Global Articles on what is going on...posted daily

[sandi66]

FDIC Finds No Buyer For Failed Arcola Homestead Savings of Illinois
By Bill Zielinski on June 4th, 2010
June 4, 2010 - Arcola Homestead Savings Bank, Arcola, IL became the 80th banking failure of 2010 after the bank was closed by the Illinois Department of Financial Professional Regulation. Illinois has now had 12 banking failures this year, trailing only Florida with 13 banking failures.

The FDIC, appointed as receiver for the failed bank, could find no willing buyer for the bank. Accordingly, depositors will be paid off with checks from the FDIC that will be mailed on Monday. When the FDIC is unable to find a buyer for a failed bank, depositors with funds in excess of FDIC insurance limits face the potential loss of all funds in excess of insured deposit limits. Future recoveries of depositor losses will depend on the amount of proceeds from the final disposition of the bank’s assets. In the case of Arcola Homestead, the FDIC said that there did not appear to be any uninsured funds.

Another potential nightmare for depositors of Arcola Savings arises from the fact that customers will have no access to their funds until they receive FDIC payout checks which will be mailed on Monday. When a bank fails and is purchased by another institution, it is generally a nonevent for most customers. The biggest thing that customers of purchased failed banks will notice is that the name of their bank will change when it reopens on Monday. In the case of Arcola Homestead, the FDIC could find no buyer, and the banking operations of Arcola were terminated. The closing of Arcola was classified as a “payout” and depositors have no access to their funds until they receive their payout check from the FDIC.

Arcola Homestead was a very small bank with only $17 million in total assets and $18.1 million in total deposits. The FDIC estimates that the cost of closing Arcola Savings will amount to $3.2 million. Arcola is the 80th banking failure of 2010 and the 12th banking failure in Illinois this year.

Customers of Arcola Homestead Savings Bank who may have questions about the bank’s failure can contact the FDIC toll free at 1-800-238-8209.

problembanklist.com/fdic-finds-no-buyer-for-failed-arcola-homestead-savings-of-illinois-0107/

[sandi66]

Go Long America - The U.S. is No. 1 for the foreseeable future.

June 5, 2010

By JOSEPH QUINLAN

WITH THE LANDSCAPE LITTERED WITH FAILED banks and fallen corporate icons, and with U.S. households and Washington deep in debt, writing America's obituary is back in vogue. Just as popular is the coronation of China as the world's new economic superpower.

From the ashes of the U.S.-led global financial meltdown, a new world order is in the making. According to popular opinion, America is declining, while China is rising.

The consensus could be wide of the mark. Yes, there is plenty wrong with the U.S. The economic challenges before the nation are Herculean. Yet there is plenty right with America. The country has the critical endowments -- if deployed and nurtured properly -- to emerge from the recession stronger than ever.

The U.S. economy is the largest and most productive on the planet. With just 4.6% of the global population, the U.S. accounts for roughly one-quarter of global output, generating more output in a year than the next three largest economies (Japan, China and Germany) combined. America's economy is three times the size of China's; the per capita income of China is only about 10% of that of the U.S.

Made in the U.S.A.

The United States is a manufacturing superpower; we're still in the business of making stuff, despite incessant reports to the contrary. We shouldn't equate the demise of Detroit with the death of U.S. manufacturing. The U.S. makes more goods in a year than any other country, although America's share of global manufacturing output was roughly 17.5% in 2008, down from 22.4% in 1990 and about 20.5% in 1980.

Many U.S. manufacturers have held their own the past few decades, even in the face of stiff competition from Japan, Germany and China. China's share of global manufacturing has increased sharply over the past decades, hitting 17.2% in 2008, close to the U.S. number. However, the Chinese figure includes mining and quarrying, and electricity, gas, and water supply, in addition to manufacturing, and most of China's gains came at the expense of Japan, South Korea, Mexico and others -- not the U.S.

The largest exporter in the world is neither Germany nor China. It's the U.S., despite annual trade deficits and all the chatter about U.S. companies not making anything the world wants to buy.

Yes, China is the largest exporter of goods in the world. But why count only goods? Why not count services?

Thanks to falling communication costs and the ubiquity of the Internet, global service exports have soared the past decade, with the United States in the forefront. U.S. exports of "other private services" -- including data-processing, accounting, medical services and telecommunications -- totaled $252 billion last year. When goods and services are combined, U.S. exports top all others, totaling $1.5 trillion in 2009, or nearly 10% of the global total. Germany, with 8.5%, ranks second.

Investment Opportunities

The U.S. remains the world's preferred destination for foreign direct investment. The common assumption is that when firms decide to invest overseas, China is the first port of call. But the wealth of the U.S. market is a key attraction to foreign firms. Cumulative foreign direct investment in China from 2000 to 2009 was $666 billion, just a little more than one-third the total invested in the U.S. by foreigners.

America's global share of foreign direct investment was 16% in that span, versus 6% for China. The noisy debate about U.S. outsourcing should be balanced with a more intelligent debate about U.S. insourcing.

The U.S. remains one of the world's technology leaders, with a culture of innovation second to none. America is at or near the top of the charts when it comes to scientific research institutions and corporate spending on research and development, and remains a global leader in such frontier technologies as bio- and -nanotechnology. Yes, China and India are rapidly moving up the technology curve. The two are graduating more scientists and engineers each year relative to the U.S. Various studies, however, have questioned the quality and employability of these graduates.

In general, the quality of higher education in China, India and many other parts of the world remains poor. That stands in stark contrast to America's system of higher education, the best in the world. Thirty-two percent of the universities in the Quacquarelli Symonds World University Rankings' top 100 -- including six of the top 10 universities -- are in the U.S. Little wonder, then, that in the academic year 2008-09, American universities hosted a record 671,616 international students. One-fifth of all international students in post-secondary education in 2007 came to the U.S., making it the top destination for foreign students.

A Portfolio of Assets

America is home to the world's top global brands. According to the research firm Interbrand, more than half of the Best Global Brands of 2009, ranked by brand value, were American. Other critical strengths include America's expanding population -- we are a youthful nation, relative to Europe and Japan. Despite all the chatter about the future of the U.S. dollar, the greenback will remain the world's reserve currency as long as we don't destroy its value. According to the latest figures from the International Monetary Fund, 62% of allocated global reserves of central banks in the fourth quarter of 2009 were held in dollars. The euro had a 27.4% share.

The foundation of the U.S. economy remains sturdy. We have the economic means to tackle the pressing issues before us -- our unwieldy health-care system and pile of long-term debt need immediate attention. And the world is not standing still -- the competitive threats from the likes of China, Brazil and India are real.

Washington needs to muster the political will to tackle the challenges at hand, and leveraging and building on the existing strengths of the economy is a good place to begin. The policy mix should include tax incentives for capital investment, measures that promote free and open trade and investment, and higher spending on education.

The U.S. is not an economic clunker. Investors infatuated with China and other emerging markets should reconsider. Now may be a great time to go long America.

Guest editor JOSEPH QUINLAN is chief investment strategist at U.S. Trust.

Editorial Page Editor THOMAS G. DONLAN receives e-mail at [e-mail].

online.barrons.com/article/SB127569220682101261.html?mod=googlenews_barrons

[sandi66]

Jun 5, 2010 17:08 AEST

Regulators seize three banks, year total at 81

U.S. regulators seized three more troubled banks on Friday, including TierOne Bank of Lincoln, Nebraska, ticking up the total so far this year to 81 failures.

TierOne was the fourth-largest bank in Nebraska with approximately $2.8 billion in assets as of March 31. It lost $300 million last year on real estate-related loans in Florida, Nevada and other states.

Great Western Bank, of Sioux Falls, South Dakota, agreed to purchase TierOne and assume its $2.2 billion in deposits. TierOne's 69 branch offices will reopen on Saturday as branches of Great Western, said the Federal Deposit Insurance Corp.

Regulators also closed two small banks in Mississippi and Illinois on Friday.

Small banks are collapsing at a rapid pace in the wake of the credit crisis. Failures are expected to peak this year in the third quarter, and outpace the 140 that failed last year.

First National Bank, of Rosedale, Mississippi, with $60.4 million in assets, was closed by regulators on Friday. Its office will reopen on Monday as a branch of The Jefferson Bank, of Fayette, Mississippi, which assumed its $63.5 million in deposits.

The FDIC approved the payout of insured deposits from Arcola Homestead Savings Bank, of Arcola, Illinois, after it was unable to find a bank to take over its operations. State regulators closed the bank, which had $17 million in assets and $18.1 million in total deposits.

Despite the woes in the community bank industry, the number of failures has not reached the levels of the savings and loan crisis, when 534 institutions were seized in 1989 alone.

In the current crisis, the problems dogging the banking industry have migrated from home mortgages to commercial real estate, especially for community banks that tend to have higher concentrations of commercial real estate loans.

However, the bank industry is showing solid signs of recovery.

FDIC Chairman Sheila Bair said at the agency's quarterly briefing on May 20 more banks in the past several weeks had been able to raise capital to boost their balance sheets or acquire other banks.

She also said the FDIC is seeing higher bids in failed bank auctions, meaning other firms are finding the assets of troubled banks more desirable.

[sandi66]

June 5, 2010 7:32 AM EDT

G20 scraps plans for universal bank tax


The world's top economies scrapped plans for a universal global bank tax on Saturday, giving countries plenty of wiggle room over how to make banks pay for their bailouts in future.

Finance ministers from the Group of 20 countries ended a two-day meeting to review progress on a string of initiatives agreed last year to make the financial system safer and protect taxpayers from having to pay for bank rescues again.

Attempts to introduce a global bank levy were finally ditched in the face of opposition from Japan, Canada and Brazil whose banks needed no public aid during the worst financial crisis since the 1930s.

"There is no agreement to proceed with an ex ante bank tax," said Canadian Finance Minister, Jim Flaherty.

The G20 said it recognized there was a range of policy approaches and that it will approve a set of principles later this month in Toronto on how to protect taxpayers.

British Finance Minister George Osborne reiterated his pledge to introduce a UK bank tax regardless of what other countries do and will spell out his plans in a budget report on June 22.

"Different countries will do different things but to have it under the umbrella of the G20 is going to be helpful," Osborne told reporters.

Britain was forced to shore up the banking sector and rescue several individual firms.

BASEL BACKING

The meeting did not agree any new regulation or alter deadlines for implementing steps agreed last year.

But ministers sought to keep plans for tough new Basel III bank capital and liquidity rules on course for implementation by the end of 2012 despite deep-seated concerns among several countries.

"We are on track to deliver the proposals at the Seoul summit in November. Ministers are fully engaged in finding the right compromises," Financial Stability Board Chairman, Mario Draghi, told reporters.

Several finance ministers signaled that a lengthy phase-in for Basel III beyond 2012 was now inevitable.

Draghi, who overseas implementation of the G20's financial reform pledges, said Basel was not expected to take full effect by that deadline.

"The key thing is to start the implementation in 2012. Then we will kind of find out what are the most appropriate transition times," Draghi said.

Banks warn that piling on tougher requirements too soon will force them to raise fresh capital at the expense of being able to lend to aid economic recovery.

Draghi said two percentage points of higher capital requirements would halve the probability of systemic risk.

Osborne said there was "some room for variation" over a tougher definition of bank capital but "everyone understands this is the absolute central part of creating a safer and better regulated global banking system."

COMMODITIES TARGETED

The G20 also agreed to speed up introduction of measures to improve transparency, regulation and supervision of hedge funds, credit rating agencies, bank pay and off-exchange traded derivatives.

"We are also committed to improve the functioning and transparency of commodities markets," the G20 statement said.

Some policymakers have accused speculators of abusing commodities markets.

Draghi played down expectations that the G20 will usher in a slew of additional measures beyond what it agreed last year.

"We have a priority, it's to move forward on Basel III," Draghi said.

Despite the failure to make headway on a universal bank levy and slippage in full Basel III roll-out, policymakers noted that the United States is expected within weeks to approve the most sweeping reform of financial rules since the 1930s that will introduce the bulk of G20 reform pledges.

The European Union is also well advanced in adopting new rules on supervision and hedge funds, with a draft law on derivatives regulation due next month.

Elena Salgado, economy minister of EU president Spain said more EU regulation was needed for credit ratings agencies, which lacked transparency and accountability.

"To have a European credit ratings agency is another issue; perhaps it would be good, but it's something that cannot be done from one day to the next," Salgado told Reuters.

www.ibtimes.com/articles/26996/20100605/g20-scraps-plans-for-universal-bank-tax.htm

[sandi66]

Forget any would-be China crisis, its policies are too shrewd to fail
As if there wasn't enough to worry about already, an increasing number of Western commentators are now muttering that the Chinese economy is about to collapse.

By Liam Halligan
Published: 6:40PM BST 05 Jun 2010

Comment on this

We've got Europe's sovereign debt crisis and the backdraught from "subprime". Add to that volcanoes, tension between the Koreas and unrest in the Middle East. It seems there's no shortage of reasons to sell anything that resembles a considered investment and pile into "safe havens".

Last Friday, a comment from an obscure Hungarian official on sovereign indebtedness was enough to send the euro down through $1.20 to a four-year low. Meanwhile, gold prices surged. Now, fingernails are being bitten over China too – with attention focused on an "overinflated" property market and potential banking sector instability.

During the past 20 years, of course, the People's Republic has transformed itself from an economic backwater into an emerging commercial superpower which is about to eclipse Japan as the world's second-largest economy. If China goes off the rails we can kiss goodbye to a 2010 global recovery.

There are certainly reasons to be concerned. Last year, Chinese property prices were flat, and even fell in some areas. Now there's year-on-year growth of 33pc. In some big cities, the increase has been even more explosive, with real estate prices in Beijing and Shanghai up 50pc in annual terms.

Li Daokui, an influential policy-maker at China's central bank, has just voiced concerns the economy is overheating. Li also suggested high urban housing costs could hamper future growth by discouraging the movement of workers from rural areas to the cities. Even Premier Wen Jiabao recently said 2010 would be a "very difficult year" for the Chinese economy.

The fact remains, though, that having "slumped" to 6pc during the first quarter of 2009, annual GDP growth has almost completely recovered to pre-crisis levels. The economy grew by 11.9pc in the first three months of this year, despite China's Western export markets remaining on go-slow.

Beijing responded to "subprime" by launching a massive $586bn (£405bn) stimulus package, while ordering state banks to lend at record levels. That drove a domestic investment boom, so bolstering GDP. But the lending also fed into real estate, resulting in the current price spike. Some observers worry that run-up could soon be reversed, sending the banking sector and the broader economy into a tailspin.

Although China's property market is volatile, and will remain so, it's worth noting that even today's prices aren't out of alignment with the expansion of the economy. An index calculated by Commerzbank which divides Chinese property prices by nominal GDP has fallen more than 40pc since 1997. That suggests, over the long-term at least, current prices are sustainable.

Despite this, the Chinese government is cracking down on a property market that Li last week described as a "bubble". The government has announced reforms to real estate taxes, suggesting levies on some residential housing to rein in rising prices.

In my view, it would be far better if the authorities eased China's capital control, so allowing the country's increasingly wealthy middle classes to invest more easily abroad. A limited formal social security system means the Chinese save like crazy. But, at the moment, most people must choose between putting their money in a state-run bank (and receiving a negative real rate of interest) or investing in domestic shares or real estate.

As a result, both equity and residential property markets are dominated by "trigger-happy" retail investors, leading to unnecessary volatility. Allowing more investment abroad would be a better way to stabilise and smooth the path of Chinese property prices.

Be that as it may, fears are rising that even if a crash is avoided, a property slowdown – and wider restrictions on lending after last year's bonanza – will hit Chinese growth. I don't buy it. The government has set a lending target of 7,500bn yuan (£760bn) for 2010, down from 9,600bn yuan last year. That's a 20pc drop, but it is actually a return to levels in 2006 and 2007, when China still registered near double-digit GDP growth.

A bigger danger, even though the economy is likely to slow slightly over the next year or so, is inflation. China's consumer price index rose 2.8pc during the year to May – more than expected and up 0.4 percentage points on the month before. The main driver was a near 6pc increase in food prices – which account for a very high 30pc of China's CPI basket. Producer prices were up 6.8pc in April, pointing to further price pressures in the pipeline.

High inflation – not least the politically-sensitive food price rise – means the Chinese authorities are under pressure to impose tightening measures. Interest rates are unlikely to rise, though, given that the yuan is pegged to the dollar.

While Washington huffs and puffs about an "undervalued Chinese currency", Beijing is also unlikely to concede to a one-off revaluation in the coming months, seeing as that would make Chinese exports less competitive.

Although inflation is rising, if it remains relatively moderate it could actually allow China to adjust its currency upward without the embarrassment of conceding to America's revaluation demands. As long as CPI growth in China outstrips CPI growth in the States, that amounts to a relative exchange rate shift – seeing as Chinese input prices go up more than in America.

For now, US core inflation is rising by only 0.9pc a year, so that shift is happening. China's central bank may also raise the deposit-reserve ratio which, again, should help to cool an economy that is running on hot.

I'm not arguing that nothing is wrong in China. I repeat, the economy is in a tricky place and there are causes for concern. But having said that, while it's easy to point a finger at the Chinese government on issues of human rights and media plurality, Beijing's economic policy-makers are extremely shrewd. I can think of many other countries in the world, where recent financial policy-making has been far more destructive.

Yes, Chinese workers are becoming more defiant, but I'd say that suggests progress. There is no way the recent successful strike action at Honda's joint venture in China would have happened without the government's sanction. Allowing workers to win higher wages, while moving towards a minimum wage in certain sectors, shows the Chinese authorities "get it" and are starting to ease up in terms of economic freedom. They are not doing so fast enough for most Western tastes, but the direction of travel is clear.

While global financial markets remain rather fragile, and some investors are considering "selling everything", the world is not about to end. The world is, though, reconfiguring. The emerging markets – China, India, Russia and the rest – are home to three-fifths of the world's population, half of the global stock of GDP and will account for the vast bulk of global growth this year and for several years to come.

These countries have labour forces that, for the most part, work hard, for relatively low wages. They each boast a resilient domestic consumer base and strong intra-regional demand.
Some used to argue that the big emerging markets would remain untouched by the global crisis, "decoupling" from the West. But that's not true. The world economy is interconnected and globalisation is making it more so. But the emerging markets are, undeniably, "de-correlating", continuing to grow relatively quickly, even though the big Western economies remain in a slump. Anyone who doubts that assertion should get on a plane and go to China.

www.telegraph.co.uk/finance/comment/7806174/Forget-any-would-be-China-crisis-its-policies-are-too-shrewd-to-fail.html

[sandi66]

DELAY IN NEW BANK RULES?

BUSAN, South Korea / Group of 20 finance chiefs signalled they will delay introducing new rules aimed at forcing banks to raise the quality and quantity of capital they hold to buffer against financial crisis.

The Group of 20 leading emerging and developed economies agreed last year to finalize sweeping new bank capital and liquidity rules this year and to put them into effect by the end of 2012.

Banks have mounted a vocal campaign for a longer phase-in, arguing the new rules will make it hard to continue lending to support the economy and to build up bigger capital buffers in volatile markets.

The so-called Basel III rules will force banks to hold more and higher-quality capital so they are less likely to need government bailouts again when the next crisis hits.

Basel is seen as the world's core regulatory response to the financial crisis and a litmus test of G20 resolve to apply lessons from the worst financial crisis since the 1930s.

www.edmontonjournal.com/health/Business+Browser/3116040/story.html


ty colada

[sandi66]

Chairman of NY’s bankrupt Off-Track Betting corp. quits on eve of Belmont Stakes
By APJune 5th, 2010
NY Off-Track Betting chairman quits

NEW YORK — The chairman of the state entity that handles all off-track betting on horse races in New York City has resigned, citing the collapse of his plan to refinance the bankrupt company.


Meyer “Sandy” Frucher submitted his resignation to the governor Friday, on the eve of the Belmont Stakes. Gov. David Paterson appointed him a year ago.

In the letter, Frucher said he decided to quit as chairman of the New York City Off-Track Betting Corp. after the state’s budget director said he wouldn’t sign off on a plan to finance the company’s turnaround with up to $300 million in municipal bonds.

The OTB has been operating under bankruptcy court protection and has threatened to shut down if state government doesn’t bail it out.

blog.taragana.com/politics/2010/06/05/chairman-of-nys-bankrupt-off-track-betting-corp-quits-on-eve-of-belmont-stakes-41744/

[sandi66]

Gold's Fundamental Value
Commodities / Gold and Silver 2010
Jun 05, 2010 - 07:55 AM

By: Michael_S_Rozeff


The estimate of gold's fundamental value reported in this article won't be much different from earlier estimates of mine or others. What's new here is a tad more insight into the assumptions that go into this estimate. Knowing this might alter one's confidence in the estimates, up or down. The perspective herein is definitely fundamental.

The United States has a gold stock of 261.5 million ounces. The first assumption is that the gold stock of the United States is what it says it is. One can adjust the estimates if one makes different assumptions about how much gold the United States has. I think the Treasury does in fact have in its possession the gold it claims to have.

The second assumption is that gold is Money. This means that gold retains its historical character as a highly marketable and liquid asset. It's globally acceptable.

The third assumption is that the gold stock is a monetary or money reserve. This means that the United States is not holding it for a strategic or industrial purpose. The Treasury of the United States holds it because it is Money. If it did not serve that purpose, that is, if the United States disposed of its gold stock, the State would lose a degree of control over its economy. That is why it keeps the gold.

The United States suspended redemption of Federal Reserve Notes (FRNs) for gold domestically in 1933 and internationally in 1971. Yet gold remains a reserve currency, not only in the United States but abroad. Suspension doesn't immediately destroy a paper currency. It removes one of its desirable features, which is convertibility into gold, but it doesn't destroy the value of that paper totally.

If gold is a reserve, against what is it a reserve? Against those persons who might hypothetically demand gold from the United States in exchange for Federal Reserve Notes (FRNs) or dollar-denominated United States Notes that they now hold - if they were given the chance. It's a hypothetical demand because the United States hasn't redeemed gold against its obligations since 1971.

Since there is an open market in gold, everyone now has the ability to redeem. The central banks that hold FRNs and dollars debts of the United States and other paper currencies as reserves had and have their reasons for doing so. Whatever these reasons, there are strong reasons for selling their dollar-denominated obligations for gold. For one thing, each one dollar's worth is backed by a few cents worth of gold. They can get more gold for their dollars by exchanging a dollar for a dollar's worth of gold. The average person in the United States isn't redeeming FRNs for gold in the open market. As long as they can buy bread and pay their bills in paper, FRNs and food stamps serve their purposes. Americans with wealth are different. They are increasingly more likely to redeem dollars for gold.

If gold is a reserve against hypothetical redemption, who might want to redeem? How far might such redemption carry? Let's think about specific sets of persons who hold dollar obligations who we think have reasons to convert the dollar-denominated obligations they hold into a different form of money, namely gold Money.

In two previous articles, I chose two sets of person and made two estimates of gold's fundamental value. Each set of persons holds an inventory of dollar-denominated paper or the equivalent obligations of the United States and Federal Reserve. Those persons were either (1) holders of the monetary base (FRNs + bank reserves), or (2) holders of bank deposits in the United States. I made two "Zero Discount Value" (ZDV) calculations for these two groups.

The ZDV is the implied market price of gold (in FRNs) such that each FRN is worth its weight in gold at that price when redeemed in gold from its issuer. At the ZDV, a person is indifferent between redeeming by sale in the open market and redeeming from the issuer (the United States and Federal Reserve.)

To understand this, take some easy numbers. Suppose those who hold the monetary base hold 20,000 FRNs. Suppose the issuers of the FRNs hold two ounces of gold to back the FRNs. Suppose the market price of gold in FRNs is 1,000 per ounce. Then 20,000 FRNs can buy 20 ounces of gold in the market. A hypothetical redemption from the issuers would fetch two ounces. A person has an incentive to redeem by sale in the open market, because he gets 20 ounces, not two. Only when the market price equals 10,000 FRNs per ounce does this incentive disappear. That price is the ZDV. The ZDV is the maximum market price at which gold should rationally sell if the issuers keep the supply at 20,000 FRNs.

The first article explained the meaning of the ZDV. The second article estimated a ZDV in the neighborhood of $7,500 an ounce, using the monetary base, and $11,090 and higher, using the whole banking system. The latter method is my preferred method. My guess is that bank assets are overstated by 30 percent. That implies a ZDV of $17,973.

In an article he wrote in late 2008, Brian Bloom used a different estimation method which I'll update now.

The implicit set of persons in his article is foreign central banks that hold dollar-denominated reserves. This makes sense as an alternative because in the good old days they could demand gold for these obligations.

The latest IMF data show that "allocated" U.S. dollar reserves are $2,828 billions. This is 62.1 percent of total reserves. Then there are "unallocated" reserves that total 3,520 measured in billions of dollars. I assume, as he did, that 62.1 percent of this is also held in dollars, which gives another $2,186 billions.

The sum total of U.S. dollar obligations (Treasury securities) held in central bank reserves is $2,828 + $2,186 billion = $5,014 billion.

The U.S. gold stock of 261.5 million ounces is worth about $314 billion at a price of $1,200 an ounce. The ZDV is $5,014,000/261.5 = $19,174 an ounce. This is not far from my banking system estimate of $17,973. Both of these should be rounded off because they are such iffy estimates. A ZDV of the mean of these or $18,600 is my estimate.

Another way of looking at is that the ratio of gold value held by the United States to potential claims on gold (if there were redeemability) is 314/5,014 = 6.3 percent. This is how much backing there is in gold Money against these obligations in paper money.

It's a fascinating fact that in August of 1931, just one month prior to Great Britain going off the gold standard, the Bank of England's gold reserve was 6.3 percent of the total demand deposit and note liabilities of the banking system. (See p. 10 of Elgin Groseclose's The Decay of Money (1962).)

In the olden days of the Federal Reserve, gold reserves of a minimum of 40 percent were legislated in the United States. The Bank of England had a ratio of 40 percent in July of 1914, before the inflation began. I take a 40 percent ratio as something reasonably realistic, meaning a price at which the desire to redeem paper for gold falls off substantially. In that case, we get 0.4 x $18,600 = $7,440.

If the market brings about a 40 percent implicit backing of the dollar by gold, by bidding up the price of gold, even without it being redeemable by the United States, but instead being redeemable in the market at that ratio, then we can expect a price of about $7,440. That's my bottom-line estimate of fundamental value of gold based on each method separately.

Actually, unless there is double-counting, it seems that the obligations against gold include both domestic banking and foreign central banking obligations. If that's correct, then we need to add the two estimates together, in which case, even at a 40 percent coverage, we get about $15,000.

Distrusted paper currencies do not usually go to zero right away. Sometimes they do, but usually the government has to print vast quantities of assignats, continentals, or whatever, before this happens. The British pound didn't go to zero after August 1931. It did get devalued several times, including in September 1931, but its trip downwards has taken decades. Governments sometimes fight the declines using exchange stabilization funds.

If these kinds of estimates are meaningful, we have a pretty good idea of gold's fundamental value. Backing of 6.3 percent is low. Backing of 40 percent is more normal. If mean reversion is the name of the game, then we have some idea where the gold price in dollars is likely to head, which is half the battle, but we don't know when. We also know that such trips are not one-way streets. Markets can do anything. The authorities can fight the rise in various ways. If the backing to gold goes up to 40 percent of ZDV of just one of these pools of funds, not both, that's a 6-fold rise. Over the following horizons, here are the continuously compounded annual rates of return (rounded off):

50 years 3.6 percent per year
40 years 4.5
30 years 6.0
20 years 9.0
10 years 18.0
5 years 36.0

Why is gold so far below its fundamental value? Why is gold so cheap, even at $1,200 an ounce? The estimate depends on gold as Money as it was 75 years ago and more. The reason gold is so cheap is that governments disestablished it. Governments of the world stopped using gold as Money in order to be able to run monetary policies of their own choosing. Yet the major governments were unable to divorce their currencies entirely from gold. They still hold gold reserves. Markets take time because they depend on people acting, and people are now used to paper money, not gold. There is no routine payments and credit system in gold. Even when there was, silver was commonly used. Gold was for larger behind-the-scenes transactions.

Mean reversion isn't automatic. There have to be forces that impel governments into restoring gold for mean reversion to occur. Those forces are political-economic in nature. It may be the case that no nation becomes and remains an important commercial, mercantile, and industrial power unless it has a solid, honest. and stable money system. Gold affords such a system. Without gold or without a viable substitute for it - and what substitute is there - a nation's progress is thwarted.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.

www.marketoracle.co.uk/Article20070.html

[sandi66]

FDR takes United States off gold standard -
Previous Day June 5 Calendar Next Day

On June 5, 1933, the United States went off the gold standard, a monetary system in which currency is backed by gold, when Congress enacted a joint resolution nullifying the right of creditors to demand payment in gold. The United States had been on a gold standard since 1879, except for an embargo on gold exports during World War I, but bank failures during the Great Depression of the 1930s frightened the public into hoarding gold, making the policy untenable.

Soon after taking office in March 1933, Roosevelt declared a nationwide bank moratorium in order to prevent a run on the banks by consumers lacking confidence in the economy. He also forbade banks to pay out gold or to export it. According to Keynesian economic theory, one of the best ways to fight off an economic downturn is to inflate the money supply. And increasing the amount of gold held by the Federal Reserve would in turn increase its power to inflate the money supply. Facing similar pressures, Britain had dropped the gold standard in 1931, and Roosevelt had taken note.

On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money. It required all persons to deliver all gold coin, gold bullion and gold certificates owned by them to the Federal Reserve by May 1 for the set price of $20.67 per ounce. By May 10, the government had taken in $300 million of gold coin and $470 million of gold certificates. Two months later, a joint resolution of Congress abrogated the gold clauses in many public and private obligations that required the debtor to repay the creditor in gold dollars of the same weight and fineness as those borrowed. In 1934, the government price of gold was increased to $35 per ounce, effectively increasing the gold on the Federal Reserve's balance sheets by 69 percent. This increase in assets allowed the Federal Reserve to further inflate the money supply.

The government held the $35 per ounce price until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard. In 1974, President Gerald Ford signed legislation that permitted Americans again to own gold bullion.

www.history.com/this-day-in-history/6/5


ty nalmann

[sandi66]

Vice FM may visit China over ship sinking: official



SEOUL, June 6 (Yonhap) -- South Korea is considering sending a high-level envoy to Beijing to secure its backing at the U.N. Security Council to rebuke North Korea over the sinking of one of the South's warships, a foreign ministry official said Sunday.

South Korea on Friday formally asked the U.N. Security Council to take up the matter after a multinational probe found last month that a North Korean torpedo sank the warship.

North Korea has rejected the outcome as a "sheer fabrication" and has stepped up war threats in retaliation, sending regional tensions soaring.

Seoul needs to win support from veto-wielding council members such as Russia and China, which have traditionally been close to Pyongyang, to secure a U.N. censure resolution against the North.

"We are considering sending Chung Yung-woo, a vice foreign minister, to China at the proper time," the official said, requesting anonymity, as he emerged from an emergency meeting of senior foreign ministry officials concerned with the sink sinking.

Called by Foreign Minister Yu Myung-hwan, the meeting discussed future responses to the torpedo attack by the North, including how to win support against Pyongyang at the Security Council, the official said.

Seoul is also considering sending a civilian-military probe team for a briefing at the U.N. Security Council if there is a request from the council chairman, he said.

The official, however, said nothing was decided regarding the two visits.

The timing of Chung's Beijing visit will be decided according to "at what point in time and at which stage would be most proper to hold talks with China," the official said.

During the meeting, the official also said, there was an opinion that Seoul should take a "highly diplomatic" approach to the issue because it should have in mind international efforts to denuclearize North Korea at the same time.

The ship sinking has effectively put the six-nation denuclearization talks, which have made no headway since December 2008, on hold.

China is the host of the talks that also involve the two Koreas, the United States, Russia and Japan.

South Korea and the U.S., meanwhile, has postponed their joint naval drill, which was due to start next week, by about two weeks to take more time for preparations, Seoul's senior official said.

The two nations had been scheduled to conduct the large-scale, four-day naval drill in the South's waters off the Yellow Sea starting Monday as part of their joint response to the ship sinking.

"The drill was delayed for about two weeks, but the scale of the drill will remain unchanged," Deputy Defense Minister Chang Kwang-il told Yonhap News Agency by phone, citing the need for more time for preparations.

The U.S. is expected to send the nuclear-powered aircraft carrier USS George Washington, an Aegis destroyer and a nuclear submarine to the first drill, while South Korea will deploy a 4,500-ton destroyer, a submarine and F-15K fighter jets, Seoul officials have said.

english.yonhapnews.co.kr/national/2010/06/06/16/0301000000AEN20100606003200315F.HTML

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Geithner asks China to adopt flexible exchange rate policy

6 Jun 2010, 0103 hrs

BUSAN: The United States again urged the world’s biggest exporters to boost domestic demand to provide an impetus to the global economy and urged
China to adopt a more flexible exchange rate policy.

“Within the G-20 we discussed how the ongoing shift toward higher saving in the US would need to be complemented by stronger domestic growth in Japan and in the European surplus countries, and sustained growth in private demand together with a more flexible exchange rate policy, in China,” the US Treasury Secretary Timothy Geithner said after the meeting of the G-20 finance ministers.

“China has laid out a very ambitious agenda to boost household demand... but necessary part of that reform is to resume reform of exchange rate mechanism” Geithner told reporters.

economictimes.indiatimes.com/features/the-sunday-et/dateline-india/Geithner-asks-China-to-adopt-flexible-exchange-rate-policy/articleshow/6016212.cms

[sandi66]

Jun 6, 2010

US, China's 'verbal joust'

Lunch, actually?

That was the running joke among the delegates yesterday, just before the summit's first Ministerial Lunch.

They wondered if the United States and China would actually chow-chow and pow-wow at the meal.

After all, it had been a morning of verbal jousts between US Defence Secretary Robert Gates and his Chinese counterpart, General Ma Xiaotian. On their plate were perennial - and some would say intractable - bugbears such as the status of Taiwan.

In the end, come lunchtime, Mr Gates was four seats away from Gen Ma, who sat on the opposite side of the table in Shangri-La Hotel's elegantly simple Pink and White Azalea Rooms, which were merged into one space big enough to house the dignitaries' long table.

There, top defence officials from the Asia-Pacific region as well as Britain and France did a double take before tucking into their appetisers.

www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_536302.html

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Iran CB head denies report on euro sale
(AP) – 3 hours ago

TEHRAN, Iran — The head of Iran's central bank is denying the country plans to sell billions in euros as the currency weakens because of Europe's debt crisis.

Central Bank Governor Mahmoud Bahmani was quoted in Sunday's edition of the state-run Iran newspaper as saying a report early last week in a local newspaper that Iran plans to replace 45 billion euros of its foreign currency reserves for U.S. dollars was "not correct."

Iran has been converting its roughly $83 billion in reserves to euros as the dollar was hit by the global financial meltdown.

Bahmani also said the inflation rate in Iran has fallen to under 10 percent in May from 10.4 percent in April.

www.google.com/hostednews/ap/article/ALeqM5iTMv-P_lFmeL0LLWQKdhIXeIzWmgD9G5N2N00

[sandi66]

Iran c.bank head denies report on selling reserves


June 6 (Reuters) - Iran's central bank chief denied reports over the country planning to sell 45 billion euros from the country's reserves to buy dollars and gold ingots, the Arman newspaper on Sunday quoted Mahmoud Bahmani as saying.

"Such reports are sheer lies and I strongly deny reports on Iran planning to convert 45 billion euros of its reserves to dollars and gold," Bahmani said.

On Wednesday, Iran's English language Press TV quoted a report in Jam-e Jam newspaper in which unnamed "reliable sources" said the decision had been taken in reaction to the euro zone crisis.

But Bahmani blamed foreign media for publishing false reports. Iran's central bank officials declined to comment on Wednesday.

Following the report, the euro eased slightly versus the dollar from around $1.2227 to $1.2213.

The switch announcement was seen as a policy reversal for Tehran, which for many years has shunned the dollar as part of its opposition to its arch foe, the United States.

At a 2007 OPEC summit, Iran -- the world's fifth-largest oil exporter -- suggested oil should be priced in a basket of currencies rather than dollars, but it failed to win over other member states except Venezuela.

Iranian President Mahmoud Ahmadinejad has repeatedly said that the dollar was a "worthless piece of paper".

At recently as last November, Governor Bahmani said Iran's then policy of moving away from the dollar, both in its reserves and in the currency it received for its oil exports, had been beneficial.

www.reuters.com/article/idUSHAF62139420100606

[sandi66]

With the above two articles stated and posted... read on...


I have seen on many boards people saying the Dinar is pegged to the Dollar. One goes up the other goes up, and vice-versa on the way down. If this is the case how come we have not seen a rise in the dinar against other currencies. Now Iran is saying that the rumors of them selling Euros is false and that they are actually beefing up their reserves with US Dollars. http://finance.yahoo...325236.html?x=0

TEHRAN, Iran (AP) -- The head of Iran's central bank is denying the country plans to sell billions in euros as the currency weakens because of Europe's debt crisis.
Central Bank Governor Mahmoud Bahmani was quoted in Sunday's edition of the state-run Iran newspaper as saying a report early last week in a local newspaper that Iran plans to replace 45 billion euros of its foreign currency reserves for U.S. dollars was "not correct."
Iran has been converting its roughly $83 billion in reserves to euros as the dollar was hit by the global financial meltdown.
Bahmani also said the inflation rate in Iran has fallen to under 10 percent in May from 10.4 percent in April.

So what does a lower Euro and higher dollar mean for us. Well if the Dinar is truely pegged to the US Dollar that means when it does RV that anyone converting their Dinar to Euros will not receive as much before the Euro collapse. This is a good thing, less Dinars needed to convert the Euro. Now back to the US Dollar. Now this is speculation but if the Dollar has risen and the Dinar has stayed flat it would be safe to say that you can buy more Dinar per US Dollar, but that is not the case. The Dinar has stayed par even with the Dollar gaining ground. It's almost as though somewhere someone is setting the US to benefit the most from the RV. It could also mean that if the dollar keeps gaining ground the RV could be less than what some people might expect. I for one like the RI. But 3.22 in todays market after the dollar gains might bring us down in the 2's. Therefore I am calling a RV/RI rate of 2.20 as long as the dollar keeps gaining ground.


Read more: dinarvets.com/forums/index.php?/topic/20749-dinar-pegged-to-the-dollar/page__pid__128768__st__0&#entry128768#ixzz0q4uddIga

dinarvets.com/forums/index.php?/topic/20749-dinar-pegged-to-the-dollar/page__pid__128768__st__0&#entry128768#ixzz0q4rfckEE

[sandi66]

Police foil $14.4b fraud attempt at Central Bank

The four separate attempts were made by Iranian suspect Farzeen Ali Karoyan Mutlaq, who is the fraud leader.


Published: 00:00 June 6, 2010

This is allegedly Mutlaq's fourth attempt to commit fraud. Two suspects presented forged papers to the UAE Central Bank.Image Credit: SuppliedAbu Dhabi: An attempt to steal $14.4 billion (Dh52.96 billion) from the UAE Central Bank by fraud was foiled by Abu Dhabi Police recently.

The fraud case is the fourth of its kind in less than a year, according to Colonel Hammad Ahmad Al Hammadi, Director of the Criminal Investigation Department, who said the scam planner was the same gang leader who is wanted internationally by Interpol.

The four separate attempts were made by Iranian suspect Farzeen Ali Karoyan Mutlaq, who is the fraud leader.

They were in US dollars and euros, equal to Dh244 billion and Dh609 million. Mutlaq claimed that the sums were family investments he had inherited from his forefathers.

Abu Dhabi Police has warned the public to be cautious and not to deal with Mutlaq and asked the public to be quick in reporting him.

Colonel Al Hammadi said the cooperation between the Abu Dhabi Police's Criminal Investigation Department and the money laundering section at the Central Bank, in addition to the swift reporting of forged documents and the response of the police, led to the arrest of two individuals: one with a mission visa (E.H.K, 47) and another a US resident of Iranian descent (N.A.B, 47).

Colonel Dr Rashid Mohammad Bu Rasheed, Head of the Organised Crime Section at the Criminal Investigation Department, said the two suspects presented forged papers to the Central Bank and claimed that Mutlaq owned investments in properties worth $14.4 billion and $400 million. He added that the sum was transferred from Germany to Iran through the UAE's Central Bank.

The suspect E.H.K also had Power of Attorney authorising him to receive the imaginary sum and transfer it to Mutlaq to finance his "imaginary" trade project back home.

Colonel Dr Bu Rasheed said this is Mutlaq's fourth attempt to commit fraud.

He added that the two accomplices are being investigated by the police. The first suspect confessed that he received the documents that were submitted to the bank by Mutlaq back in their home country, and that he did not know they were forged.

The suspect also said that he presented the document to the bank to check its authenticity, and that he was introduced to Mutlaq as an investor who is capable of financing projects. The American suspect, however, denied the accusations and said he was only a translator.

Colonel Dr Bu Rasheed described Mutlaq's move as "stupid" as the Central Bank is a government entity that only deals with government departments and financial establishments and does not deal with individuals directly.

Abu Dhabi Courts are currently looking into the previous fraud cases in which other suspects are on trial.

gulfnews.com/news/gulf/uae/crime/police-foil-14-4b-fraud-attempt-at-central-bank-1.637257

[sandi66]

Iran denies 45bn euro conversion
Sun, 06 Jun 2010 12:03:31 GMT
Font size :

The head of the Central Bank of Iran (CBI) has denied reports that the country is converting 45 billion euros from its reserves into dollars and gold ingots.

A Wednesday report carried by Iranian daily Jaam-e-Jam said the country planned to sell 45 billion euros from its foreign exchange reserves in reaction to the eurozone debt crisis.

Iranian newspapers on Sunday quoted CBI Governor Mahmoud Bahmani as dismissing the report as "incorrect."

The reported conversion of Iran's reserves from euro into dollar and gold ingots came amid a new phase of economic crisis in European states such as Greece and Spain.

Following the report, the euro eased slightly versus the dollar from around $1.2227 to $1.2213, Reuters reported.

Iran has been converting its foreign exchange reserves to euros as the global economic downturn resulted in a sharp devaluation of the dollar.

www.presstv.ir/detail.aspx?id=129257§ionid=351020102

[sandi66]

Iran Restricting Euro Transactions


05 June 2010

As the stagnant European economy weighs heavily on the euro forcing it into a downward spiral, the Central Bank of Iran (CBI)Central Bank of Iran (CBI)Central Bank of the Islamic Republic of Iran
Central Bank of Iran, CBI unveils a major plan for converting 45 billion of its euro reserves into dollar and gold ingots.

The CBICBI's new monetary policy comes against a backdrop of a new phase of economic recession in European states of Greece and Spain which has caused a drop in the value of euro against the dollar in international markets, Presstv reported.

There are growing fears that the economic crisis would likely hit other eurozone countries as well.

Meanwhile, informed sources in Iran told Iranian daily Jaam-e-Jam that the monetary plan was to be carried out in three phases, adding that the first stage of the program had already begun.

The new decision comes as the financial crisis that began in the US about two years ago resulted in the sharp devaluation of the dollar, pushing the Iranian government to order the replacement of the greenback with the euro in the country's foreign exchange accounts.

Other countries such as the Persian Gulf littoral states are also reported to be taking major steps for the conversion of their euro reserves into dollar and gold ingots.

www.zawya.com/story.cfm/sidZAWYA20100605064557/Iran%20Restricting%20Euro%20Transactions%20

[sandi66]

Egypt Central Bank Said to Have Pared Euro Portion of Reserves

June 06, 2010, 8:22 AM EDT

By Alaa Shahine

June 6 (Bloomberg) -- The Egyptian central bank reduced the share of foreign-currency reserves it held in euros late last year, a person familiar with the matter said.

The Cairo-based bank started to divest part of its holdings in euros around November, the person said on condition of anonymity because the decision wasn’t made public. Egypt’s net international reserves have been rising since May 2009, reaching $34.7 billion in April, according to the central bank’s website.

The euro, which has slumped 16 percent this year, dropped below $1.20 for the first time since March 2006 last week after Greece tapped a 750 billion-euro ($913 billion) emergency-loan package put together by the European Union and the International Monetary Fund.

Governor Farouk Al-Okdah said the Egyptian central bank had foreseen the debt crisis in Europe, allowing it to hedge against the risk by managing its currency reserves, state-run Al Ahram newspaper reported yesterday.

“While Europe remains Egypt’s largest trading partner, the U.S. dollar remains the dominant foreign currency in Egypt’s international reserves,” Mohamed Abu Basha, an economist at investment bank EFG-Hermes Holding SAE said in a note today. “We estimate that the euro’s contribution to total reserves stands at 20 percent, which may have declined.”

Al Masry Al Youm newspaper had reported the central bank’s decision to divest portions of its reserves in euros over the past six months today, citing an unidentified person close to the institution.

The euro shed 13.8 percent against the Egyptian currency this year, according to Bloomberg data. The pound lost 3 percent against the U.S. dollar in the same period.

www.businessweek.com/news/2010-06-06/egypt-central-bank-said-to-have-pared-euro-portion-of-reserves.html

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Sudan to Ditch Dollar Peg, Shift to Currencies Basket (Update1)

June 06, 2010, 8:41 AM EDT

Updates with comments by central bank governor, starting in second paragraph)

By Camilla Hall and Maram Mazen

June 6 (Bloomberg) -- Sudan plans to drop the pound’s link to the dollar and tie it to a basket of currencies, a process that could take months, Central Bank Governor Sabir Hassan said today in Abu Dhabi.

“We are preparing, we are undertaking the studies and we are choosing the currencies,” Hassan told reporters today. “There’s a lot of technical work that will have to go into it” before Sudan announces when the shift will take place, he said.

Hassan cited the U.S. financial and trade embargo on Sudan as one factor behind the decision to drop the dollar tie. “We are not happy with the peg to the dollar because pegging to a single currency is a problem, you subject yourself to problems for no good reason,” he said.

Sudan depends on foreign investment from China, India and Gulf Arab states as well as exports of oil. It is sub-Saharan Africa’s third-biggest oil producer, producing about 480,000 barrels of crude a day, according to the BP Statistical Review of World Energy.

The country has been rebuilding its foreign currency reserves after suffering a “significant” drop, Hassan said in an interview on May 3. Sudan’s foreign-exchange reserves were at $956.2 million in January, according to data compiled by Bloomberg.

After a period of depreciation the local currency was “relatively stable,” he said in the interview. “It is no longer depreciating at the same rate. We had substantial depreciation around last year and the first two months of this year. Last year, we had depreciation of more than 15 percent.”

The central bank manages the float of the Sudanese pound. The “indicative” rate is 2.4 pounds to the U.S. dollar, with room for a 3 percent movement in either direction, Hassan said.

www.businessweek.com/news/2010-06-06/sudan-to-ditch-dollar-peg-shift-to-currencies-basket-update1-.html

[sandi66]

Canada Fin Min: Credible Fiscal Reforms A Focus Of G-20 Talks

Publié le 05 Juin 2010
Copyright © 2010 Dowjones

- BUSAN, South Korea -(Dow Jones)- Group of 20 finance ministers and central bankers expressed their concern about risks from Europe's sovereign-debt crisis, Canadian Finance Minister Jim Flaherty said Saturday.

"The reality is there is substantial concern over what's occurring in Europe" and the risks associated with it, Flaherty said at a news conference after the meetings ended.

Finance ministers and central bank governors from the G-20 nations met in the southern port city of Busan, South Korea, to assess the state of the global economy and discuss ways to achieve sustainable and balanced growth.

One major focus was the need for credible fiscal reform in the wake of the global economic crisis, Flaherty said.

He described the debate over a possible bank levy to fund future bailouts as a distraction from the core issues, noting that most G-20 members don't support the bank levy idea.

The meetings Friday and Saturday were intended to prepare for a G-20 leaders summit in Toronto on June 26-27.
-By William Mallard, Dow Jones Newswires; 64154 031; [e-mail]

www.easybourse.com/bourse/international/news/843295/canada-fin-min-credible-fiscal-reforms-a-focus-of-g-20-talks.html

[sandi66]

IMF Strauss-Kahn: "Something Must Be Done" On Yuan Exchange Rate

Publié le 05 Juin 2010
Copyright © 2010 Dowjones

- BUSAN, South Korea -(Dow Jones)- International Monetary Fund Managing Director Dominique Strauss-Kahn said Saturday that "something obviously has to be done" on the value of the Chinese currency, but added that even a substantial revaluation of the yuan, also called the renminbi, would not entirely resolve global imbalances.

"The IMF still believes that the renminbi is substantially undervalued," Strauss-Kahn said at a press briefing on the sidelines of the G-20 summit in Busan, South Korea. But he added that even a 20%-25% appreciation of the yuan would not resolve the issue of global imbalances.

"So it is only part of the problem," he said.

He was asked if countries with large current account surpluses are showing as much determination to reduce those surpluses as countries with fiscal deficits have shown to consolidate their public finances.

"The answer is no," Strauss-Kahn said.

www.easybourse.com/bourse/international/news/843298/imf-strauss-kahn-something-must-be-done-on-yuan-exchange-rate.html

[sandi66]

JUNE 6, 2010, 2:58 P.M. ET

Europe's Oil Glut: Refineries

By LANANH NGUYEN
LONDON—A glut in global refining capacity is keeping a lid on refiners' profits, particularly in Europe, where firms are resisting much-needed plant closures.

Refining margins—the amount of money a refiner can earn from processing a barrel of crude—in northwest Europe stood at an average $3.55 a barrel so far this quarter, according to BP data. Margins have edged up from 2009, when they averaged $3.26 a barrel, but are down sharply from their 2008 peak of $6.72 a barrel, a period dubbed the Golden Age of refining by industry analysts.

Vienna-based consultancy JBC Energy forecasts that refineries handling 3.4 million barrels a day, or 19% of Europe's total refining capacity, are under threat of closure by 2020 because they are unprofitable. But companies are reluctant to shut plants, given environmental cleanup costs and the opposition from both governments and labor unions, industry executives and analysts say.

About one-third of the European refining plants that are vulnerable to shutdown should close in the next two years, says David Wech, head of research at JBC Energy. "Unions are relatively strong in Europe, so it looks to be more difficult to take the decision and bring it through," he adds.

But if that doesn't happen, it could weigh down refiners globally by prolonging the squeeze on profitability

"The center of gravity [for refining and demand] is moving to the Far East. We [in Europe] are going to be secondary players in this market," says Iñigo Diaz de Espada, vice president of supply, trading, bunkering and aviation at Spanish refiner Cepsa, which is expanding a refinery in Spain. "Only the good refineries will survive."

Global refiners have struggled to maintain profitability in the last two years, hit by a sharp contraction in global oil demand and massive expansions in refining capacity in Asia and the Middle East.

The global surplus of crude-distillation capacity could grow to as much as 3.4 million barrels a day by the fourth quarter, or the equivalent of 3.9% of global capacity in the first quarter of 2008, before many new plants came online, assuming refinery throughput stays at a typical 84%, according to the Paris-based International Energy Agency. In Asia and the Middle East, where most of the new plants are located, a further 630,000 barrels a day of crude distillation capacity is expected to come onstream this year, on top of the 1.6 million barrels a day added last year, the IEA says.

The capacity glut has already forced some companies to close or convert plants to stem their losses. Last year, Europe's largest independent refiner, Petroplus Holdings AG, idled its Teesside refinery in the U.K., while French oil major Total SA halted refining operations at its Dunkirk plant in response to the slump in Europe's demand for oil. More than 25% of refineries in the Atlantic Basin, or Europe and North America, lost money in 2009, according to Wood Mackenzie estimates.

"The biggest problem for [refiners in] Europe right now is that demand has collapsed; it's imploded," says Stephen George, senior refining analyst at U.K.-based consultancy KBC Energy Economics.

But Mr. George expects ailing European refineries, rather than shut down entirely, to limp along with narrow, and in some cases, negative margins in the coming years.

Alan Gelder, head of downstream consulting at Wood Mackenzie, says, "Europeans do not obey strict commercial logic" when deciding whether to shut down refineries.

One reason is that governments are reluctant to see large numbers of industrial jobs disappear.

For example, Total's decision to close the Dunkirk plant, which employed 620 staffers and full-time contractors, was criticized by the French government and met with a wave of strikes across Total's French refineries in February. The uproar prompted Total to repurpose the Dunkirk facility, possibly into a storage facility, and keep all jobs there. The group also pledged to keep its other five refineries up and running for the next five years.

"The pain to shut down in Europe is quite large," said Willem Kuijl, a special advisor to BP PLC, said at a recent industry conference in Rotterdam. "There is a lot of clinging onto the belief that it's all going to be good sometime in the future" as global demand recovers.

High site cleanup bills also make closure unpalatable.

"The bottom line is it's better to keep the refinery as a terminal and run the heat and the lights" than pay the cost of site remediation, says Mr. George of KBC. He doesn't foresee a deep restructuring of the European industry, and expects refined product demand to start picking up around 2013 on a stronger global economy.

—Susan Daker in Houston and Geraldine Amiel in Paris contributed to this report.

online.wsj.com/article/SB10001424052748703561604575282431741413848.html?mod=googlenews_wsj

[sandi66]

US firms consider mergers to facilitate global reach

7 June 2010

The surprise announcement last week by Sonnenschein and Dentons of their ­proposed merger reinforces a number of trends that we in the US and our strategic alliance partner Jomati Consultants in the UK have seen emerging over the past year.

First, US firms are increasingly focusing on international expansion as their client base demands legal services outside the US. These firms, often based on their experience of developing a London office (Sonnenschein opened in London in the 1990s but closed the office a few years later), realise how difficult, ­time-consuming, expensive and uncertain the development of greenfield offices in the mature legal markets is. Given that their clients do not just need a UK capability, but often Continental Europe, the Middle East and Asia as well, one or two new offices will be insufficient, so greenfield development will simply take too long and be too expensive. Accordingly, mergers, despite the complexities, have become a more appealing option. US firms have given up looking for a mythical top-tier 100-lawyer London boutique and are ­considering much larger mergers, ­especially if the merger partner has a ­significant international footprint.

Second, US firms, despite many ­partners’ fixation with profit per equity partner (PEP) rankings, are increasingly prepared to look for merger partners that do not have as strong a PEP. Given that the cost of restructuring (ie exiting staff and partners) in the US is a fraction of the cost in the UK and the devaluation of ­sterling, it is perhaps inevitable that, in the short term at least, there is a ­divergence in profitability and firms are prepared to adopt different profit pools and remuneration structures with a view to devising a common structure and potentially combined pool in the future.

Third, to facilitate a merger firms are now willing to consider new corporate structures such as a Swiss Verein, widely used by major accounting firms, as the holding and coordination vehicle rather than insist on an immediate move to one globally, fully financially integrated ­partnership. This shows a new level of pragmatism given the business imperative of developing a credible international platform. This also avoids addressing the difference between US cash accounting and UK accruals system together with ­different financial year ends.

To some purists a merger using such a structure is not a ’real merger’, but the proper question to ask is: “will this new firm be able to provide the depth and breadth of coordinated client services that their clients expect?” If the firm can ­deliver, the structure will be irrelevant.

The March 2010 Jomati report ­Globalisation after the Crisis predicted that business pressures would force more firms to expand and deepen their ­international footprint and that mergers would become a much more common way to achieve that. We are aware of many US firms that are actively considering ­international mergers.

Inevitably, there is still a high degree of caution and most ­initial discussions abort. When you look at practice mix, client mix, client conflicts, international orientation and culture, the list of potential merger targets for any firm is usually very small. In the current ­economic environment, demanding immediate financial alignment may exclude any UK firm from the equation, thus alternative structures such as those herein.

With the Hogan Lovells deal, the SJ Berwin and Proskauer discussions and the Sonnenschein and Dentons merger, the pace of activity is accelerating. While there may not be many more deals this year, we expect more mergers in 2011 and 2012.

www.thelawyer.com/us-firms-consider-mergers-to-facilitate-global-reach/1004650.article

[sandi66]

Visa-free agreement comes into force

Jun 7, 2010 13:59 Moscow Time

The visa-free agreement signed by Russia and Brazil in 2008, has gone into force; Russians and Brazilians can from today visit each other without the usual hassling connected with obtaining an entry visa. The Russian and Brazilian Presidents, Dmitry Medvedev and Lula da Silva announced at a joint press conference on May 14th this year, the date for the cancellation of an entry visa to visit each other, one more step toward the strengthening of the global influence of BRIC- Brazil, Russia, India and China, the acronym that has become a house-hold word in the world.

Boris Martynov of the Russian Academy of Sciences’ Latin Americas section has this to say about BRIC: "Members of BRIC are hard at work to have more impact on global affairs, toward which end they are upgrading bilateral and multilateral cooperation. Part of BRIC’s plan is the creation of the so-called big 20, and the restructuring of many international developmental aspects. Significant changes have occurred in the world after World War 2, and it is necessary to take a second look at such changes with a view to restructuring some of them. The cancellation of entry visa requirement by Russia and Brazil will bolster bilateral cooperation between the two nations. It will promote broader contacts between them in al areas, but especially in trade and economic cooperation, a healthy development since both countries are among the ten most industrialized countries in the world. Russia and Brazil will by virtue of their new found enhanced position, work to promote global security, as well as ensuring the stability of existing international relations by helping to strengthen the role of the UN via reforming its Security Council."

Vladimir Davydov, also of the Russian Academy of Sciences’ Latin Americas section believes that visa-free travel will hugely benefit Russians and Brazilians alike: "It is undoubtedly an important step; Russian and Brazilian businessmen, tourists and scientists will now find it easy to solve the problem of traveling to each other’s country, thus promoting more trade and e economic contacts between their two nations."

Russians can now travel freely to Brazil, thus increasing the numbers of countries to which Russians can travel, and they include not only members of the CIS, but also exotic ones like Antigua, Barbuda, Micronesia, Northern Marian Island and Vanuatu. Visa-free visit to Turkey for Russians visiting for not more than 30 days will soon go into effect. In the past, Russians visiting Turkey had to obtain an entry visa for 20 dollars at the airport. Russians going to Thailand to rest can also now enter the country without an entry visa, and the number of countries which Russians can enter without a visa is steadily increasing.

english.ruvr.ru/2010/06/07/9234770.html

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Euro Stronger Than Mark Proves Trichet Currency Stays (Update2)

June 7 (Bloomberg) -- The euro’s 21 percent tumble from last year’s high has left the currency above the average level since its creation in 1999 and stronger than its predecessor, the deutsche mark.

Even as the euro weakened 2.5 percent last week against the dollar and fell below $1.20 for the first time since March 2006, it remains higher than the close of $1.1837 on Jan. 4, 1999, the first Monday of trading after its introduction, and stronger than the $1.1842 monthly average since inception. A Bloomberg composite of the currencies comprising the euro averaged $1.1945 through last week from the end of 1988, when Europe’s foreign- exchange market was dominated by the German mark.

While former Federal Reserve Chairman Paul Volcker said last month that Europe’s widening debt crisis may cause the 16- nation currency to dissolve, European Central Bank President Jean-Claude Trichet said May 31 the euro is keeping its value in a “remarkable fashion.” Policy makers may welcome the drop to boost exports, Goldman Sachs Group Inc. and Morgan Stanley said.

“Many would say this weaker euro is just what the doctor ordered,” said Alan Ruskin, head of foreign-exchange strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “From a levels standpoint they should have absolutely no complaints and they can live with a euro this low.”

A Deutsche Bank measure weighted according to the region’s biggest trading partners shows the euro is 0.2 percent higher than its average since 2001.

Euro Shocks

That hasn’t prevented speculation that the EU is in danger of collapse as its leaders unveiled an almost $1 trillion loan package last month to halt the slide in the euro and local bonds after Greece’s budget deficit rose to almost 14 percent of gross domestic product, exceeding the group’s 3 percent limit.

The currency received more shocks when Fitch Ratings cut Spain’s AAA credit grade and officials in Hungary, while not part of the euro, said the nation’s economy is in a “very grave situation,” and talk of a default isn’t “an exaggeration.”

“You have the great problem of a potential disintegration of the euro,” Volcker said in a May 13 speech in London. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” with the creation of the euro has “so far not been rewarded in some countries,” he said.

The weaker euro will boost the EU’s GDP as much as 1 percentage point in 2011, compensating for the brake on growth from lower spending, according to Thomas Stolper, an economist at Goldman Sachs in London. GDP expanded 0.2 percent last quarter from a 2.5 percent contraction a year earlier. The euro and the dollar are the world’s most-traded foreign-exchange pair.

‘Healthy Core’

“Bringing about the end of the euro is something that one cannot plausibly conceive of at the moment,” Helmut Schlesinger, head of the Bundesbank from 1991 to 1993, said in a May 25 telephone interview from his home in suburban Frankfurt. “We’ve gotten into difficulties due to the Greeks and possibly Portugal and Spain will have a relatively strong impact, but this is offset by a healthy core in the center of Europe.”

European manufacturers are already starting to reap the benefits of a lower currency. Exports in the 16 euro nations rose 2.5 percent in the first three months of 2010 from the fourth quarter, when they increased 1.7 percent, the EU’s statistics office in Luxembourg said June 4.

The gradual weakening of the euro toward parity with the dollar over the next year may save the shared currency by helping countries such as Greece, Italy and Spain regain competitiveness, said Nouriel Roubini, the New York University economist who predicted the financial crisis.

‘Orderly Fall’

“An orderly fall in the value of the euro is the only thing that is going to prevent a breakup of the monetary union,” Roubini said June 5 in Trento, Italy.

For STMicroelectronics NV in Geneva, Europe’s largest chipmaker, a 1 percent variation in the exchange rate can add or take away $8 million to $10 million in quarterly gross profit, Chief Financial Officer Carlo Ferro said in an investor presentation on June 3 in London.

“I continue to say that I see good news from the current euro-dollar rate,” French Prime Minister Francois Fillon told reporters in Paris on June 4. “The president and I have been saying for years that the euro-dollar rate didn’t reflect reality and was penalizing our exports.”

The currency, which dropped to $1.1877 today, the weakest level since March 2006, and to 108.08 yen, the weakest since May, 2006, will rise to $1.20 against the dollar and 115 yen by the end of the year before appreciating to $1.22 and 123 yen by the close of 2011, based on median estimates of at least 18 analysts in Bloomberg surveys. Goldman Sachs strategists forecast it will probably “bounce” to $1.35.

‘One-Sided Risk’

“Investors are not crediting sufficiently the possibility that neither growth nor fiscal outcomes will be as poor as expected,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, wrote in a June 3 report. “Investors are forgetting that there is no such thing as a one-sided risk over the medium term.”

Barclays, one of the top five forecasters for the euro- dollar exchange rate, predicts the currency will strengthen to $1.25 by the end of the year. New York-based Morgan Stanley pegs the currency’s fair value at between $1.15 and $1.20.

“The euro is not weak,” said Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley. “It’s hard for me to fathom at this juncture why a central bank would be so concerned about needing to support its currency when arguably it’s not even weak from a longer-term fair value perspective.”

Euro Plunge

Concern that Hungary may renege on its debt drove the euro down 1.61 percent on June 4, the most since March 27, 2009, on speculation the Europe’s debt crisis is worsening.

Credit-default swaps on sovereign bonds in the region climbed to a record high. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose to 174.4 basis points. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to meet its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

While the outlook for Hungary “remains poor, it does not quite have the potential to roil markets as much as Greece or the other peripheral euro-zone members,” Win Thin, a senior currency strategist at Brown Brothers Harriman & Co., wrote in a note to clients last week.

Data from the Bank for International Settlements in Basel, Switzerland, show that cross-border banking exposure to Hungary was $158.1 billion at the end of the third quarter, compared with $302.6 billion for Greece, $286.7 billion for Portugal, and $1.15 trillion for Spain, according to Thin.

‘Situation Stable’

Hungary’s economic situation is stable and recent comments about a possible default were “unfortunate,” State Secretary Mihaly Varga told reporters two days ago in Budapest, where he also pledged to stick to the budget-deficit goal approved by the country’s creditors.

Traders were the most bearish on the euro in at least seven years last week as the ECB shows no signs of intervening to stem the slide.

The premium charged for the right to sell the euro in three months over contracts to buy the currency touched minus 3.93 percent on June 2, so-called risk reversals show. It was minus 3.4 percent at the end of last week. As recently as June 2, 2009, the opposite was the case, with the premium charged to purchase the euro at an all-time high of 1.185 percent.

Intervention Odds

Odds of central bank intervention, where policy makers buy or sell currencies to influence exchange rates, fell to 27 percent on June 2, from 31 percent on May 20, according to a Morgan Stanley model of probability. As recently as the fourth quarter, it peaked at 50 percent without triggering action by the ECB. That suggests reticence among policy makers to intervene has increased, Morgan Stanley’s Drossos said.

“The euro is a credible currency,” Trichet told reporters in Vienna on May 31. “I would also say that the euro is keeping its value in a remarkable fashion. It is a very important asset for external and internal investors.”

At a meeting of Group of 20 finance chiefs in Busan, South Korea, June 4-5, Trichet said fiscal tightening in “old industrialized economies” would aid the expansion by shoring up investor confidence.

The last time the ECB intervened was in 2000. On September 22, it was joined by central banks from the U.S., Japan, the U.K. and Canada in purchasing the euro at about 86 cents, boosting the currency as much as 4 percent against the yen and the dollar within 15 minutes. The ECB bought more two months later after it weakened to a record 82.3 cents, Barclays said in a May 21 note.

‘Weak Economy’

Policy makers only intervened after the euro depreciated 27 percent against the dollar and almost 33 percent versus the yen from its January 1999 inception. The European currency is now 45 percent stronger than its low compared with the dollar and 24 percent versus the yen.

“A weak European economy needs a weak currency to provide support to off-set the shortfall in growth,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said in an interview with Bloomberg Television on June 4. “I would not be surprised to the see the euro depreciate” 5 to 10 percent on a trade- weighted basis, he said.

To contact the reporters on this story: Bo Nielsen in Copenhagen at [e-mail]; Oliver Biggadike in New York at [e-mail]

Last Updated: June 7, 2010 04:19 EDT




www.bloomberg.com/apps/news?pid=20601087&sid=a8bwMQreilf0&pos=3

[sandi66]

CHAMAT v. GEITHNER

MAURICIO CHAMAT, Plaintiff-Appellant,
v.
TIMOTHY GEITHNER, Secretary for the Department of Treasury, Defendant-Appellee.

No. 09-55507.

United States Court of Appeals, Ninth Circuit.

Submitted April 6, 2010.[ 1 ]

Filed June 4, 2010.

Before: SKOPIL, FARRIS and LEAVY, Circuit Judges.

NOT FOR PUBLICATION
MEMORANDUM[ 2 ]
Mauricio Chamat was terminated during his probationary period of employment with the Internal Revenue Service (IRS). He brought this pro se action alleging discrimination based on his race, national origin and age. He also alleged his discharge violated the collective bargaining agreement (CBA). The district court granted summary judgment for the Government on the discrimination claims and dismissed the CBA claims. We affirm.

DISCUSSION
As a threshold matter, we consider the Government's contention that Chamat appeals only the district court's dismissal of his CBA claims. Although Chamat's briefs are primarily devoted to that issue, he also reasserts his arguments that the IRS failed to issue a timely decision on his complaint and that he was harassed and terminated because of his race, national origin and age. Given Chamat's pro se status, we elect to review all of those arguments.

1. Timeliness of the IRS's Decision
The IRS failed to complete its investigation of Chamat's complaint within the 180 days mandated by 29 C.F.R. § 1614.106(e)(2). Chamat argues as a consequence his discrimination claims should be deemed true and he should be reinstated with back pay. We disagree. The consequence of an untimely agency decision, is that "the complainant may request a hearing by submitting a written request for a hearing directly to the EEOC office." 29 C.F.R. § 1614.108(g). Chamat elected not to request an immediate hearing, but rather waited for the IRS's decision before filing his complaint with the EEOC.

2. Discrimination Claims
Chamat did not submit sufficient evidence to carry his burden of establishing a triable issue of fact on his claims of discrimination. See McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802 (1973) (establishing burden-shifting analysis). It is undisputed that Chamat did not achieve the testing standards for his position and that he failed three out of five of the critical job elements. There was no evidence that the Government terminated his employment on any basis other than his poor performance. Although Chamat points to some negative comments in his evaluations, none reflects animus toward his race, national origin or age. As the district court noted, Chamat offered no evidence to suggest he was terminated on account of an impermissible factor.

Chamat also claims he was subjected to a hostile work environment. To establish a triable issue of fact on that claim, Chamat was required to show (1) he was subjected to verbal or physical conduct because of his race, national origin or age; (2) the conduct was not welcomed; and (3) the conduct was sufficiently severe or pervasive to alter the conditions of his employment and create an abusive working environment. See Surrell v. California Water Serv. Co., 518 F.3d 1097, 1108 (9th Cir. 2008). Chamat argues he met that burden with evidence of negative comments by supervisors that "made him feel inferior" and one incident when he was told not to speak Spanish in the workplace. Again, we disagree. The negative comments related to Chamat's job performance rather than to his race, national origin or age. See id. at 1108-09. Moreover, the comments and the reprimand for speaking Spanish "were not sufficiently severe or pervasive to sustain a hostilework-environment claim." Id. at 1109.

3. CBA Claims
Chamat claims the treatment he received from his supervisors and his subsequent termination violated his rights under the CBA. Chamat did not, however, elect to pursue any CBA remedy. See Saul v. United States, 928 F.2d 829, 835 (9th Cir. 1991) (noting an aggrieved federal employee must elect between statutory remedies or the grievance procedures provided by a CBA, "but not both") (citing 5 U.S.C. § 7121(d)). Moreover, Chamat acknowledged in his amended complaint that his "claims are neither grievable nor arbitrable under the collective bargaining agreement" because he "had not yet completed his one year probationary period." Indeed, the CBA's provision governing discharge for unacceptable performance "applies only to bargaining unit employees who have completed their probationary or trial period." Thus, the district court correctly dismissed Chamat's CBA claims.

AFFIRMED.

** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).
* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3.


This copy provided by Leagle, Inc.

www.leagle.com/unsecure/page.htm?shortname=infco20100604151

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Gold holds above $1,215/oz; market jitters support

LONDON
Mon Jun 7, 2010 5:27am EDT

(Reuters) - Gold held above $1,215 an ounce in Europe on Monday, outperforming most other commodities as investors turned to bullion as a haven from volatility while equities and the euro extended Friday's losses.

Spot gold was bid at $1,216.45 an ounce at 0903 GMT, against $1,218.00 late in New York on Friday. U.S. gold futures for August delivery firmed 30 cents to $1,218.00.

"Friday saw a bit of a sell-off in U.S. equities, and this morning we have seen a reaction on global equity markets," said VTB Capital analyst Andrey Kryuchenkov. "There are euro zone jitters, and gold remains supported on safe-haven buying."

European shares slid for a second session on Monday on renewed investor fears over euro zone debt levels after Hungary said on Friday its debt problems were similar to those of Greece. .EU

World stocks also fell sharply as investors reacted to signs the U.S. economic recovery may be slowing after payrolls data disappointed investors on Friday.

The cost of protection against a government debt default also rose for France and several peripheral euro zone countries as concern grew over Hungary's debt levels.

The new Hungarian government spooked investors on Friday when a prime minister's spokesman said he supported the view the country had only a slim chance of avoiding the kind of debt crisis that plunged Greece into financial instability.

The euro hit its lowest in more than four years against the dollar on Monday, with investors increasingly nervous about further losses in the currency after a clear break below a chart support point at $1.2135.

Its slide helped euro-priced gold hit a record 1,025.72 euros an ounce on Monday, though it later corrected to 1,017.20 an ounce, close to its late Friday level.

The single currency has fallen nearly 17 percent this year versus the dollar on concerns about government debt. A strong dollar usually pressures gold, but the relationship has weakened as both are being purchased to protect against risk.

"While U.S. dollar strength against the euro will likely ensure price action remains volatile, financial market nervousness and risk aversion should keep the complex supported," said Morgan Stanley in a note.

OTHER COMMODITIES SLIDE

Gold outperformed most other commodities, which were pressured by Friday's disappointing U.S. data and by concerns over Europe's debt crisis. Oil fell more than 1 percent and industrial metals including copper and zinc slid.

In investment news, holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, eased a touch on Friday to 1,286.359 tonnes from a record 1,289.839 tonnes the previous day.

At the same time holdings of the biggest silver-backed ETF, the iShares Silver Trust, fell more than 45 tonnes to 9,208.83 tonnes.

On Monday Spot silver held steady along with gold at $17.35, unchanged from late Friday's level.

"From a fundamental perspective, silver's price performance was detached from its underlying supply and demand dynamics last year, and instead robust investor interest led the metal to outperform gold," said Barclays Capital in a weekly note.

"This year, we expect fabrication demand growth to outpace supply growth; however, we also expect the market to remain in a sizeable surplus, thereby once again exposing the price outlook heavily to investor appetite."

Elsewhere platinum was at $1,488.50 an ounce against $1,510 and palladium was at $415.23 against $423.75, both caught up in selling of other industrial metals.

www.reuters.com/article/idUSTRE64R5OH20100607?type=ousivMolt

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ETFS: Demand For Gold Funds Rises

06-07-2010 | Source: emii.com

Record inflows for gold funds
By Ruth Sullivan

Published: June 6 2010 08:48 | Last updated: June 6 2010 08:48

Investors are taking flight to precious metals, particularly gold, as concerns grow about sovereign debt.

Worries over eurozone debt burden and fears of a possible resurgence of inflation are driving investors to an asset class traditionally perceived as a safe haven.

“People are looking for somewhere to put their money. They are looking at gold as an alternative currency exposure,” says Nicholas Brooks, head of research and investment strategy at ETF Securities, an exchange traded product provider.

Gold funds tracked by EPFR, the US global fund data group, saw $5.7bn (£3.9bn, €4.7bn) of net inflows in the three weeks to May 19, of which nearly $5bn went into exchange traded funds.

Investment demand drove up the price of spot gold to a nominal record high of $1,248 a troy ounce in May, although it has slipped slightly since then.

Gold ETP flows hit a record of $26bn to May 25, from the beginning of 2009, buying more than 2,000 tonnes of the precious metal, according to Barclays Capital.

The SPDR Gold Shares, the worlds’ largest gold ETF, is also seeing huge inflows into its physically backed product, holding a record 1,200 tonnes with a value of almost $47bn on May 20.

At ETF Securities, Mr Brooks has seen “larger flows in the past month into physically backed gold ETCs than at the height of the financial crisis”. In one week last month (May 7-14), trading on its ETC platform hit an all-time high of more than $2bn, driven by strong trading volumes in precious metals. Gold made up almost half of the trading, while platinum and palladium accounted for 12 per cent.

This month will also see the launch of the Physical Gold ETC from db x- trackers, who have until now focused on ETFs. Most of the inflows into physically-backed gold stem from institutional European investors trying to reduce exposure to the euro, says Mr Brooks. In the US, investors are getting their first taste of physically-backed platinum and palladium ETCs, recently launched by ETFS.

A general surge in international investment between January and early May for both metals saw palladium prices rise by 35 per cent and platinum by almost 19 per cent. However, prices declined recently as some investors took profits after a stellar run, particularly in palladium. Both metals are used by the car industry in catalytic converters.

Although it may seem ETPs are eclipsing more traditional types of investing such as actively managed commodity funds, fund managers say they are also seeing increasing interest.

Evy Hambro, fund manager of the BlackRock Gold and General fund, which invests mostly in gold companies and a few platinum and diamond ones, has been getting a spate of enquiries from private family offices, hedge funds, pension funds and retail investors.

The classic question they ask is “whether to own gold through an ETF or invest in a [traditional] fund”, he says. Hedge funds have also been building up their positions in gold, including the Soros Quantum Fund, which has $600m invested in gold ETFs, according to the World Gold Council.

Wealthy investors are also big buyers of gold ETFs, especially larger investors, in addition to buying bullion for their own vaults, according to Marcus Grubb, managing director of investment at the World Gold Council.

Tales abound of family offices trying to rent additional vault space in London. At Schroders Private Bank, Rupert Robinson, chief executive, has held an average of 8-10 per cent of clients’ portfolios in gold and gold stocks in the past 18 months.

Sovereign wealth funds are also becoming goldbugs. Last December, China Investment Corp, the Chinese sovereign wealth fund, invested $1.45m in the SPDR Gold Trust, while central banks have shifted from selling to buying, helping to push up the price.

But perhaps it is pension funds that are making the biggest change in direction. “Traditionally pension funds shied away from gold and commodities,” says Mr Grubb. In the past, pension fund trustees said gold and other precious metals were difficult to value and did not have a yield, “but this is beginning to change”, he adds.

US pension schemes, in particular, have been buying gold, including the Teachers Retirement Scheme of Texas and the New Jersey Division of Investment. The former scheme invested $125m in the SPDR Gold Trust last October and a similar amount in precious metal mining stocks, setting up a separate gold portfolio to hold the investments, according to the World Gold Council.

However, concerns about gold becoming the next bubble are surfacing. At Davos, earlier this year, George Soros warned low interest rates could generate new bubbles, including gold.

Others are more optimistic. Mr Robinson says there are “signs gold may be becoming over-owned and too fashionable in the short-term”, but in the long-term “it is a good asset to hang on to”. He believes “it could easily reach $2,000 an ounce within the next five years”.

www.ft.com/cms/s/0/a667d16c-7003-11df-8698-00144feabdc0.html

[sandi66]

Alan Krueger, Treasury’s chief economist, to keynote Charlotte event

June 7, 2010

Alan Krueger, the U.S. Treasury’s chief economist, will be the keynote speaker at a small-business-capital event in Charlotte this month.

He will speak for 30 minutes during lunch at the Access to Capital summit, to be held June 29 at the Charlotte Convention Center.

The gathering is being organized by the city of Charlotte and the Charlotte Chamber as a venue to connect small-business owners and entrepreneurs with the resources they need to access financing.

The event also will feature representatives from banks, angel investors, private-equity groups, the Small Business Administration and experienced business owners.

Organizers for weeks have been trying to secure a headline speaker for the event. Krueger’s attendance was finalized Monday. He is expected to speak about the importance of having a diverse pool of capital sources for small businesses.

Local officials met Krueger this spring when Charlotte Mayor Anthony Foxx led a local delegation to Washington, D.C., to meet with Obama administration officials.

Krueger, an economics professor on leave from Princeton, is the assistant secretary for economic policy and chief economist for the U.S. Department of Treasury. He advises Treasury Secretary Timothy Geithner on all aspects of economic policy, including current and prospective macroeconomic developments and the development and analysis of the administration’s economic initiatives.

He also is the author of What Makes A Terrorist: Economics and the Roots of Terrorism and Education Matters: A Selection of Essays on Education, and co-author of Myth and Measurement: The New Economics of the Minimum Wage and of Inequality in America: What Role for Human Capital Policies?

www.bizjournals.com/charlotte/stories/2010/06/07/daily9.html