Back in vogue: gold.
We’ve known it was coming. We’ve seen the writing on the wall for a long time. We’ve told you to buy gold for years in Inside Investing Daily.
Gold is the only real currency left. The euro is on its way to oblivion… the greenback has lost 98% of its value since 1913, and the yen’s value can hardly be slashed anymore.
And world governments are taking note, buying up five times more gold in 2011 than in 2010.
And now gold prices have climbed 15% in just a few weeks.
Ratings agency Fitch just cut the credit rating of five euro-area countries:
Fitch Ratings cut the credit ratings of Italy, Spain and three other euro-area countries, saying they lack financing flexibility in the face of the regional debt crisis.
Italy, the euro area’s third-largest economy, was cut two levels to A- from A+. The rating on Spain was also lowered two notches, to A from AA-. Ratings on Belgium, Slovenia and Cyprus were also reduced, while Ireland’s rating was maintained.
Fitch says, “These sovereigns do not, in Fitch’s view, accrue the full benefits of the euro’s reserve-currency status.”
One begins to wonder how long the euro will retain its reserve-currency status…
Production at factories, utilities and mines fell 5.1 percent from a year earlier in October, the government reported today. The slide exceeded the median of 24 estimates in a Bloomberg News survey for a 0.7 percent drop. Output was down 3.3 percent from September, the third decline in four months.
The slump reflects deepening fallout from Europe’s two-year sovereign-debt crisis, which has led policy makers across Asia to cut or hold borrowing costs in an attempt to protect their economies. Chinese export growth was the weakest since 2009 in November, giving officials at a work conference in Beijing this week more reason to shift policy focus toward boosting expansion next year, from curtailing inflation.
Big news for an economy that’s been humming hotter than China. We’ll keep an eye on this one.
“God helps those who help themselves.” Lots of folks think this phrase comes from the bible, but it doesn’t.
That doesn’t make it any less true – especially when “God” is the International Monetary Fund (IMF). The IMF was established to foster global monetary cooperation and greater fiscal stability. It makes loans to countries caught between a rock and a hard place.
And Europe’s been looking for some help from this organization.
But the IMF’s funds come from country contributions.in the form of something like “membership dues,” except these dues are measured according to the size of the country’s economy. Bigger economy equals larger “dues.” Read More
France and Germany ready to pare down the European Union… From Bloomberg:
“We want it to be impossible for the deregulation that led to the euro zone’s current situation to recurr any case, we want a new treaty,” Sarkozy said in Paris. “Our preference is for a treaty of 27 but we’re perfectly ready to have a treaty of 17.”
Who will make the cut and who won’t? Almost surely Greece won’t be in the group of 17, while Italy more than likely will. It’s too big an economy to leave out, and it has a lot of connections to energy-rich nations (read, Libya). Read More
MF Global CEO Jon Corzine resigns… From Reuters:
In a statement, Corzine said his “difficult” decision was voluntary, and was best for the company and its stakeholders.
“I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others,” Corzine said. “I intend to continue to assist the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm’s assets.”
Corzine is not seeking severance, the company said. He had been entitled to a $9 million payout if he were let go without cause, a July regulatory filing shows.
There’s still more than $600 million missing, and regulators are still investigating. This “not seeking severance” business might not look so galant when all is said and done.
From Justice Litle at Inside Investing Daily:
With Greece threatening to torpedo the latest rescue deal, Europe’s real issue is democracy.
“They must be crazy… this is no way to run a country.”
– Senior executive at a large Greek firm
For stock market bulls, the eurozone fix didn’t have to be long term. It just had to hold through Christmas (or at least Thanksgiving). The agreement to write down 50% of Greek debt seemed to accomplish that.
But then a funny thing happened: Greece threw a monkey wrench into the works.
In a surprise move this week, Greek Prime Minister George Papandreou called for a referendum (popular vote) on whether to accept the eurozone bailout, stunning France and Germany. The Greek government then revolted against Mr. Papandreou, calling for a no-confidence vote.
The net result: Total chaos. Will the rescue deal go through? Will the Greek government collapse? Will Greece be forced to exit the eurozone?
Big news out of Greece…
The government is scrapping the idea of a referendum, and Europe is considering letting Greece leave the Eurozone in order to save the currency.
Beleaguered Prime Minister George Papandreou said after an emergency meeting of his Socialist cabinet that his call this week for a referendum, which sparked panic on global financial markets, “was never a purpose in itself,” and he would be happy if the vote were not held.
Papandreou said he had agreed to talks with the center-right opposition on a transitional government to implement a new EU/IMF bailout program. Early elections would follow.
The article also reports, “France’s Europe minister, Jean Leonetti, said bluntly the euro could survive without Greece. ‘Greece is something we can get over, something we can live without,’ he told RTL radio in an interview.”
With yet another bailout deal on the table for Greece, the markets were off to the races…
The Dynamic Duo of Sarkozy and Merkel finally pushed through a viable option to pull Greece back from the brink of default. In one of the most surprising twists of the European debt crisis, the deal convinced private bond holders to accept 50% losses on the Greek bonds they were holding.
Greece would get $11 billion right away to help keep the government running, and Europe would beef up its emergency fund to $1.4 trillion.
But now, all the hard work and compromise could be in jeopardy, all because of democracy.
It’s ironic… The mother of modern democracy could destroy herself, and the rest of the European Union if she falls, by calling for a referendum on the debt deal.
There’s a lot of stuff happening with a company called MF Global Holdings, Ltd. It was run by former Goldman Sachs chief Jon Corzine. I say was because on Monday, MF Global filed for Chapter 11 bankruptcy.
What Chapter 11 does is it allows MF Global to stop paying its creditors while it restructures its business or sells off parts of its company. That means the $1.2 billion MF Global owes JPMorgan and the $1 billion it owes Deutsche Bank is in limbo.
But that’s now where the story ends.
MF Global made some bad bets on European debt. It holds some $6.3 billion in bonds from places like Italy, Spain, Portugal, Ireland and Belgium. The company wanted to be a mini-Goldman, according to some analysts, and move from being a futures broker to a full-fledged investment bank, trading with its own money.
And that’s where things get interesting.
Regulators are investigating MF Global after discovering hundreds of millions of dollars in customer money is missing.
The investigation is trying to determine of the company used some of its customers’ funds to back its own trading. So far, no one has been accused of anything, but if it turns out that MF Global did used customers’ cash to trade with, there’s going to be a huge uproar.
But it wouldn’t be a big surprise to us. When Sandy Franks and I wrote Barbarians of Wealth this kind of behavior was exactly what we expected from big banks and the Wall Street elite.
We’ll stay on top of this here at The Wandering Investor.
