Posts Tagged ‘Gold’

Message To all Gold Mining CEOs – A Gold Mining Predicament

The main GDX gold mining index is down 37.4% YTD and down 54.4% since the 2011 peak. It is a very sorry state of affairs.

 

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Crisis, what crisis?

Three words that helped bring down the last Labour government in 1979, even though the man generally thought to have uttered them – Jim Callaghan – did not in fact do so. But the Sun journalist who fashioned that headline caught the popular impression of a government unaware of a very serious state of affairs which had sneaked up on it.

 

Crises are not often seen or predicted prior to the event. Despite the world now full of “experts” who fully predicted the 2007-08 crisis and hundreds of books on the matter, there were very few real visionaries. Most if not all of them were much maligned at the time and often dismissed as crackpots.

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Cyprus: The ‘Glue’ of Europe

Following up on our piece earlier this week, the coming hours and days are pivotal for Cyprus. Whatever is decided will be bad. Choosing the right solution for Cyprus is like trying to pick the best horse in the glue factory.

The ECB has threatened to withdraw ELA from the Central Bank of Cyprus on Monday if a deal has not been reached. If this is the case, and the required two thirds of the ECB board vote to stop Cyprus’s ELA, then other eurozone banks will be ordered to cease the transfer of reserves to Cyprus, and not to recognize any reserves received from Cyprus as euros. Cyprus, at this point, will be the first country to leave the EMU.
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Board up your windows, the Budget cometh

Sources in Whitehall are reportedly looking into the re-introduction of the Window Tax 162 years after it was repealed. With the UK government hell-bent on austerity, it has positioned itself as the proverbial ‘canary in the coal mine’, and is in dire need of ways to balance its books. However, the canary died long ago. It seems that other countries have taken note, moving away from austerity to more growth-focused measures, while the UK ploughs ever deeper in to the gas-filled mine. The resurrection of the Window Tax – along with other draconian measures – are back on the table as the UK tries to galvanize its economy and return the fiscal situation to a sustainable path.

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Cyprus – Oh the Irony!?

In history seemingly innocuous events portend more serious outcomes – albeit we recognise them in hind(e)sight. This is the dramatic irony of history. Just as a single shot in Sarajevo, took out a largely unknown European aristocrat, Archduke Franz Ferdinand, who would have known then that the world would plunge into World War I. The Cypriot savers must have thought the authorities were being highly ironic, of the Socratic kind, when they were told they were receiving a bail-out, except it was a “bail-in”. I don’t know the Greek/Turkish for – you are having a laugh, but I bet that’s what they are saying. So what is a bail-in?

 

A bail-in takes place before a bankruptcy, and involves losses being imposed on bondholders, something that has rarely taken place throughout the GFC and euro crisis. In fact taxpayers (the government) have consistently bailed-out the private sector in full. The Cypriot bank rescue is no exception, except this time there is a bail-in and ironically again not of bondholders but of the depositors first. This is a direct contravention to the usual legal claims on the capital structure.

 

So there you have it – on Friday 14th March Cyprus became the 5th country to receive an EU bail-out (in), except this one was a bail-in but one with a significant and severe twist of fate. The Cypriot government in Nicosia is scheduled to vote on a EU bail-out plan which calls to extract a “tax” on bank depositors (savers) some €5.8 billion: 6.75 per cent for anyone with less than €100,000 in a Cypriot bank account, 9.9 per cent for anyone with more than that.

 

This is an unprecedented assault on individual property rights and every individual in the developed world should take notice, and far from stabilising the eurozone, the bail-out likely heightens contagion risk across the EU.

 

Why bother holding a bank account when your government can expropriate your savings? Far from containing a bank run in Cyprus it will exacerbate it, absent capital controls, and likely begin significant depositor flights across the European periphery.

 

These events I believe signify one of the most alarming developments in the Eurozone crisis and by dint the global economy since the financial crisis began.

 

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