Gerald Celente on Yahoo Finance

‘Unprecedented’ bond pressure to hit eurozone next year

Bond market pressure on the euro zone will be “very significant” in the first quarter of next year, European Central Bank President Mario Draghi said on Monday.

Draghi said that in the first quarter of next year, some 230 billion euros of bank bonds are expiring, 250 to 300 billion in government bonds, and that more than 200 billion in collateralised obligations issued by firms will be due in the course of next year. “So the pressure that bond markets will be experiencing is really very, very significant if not unprecedented,” Draghi said in testimony to the European Parliament, and added banks have also other problems, including lack of capital.

European policymakers are striving to set up a firewall around the bloc robust enough to deter market attacks but many investors believe only stronger ECB action, particularly in the buying of euro zone government bonds, will do the trick.



Italy, the euro zone’s third largest economy which has been dragged to the centre of the crisis, has about 150 billion euros in debt falling due between February and April of next year.

Draghi gave no hint that the ECB was about to change tack on its bond-buying programme, although it will later this week offer banks three-year funds for the first time to help ward off a freeze in interbank lending.

“The treaty specifies very closely what our remit is, namely ensure price stability in the medium term. The treaty also forbids monetary financing and … we want to act within the treaty,” he said.

“We know that banks experience now and will be experiencing, even more so, a very significant funding constraint, especially in the first quarter of 2012,” he said.

Draghi also rejected joint bonds issued by euro zone countries, saying they would only be actual after there was more of a fiscal union than is currently the case.

Joint bonds would cut financing costs for the most indebted countries, but likely lift them for the ones with lowest bond yields, especially Germany.

“The more countries release in terms of national sovereignty on their fiscal stance .. the greater are going to be the benefits of any sort of euro bond concept,” the Italian said.

“(But) if you have separate countries that go on and spend on their own, separately and tax on their own, you cannot think about common issuance.”

Turning to the future of the common currency, Draghi dismissed nay-sayers who doubt the sustainability of the euro.

“I have no doubt whatsoever about the strength of the euro, about its permanence, about its irreversibility,” he said.

Draghi also said austerity programmes necessary to cut government debt would cause economic contraction within the single currency area, but only in the immediate future, and even that could be mitigated by economic reforms.

“What we want is that this contraction to be short-term and we want to activate all the channels that would enable confidence to return to markets, spreads to go down, costs of credit to go down, ultimately for job-creation to take off,” he said.

“Euro area economic activity should recover, albeit very gradually, in the course of 2012,” he said, but added there was a danger of recession looming if banks don’t lend to firms and private consumers, and that the central bank would do everything it can.

“What we certainly want to avoid is that serious severe credit tightening that could induce a further slowdown of growth and a possible recession,” Draghi said. “We want to avoid that.”






Financial Post

Schiff Report: Gold, inflation...

In Debt Crisis, Gulf Is Yawning Between Italy and Its Politicians

ROME — With its elegant marble floors, ornately carved wooden ceiling and flattering lighting, the central meeting point of Italy’s Lower House is arguably one of the most beautiful political arenas in the world.

Italy's Prime Minister Mario Monti arrived for a conference at the Bank of Italy in Rome on Friday.

But in recent weeks, Italians have come to view those who frequent the hall — known as the Transatlantico and modeled on the great room of an ocean liner — as a pampered elite, as sheltered from the global economic turbulence as the palazzo’s inner courtyard.

On Friday, the month-old government of Prime MinisterMario Monti easily won a confidence vote on a $40 billion set of austerity measures, including tax increases, changes to the pension system and some growth incentives, with 495 votes to 88. After the vote, the prime minister told lawmakers that Italy was at “maximum risk.” He added, “A lot is at stake; we cannot permit ourselves to live the way we did before.” He said that much would depend “on our capacity to present ourselves as united and credible before the markets.”

Yet even as Mr. Monti, a technocrat who has won the confidence of Parliament but not its loyalty, struggles to restore faith in a government asking for sacrifices, he is facing a power battle — and a culture clash — with lawmakers. The prime minister has asked Italians to accept new austerity to reduce the country’s public debt and restore market trust. But Italian politicians, whose salaries rank above the European Union average and who are widely seen as more eager to protect their privileges than their country’s future, have balked at the prospect of belt tightening for themselves.

Last week, lawmakers grudgingly agreed to changes in their pension plan following a public outcry after they blocked an effort by Mr. Monti’s government to cut their salaries as part of the austerity plan.

This has not gone over well with the public. “The gap between citizens and politics is becoming wider and wider,” said Giovanni Sermoneta, 54, a shopkeeper in downtown Rome, echoing a common sentiment. “They can’t think that they can keep on earning $26,000 a month when workers are asked to work until they are 70 with salaries that are among the lowest in Europe.”

Italy’s Parliament has 952 lawmakers, 630 in the Lower House and 322 in the Senate, to say nothing of thousands of local politicians in a country of 60 million. National lawmakers’ take-home pay ranges between $18,000 and about $27,000 a month — which covers salary, a per diem for living expenses and a personal (but not legislative) staff. Their many perks include gold-plated medical insurance, free travel within Italy and often a car and driver. According to the Bruno Leoni Institute, a market-oriented policy research organization in Turin, Italy, the Italian Parliament costs about $2 billion a year, or around $34 per capita.

In contrast, the United States Congress — 100 senators and 435 members of the House of Representatives for a population of 300 million — costs about $2.2 billion a year to maintain, or $7 per capita, according to a study by Antonio Merlo, the chairman of the Economics Department at the University of Pennsylvania. And they can easily be voted out of office. In Italy, the climate of hostility toward politicians is magnified by the fact that voters do not directly elect members of Parliament. Instead, under a 2005 electoral law passed by the government of Prime Minister Silvio Berlusconi, they are chosen by party leaders who then present a list of candidates to the voters.

Mr. Monti, an economist and university professor, has kept his cool in parliamentary debate that has devolved into the carnival-like. Last week, lawmakers from the anti-immigrant and increasingly euro-skeptical Northern League, a pillar of Mr. Berlusconi’s center-right coalition and now the most vocal opposition party, shouted and held up signs calling the austerity measures a “holdup.”

New York Times

North Korea's coming power struggle and the Mid-East nuclear race

The sudden death of Kim Jong II, of a heart attack aged 69, Monday, Dec. 19 – even though his youngest son Kim Jong-un was hailed as successor – confronts the world for the first time since the Cold War with a leaderless nuclear power about which it knows almost nothing. Though anointed as heir, his youngest son Kim Jong-un, believed to be 26, is more than likely to be challenged for his claim to power. At present, therefore, no one knows who controls North Korea's nuclear arsenal - any more than the identity of the country's next ruler after the dust settles.

Meanwhile there are pressing questions: Will Kim Jong II's successor follow through on his consent this week to suspend Pyongyang's enriched-uranium nuclear weapons program for 240,000 tonnes food aid from Washington? How will the 1.2 million strong standing army of the North respond to the first actions of South Korea, Japan and US forces in the Far East in placing their armies on alert?
There has been no sign of motion from this huge army apart from test-firing a short-range missile Monday morning from the east coast.

This is almost certainly the calm before the storm. A year ago, Kim Jong Il began grooming his son for the leadership, the third of their dynasty, by appointing him Vice Chairman of the Central Military Commission of the Workers Party of Korea and conferring on him the rank of four-star general.
Still, he is as shorter on military experience than he is in politics. After the dead leader's funeral on Dec. 28, the army, or parts therefore, will have to decide whether to continue supporting the Kim family's rule in Pyongyang after 60 years or replace it with a different kind of leadership.

The prospect of uncertainty and change there sends shudders down many political spines in Washington, Tokyo and Seoul, as well as in Beijing and Moscow. In recent months, world powers were deeply immersed in the war threats hanging over the Middle East, Syrian bloodshed and Iran's nuclear weapons momentum. Monday, they woke up to a completely unforeseen scenario, an unstable Far East state armed with a nuclear bomb which could take the region in any of five directions:

1. Elements of the North Korean army or its security services could go head to head for a power grab in Pyongyang, potentially sparking civil strife in this enigmatic nation of 24 million.
2. To keep any such violence from spilling across its borders, China may send troops into North Korea bringing similar action from Seoul, possibly with US backing.. China has a large North Korean expatriate minority which respects Pyongyang rather than Beijing and is therefore a source of unrest.

Of the US troops stationed for 58 years on the armistice lines between South and North, about 28,500 remain and could be involved in a conflict with the potential of exploding into another Korean War. The first war in the 1950s cost several armies more than a million lives.
3. The big difference between then and now is that today North Korea has nuclear arms and there is no knowing at what point someone in Pyongyang may decide to use them.
4. A recent Pentagon situation paper estimates that if the Korean Peninsula descended into domestic anarchy and civil strife, the United States would be called on to raise an army of intervention numbering 400,000 soldiers, 100,000 more than the size of US forces fighting in Iraq and Afghanistan at the peak of those conflicts.
5. North Korea maintains thriving nuclear, military and technological relations with Iran and Syria. Hundreds of technicians and engineers, including nuclear and missile experts, have worked for years on their nuclear and missile programs.

Western and Israel intelligence services have never been sure how deeply China is involved in North Korea's nuclear and military assistance to Iran and Syria. Is it just passive? or does Beijing use Pyongyang as a channel for pumping nuclear technology to Tehran and Damascus?

Some Western agencies have recently come to believe that China has a bigger stake in those Middle East countries than realized and much of the military technology transferred by North Korea to Iran is actually of Chinese origin.
A power struggle in Pyongyang, which could be drawn out for as long as a couple of years, could go in many unpredictable directions including stepped-up contribution to the Middle East nuclear race.

Defkafile

Sanctions against Iran could trigger oil price spike

Don’t be fooled by the cordial meeting between Saudi and Iranian officials on the sidelines of the recent Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna.

“It was an easy, friendly meeting. Don’t worry, they did not fight, and there was no blood,” a senior Saudi official joked after a meeting with the Iranians on Dec. 12.

While OPEC quickly agreed on 30 million barrels per day without much argument, the meeting belied the great tensions between the two rivals. Of course, the unacknowledged 900-pound camel in the room was a contingency plan if customers stopped buying 2.57 million barrels of Iranian oil exports and if a renewed wave of international sanctions kick in against the Islamic regime.

The U.S. Congress last week passed a defence bill that included provisions that would impose sanctions on foreign financial institutions that do business with Iran’s central bank, in an effort to strike Iran where it would truly hurt — its oil assets.

Despite long-standing U.S. sanctions, Iran’s oil revenue is expected to rise by a third this year to US$100-billion, according to energy consultants IHS CERA. If successful, the International Energy Agency expects an 890,000-bpd decline in Iranian oil production by 2016 as a direct result of the sanctions.


In January, the European Union is expected to impose an embargo on Iranian oil in response to a report by the International Atomic Energy Agency that said Tehran may have been working on an atomic bomb. The EU action was unavoidable, especially after Iranian protesters ransacked the British Embassy in Tehran, and Britain deported the Iranian ambassador.

This was just one of the many conflicts in which Iran has played a starring role during the past few months: Israel has threatened to attack Iran’s nuclear facilities after the IAEA report came out, and the Persian state has also earned the ire of the Saudis, who accuse it of inciting Shiaa citizens in the Kingdom and Bahrain and operating a spy ring in Kuwait. Meanwhile, the U.S. and Mexican authorities exposed a plot by Iranian spies to assassinate the Saudi ambassador to Washington.

Not surprisingly, oil prices have simmered on tensions in the Middle East despite prospects of an EU recession in 2012. Canadian Imperial Bank of Commerce, which has issued the most bullish crude forecast among major banks, expects Brent to average around US$123 in the new year, with U.S. crude closing its spread differential too.

“Geopolitics is an upside risk, but our US$123 forecast assumes what we already know.

However, if the Strait of Hormuz is impacted, all bets are off,” said Katherin Spector, energy analyst at CIBC.

The Strait of Hormuz is the narrow seaway through which oil is shipped not just from Iran but other Mideast states too. The London-based Centre For Global Energy Studies estimates 14% of global crude-oil production could be at risk if the vital waterway was to become unnavigable, “an event that would no doubt cause an immediate and severe spike in the price of oil in 2012.”

The result could be catastrophic. Oil prices could jump US$23 a barrel in the first few weeks of the conflict and by a jaw-dropping US$175 if it persists, according to a survey of energy traders by Rapidan Group, a Washington-based consultancy.

With Iran’s customer base potentially disappearing, JPMorgan Chase & Co. fears the country may try to shock the global economy by cutting off oil supplies altogether.

“If Iran sees a loss of income as inevitable, there is a greater risk that it takes what limited political and economic capital it has to the negotiating table by invoking a pre-emptive export ban,” said Lawrence Eagles, an analyst at JPMorgan.

Most analysts contend, however, that neither Israel nor the U.S. has the appetite to launch military action. But the world’s dependence on Iranian oil has led many analyst skeptical of water-tight sanctions on Tehran either.

Some of the engines of global growth depend on Iranian oil: 6% of Chinese oil imports come from Iran, 9% of India’s and 10% of South Korea’s. In addition, Iranian oil makes up 30% of all Greek oil imports and 7% of Japan’s.

“The EU sanctions are not a done deal,” says Ms. Spector of CIBC, adding that apart from Europe, Iran’s key Asian clients such as Japan obsess too much about energy security to cut off Iranian supplies.

The Greeks have raised doubts about an EU oil ban, while Japan and South Korea are reportedly seeking a possible waiver to U.S. legislation. Meanwhile, China could exploit the situation to demand better pricing for Iranian oil.

Not surprsingly, while most analysts see Iran as an “upside risk,” most believe the global oil market will continue to meander.

“The key upside risk is supply disruption from Iran, or an anticipation thereof, which would add a risk premium to the price. In our forecast we assume that the current level of tension rumbles on without solution, but also without escalating,” says Helen Henton, an analyst at Standard Chartered Bank.

Financial Post

European Ministers Seek $261B in IMF Funds

European finance ministers sought to meet a self-imposed deadline for drawing additional aid to the debt crisis and to form new budget rules as investor confidence that a comprehensive solution is achievable wanes.

Euro-area finance ministers held a conference call beginning at 3:30 p.m. Brussels time to discuss 200 billion euros ($261 billion) in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 European Union summit, according to two people familiar with the planning.

“They’ll try to get as much done as they can before Christmas, but it’s doubtful they’ll put markets in a Christmas mood,” Carsten Brzeski, an economist at ING Group in Brussels, said in an interview. “There is still so much uncertainty.”

The accord to ratchet up budget rules failed to ease concern that the monetary union risks buckling under the weight of the two-year-old crisis. Fitch Ratings lowered France’s credit outlook and put other euro-area nations on review Dec. 16, saying an overall crisis solution may be “technically and politically beyond reach.” Belgium’s rating was cut two levels to Aa3 by Moody’s Investors Service on the same day.
ECB Bond Purchases

European Central Bank President Mario Draghi damped expectations the bank will step up bond purchases to tame rising borrowing costs, telling the Financial Times in an interview published today that the bank can’t overstep its mandate.

“People have to accept that we have to, and always will, act in accordance with our mandate and within our legal foundations,” Draghi was cited as saying. “The important thing is to restore the trust of the people -- citizens as well as investors -- in our continent. We won’t achieve that by destroying the credibility of the ECB.”

Euro-area officials aim to meet their deadline for today to arrange the IMF loans. The package entails about 150 billion euros pledged by euro-area central banks and another 50 billion euros to be contributed by non-euro EU states. The euro-area ministers were due to be joined in the call by their EU counterparts to thrash out measures including the decision- making process of the bloc’s permanent bailout fund, the European Stability Mechanism, one of the people said.

“This deadline decided by the heads of states and governments is a political deadline not a legal deadline,” European Commission spokesman Olivier Bailly told reporters in Brussels today.
No ‘Urgent Need’

While leaders including Luxembourg’s Jean-Claude Juncker have expressed confidence that the deadline will be met, Germany’s Bundesbank said Dec. 16 it saw no “urgent need” to reach a decision, suggesting it could be delayed.

The euro lost 2.5 percent against the U.S. dollar last week after the Brussels summit and extended the loss today, sliding 0.2 percent to trade at $1.3023 at 4:07 p.m. Frankfurt time. The U.K.’s refusal to sign on to an EU-wide treaty change locking in new debt rules exposed divisions within the bloc and forced euro-region leaders to come up with a legal framework to patch together budget rules.

“The systematic nature of the euro zone crisis is having a profoundly adverse effect on economic and financial stability across the region,” Fitch said in a note. The growing uncertainty is overshadowing countries’ reform efforts, it said.

Fitch placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on a “Rating Watch Negative” review. It cited the ECB’s failure to act as a financial backstop as contributing to its decision last week.
Stark’s Disappointment

Divisions within the ECB on bond buying were revealed by departing ECB Executive Board Member Juergen Stark, who told the German magazine WirtschaftsWoche in an interview that his decision to leave derived from his disappointment over “how this monetary union has evolved.” He criticized the bond purchases.

The U.K. is weighing whether to commit more funds to the IMF. Prime Minister David Cameron’s spokesman said Dec. 14 that the U.K. hadn’t agreed to increase its IMF contribution, fending off a report in the Daily Telegraph newspaper that the nation’s contribution might rise by 30 billion pounds ($46.5 billion).

Today’s conference call may focus on setting a road map for more detailed debate next month on a German-inspired budget- stability treaty. Chancellor Angela Merkel demanded treaty-level barriers against runaway debt and deficits to offer the prospect of a future “fiscal stability union” that restores investors’ shattered confidence inEurope’s economic management.

The European Commission’s power to enforce deficit limits will be strengthened, requiring a high-deficit state to amass a super majority within the euro region to head off disciplinary procedures, according to a draft of the text.

Governments will also be required to adopt balanced-budget amendments with an “automatic correction mechanism.” Those provisions will be enforced by the European Court of Justice and national courts.

The treaty, to be hammered out by late January and signed in early March, will take effect once ratified by nine of the 17 euro-area countries. EU states outside the euro will join as they ratify, with the U.K. alone so far in refusing to sign up.

Bloomberg