Thursday 5 March 2015

Black Gets Blacker.



Baltic Dry Index. 559 +06    Brent Crude 60.62

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”

“Adam Smith” aka George Goodman.

We open with yet another red flag. The Great Disconnect between the central banksters’ stock market bubble and the real world, in which economic activity is slowing and likely heading into another recession, has never been greater nor more noticeable. Either economic activity picks up to support the bubble, or the bubble bursts in a repeat of 2008-2009, but far worse. We are already at the zero bound on interest rates. Debt has exploded since 2008, much of it merely going into stock buy backs that add nothing to the creation of wealth. Central banksters everywhere have already grossly expanded their balance sheets. Simply put, like Greece, we are all a heartbeat away from drowning in a Pacific Ocean of unrepayable debt. The Great Nixonian Error of fiat money is in its death throes. We are now in an anything goes currency war that ends in fiat currency revulsion.

"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."

John Exter

The Kingdom Of Denmark

John Mauldin | Mar 04, 2015

By Michael Lewitt
Excerpted from the March 1, 2015 issue of The Credit Strategist
----February 13th marked the 25th anniversary of the bankruptcy of Drexel Burnham Lambert.

----Twenty-five years after Drexel’s demise and seven years after a crisis that pushed the global economy to the brink of collapse, the world is drowning in debt and derivatives. As a point of reference, when Drexel filed for bankruptcy, it had a balance sheet of $3 billion. When Lehman Brothers filed for bankruptcy in 2008, its balance sheet was two hundred times larger at $600 billion. As Figure 1 below illustrates, debt has grown exponentially while the global economy has crept along at a petty pace. Six years after the financial crisis, interest rates have been driven below zero in much of the developed world,2 a sign that policy makers have failed to create sustainable economic growth. (The latest tally is that $1.9 trillion of European sovereign debt is trading with negative yields.) They have managed to inflate financial assets but left the real economy behind. For example, U.S. equity prices have gained 122% since 2009 while US nominal growth has grown by only 18% over the same period. Having exhausted their ability to employ interest rates as a policy tool, policy makers are now shifting their sights to currencies to stimulate growth. But currencies are themselves nothing more than a form of debt, a promise by a sovereign. And those promises are being actively debauched in a series of currency wars that are certain to end badly for those who depend on fiat money for their daily bread.

Drexel and its aftermath taught me many lessons. The most important is that the world of finance is the world of human nature in all its terrible beauty. And that world is driven by incessant change. Drexel was thought to be the most powerful firm on Wall Street, yet it collapsed overnight. That taught all of us working there not only a lesson in humility but a lesson in the fragility of all financial structures, especially those built on leverage. Those who fail to acknowledge and adapt to change are always flirting with failure. Today’s investment landscape is filled with investors, strategists and media pundits who refuse to admit that we no longer live in a world that can pay its debts or respond to monetary stimulus as it did in the years before the financial crisis. Acknowledging these realities doesn’t mean one has to stop investing or stop taking risk. But it does mean one better do so with one’s eyes wide open.
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China Lowers Growth Target to About 7% as Li Flags Headwinds

12:02 AM WE March 5, 2015
(Bloomberg) -- China set the lowest economic growth target in more than 15 years and flagged increasing headwinds as leaders tackle the side effects of a generation-long expansion that spurred corruption, fueled debt and hurt the environment.

The goal of about 7 percent -- down from last year’s aspiration of about 7.5 percent -- was given in Premier Li Keqiang’s work report at the annual meeting of the legislature in Beijing Thursday. Fiscal policy will remain proactive and monetary policy prudent, while the yuan exchange rate will be kept at a reasonable and balanced level, the government said.

Headwinds that include a property slump, excess industrial capacity and disinflation prompted the second interest-rate cut in three months at the weekend. Policymakers flagged a wider budget deficit this year of about 2.3 percent of gross domestic product, adding fiscal firepower to the monetary stimulus.

Li’s work report, which opened the meeting of the National People’s Congress, is his second since the 59-year-old was named premier toward the end of 2013’s legislative gathering. Along with President Xi Jinping, Li is seeking to increase efficiencies and strengthen market forces after GDP growth in 2014 was the slowest in 24 years.

“The difficulties we are to encounter in the year ahead may be even more formidable than those of last year,” Li said. “China’s economic growth model remains inefficient: our capacity for innovation is insufficient, overcapacity is a pronounced problem, and the foundation of agriculture is weak.”

Policymakers are trying to balance the need to cushion the economy’s slowdown with monetary and fiscal stimulus against longer-term goals. They’re seeking to increase the role of private business, promote innovation and reshape the fiscal framework as they shift the economy from reliance on debt-fueled investment toward greater consumption and services.
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Liquidity evaporates in China as 'fiscal cliff' nears

Unless China changes course, it is set to tighten fiscal policy by 5.5pc of GDP this year, five times Britain's austerity dose annually since the Lehman crisis

Nobody can fault China's leaders for lack of bravery. The Politburo has kept its nerve as the world's most giddy experiment in credit-driven growth faces assault on three major fronts at once.

Real interest rates have rocketed. The trade-weighted rise in the yuan over the past two years has been spectacular. Fiscal policy is about to tighten drastically as the authorities clamp down on big-spending local governments.

Put together, China is pursuing the most contractionary mix of economic policies in the G20, relative to the status quo ante. Collateral damage is already visible in the sliding global prices of iron ore, copper, nickel, lead and zinc over recent months, as well as thermal coal, oil, corn and even sugar.

Zhiwei Zhang, from Deutsche Bank, says China faces a "fiscal cliff" this year as Beijing attempts to rein in spending. "This year, China will likely face the worst fiscal challenge since 1981. This is not well recognised in the market," he said.

The International Monetary Fund says China's budget deficit topped 10pc of GDP in 2014 if measured properly, including borrowing by the regions through "financing vehicles" as well as land sales - a patently unsustainable form of funding that makes up 35pc of local government revenue. 
This is the highest deficit of any major country in the world, and far above safe levels.

A budget squeeze is already emerging as the property slump drags on. Zhiwei Zhang says land revenues fell 21pc in the fourth quarter of last year. "The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown," he said.
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Draghi’s New Era Blighted by Old Problems as ECB Finalizes QE

12:01 AM WET March 5, 2015
(Bloomberg) -- Mario Draghi is leading the euro area into a new phase of monetary stimulus hampered by the same old political problems.

While the European Central Bank president’s 1.1 trillion-euro ($1.2 trillion) bond-buying plan may be enough to skirt deflation, it can’t make governments play their part with structural reforms. That leaves him continuing to cajole politicians as he deals with the fallout from recurrent financial crises in weak economies.

As the Governing Council meets in Nicosia to settle the details of an asset-purchase program that could start this week, the risk is that it’s simply delaying a day of economic reckoning. From Greece’s attempt to jettison its aid program to French sluggishness in cutting its debt, euro-area leaders have shown a reluctance to take the steps the ECB says are essential for sustainable growth.

“The ECB is doing what’s needed on the monetary side, but on the political side the clock is ticking,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc in London. “If all goes to plan, the economy will improve at some point and interest rates will rise again. At that point, those countries which have lagged behind on reforms will pay the price and they might drag down the rest of the region.”

The ECB will leave its benchmark interest rate at a record low of 0.05 percent and the deposit rate at minus 0.2 percent on Thursday, according to all economists in Bloomberg News surveys. The Bank of England is predicted to leave its key rate at 0.5 percent in a decision due at noon in London.

When Draghi holds his press conference in the Cypriot capital, he’ll release new forecasts for inflation and growth that factor in QE and the most recent slump in oil prices. Euro-area inflation was minus 0.3 percent in February, after a record-equaling minus 0.6 percent in January.

The new outlook will extend to 2017 for the first time, giving investors a chance to assess how long the ECB will continue quantitative easing.

----Other unknowns include how the ECB will taper purchases as it nears its goal, the extent to which it’ll buy bonds with negative yields, how data on purchases will be made public, and how it’ll find enough assets to buy. Another unresolved matter is how to treat losses at national central banks from buying bonds with negative yields.
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Lord Rothschild: 'Investors face a geopolitical situation as dangerous as any since WW2'

Chairman of the popular RIT Capital Partners investment trust warns savers of 'chaos, extremism and aggression' around the world, with 'horrendous' problems in Europe

Jacob Rothschild, the 78 year-old banker and chairman of RIT Capital Partners, has delivered savers in the £2.3bn trust a stark warning about global instability and the fragility of future returns.

He used his chairman's statement in the trust's 2014 annual report to outline his concerns, saying that on top of a "difficult economic background" investors face "a geopolitical situation perhaps as dangerous as any we have faced since World War II".

He said this was the result of "chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union".

This was a much gloomier assessment of the world than the picture painted in his statement a year ago.
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We end for today with another update on man-made global warming, now rebranded and re-launched as “climate change,” after being thoroughly discredited as a fraud under the old terminology. Below, it seems those Yanks just can’t get enough climate change this winter.

Weather Bulletin: Records Breaking Across America

March 3 2015
 As temperatures continue to dip and snow accumulates, support for the claim human-caused global warming is causing winters to disappear is melting like ice under a heat lamp.

Cold temperature records were tied or broken at more than 2,000 locations in the past week. According to the weather website Sunshine Hours, the National Oceanic and Atmospheric Administration recorded 2,634 record-low high temperatures broken or tied between February 19 and February 25. Over the same period, 272 locations registered record-low temperatures at least one day during the week. All these records are falling without the influence of the polar vortex that set thousands of record lows throughout the nation in 2014.

On February 27, every area east of the Rocky Mountains, except Florida, experienced below-average temperatures.

New York City set a record for its coldest February ever, recording an average temperature of 24° F for the month, 11° F below the historic average.

The Midwest and the Great Lakes states were not spared the record chill. Record-low temperatures were set in Columbus, Ohio (-11° F), Chicago (-10° F), Dubuque, Iowa (-17° F), Flint, Michigan (-17° F), Grand Rapids, Michigan (-10° F), and Indianapolis, Indiana (-5° F).

Farther south, on February 27, Oklahoma (23° F) and Dallas, Texas (30° F) each set records for the lowest maximum temperature recorded on that date

"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

Kenneth J. Gerbino

At the Comex silver depositories Wednesday final figures were: Registered 68.85 Moz, Eligible 109.32 Moz, Total 179.17 Moz.  

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Today, an interesting read. My thanks to Ian in Toronto for sending me a copy.

Financing of the Terrorist Organisation Islamic State in Iraq and the Levant (ISIL)

February 2015
---The mandate of the Financial Action Task Force (FATF) was expanded in 2001 to address the funding of terrorists acts and terrorist organisations. Since that time, combatting terrorist financing (TF) has been a very significant challenge. Important work was done in 2008 to identify a wide variety of TF methods terrorists use to raise, move and use funds. That study addressed the terrorist requirement for funds to include direct costs associated with specific operations and broader organisational costs to maintain infrastructure and promote ideology for the terrorist organisation.
Given the rapid development of the terrorist organisation Islamic State in Iraq and the Levant (ISIL), there is a need to understand those funding requirements and associated TF risk. This study represents a snapshot of the revenue sources and financial activities of ISIL been identified to date. 
However, gaps remain and more work is needed to develop the full picture of ISIL’s financial activities and to identify the most effective countermeasures to prevent ISIL from using accumulated funds and disrupting sources of funding. ISIL financing is a constantly changing picture and a very difficult and complicated area to address given the operational situation on the ground. It should be emphasized that terrorism and those who support terrorism can never be associated with any religion, nationality, civilisation or ethnic group.

ISIL represents a new form of terrorist organisation where funding is central and critical to its activities. This report identifies ISIL’s primary sources of revenue which are mainly derived from illicit proceeds from its occupation of territory. These sources include bank looting and extortion, control of oil fields and refineries and robbery of economic assets. Other sources include the donors who abuse Non-Profit Organisations (NPOs), Kidnapping for Ransom (KFR) and cash smuggling (areas where FATF has conducted in-depth research), to new and emerging typologies which have not yet been addressed by the FATF, such as the extortion of goods and cash transiting territory where ISIL operates and grass-root funding strategies. A number of unique and diverse “case studies” have been provided by countries which describe how ISIL obtains funding and economic support as well as describing mechanisms to utilize these funds. 

The need for vast funds to meet organisational and governance requirements represents a vulnerability to ISIL’s infrastructure. In order to maintain its financial management and expenditures in areas where it operates, ISIL must be able to seize additional territory in order to exploit resources. It is unclear if ISIL’s revenue collection through the illicit proceeds it earns from occupation of territory, including extortion and theft, will be sustainable over time. Cutting off these vast revenue streams is both a challenge and opportunity for the global community to defeat this terrorist organisation.
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The monthly Coppock Indicators finished February

DJIA: +120 Down. NASDAQ: +213 Down. SP5

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