Gross Domestic Product

The First BRIC to be Downgraded to Junk?

Turkey remained the world's number one minter of gold coins in 2011. There is an increasing tendency for gold bars to be retail investors' vehicle of choice – although gold coins still retain a majority market share. Turkish people can pay in gold in certain foreign exchange houses and most jewellers will accept gold as payment. Turkish banks are is now offering digital gold saving accounts. Turkey expanded its gold reserves by 29.7 metric tons in April. Turkey’s bullion reserves climbed to 239.3 tons last month meaning that Turkey increased their gold reserves by 14% in April. The central bank on March 27 doubled the share of lira reserves banks can hold in gold to 20%, saying it would provide 6.1 billion liras ($3.3 billion) of extra liquidity. "This addition," the WGC says, "was the result of a policy change under which the central bank will now accept gold in reserve requirements from commercial banks to help the banks utilize their gold in managing their liquidity." Some analysts have suggested that the increase in Turkish gold reserves, as reported by the IMF, may actually be a form of “double accounting”. Whereby the gold held in Turkish banks client’s gold account is transferred from the local bank as a reserve to the central bank, from where it then figures as gold reserves.

All you need to read and some more.

The wind picked up across the plains, the windmill began to turn and “The Ingenious Gentleman Don Quixote of La Mancha” rode out once more to do battle. The ever faithful Sancho Panza, not wishing to be left behind, was in attendance and the windmills were now the banks and the regional debt of the country. You see, the Troubadour, Mariano Rajoy, does not wish the country to take any responsibility. It is to be the banks, not to injure the pride of the nation, that are the culprits and the banks, run by the empanada consortium, who are to be blamed. The IMF has released a statement claiming the banks need about $46bn which is the typical posture of the IMF these days; underestimating liabilities and then finding that more money is needed later; which they already knew of course. “Under estimate the liabilities and over estimate the assets” is the mantra sung at the IMF these days at the morning prayers as their credibility is as certain as the stature of the giants fought by Don Quixote. The extra money, suggested in the IMF report to ring wall the banks, is another gust of wind as it is directed to the regional debts of course which no one wants to mention as the faceless Men in Black ride into Madrid to claim their latest victim. The beating of chests can be heard in Andalusia as there is no ESM; it does not yet exist regardless of the panderings of the savants that ride the airwaves. Germany has not even voted on it yet so that that ballyhoo that the ESM is the “Saving Grace” is the stuff and fluff from which nonsense is composed.

A D.C. report card.

• Obama Seeking Ally on Europe Finds Merkel a Tough Sell (Bloomberg) - but he has an election to win
• China rate cut sparks fears of grim May data (Reuters)
• China faces stimulus dilemma  (FT)
• Papademos warns of Grexit vortex (FT)
• China’s Shipyards Fail to Win Orders as Greek Owners Shun Loans (Bloomberg)
• Rajoy Holds Bank Talks With EU Leaders as Fitch Downgrades Spain (Bloomberg)
• Capital Rule Is One Size Fits All (WSJ)... now the modest question of where to get the $3.9 trillion in capital
• Merkel Pokes at Cameron With Backing for Two-Speed Europe (Bloomberg)
• City safeguards set Britain at odds with EU (FT)
• Bernanke says Fed to act if Europe crisis deepens (Reuters)

If it seems like it was just yesterday that Spain officially requested a bank bailout, it is because it was. Recall: "Spain Caves, Admits It Needs European Bailout" from June 5. What happened next is confusing, but it essentially appears that Spain retracted the course of action as it was unhappy with two things: i) the market's response to the announcement, and ii) Germany's response to the request for aid. The first, because as ZH first showed, did not soar as there would obviously not be enough money embedded in the current system to fund a full bailout of Spain, and the second, because Germany is not exactly delighted with having one more country on the dole, and has yet to clarify under just what conditions it will save Spain (in retrospect naive rumors that it has dropped all conditionality notwithstanding). Which brings us to this morning, when we are expected to forget that all of this already happened, and to be shocked that Spain is officially requesting a bailout for the first time./.. again... kinda, sorta... Reuters reports: "Spain is expected to request European aid for its ailing banks at the weekend to forestall worsening market turmoil, becoming the fourth and biggest country to seek assistance since the euro zone's debt crisis began, EU and German sources said. Four senior EU officials said finance ministers of the 17-nation single currency area would hold a conference call on Saturday to discuss a Spanish request for an aid package, although no figure had yet been set. The Eurogroup would issue a statement after the meeting, they said. "The announcement is expected for Saturday afternoon," one of the EU officials said." So now we have rumors of statements of conferences of bailouts. Lovely. At least our Belgian caterer long is doing great to quite great.

All you need to read.

All you need to read.

That former San Fran Fed chairman Janet Yellen would demand more easing is no surprise: she used to do it all the time. That Fed Vice Chairman, and Bernanke's second in command, Janet Yellen just hinted that she is "convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions", and that "while my modal outlook calls for only a gradual reduction in labor market slack and a stable pace of inflation near the FOMC's longer-run objective of 2 percent, I see substantial risks to this outlook, particularly to the downside" is certainly very notable, and confirms everyone's worst dream (or greatest hope assuming they have a Schwab trading platform or Bloomberg terminal) - more cue-EEE is coming to town.

With all proposed Spanish bank bailout plans so far either shot down, or found to be inadequate, the question always has boiled down to whether Germany, which as we have noted in the past is the true lender of last resort in Europe, not the ECB, will agree to the trade off of preserving the Eurozone, i.e. temporarily ending the latest Spanish risk flare out, in exchange for the risk of political disgrace domestically, where more and more people are against sweeping European bail outs, due to soaring "contingent liabilities" which increasingly more people on the street are realizing are all too real (see: TARGET2). On the other hand, a direct bank bailout request for Spain using traditional European channels, which would fund the government, would result in a deterioration in the Spanish sovereign leverage, and make the country even riskier, thereby putting more pressure on the banks, and so in a toxic loop. It now seems that this dilemma may have been resolved, at least on paper. As Reuters reports, "A deal is in the works that would allow Spain to recapitalize its stricken banks with aid from its European partners but avoid the embarrassment of having to adopt new economic reforms imposed from the outside, German officials say. While Berlin remains firm in its rejection of Spain's calls for Europe's rescue funds to lend directly to its banks, the officials said that if Madrid put in a formal aid request, funds could flow without it submitting to the kind of strict reform program agreed for Greece, Portugal and Ireland."

Market Turbulence As Global Economies Falter: The European debt-crisis, the derailing of Chinese economic growth and an underemployed United States all point toward a “global crunch”. 

When in doubt: crush your "common" currency by keeping your "partners" on the verge of bankruptcy, and export, export, export. After contracting by 0.3% in Q4 for both the Euroarea (of 17 countries) and the EU27, just released data from Eurostat indicated that in Q1, GDP for both "areas", but notably the Eurozone, was flat quarter over quarter courtesy of... strong exports. Which in turns shows just why various countries in the Eurozone (coughgermanycough), namely those who actually are relevant in the GDP calculation, seek to benefit greatly from the perception that Europe is on the brink, and the EUR is sliding as a result, further promoting exports, and thus, growth. As a result, because technically it avoided two consecutive quarters of contraction, the Eurozone has avoided the dreaded recession. For now. Expect further speculation that Europe is imploding, continuing to benefit solely the one export powerhouse of Europe: Germany.

All you need to read and some more.

All you need to read.