Gold And Silver Rise This Week As Greece Seen Lacking Loan Commitments To Carry It Through The Next 12 Months

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Contributor Since 2010

I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.
Currency Report for the week ending May 27, 2010   

1) … The U.S. dollar, $USD, declined 1.0% (down 5.4% y-t-d). while
The Swiss franc, FXF, increased 3.3%,
the New Zealand dollar, BNZ, 2.9%,
the Norwegian krone 2.3%,
the  Brazilian real, BZF, 1.8%,
the Swedish krona, FXS, 1.4%,
the Danish krone 1.2%,
the euro, FXE  1.1%,
the Japanese yen, FXY, 1.1%,
the Australian dollar, FXA,  0.4%,
the Mexican peso, FXM, 0.4%,
the Russian ruble, XRU, 0.3

Bloomberg reports South Korean builders may struggle to refinance $9.7 billion of short-term debt due through July even as the government backs a "bad bank" to buy up burned real-estate loans, according to Eugene Investment & Securities Co. "These short-term notes are a time bomb that have been moved from one basket to another," said Kim In, a Seoul-based Eugene Securities banking analyst. "No one will be willing to roll over these debts, so builders' liquidity will be squeezed even further, leaving more of them at risk of defaulting."

Bloomberg reports Greece Aid Is Under Threat, Europe Finance Chief Says. A top euro-zone policy maker suggested the International Monetary Fund may withhold its next payment on Greece's €110 billion ($155 billion) bailout, rattling financial markets with questions about whether a new Greek payments crisis is imminent. Luxembourg Premier Jean-Claude Juncker, who heads the conclave of euro-zone finance ministers, suggested Thursday that an important review of the bailout program might conclude that Greece doesn't have enough loan commitments to carry it through the next 12 months

CNBC Reports China Drought Ignites Global Grain Supply Concerns. Analysts are closely watching the weather in China, warning any further supply shocks in the grain markets would fuel a further rally in U.S. corn and wheat futures, already stoked by harsh crop weather in the United States and Europe.

Zero Hedge reports Super Typhoon Songda Projected to Pass Over Fukushima Nuclear Power Plant. Super Typhoon Songda, which according to Weather Underground will form shortly as a Category 5 storm with 156+ mph winds, will take a northeasterly direction and 2 days later will pass right above Fukushima.

Forbes reports In India, Bad Loans Rising. State run banks in India, long seen as one of the key pillars in a healthy and regulated banking sector, are seeing a rash of bad loans on their books, the Times of India reported Friday. Chart of HDFC Bank, HDB.,

Mike Mish Shedlock relates Excess Reserves Are A Mirage And Banks Are Actually Captal Impaired and relates Greece Not Just Illiquid, It’s Insolvent and relates from Der Spiegel International Hidden Risk Of Saving The Euro.  Since the beginning of the financial crisis, banks in countries like Ireland, Portugal, Spain and Greece have unloaded risks amounting to several hundred billion euros with central banks. The central banks have distributed large sums to their countries' financial institutions to prevent them from collapsing. They have accepted securities as collateral, many of which are -- to put it mildly -- not particularly valuable. These risks are now on the ECB's books because the central banks of the euro countries are not autonomous but, rather, part of the ECB system. When banks in Ireland go bankrupt and their securities aren't worth enough, the euro countries must collectively account for the loss. Germany's central bank, the Bundesbank, provides 27 percent of the ECB's capital, which means that it would have to pay for more than a quarter of all losses. Chart of the Euro, FXE.

For 2010 and the two ensuing years, the Bundesbank has already decided to establish reserves for a total of €4.9 billion ($7 billion) to cover possible risks. The failure of a country like Greece, which would almost inevitably lead to the bankruptcy of a few Greek banks, would increase the bill dramatically, because the ECB is believed to have purchased Greek government bonds for €47 billion. Besides, by the end of April, the ECB had spent about €90 billion on refinancing Greek banks.

But even greater risks lurk in the accounts of commercial banks. The ECB accepted so-called asset-backed securities, ABS, as collateral. At the beginning of the year, these securities amounted to €480 billion. It was precisely such asset-backed securities that once triggered the real estate crisis in the United States. Now they are weighing on the mood and the balance sheet at the ECB.

No expert can say how the ECB can jettison these securities without dealing a fatal blow to the European banking system. Chart of European Financials, EUFN.

The ECB is in a no-win situation now that it has become an enormous bad bank or, in other words, a dumping ground for bad loans, including ones from Ireland. According to AFME figures, the total value of all outstanding asset-backed securities in the euro zone and the United Kingdom is an almost unimaginable €1.8 trillion. Of course, not all asset-backed securities are toxic. German banks, for example, package together car or small-business loans to ease pressure on their balance sheets. But the securities that end up at the ECB from peripheral countries like Greece or Ireland are often of questionable value. The central bank is supporting lenders that are in fact no longer viable. And the bombs continue to tick.

The US Dollar, $USD, fell 0.9% today on the rise of precious metals, JPP, Gold, GLD, Silver, SLV, and base metals, DBB, and a flight to safety in the Swiss Franc, FXF, and a rise in the Yen, FXY.

SFGate reports Italy leads rise in sovereign debt risk after S&P rating threat.

Peterson Institute Chart of Bank Holdings of Greece Sovereign Debt courtesy of Joe Weisenthal of Business Insider shows Italy, EWI, as having by far the most exposure.

Tyler Durden of Zero Hedge reports European Industrial Orders Post Steep Decline In March

Irvine Renter reports in article Banks stockpile homes buyers don’t need to buy, and that the backlog of housing REOs and shadow inventory is worst in New York City, Chicago, Boston and Minneapolis.

Kate Randall of reports MassHealth, the state Medicaid program, will be cut $750 million. And $7.9 million in cuts will be made to direct benefits to the poor. WIC, the Women, Infants and Children program, faces a $2.7 million cut, some 17 percent. The program currently provides nutritional support for more than 130,000 pregnant women, mothers, infants and children up to age five. Thousands of children on welfare would see their yearly clothing allowance slashed from an already miserly $150 to $40 if the legislation passes.

Chart of gold, GLD, communicates a rising investment demand for gold on rising global chaos. video Hundreds of Michigan families seek assistance in Southfield. DTE Energy, one of the main energy companies in the Detroit-area, held a customer assistance event in the suburb of Southfield which attracted nearly a thousand people needing help with household energy payments. Every year, DTE shuts off the utilities of thousands of families for falling behind on their bills. Utilities, XLU, fell lower this week.

Patrick Martin of reports Republicans lose House seat in special election.

2) … Interesting charts of the week

Latin America,, LATM rose strongly this week.

The Swiss Franc, FXF, continues to be a safe haven investment.

The 30-10 US Sovereign Debt Leverage Curve Daily, $TYX:$TNX, communicates the exhaustion of both QE1 and QE 2

Basic Materials: Silver Miner: Aleco Resource Corp, AXU, illustrates the failure of the seigniorage of Neoliberalism as investors are unwilling and unable to leverage gold stocks, GDX, over the price of gold.

3) … The chart of the currency yield curve, RZV:RZG, confirms that competitive currency devaluation, that is competitive currency deflation commenced in May 2011, as major currencies, DBV, and commodity currencies, CCX, and emerging market currencies, CEW, all fell lower. These have joined the US Dollar, $USD, in a death spiral into the pit of financial abandon together.

4) … The chart of gold relative to the Australian Dollar establishes that wealth is best preserved by investing in gold.

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