Guest post by Azizonomics.
The obvious thing, though — even if we take central bank buying out of the equation altogether — is that total demand for gold is still increasing. And the price of gold has increased faster than sales, illustrating that the market has struggled and continues to struggle to keep pace with underlying demand.
And it’s not just demand for gold-denominated paper (i.e. ETFs or other such as-risky-as-anything-you’ll-get-from-MF Global assets) — it’s recently manifested as demand for hard physical gold:
Fascinating reading by the FSA on the LIBOR scandal.
Barclays acted inappropriately and breached Principle 5 on numerous occasions between January 2005 and July 2008 by making US dollar LIBOR and EURIBOR submissions which took into account requests made by its interest rate derivatives traders (“Derivatives Traders”). At times these included requests made on behalf of derivatives traders at other banks. The Derivatives Traders were motivated by profit and sought to benefit Barclays’ trading positions. (Full report here with charts.)
With the markets going into low volume summer vacations trading mode, why not spend a few minutes reviewing Diamond’s testimony.
Q263 Mr McFadden: The point that I am making is about how significant the phone call is given the pattern detailed in paragraph after paragraph of the FSA report, which says that you had been consistently lowballing your submissions in the year running up to the phone call.
Bob Diamond: There are two answers to that. First, the behaviour of the people who were influencing the lower submissions is wrong, and we were clear on that from the beginning. To answer that in another way, what was the importance to me of the call from Paul-not the note, but the call? The call from Paul was alerting me that there was concern in Whitehall about why Barclays rates were high. It was important to me to get to John Varley, whom my note was to, so that he could get in touch with Whitehall and make sure that there wasn’t a misunderstanding that Barclays was high or whether other people were posting rates that made us appear to be high and that there wasn’t a function of not being able to get funded. The importance of the call to me was the heads-up about the concerns in Whitehall, who felt that since we were the high LIBOR submission, it might mean something more than it meant or something different than it meant.
Q264 John Mann: Before I ask my questions, I just wonder, Mr Diamond, if you could remind me of the three founding principles of the Quakers who set up Barclays?
Bob Diamond: I can’t, sir.
Q265 John Mann: I can help, and I could offer to tattoo them on your knuckles if you want, because they are honesty, integrity and plain dealing. That is the ethos of this bank that you have spent two hours telling us is doing so well-in fact, from what you have told us, doing so well that I wondered why you had not received an extra bonus rather than the sack.
A question many should be thinking about, but a very few dare asking. By Hussman of Hussman Funds.
The financial markets were largely unresponsive to news of further easing by the European Central Bank, the Bank of England, and the People’s Bank of China last week. Notably, Spanish bonds plunged, while German short-term government bonds now yield -0.17%, indicating growing concern about sovereign default risk in the Euro area. Every few days will undoubtedly bring word of new “agreements” and “mechanisms” – arcane enough to mask their futility – that promise to solve the European crisis. The headwinds remain very strong. The key distinction here remains liquidity versus solvency. There is little doubt that liquidity will be provided at every opportunity, though the continual degrading of collateral standards by the ECB suggests that all the good collateral has been pledged already. More importantly, with a global recession visibly unfolding, solvency risk will only increase.
The odds remain against European countries agreeing to the surrender their national sovereignty to the extent needed to create a “fiscal union” and enable massive and endless transfers of public resources from stronger to weaker European countries. Barring a catastrophe severe enough to either prompt European countries to hand fiscal control to a central administrator, or to prompt Germany to agree to unconditional bailouts, the least disruptive move would be for Germany and a handful of stronger countries to leave the Euro first, and allow the remaining members to inflate as they wish.
With regard to the economy, I noted two weeks ago that the leading evidence pointed to a further weakening in employment, with an abrupt dropoff in industrial production and new orders. Mike Shedlock reviews the litany of awful figures we’ve seen since then, focusing on the new orders component of global purchasing managers indices: U.S. manufacturing new orders and export orders plunging from expansion to contraction, Eurozone new export orders plunging (only orders from Greece fell at a faster rate than those of Germany), and an accelerating decline in new orders in both China and Japan.
With Europe in even bigger confusion after the summit, investors seem clueless of what the next step is in Europe. Is Greece fixed, how about that Spanish bank bail out, is Slovenia joining the party and how is this supposed to be paid for? Some color on the subject, by Edward Hugh.
Yet no matter how positively or cynically we perceive what just happened, the fact of the matter is that this latest summit did produce results which, while possibly not being complete game changers, would in fact constitute a significant advance in the debt crisis if they were implemented, in particular since they do constitute steps towards that long promised banking and fiscal union. And basically, as I say at the start, even if it takes a bit of kicking and screaming first I do think they will be implemented.
Far and away the most important of these decisions was allowing the ESM to in principle fund Spain’s bank recapitalisation. If followed through the decision will possibly come to be seen as a landmark one. My feeling is that the nervy events of the last week will not be the end of the matter, and that eventually a plan and timescale for setting up a banking union will be agreed on, since the costs of not doing so would obviously be far higher than those involved in so doing.