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Cheap Slaves

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Markets fall on weak US jobs data

FTSE 100 INDEX

Stock markets have fallen sharply as weak US jobs data added to fears of a new global economic downturn.

The Dow Jones opened 2% lower, while European stocks added to earlier losses as the Department of Labor said the US economy added no net jobs in August.

The jobs data follows manufacturing sector surveys released on Thursday which showed activity at factories worldwide dropped last month.

Markets had already fallen steadily since Thursday afternoon in the US.Banks hammered

By mid-afternoon on Friday, London's FTSE 100 was 2.9% down for the day and Frankfurt's Dax was 4% lower.

The London market was not helped by other data on Friday that pointed to a further slowdown in the construction sector in the UK.

The slump began in late trading in the US on Thursday, where the Dow Jones ended the day 1% lower, before continuing in Asia on Friday morning, where Tokyo's Nikkei fell 1.2%, and Hong Kong's Hang Seng 1.8%.

Banks were the worst performers on Friday.

In the UK, Lloyds fell 5.5% and Barclays 6.7%, while on the continent Commerzbank was down 5.8%, Deutsche Bank 5.7% and Societe Generale 5.8%.

In the US, where it has emerged that the banks will be sued by a US government home loans agency, shares in Bank of America were hammered, dropping 8% at the open, while Citibank fell 5.2%.Seeking safety

The latest falls follow a highly volatile August, with markets globally rocked by a slew of weak economic data from the US and Europe.Continue reading the main story

There were also fears over the impact of government austerity programmes, and concern at the implications of the downgrade of some governments' credit ratings, including that of the US.

Haven investments rallied as investors sought safety from the downturn.

Gold rose 3% for the day to just below $1,880 a troy ounce, close to the all-time high of $1,913.50 set last month.

The euro fell 3% against the Swiss franc, briefly touching 1.10 francs after the US jobs data release.

The Swiss authorities have repeatedly intervened to weaken their currency after the euro dropped below the 1.05 francs level last month.

US government debt also rallied, with the yield - the implied cost of borrowing - of the 10-year Treasury bond falling instantly from 2.13% to 2.03%, in anticipation of a possible further round of debt purchases by the Federal Reserve.

The 10-year yield briefly dropped below 2% early in August, hitting its lowest level since World War II.


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Peter Schiff

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Chinese warship confronts Indian navy vessel: Report

LONDON: A Chinese warship confronted an Indian naval vessel shortly after it left Vietnamese waters in late July in the first such reported encounter between the navy's of the two countries in the disputed South China Sea.

The unidentified Chinese warship demanded that the India's INS Airawat, an amphibious assault vessel identify itself and explain its presence in the South China Sea, Financial Times reported.

The London-based paper said, that the Indian warship was in international waters after completing a scheduled port call in Vietnam.
TIMES OF INDIA

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Central bank flight to Federal Reserve safety tops Lehman crisis

A key warning signal of global financial stress has shot above the extreme levels seen at the height of the Lehman crisis in 2008.

Central banks and official bodies have parked record sums of dollars at the US Federal Reserve for safe-keeping, indicating a clear loss of trust in commercial banks.

Data from the St Louis Fed shows that reserve funds from "official foreign accounts" have doubled since the start of the year, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain.


"This shows a pervasive loss of confidence in the European banking system," said Simon Ward from Henderson Global Investors. "Central banks are worried about the security of their deposits so they are placing the money with the Fed."

These dollar accounts are just over $100bn (£62bn) and are small beer compared to the vast sums invested in bonds as foreign reserve holdings. Yet they serve as stress indicator, reflecting the operating decisions of the world's top insiders.

The dollar data refers specifically to reverse repurchase agreements.

Lars Tranberg from Danske Bank said European banks are reduced to borrowing dollar funds for "a week at a time" rather than the usual six to 12 months. "This closely resembles what happened in late 2008, though the difference this time is that the major central banks have dollar swap lines in place. If the dollar funding markets completely freeze up, the European Central Bank can act as a backstop."

Mr Tranberg said dollar deposits of US banks have increased by $400bn since mid-June, mostly offset by dollar reductions in Europe. "It is clear that the problem lies with the European banks. The credit default swaps on these banks are very high and provide a risk gauge."

The Bank for International Settlements says European and British banks have a dollar "funding gap" of up to $1.8 trillion stemming from global expansion during the boom that relies on dollar financing and has to be rolled over. This is not normally a problem but funding can seize up in a crisis.

European officials hotly disputed claims in a leaked document from International Monetary Fund claiming that a realistic "mark-to-market" of Italian, Spanish, Greek, Irish, Portuguese and Belgian sovereign debt would reduce the tangible equity of Europe's banks by €200bn (£176bn).

"French banks passed stress tests which were extremely tough less than a month ago: there is no cause for worry," said Valerie Pecresse, France's budget minister.

"It is ill advised to provoke alarm," said Michael Kummer, head of Germany's BdB bank federation.

The IMF was attacked as a Cassandra when it warned early in the credit crisis that debt write-downs would reach $600bn, yet losses have since reached $2.1 trillion.

European banks are still struggling to access America's $7 trillion money market funds. Fitch Ratings said last week that Spanish and Italian banks have been cut off altogether.

Investors do not fully believe EU pledges that the 21pc "haircut" agreed for private holders of Greek debt is the end of the story, or will remain confined to Greece, as the second Greek rescue is already unravelling. A Greek parliament report concluded that deep recession is pushing the country into a downward spiral, causing debt dynamics to fly "out of control". Public debt will reach 172pc of GDP next year.

Simon Derrick from BNY Mellon said Germany, Holland, and Finland may balk at a third rescue in the current tetchy mood, implying bigger haircuts instead. That will set a precedent for Portugal, and others. Until markets can see an end to the blood-letting, Europe's banks will remain untouchables.The Telegraph

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The Price Of A Commodity Will Never Go To Zero

The price of a commodity will never go to zero. When you invest in commodities futures, you're not buying a piece of paper that says you own an intangible piece of company that can go bankrupt. Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.
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US economy: No new jobs added in August

The US economy added no net new jobs in August, according to the key non-farm payrolls figures from the Department of Labor.

The August number was much worse than had been expected - the predicted figure was an addition of about 70,000 new jobs.

The unemployment rate remained unchanged from July at 9.1%.

In addition, the figures for the previous two months were revised down to show weaker jobs growth.

The Labor Department now says that in July 85,000 jobs were created, down from 117,000 in the earlier estimate, while the number of jobs added in June was revised down from 46,000 to 20,000.

Global stock markets had been lower all day on Friday ahead of the numbers and they fell further after the publication.

The Dow Jones Industrial Average in New York opened down 2%.'Rough month'

It is the first time since 1945 that there has been a zero payrolls figure.

The figure followed 10 consecutive months of job additions.

A strike by 45,000 Verizon workers reduced the figure, as striking workers do not appear on payrolls, although those employees have now returned to work.

"August was a pretty rough month for the economy," said Ryan Sweet at Moody's Analytics in Pennsylvania.

"We saw financial markets tighten. I think businesses sort of responded by putting hiring on the back-burner."

Average hourly earnings fell by 3 cents to $23.09, while the average working week dropped to 34.2 hours from 34.3 hours in July.

The size of the labour force increased by 366,000 to 153.6m.'No confidence'

Attention will now turn to a speech by President Obama next Thursday, in which he is due to outline a new plan for boosting growth and creating jobs.

"US companies have no confidence in the US economy and no confidence in the country's political leadership, so it's no surprise no jobs are being created," said Max Johnson at Currency Solutions.

"The US economy is looking increasingly forlorn and this latest jobs data will apply further downward pressure on the dollar."

A total of 17,000 jobs were added in the private sector in August, which were precisely cancelled out by 17,000 jobs lost in the public sector.

Local government has cut a total of 550,000 jobs since the employment peak in September 2008.

The number of people forced to work part-time because they were unable to find full-time employment rose from 8.4 million in July to 8.8 million in August.
BBC

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Even Goldman Sachs Secretly Believes That An Economic Collapse Is Coming

Goldman Sachs is doing it again.  Goldman is telling the public that everything is going to be just fine, but meanwhile they are advising their top clients to bet on a huge financial collapse.  On August 16th, a 54 page report authored by Goldman strategist Alan Brazil was distributed to institutional clients.  The general public was not intended to see this report.  Fortunately, some folks over at the Wall Street Journal got their hands on a copy and they have filled us in on some of the details.  It turns out that Goldman Sachs secretly believes that an economic collapse is coming, and they have some very interesting ideas about how to make money in the turbulent financial environment that we will soon be entering.  In the report, Brazil says that the U.S. debt problem cannot be solved with more debt, that the European sovereign debt crisis is going to get even worse and that there are large numbers of financial institutions in Europe that are on the verge of collapse.  If this is what people at the highest levels of the financial world are talking about, perhaps we should all start paying attention.

There is a tremendous amount of fear in the global financial community right now.  As I wrote about the other day, the financial world is about to hit the panic button.  Things could start falling apart at any time.  Most of these big banks will not admit how bad things are publicly, but privately there is a whole lot of freaking out going on.

According to the Wall Street Journal, Brazil believes that "as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China's growth may not be sustainable."

Perhaps most startling of all is what the report has to say about the debt problems of the United States and Europe.

For example, this following excerpt from the report sounds like it could have come straight from The Economic Collapse Blog....

“Solving a debt problem with more debt has not solved the underlying problem. In the US, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world’s base currency?”

Remember, this statement was not written by some guy on the Internet.  A top Goldman Sachs analyst put it into a report for institutional investors.

The report also goes into great detail about the financial crisis in Europe.  Brazil writes about how the euro is headed for trouble and about how dozens of financial institutions in Europe could potentially be in danger of collapse.

But in any environment Goldman Sachs thinks that it can make money.  The following is how Business Insider summarized the advice that Brazil gave in the report regarding how to make money off of the impending collapse in Europe....

• Buy a six-month put option on the Euro versus the Swiss Franc, thus betting the Euro will drop against the Franc (the Franc being the currency that an official Goldman report recently referred to as the most overvalued in the world)
• Buy a five-year credit default swap on an index of European corporate debt—the iTraxx 9. This is a bet that some of these companies will default, and your insurance policy, the CDS, will pay off

This is so typical of Goldman Sachs.  They will say one thing publicly and then turn around and do the total opposite privately.

For example, prior to the financial crisis of 2008, Goldman Sachs was putting together mortgage-backed securities that they knew were garbage and marketing them to investors as AAA-rated investments.  On top of that, Goldman then often privately bet against those exact same securities.

The CEO of Goldman Sachs has even acknowledged that the investment bankengaged in "improper" behavior during 2006 and 2007.

For much more on the history of all this, please see this article: "How Goldman Sachs Made Tens Of Billions Of Dollars From The Economic Collapse Of America In Four Easy Steps".

So will Goldman Sachs ever get into serious trouble for any of this?

No, of course not.

Yeah, they will get a slap on the wrist from time to time, but the reality is that the top levels of the federal government are absolutely littered with ex-employees of Goldman Sachs.  Goldman is one of the "too big to fail" banks and they are going to continue to do pretty much whatever they feel like doing.

Sadly, the power of the "too big to fail" banks just continues to grow.  At this point, the "big six" U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assetsequivalent to approximately 60 percent of America's gross national product.

Goldman Sachs was the second biggest donor to Barack Obama's campaign in 2008, so don't expect Obama to do anything about any of this.

We have a financial system that is deeply, deeply corrupt and all of that corruption is a big reason why things are falling apart.

Sadly, the 54 page report mentioned above is right - we really are facing aglobal debt meltdown and we really are heading for an economic collapse.

You aren't going to hear the truth from the mainstream media or from our politicians because "keeping people calm" is much more of a priority to them than telling the truth is.

The debt crisis in the United States is unsustainable and the debt crisis in Europe is unsustainable.  Right now we are in the calm before the storm, and nobody knows exactly when the storm is going to strike.

But let there be no doubt - it is coming.

The amazing prosperity that we have enjoyed for the last several decades has largely been a debt-fueled illusion.  It was a great party while it lasted, but now it is coming to an end and the aftermath of the coming crash is going to be absolutely horrific.

Keep watch and get prepared.  We don't know exactly when the collapse is going to happen, but it is definitely on the way and now even Goldman Sachs is admitting that.

Economic Collapse

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70% of U.S. bonds mature in five years

Insatiable demand for safe haven U.S. government bonds is helping mask a potentially huge financial problem — the need to extend the maturity of debt issued by the United States.

The United States has the least balanced maturity schedule of any major nation. Over 70% of its bonds mature within five years, compared with an average 49% for the 34 member countries in the OECD.

This leaves the country extremely vulnerable to any shift in investor sentiment at a time when its debt load has almost doubled in four years.

Marketable U.S. debt has risen to over US$9-trillion, from around US$5-trillion in late 2007, before the government increased spending to bail out struggling financial companies.

If sentiment were to shift quickly, it could send the cost of refinancing the country’s bonds sharply higher. This would, in turn, eat into its budget and ability to meet long term obligations.

In a worst-case scenario the country might not be able to refinance at all.

“There has never been a single example in the history of finance where financing long-term liabilities, which we are, with short-term debt, ends well,” said Mitch Stapley, chief fixed income officer at Fifth Third Asset Management in Grand Rapids, Michigan.

The Treasury has been extending the average maturity of its debt. However, with proportionally few longer-term bonds and large long-term liabilities, more work is needed.

Though some of these worst-case scenarios for U.S. debt might appear unlikely, Standard & Poor’s recent downgrade of treasuries should serve as a reminder that once unshakable confidence in the United States can come under question.

The downgrade occurred after an acrimonious political battle over dealing with the debt, which raised concerns over the country’s ability to address its fundamental issues.

DOLLAR RESERVE STATUS SLIPPING

The U.S. benefits from bond investments by foreign central banks, funds and other investors that has made Treasuries one of the largest and most liquid markets in the world.

This investor interest has helped benchmark 10-year rates fall near 2%, among the lowest rates in the world.

There is no guarantee, however, that demand will continue. U.S. debt demand is closely linked to the dollar’s reserve currency status, and this is slipping.

The Treasury Borrowing Advisory Committee, which comprises 14 industry representatives from banks and asset managers, has warned about the dollar’s reserve currency status.

“The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’. The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate,” the committee said in its August presentation to the Treasury.

China, which holds over US$1-trillion in Treasuries, has said it wants to reduce its reliance on the dollar.

The U.S. Treasury has succeeded in extending the average maturity of its debt to 62 months, out from less than 50 months in 2009. That process needs to continue.

“We need to start thinking about the debt maturity schedule from the perspective of it being with us” for a while, said Colleen Denzler, head of fixed-income strategy at Janus Funds, in Denver.

The high U.S. debt load differs from previous periods where the perspective on the obligations “was that at some point it was going to potentially go away.”

Historically low interest rates make now a good time to term out debt. The government will face challenges, however, in doing so without also reducing the liquidity and reliability of issues that draw in many investors.

TWENTY, FIFTY YEAR BONDS?

“The rallying cry of U.S. Treasuries has always been regular and predictable,” said Michael Cloherty, head of U.S. interest rate strategy at RBC Capital Markets in New York.

Terming out debt to longer maturities, without disrupting this dynamic, may be complicated.

“When you’ve got $10 trillion in place you’re limited in how opportunistic you can be,” Cloherty added.

To meet demand from pension funds who need long-dated assets to match to their liabilities, some have called on the government to sell bonds that mature in 50, or even 100 years.

How much demand these bonds would attract relative to short- and intermediate-dated debt, however, is questionable.

“When you go from 10 years to 30 it’s much more difficult to know the prospects of the United States, so investors are going to require a higher risk premium for that,” said Janus’ Denzler.

One sign that investors are more nervous about longer-dated bonds is that the yield gap between 10-year notes and 30-year bonds, currently the longest U.S. maturity, is trading at 137 basis points.

This gap has risen from less than 20 basis points in mid-2007 and is less than 30 basis points from its record wide of 160 basis points reached in November 2010.

If this gap continues to expand, the government may look at alternative maturities such as 20-year bonds, rather than extending to ultra-long maturities, said Denzler.

“That would be an incentive to bring in a 20-year, because you may have buyers that have a degree of confidence in 20 years that they don’t have in 30,” she said. “Potentially that gap of 10 years is too much.”
Financial Post

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Japan Spent $58.8 Billion on August Yen Intervention

Japan spent a record 4.5129 trillion yen ($58.8 billion) in currency intervention this month, Ministry of Finance data showed on Wednesday, more than double the previous daily record for its yen-selling intervention.

Although the amount was in line with market estimates of around 4.46-4.66 trillion yen, it was much bigger than the 2.125 trillion yen of selling on September 16 last year, the previous daily record.

Japan's intervention on August 4 boosted the dollar to above 80 yen from around 77 yen, but it quickly lost ground. The U.S. currency hit a record low of 75.941 yen on Aug. 19 and traded at about 76.56 yen [JPY=X 76.82 0.16 (+0.21%) ] on Wednesday.

New prime minister Yoshihiko Noda directed the intervention as finance minister at the time, prompting traders to think Japan will remain ready to intervene if the dollar falls further below the record low.

It was a unilateral action, however, unlike in March when Group of Seven (G7) countries conducted their first joint intervention for more than a decade after the yen soared on risk-aversion following Japan's earthquake and tsunami and the subsequent nuclear crisis.

The MOF data does not specify which currencies were bought and sold or the date on which intervention was conducted. But market players said intervention took place only on August 4 and only in the dollar/yen.

The amount of Japan's yen selling is equal to nearly 1 percent of the Japanese economy, and almost 5 percent of its regular national budget.
But many market players think intervention has only a limited impact on a market in which roughly $4 trillion changes hands every day.

CNBC

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