As the global financial and business elite gather in Davos for their annual forum, a majority in the Bloomberg Global Poll agree that income inequality hurts the economy and that governments need to do something to address it -- ideas at the heart of “Occupy” protests worldwide. Those surveyed also voice reservations about the financial industry’s role in society, with seven in 10 seeing at least some truth in the argument that banks have too much power over governments.

“Capitalism is in crisis because there is a huge and growing disparity in income/wealth distribution in Western economies, and an equally divisive generational disparity,” poll participant Michael Derks, chief strategist for FXPro Financial Services broker in London, said in an e-mail.

“It requires government intervention on an enormous scale, because an economy cannot survive if it does not invest in the younger generation,” Derks said.

More than 70 percent of those polled believe the system is in trouble, with 32 percent saying it needs a “radical reworking of the rules and regulations.” The other 39 percent think the turbulence will ebb on its own, according to the quarterly poll conducted Jan. 23-24 of 1,209 investors, analysts and traders who are Bloomberg subscribers. Fewer than one in four say free enterprise is working as it should.

Seventy percent of those surveyed say Europe’s economic troubles will cause social instability in 2012, including riots or other unrest.
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