Month: December 2012

How much of the world’s woe is the fault of people who claim to know things they don’t really know… and to be able to do things they can’t really do?

Investment advisors say, “Housing always holds its value.” How did they know?

Or they say, “Stocks always go up in the long run.”

Oh yeah?

Government bosses tell us they can “improve the educational system.” Or that we have to “mobilize our troops” against some foreign devils.

Or there are experts who tell us that we use too much oil… or that we don’t have enough. We eat too much fat… or too little fish. We don’t drink enough water, says one. We drink too much coffee, says another.

Practically every week brings a new alarm. A new bit of pseudo-knowledge. And a new initiative at centralized planning to fix the problem.

The world improver knows not only what “we” should do… but also what the Israelis should do. And the Syrians. And the Chinese. And the Russians. He’s got a plan for everyone!

The Problem With Planners

Today, we’re looking at the central planners at America’s central bank…

They’re sure the world would be a better place if more people had a nine-to-five job. They are not planning to do much hiring themselves. But they seem sure that they can induce other employers to increase their payrolls.

How?

By creating money that didn’t exist before and buying bonds with it, thus suppressing interest rates.

Hmmm…

Yesterday, The New York Times reported that the Fed plans “to continue suppressing interest rates so long as the unemployment rate remained above 6.5%.”

Why not continue suppressing interest rates until the swallows come back to Capistrano… or until the Great Lakes dry up?

The assumption in the Fed’s plan is that there is causal connection between its monetary policy (near-zero interest rates and QE) and unemployment.

There is also a deeper assumption: that Fed governors can understand the connection… and that they can manipulate employment by holding interest rates down.

Is it so?

Not likely.

From the report in the Times:

To help reduce unemployment, the Fed said it would also continue monthly purchases of $85 billion in Treasury securities and mortgage-backed securities until job market conditions improved, extending a policy announced in September.

But the Fed released new economic projections showing that most of its senior officials did not expect to reach the goal of 6.5% unemployment until the end of 2015, raising questions of why it was not moving to expand its economic stimulus campaign.

At a news conference after a two-day meeting of the bank’s top policy committee, Mr. Bernanke suggested that the Fed was approaching the limits of its ability to help the unemployed.

“If we could wave a magic wand and get unemployment down to 5% tomorrow, obviously we would do that,” he said when asked if the Fed could do more.

“But there are constraints in terms of the dynamics of the economy, in terms of the power of these tools and in terms that we do need to take into account other costs and risks that might be associated with a large expansion of our balance sheet,” referring to the monthly purchases of securities.

Well, right. Bernanke has no magic wand. All he has is monetary policy. So, he waves that around.

But where is the evidence that it has the desired effect? Interest rates have been at zero for four years already. Unemployment is still high. John Williams at ShadowStats put the real unemployment level at 23%, not the 7.9% reported by the Labor Department.

Unintended Consequences

Even if you think ZIRP (zero interest rate policy) is responsible for lowering unemployment over the last four years, at the present rate it will take another five or six years before it goes down to the Fed’s target.

Let’s see… What will be the unintended consequences of 10 years of ZIRP?

If there is a connection between monetary policy and the unemployment rate, it is a slippery one. Interest rates were about 5% when the U.S. economy ran at full employment during the 1990s and 2000s. At 0% unemployment is at record highs.

And if interest rates and unemployment are so tightly bound, what will the Fed do when unemployment sinks to the 6.5%?

Will it then let interest rates rise? If it doesn’t, surely it risks a period of “inflationary overheating”… or even hyperinflation. But if it does raise rates, won’t unemployment go up again?

So what’s the point?

Mispricing Capital

The whole thing is so slimy and stinky we hesitate to touch it. But an economy only has so much saved money (resources) that can be borrowed and put to work. The Fed can’t wave a magic wand to create more capital. All it can do is misprice it.

The amount of savings compared to the demand for capital is what determines the real interest rate. If the Fed distorts the cost of capital… by setting an arbitrary interest rate… it also distorts the whole economy.

We end up with zombie businesses that can only stay alive if they are pumped up with cheap money… and zombie jobs that depend on artificially low interest rates.

We also get business activity that is fundamentally capital consuming rather than capital creating.

Projects borrow resources without paying the real costs of them. They stay in business, consuming resources, without generating enough real wealth to pay for them. As capital disappears, we all get poorer, not richer.

And that’s just a critique of the theory. In practice, when has this policy ever worked? Not once that we’ve ever heard of.

Editor’s Note: You Can’t Prevent Corrupt Politicians. But Here’s How You Can Protect Yourself From Their Thieving Shenanigans…

Thank goodness the silly charade of the presidential election has ended. Now we can rest until the next national charade begins…

But did you know that the president is NOT the largest threat to you and your money? You might be surprised that the biggest villain is the U.S. Congress…

Luckily, you can take a few easy steps to prevent it from bilking you dry. Here’s the entire story — and an action plan — that reveals how you can combat this grasping scheme.

Other Related Articles:

• Ben Bernanke: Party Boy
• Is the Bull Market in Gold Over?
• How to Feed a Chihuahua
• Disclaimer

By MoneyMorning.com.au

There’s a concept in sales that works like this: if the salesman says something, it might be a lie. If the prospect says it, it’s true. So the trick for the salesman is to find a way to get the prospect to sell themselves.

One way to do that is to use a technique called a tie down.

The tie down is an open-ended question that the prospect will agree to. Something like, ‘Quality is important, isn’t it?’

The question for investors is this: will the Australian government use mainstream economists and industry to sell a budget deficit to the public?

The answer is probably yes. The tie down will be the classic Keynesian response to lower growth – ‘when things are struggling the government should step in to create jobs and support the economy, shouldn’t it?’

It’s a sell job and nothing else. But it’s the task of today’s Money Weekend to see if there is a dangerous catch to this idea – and how this will play out on the share market.

Why the Aussie Government Can’t Hold the Line

You might have seen this on the front page of Thursday’s Australian Financial Review:

‘Federal Treasury is advising the government to dump its commitment to a budget surplus as a slump in Australia’s nominal growth rate poses a threat to revenue.’

The surplus is based on projections. As usual, the projections won’t materialise. The economy is supposed to be growing at a certain rate (‘at trend’), but the economy isn’t growing at that rate.

That means goodbye surplus. So the government needs to get out of the promise but limit the loss of face. Enter the media campaign to change the goalposts.

Take a look at this chart:

This gives you some idea of what the Australian government is trying to pull off. None of the world’s major economies are anywhere near running budget surpluses and won’t be for years.

You’d think this should make the sell job easier for the Aussie government because it can point to its peers as doing the same thing. Eventually it probably will.

The government could also use the current demand for Australian assets to lock in cheap financing and use infrastructure spending as the reason for running a deficit.

So why the hold out?

You might say that the credibility of the government is at stake. It made a commitment. It intends to keep it.

That seems less likely to us than the second reason. That is…

How Bank Bailouts Ruin an Economy

A budget deficit would put the AAA rating of the Aussie government at risk. Australian governments could barely balance the budget after the biggest resources boom in Australian history. So it’s hard to picture a balanced budget during a recession.

And as with any form of debt or deficit, once you go into the red it takes a lot of effort to get back on track. One budget deficit seems certain to lead to another.

That means the sovereign risk of Australia would take on a negative outlook. Remember the Aussie terms of trade hit a 140 year high in 2011. The boom in Chinese demand flooded Australia with money.

But the Chinese economy has slowed. There’s a debate about whether that’s a managed slow down or not. But you can see the effect in the meantime on Australia here…

This chart is taken from our colleague Greg Canavan’s new research project, ‘The Fuse is Lit‘. His position is that 2013 will be the year the financial crisis comes to Australia.

Now there’s a conventional view that Australia’s low debt-to-GDP is a saving grace should any trouble hit here. But there were two other countries that enjoyed this distinction too: Spain and Ireland.

The reason they no longer enjoy it is they both backstopped their failed banking systems with government money.

You might remember the Aussie government ‘lent’ its AAA rating to the Australian banks during the global financial crisis so they weren’t shut out of foreign money markets.

So any threat to the Australian government AAA ranking is a direct threat to the Aussie banking system.

And as Greg also points out in his new report, in a strange way, while the global financial crisis was good for Aussie banks, it was bad for Australia. Why? The banks increased their market share by gobbling up smaller rivals.

That’s bad for Australia because it concentrates the risk in the financial system.

The Big Australian Banks

But if you’re wondering if there’s an imminent risk, the stock market says no. The financial sector has actually been the best performer on the ASX this year.

Indeed, there was the news this week that the Commonwealth Bank (ASX: CBA) now ‘has a market value of more than US$100 billion dollars, more than the entire banking system of Germany, Singapore or Italy, according to data from the Datastream Global Banking Index.’

What’s interesting about this is that it also says that ‘the banks’ conservative approach to business has helped shield them from the turmoil that has seen European giants like UBS AG gut their operations in recent weeks.’

But it’s hard to see the Australian banks as conservative. After all Australians have one of the highest household-debt-to-GDP ratios. That’s mostly thanks to mortgage lending.

Debt isn’t a problem if you can pay it back. That’s where Greg’s research leads him to believe Australia has a problem, and if he’s right, it’s a big problem.

But the short take now is that the sovereign debt rating is important because it affects the cost of capital in Australia. So riskier borrowers pay a higher interest rate.

Raising that cost would hurt the Aussie banks and impact on their earnings and share prices. The Aussie banks have had a good run this year. 2013 might prove a lot more challenging.

Callum Newman
Editor, Money Weekend

The Most Important Story this Week

There’s always plenty of debate about the direction of Aussie property. People watch for any move in the interest rate that will make their mortgage repayments cheaper or more expensive. But there’s another big driver when it comes to property: demographics. See what Dr. Alex Cowie has to say about this when it comes to Aussie housing in The Long, Drawn Out Retreat in Australian House Prices

Highlights in Money Morning This Week…

Murray Dawes on The Price of Risk in the Stock Market: ‘Our stock market has been rallying for six months and is retesting multi-year highs. Something doesn’t add up. Either the stock market is getting ahead of itself or the pessimism in business is misplaced…’

Byron King on Peak Oil: Why the US Oil Boom Can’t Solve this Big Problem: ‘I’ve stated many times that the Peak Oil concept is a tool. It’s a lens through which one can observe the world of energy, both to figure out what’s happening now and to forecast possible future scenarios. In simple terms we’re talking about natural depletion.’

Shah Gilani on Why the Federal Reserve is Socialism’s Insidious Tool: ‘The Fed fosters underdevelopment of third-world nations, props up corrupt governments, protects the greedy, self-serving banking constituency it serves, and by design promotes socialism to further its mandate to enrich its masters.’

Dr. Alex Cowie on Why Silver Could Be the Best Investment in 2013: ‘When the technical price action backs up the fundamental picture – it can often translate into a great investment opportunity. In other words, if the idea is good, and the timing also looks right, then the shot could be a winning one.’

By MoneyMorning.com.au

The top line story, according to the FDIC’s latest Quarterly Banking Review, is that the majority of U.S. banks are in better shape today than they have been in years.

The untold story is that when the Federal Reserve is done transitioning the United States from capitalism to socialism, the few dozen banks that remain in America will all be profitable until they need bailing out again, but will never die and live on in infamy.

Is that just hyperbole or some wild conspiracy theory? It’s neither. Unfortunately, it’s the bare, naked truth about the Fed.

US Taxpayers Eat Banking Losses

It doesn’t matter that you didn’t know the Federal Reserve System was the brainchild of a handful of the world’s most powerful bankers.

Or that all of them took a secret train from New Jersey to Jekyll Island, Georgia (owned by J.P. Morgan) in 1910 aboard Rhode Island Senator Nelson Aldrich’s private car to devise and orchestrate the creation of the Federal Reserve.

Or that Aldrich was an investment associate of J.P. Morgan, that his son-in-law was John D. Rockefeller, Jr., or that he was the political spokesman for big business and banking interests in Congress.

It doesn’t matter if you don’t know who the powerful bankers are today that run the Fed’s twelve district banks. Or that the Fed’s New York Bank conducts all its open market operations with a bunch of favored big banks it protects (Case in point, MF Global).

Or that one former Chairman of the New York Bank’s Board, who was also and still is a Goldman Sachs board member, resigned from the Fed when it was discovered he bought $3 million worth of Goldman’s stock right before the Fed made sure Goldman wouldn’t have to go out of business at the height of the financial crisis.

What matters is that without the Federal Reserve the banking system in the United States would be more honest, more competitive and less of a risk to the economy than it is now.

And what really matters, is understanding the Federal Reserve could never exist and do what it does in an open democracy, and that its agenda of socializing risks (making taxpayers eat bankers’ losses) and privatizing their profits (letting them keep their bonuses) for the benefit of its club members (the banks) means the Federal Reserve has to transform America to a socialist model in order to maintain its own growth and ultimate power.

Of course, it’s not a stretch to see how the Fed’s socialist agenda will eventually encompass most of the American economy over time.

But to keep it simple, let’s look at how the Fed has already done that to the benefit of its primary constituents: banks and bankers.

Cosmetic Figures Hide the Ugly Truth

With the Fed at the helm, the FDIC’s Quarterly Banking Review shows aggregated FDIC insured banks’ net operating revenues (net interest income plus total noninterest income) in the third quarter of 2012 came to US$169.6 billion. That’s up 3% from a year ago, or year-over-year (YOY).

Total quarterly aggregate net income was $37.6 billion, up $2.3 billion YOY to the highest level in 6 years.

In all, some 57.5% of FDIC insured banks had higher earnings than a year ago. A year ago, in 2011′s third quarter, 62.6% had higher earnings than in the third quarter of 2010.

One thing to watch, is whether the downward move in the percent of banks earning more than in year-earlier periods is an aberration or the beginning of a downtrend.

This quarter, just 10.5% of banks reported losses vs. 14.6% one year ago. Problem banks totaled 694 vs. 732 in Q2 of 2012. That’s the sixth consecutive quarter of fewer problem banks and a full three years since the number was less than 700.

Still, problem banks are 913% higher since the 2008 crisis. There were only 76 problem banks at the end of 2007.

Total assets of problem banks fell from $282.4 billion to $262.2 billion, an average of $377million in assets per bank. Still, that’s a lot of pain if they have to be rescued.

In the meantime, everybody wants to know if banks are making loans. The answer to that is, yes, but not a lot.

FDIC Chairman Martin Gruenberg called the loan picture an ‘extended period of increasing loan balances. But still relatively modest.’

Loans rose 0.9% to $7.8 trillion. Some 55% of banks reported loan growth.

Commercial and industrial loans (C&I) rose 2.2% to $1.45 trillion. But construction and development loans were down 3.2% to $210 billion , that’s 18 straight down quarters. One bright spot was the 2.4% increase in auto loans in the quarter.

Loans to individuals rose just 1% to $1.29 trillion and residential mortgage loans rose only 0.8% to $1.89 trillion. Still, total industry assets rose 1.4% from Q2 to $14.2 trillion.

Net gains on assets sold totaled $5.6 billion vs. only $639 million a year ago.

Of that $4.9 billion increase in net gains, $3.9 billion actually came from loan sales.

Banks saw a 7% rise in non-interest income and a 0.7% increase in interest- earning assets (net interest income) to $746 million. That’s for all banks, keep that in mind.

Loan loss provisions declined to $14.8 billion , that’s down 5.4% sequentially and down 20.6% year- over- year. All in all, loan loss provisions have fallen in 12 straight quarters.

Meanwhile, average net interest margins fell 13 basis points to 3.43%.

So, on the surface the banking picture looks calm. That’s thanks to the Fed rescuing banks, most of whom would have been insolvent and gone bankrupt in any other industry.

Here’s the Real Deal….

You only have to look at a few important metrics to see that not everything is as good as the FDIC and the industry will let on.

And as we take quick note of them, understand that it’s because banks are still fragile and pretending to be strong that the Fed is continuing its rescue efforts in the form of quantitative easing and other backstopping programs.

Not a lot of loans are being made and net interest margins (the core of banking profitability) are falling to dangerously low levels. Net earnings growth is coming from a long history of reducing loan loss provisions, selling assets, and still a fair amount of trading at the big banks.

How else can banks in the aggregate have managed a 7% rise in non-interest income while only a 0.7% increase in interest earning assets to $746 million for all banks?

Another problem brewing for banks is that they’re upping their exposure to the same high octane instruments (collateralized debt obligations, collateralized loan obligations, commercial mortgage-backed securities, and leverage structured finance products in general) that brought them down in the last crisis.

They just bought an additional $48 billion of structured finance ‘securities’ and packaged loans in the latest quarter according to the FDIC report. Their leverage structured holdings are now the highest they’ve been since mid-2009.

On top of reaching for interest income by grabbing more leveraged products, banks are extending ‘duration’ on their balance sheets.

That means they’re holding assets with longer maturities because they yield more. But they are also far more prone to losses in a rising rate environment, if and when we get into a period of inflation or rate adjustments.

Of course the Federal Reserve knows all this. And they have given their blessing.

How else are the banks going to make money but take more risks by purchasing leveraged instruments with the Fed’s no-interest loans which they use as capital?

There’s no rush to make loans when the Fed lets banks go for the quick bucks to look healthy so they can pay back the federal government and pay out dividends again, all to make their stock prices firm up or rise.

Why? To get more stupid investors to buy more of their equity so their options become ‘in the money’ and they can get bigger and bigger bonuses, until they implode again.

So what if they do? The Fed is there to socialize their losses, as they will from now on until the twelfth of never, or until the curtain is pulled back and we see the Fed for what it really is.

Shah Gilani
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in Money Morning (USA)

From the Archives…

How You Can Use Small-Cap Stocks to Leverage Your Share Returns
7-12-2012 – Kris Sayce

How to Make Cash-Like Returns Using Shares
6-12-2012 – Kris Sayce

How Long Can the Market Ignore These ‘Warning Signs’?
5-12-2012 – Murray Dawes

Is There Any Good News to Come from the US Debt Crisis?
4-12-2012 – Dr. Alex Cowie

Buy Small Caps Now While Investors Are Crying
3-12-2012 – Dr. Alex Cowie

By www.CentralBankNews.info     Russia and other former Soviet republics will check the impact of the euro area debt crises on banks and consider possible policy responses along with peer reviews of the progress the countries are making in implementing financial reform, Financial Stability Board (FSB) said.
    Finance officials from the Commonwealth of Independent States (CIS) met earlier today in Moscow as part of the FSB’s regional consultative group for CIS and discussed policy priorities under Russia’s upcoming Group of 20 presidency, according to a statement from the FSB, the global body that monitors and coordinates financial regulation on behalf of G20 world leaders.
    Discussions also focused on the policy framework for domestic systemically important banks (D-SIBs) and the potential impact of financial reforms on emerging markets and developing economies.
    “Members agreed to conduct an analysis of the potential impact of the financial situation in some European countries on the region and possible policy responses,” the statement said.
     Members of FSB’s regional consultative group for the CIS include Russia, Ukraine, Armenia, Belarus, Kazakhstan, the Kyrgyz Republic and Tajikistan.

    www.CentralBankNews.info

By www.CentralBankNews.info     Nearly all major countries will be implementing new, stricter global banking rules by the end of 2013 even if some countries will not meet the deadline of January 1, the Basel Committee on Banking Supervision (BCBS) said.
    Following a two-day meeting of global banking supervisors in Basel, Switzerland, it’s chairman Stefan Ingves said 11 jurisdictions had now published final Basel III banking regulations that take effect on January 1, 2013 and seven other jurisdictions had issued draft regulations and indicated they are working towards issuing final versions as quickly as possible. Turkey will issue draft regulations early next year.
    “While some jurisdictions have not been able to meet the planned start date, a large number will be ready to begin introducing the new capital requirements as planned on 1 January 2013,” Ingves said in a statement.
    During 2013 the remaining jurisdictions will incorporate all remaining deadlines in their regulations in line with the original agreement, even if they didn’t meet the January 1 deadline, he said, adding:
    “Hence, by the end of 2013, almost all Basel Committee jurisdictions will be implementing Basel III in accordance with the agreed timetable. This is an absolutely critical step towards strengthening the resilience of the global banking system,” he added.

By The Sizemore Letter

I saw a headline this week that really caught my eye: “Saudis Cut Oil Output to Lowest in a Year.”

Generally, Saudi Arabia cuts its oil output for one and only reason: demand has slackened due to a weak economy, causing the price to fall.  But then, that was before “fracking.”

The Saudi move to cut supplies has little to do with demand, as growth has been lackluster for most of 2012.  This time, it has everything to do with supply.  U.S. domestic oil production rose by 760,000 barrels per day this year—the biggest increase since records began being kept in 1859. And this is just oil; I’ve said nothing at all about natural gas, of which the United States now produces far more than it can use.

And in an unrelated story, Fed Chairman Ben Bernanke gave the markets a jolt this week by announcing that “QE Infinity” will be even larger than originally planned.  Rather than “only” buying $40 billion in mortgage securities per month, the Fed would also be buying $45 billion in Treasuries.  That’s $85 billion per month in new cash being dumped into the system.

Oh, and Bernanke also plans to keep short-term rates at zero until he sees the unemployment rate dip below 6.5%.

I bring up these two seemingly unrelated points for a reason.  The combination of higher volumes of domestic oil and gas being pumped and the loosest monetary policy in history should make mid-stream master limited partnerships one of the safest bets for 2013.  The fundamentals for domestic energy haven’t been this good in decades.  And as yield-sensitive investments, MLPs are a no-brainer in a world of zero interest rates.

Even better, we have a chance to buy them on the cheap.  The whole sector has taken a beating after the election due to fears of higher taxes coming.  Investors who have owned MLPs for years—and who had large unrealized capital gains—have decided to take their medicine today rather than wait for the inevitable.

Well, the end of the year is approaching fast, and the tax-loss selling should have mostly run its course.

Action to take: Buy the JPMorgan Alerian MLP Index ETN (NYSE: $AMJ).  Alternatively, if you are buying with the intention of holding for a while, assemble a portfolio of individual MLPs.

As with dividend paying stocks, there is often a trade-off between high current yield and prospects for growth.  Higher yielding MLPs often times have low expected distribution growth.  So keep that in mind when researching the sector.  And if you would prefer a “one stop shop,” then AMJ is a decent option that also happens to be IRA friendly.

Though this is website dedicated mostly to shorter-term trading, my recommended time horizon on these is longer-term.  I recommend holding MLPs for the duration of Bernanke’s “QE Infinity.”  That means holding until either the unemployment rate shows meaningful improvement or until inflation starts to creep up.   For risk management, consider something along the lines of a 15-20% trailing stop.

Disclosures: Sizemore Capital is long AMJ in its Strategic Growth Allocation.  This article first appeared on TraderPlanet.

SUBSCRIBE to Sizemore Insights via e-mail today.

The post MLPs: The Ultimate Asset Class for 2013 appeared first on Sizemore Insights.

By www.CentralBankNews.info     Serbia’s central bank raised its policy rate by another 30 basis points to 11.25 percent and said its open market operations would be aimed at withdrawing excess dinar liquidity to restrain demand, which could impact the inflation and exchange rate.
    The National Bank of Serbia, which has raised its policy rate six times this year by a total of 1.75 percentage points since June, said food and administered prices will be the main factor driving the inflation rate in the foreseeable future and it expects the inflation rate to return to the bank’s tolerance band by end-2013.
    Serbia’s inflation rate eased to 11.9 percent in November from October’s 12.9 percent, but the bank said this was a temporary slowdown, noting the inflation rate remains above the bank’s target of 4.0 percent, plus/minus 1.5 percentage points.

    “In this regard, fiscal consolidation measures, which have already yielded initial effects, are yet to give their full contribution to the reduction in year-on-year inflation over the next year,” Serbia’s central bank said in a statement.

   The central bank has been raising rates to hold down inflation despite a slumping economy. 
    Serbia’s third quarter Gross Domestic Product contracted by an annual 2.2 percent, faster than the 0.8 percent shrinkage in the second quarter, and the central bank expects a 2.0 percent drop in GDP for the year. For 2013 the bank forecasts growth of 2.5 percent.

Tradervox.com (Dubliln) – The 17-nation currency strengthened against the Japanese currency to 8-month high after the European Union leaders promised to seek joint strategy for dealing with failing banks. The move boosted the demand for the euro assets in the market. The single currency is headed for a weekly gain against the dollar as reports have indicated that EU leaders have agreed to commence work on a single resolve mechanism for the euro-region banks to help the European Central Bank supervisory role approved in their meeting yesterday. The yen was at its lowest level against the dollar since March after reports showed that business confidence in Japan slid to the lowest in three years. This has increased pressure on the Bank of Japan, to embark on more easing.

According to Audrey Childe-Freeman, who is a currency strategist in London at Bank of Montreal, the euro has advanced amidst positive news from the region’s leaders. He added that the yen has continued to weaken as we head closer to the election which is set to change the monetary policy in the coming year. Speculation and the not-so-good reports from Japan have also added to the currency’s decline this month. According to reports from the EU leaders meeting, they have urged the region’s banks to underwrite financial stability by repaying governments as required. Angela Merkel, the German Chancellor indicated that the resolution will not cost taxpayers, insisting that those responsible for the failures will shoulder the burden.

The 17-nation currency increased by 0.2 percent against the yen to trade at 109.58 at the start of trading in London, after climbing as high as 109.98, which is the highest it has been since April 2. The yen dropped by 0.2 percent against the greenback to trade at 83.78 yen per dollar. It had earlier dropped to 83.96, the lowest level since March 21.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets. News and analysis are produced throughout the day by our in-house staff. Follow us on twitter: www.twitter.com/tradervox

By www.CentralBankNews.info    Pakistan’s central bank cut its policy rate by 50 basis points to 9.5 percent as inflation is falling faster than expected and should end the fiscal year below the bank’s 9.5 percent target.
  The State Bank of Pakistan (SBP), which has now cut its policy rate by 250 basis points this year, said the economy’s output gap was almost negligible while food supplies were better this year than in the previous two years, resulting in a “sharply decelerating CPI inflation.”
    Pakistan’t inflation rate fell to 6.9 percent in November, a low for the year, from 7.7 percent in October, with food inflation dropping to 5.3 percent and non-food inflation at 8.1 percent.
    “This broad based deceleration in inflation is now expected to keep the average inflation for FY13 below the 9.5 percent target for the year,” the bank said in a statement after a meeting of its board of directors.
    Credit extended to private businesses remains muted and is “not encouraging despite a cumulative 400 basis point reduction in the policy rate over the last 16 months,” the bank said, adding the credit outlook for the year was not encouraging despite a seasonal pick up since mid-October.

    “The consistently low level of credit availed by the private sector together with declining foreign investments are the main factors responsible for a stagnant economy,” the SBP said.
    SBP’s foreign exchange reserves fell to $8.6 billion on Dec. 14 from $10.8 billion end-June and despite an external account surplus, the rupee has depreciated by 3.3 percent since the start of the fiscal 2013 year, the bank said.
   The International Monetary Fund forecasts a 3.7 percent growth in Pakistan’s economy this year, up from 3.0 percent in 2011.

    www.CentralBankNews.info

London Gold Market Report
from Ben Traynor
BullionVault
Friday 14 December 2012, 07:45 EST

SPOT MARKET gold prices looked to be headed for a third weekly loss in a row Friday lunchtime in London, after failing to break above $1700 an ounce, while stocks and US Treasuries were little changed on the day, with no signs of progress from Washington on the so-called fiscal cliff.

Silver was also headed for a third losing week in a row, trading around $32.60 an ounce for most of this morning, as other commodity prices gained slightly.

“A lack of activity has kept precious metals largely unchanged this morning,” says today’s commodities note from Standard Bank.

A day earlier, gold dropped back below $1700 an ounce Thursday, despite the US Federal Reserve committing to $45 billion a month in Treasury purchases the day before.

“The bulls were making the argument that the central bank would remain easy, at least until 2015, helping provide an element of support for gold,” says a note from Ed Meir, analyst at brokerage INTL FCStone.

“The bears countered that there would not be any additional easing in the pipeline between now and 2015, and also pointed out that the Fed did, after all, outline specific targets at which point it would start shrinking its bloated balance sheet…Thursday’s action seems to have supported the bearish stance.”

“It is perhaps a worrying sign that the latest installment of QE has had no positive impact on gold prices at all,” says a note from investment bank Natixis.

“No matter which side of the Fed argument one is on,” says INTL FCStone’s Meir, “we suspect that much of Thursday’s selling was also triggered by the fact that investors are becoming increasingly nervous about the lack of progress emanating from the fiscal cliff talks.”

President Obama and Republican House of Representatives speaker John Boehner had what statements from both parties called a “frank” meeting about the so-called fiscal cliff Thursday, adding that “lines of communication remain open” between the two.

No agreement has been reached on deficit reduction measures. Unless Congress passes new legislation, tax cut expiries and spending cuts worth an estimated $600 billion are due to kick in starting at the end of this month.

Barclays Capital meantime has cut its gold price forecast for 2013. BarCap forecasts gold will average $1815 an ounce next year, 2.4% down on the previous projection, while the investment bank’s forecast for silver is unchanged at $32.50 an ounce.

“We retain a positive view on the gold market,” a note from BarCap says, “but given gold’s outperformance during risk on intervals and our [foreign exchange] strategists’ expectation for the Dollar to strengthen beyond three months, we are revising down our forecast for 2013 modestly.”
Over in Europe, discussions on a common Eurozone budget and coordination of economic reforms among Euro members were put back until June next year Friday.

European Council president Herman van Rompuy issued a statement from the European Union summit in Brussels saying he will “present possible measures and a time-bound road map” at a summit in June next year.

Eurozone inflation meantime fell to 2.2% last month, down from 2.5% in October, according to official figures published this morning. US consumer inflation data are due to be published at 08.30 EST.

Demand to buy gold in physical bullion form has seen a resurgence in recent weeks, according to Standard Bank’s proprietary Gold Physical Flows Index.

Gold importers in the world’s biggest gold buying nation India continued to stock up Friday, newswire Reuters reports, to ensure adequate supplies for the wedding season.

“People feel this is a good buying opportunity as prices could jump another 1000 Rupees [per 10 grams],” says Harshad Ajmera at JJ Gold House.

Activity in China’s manufacturing sector meantime looks set to expand at a stronger pace this month compared to November, according to the provisional ‘flash’ purchasing managers index published by HSBC Friday.

China’s silver market meantime is “expected to achieve even further growth in coming years” on both the demand and supply side following a decade of rapid expansion, according to a report produced by precious metals consultancy Thomson Reuters GFMS and published by the Silver Institute Thursday.

“China is now the world’s second largest silver fabricator and is likely to become the second largest producer, with its share of global demand and supply standing at 17% and 14% respectively,” the report says.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

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