Baltic Dry Index. 3803 -29
LIR Gold Target by 2019: $3,000.
Political rent seeking tends to be a negative sum game. Economic exchanges may become involuntary in whole or in part. One party is forced into something they would not otherwise agree to, and the result easily is no benefit for that party and an absolute loss of value.
We open today with global stock markets in full retreat and the VIX at a 13 month high. After months of complacency, and assisted by the Feds NY market fixers aka the plunge protection team, stocks were always vulnerable to a major correction once fickle “sentiment” changed from one of recovery to one of a second leg down. Since the extraordinary stock market event of May 6th, when $40 stocks managed to trade at $0.01, stocks had been living on borrowed time. Two weeks on, no one can still say for certain what exactly triggered it, with the prime suspects High Frequency Trading programs and Exchange Traded Funds resting stops. The sad fact is nowadays, that the rent seeking program trading of the great vampire squids, now makes up 80 to ninety percent of the daily volume. Investing it aint, gambling it is, backed up by a central bankster desperate to get another Greenspanian bubble gowing again. Events have combined to undo him. Below, the gamblers get caught out by the crisis in Europe, and China and America starting to retrench. Next week’s US-China Strategic and Economic Dialogue meeting in Beijing, will now have more than North Korea and Iran to talk about at one level, and revaluing the yuan and Uncle Sam putting his finances in order and living within his means at another.
"There may be a recession in stock prices, but not anything in the nature of a crash."
Prof. Irving Fisher, Yale economist, September 1929.
'Perfect storm' as market tremors hit China, Europe and the US
Capitulation fever has swept global markets on triple fears of faltering recovery in the US, Chinese credit curbs and Europe's intractable escalating debt crisis.
By Ambrose Evans-Pritchard, International Business Editor
Published: 8:32PM BST 20 May 2010
"It is the perfect storm," said Andrew Roberts, credit strategist at RBS. "People have been too complacent about risky assets. This is a global deflation scare and people need to get ready for falls in US and European bond yields to 2pc."
Wall Street shares plunged 3pc after new jobless claims in the US rose to 471,000 last week, the biggest jump in three months. The S&P 500 index of shares fell to 1080, triggering automatic stop-loss sales as it crashed through support on its 200-day moving average.
The US Conference Board leading indicator turned negative in April, the first drop since the depths of the Great Recession. This follows data showing an 11pc slide in building permits, pointing to a double-dip slump in the US housing market later this year. Lumber prices have fallen 26pc from their peak in April.
David Rosenberg from Gluskin Sheff said a fresh "train wreck" may be coming in the US mortgage market as rates on a wave of "option ARM" contracts reset upwards in September. This may compound a deflationary process already eating at the US economy as Washington's fiscal stimulus wears off and the effects of a stronger dollar feed through. Core inflation has dropped to the lowest since 1964.
Meanwhile, monetary tightening in China has begun to set off tremors. Shanghai's bourse has tumbled 20pc since mid-April (or 58pc from its 2007 peak), dragging down oil and base metals.
This may prove more than a refreshing pause. Ben Simpfendorfer, RBS's China economist, said credit tightening since April was needed to cool the property bubble, but "regulatory tightening is not a precise science and there is a risk the measures cause an abrupt correction in property prices and construction. It might be that China provides the next surprise."
Goldman Sachs said that there were signs "beneath the radar" that China may be slowing, citing reports that property sales had dropped 80pc in Beijing in the first half of May compared to a month earlier.
Above all, nothing has been resolved in Europe. The short-ban on bond trades this week by Germany's regulator BaFin comes as the Libor-OIS spread used to gauge strains in the interbank market flashes warning signs, rising to a nine-month high of 25 basis points. The iTraxx Crossover measuring corporate bond risk jumped 45 points to 620 yesterday. "The way the market is behaving right now suggests that investors are getting set for something nasty to happen," said Suki Mann from Societe Generale.
Regulatory clamp-downs are often symptomatic of stress. Wall Street crashed 28pc over eight days after the US Securities and Exchange Commission imposed a short ban in September 2008. While BaFin's move has been dismissed political posturing, the story may be more complicated.
An internal BaFin note in February said German banks held €522bn of exposure to state bonds in Portugal, Italy, Ireland, Greece and Spain. It warned of "violent market disruptions" if contagion spread beyond Greece, triggering a "downward spiral in these countries, as in the case of Argentina".
Investors are baffled by the cacophony of voices in Europe. A day after German Chancellor Angela Merkel said the euro was in "existential danger", French finance minister Christine Lagarde replied that "the euro is absolutely not in danger".
At the LIR, we have long suggested carrying a few purchased puts, and not just on stocks, plus using the PPT as buyer of last resort to exit stocks. Below, Professor Doom, thinks that there’s further downside to go. I can hardly disagree except to say stocks usually over react on the upside and downside. Professor Roubini’s 20% might prove to be way too optimistic, if another May 6th lies ahead. In the G-7 and much of the G-20, our central banksters are now at the mercy of events beyond their control. “Sell in May, go away,” was very apt this year, provided you got out of stocks before the great vampire squid gamblers broke the great machine back on May 6th.
Stocks to Tumble Another 20%, Cash the Safest Place: Roubini
Published: Thursday, 20 May 2010 4:25 PM ET
Stocks are likely to continue their aggressive decline and shed another 20 percent in value as the world economy weakens, economist Nouriel Roubini told CNBC.
As the market slides into correction territory, Roubini said weakness in euro zone countries and a slowdown in the US and other developed countries will make things even more difficult for investors in the months ahead.
"There are some parts of the global economy that are now at the risk of a double-dip recession," said Roubini, head of Roubini Global Economics. "From here on I see things getting worse."
Prices in both stocks and commodities are likely to take a hit, and investors may only be safe in cash and other safe havens. Roubini said investors also can use options to hedge against future market risk that he said is sure to come as conditions weaken in the US, Japan, China and through much of Europe.
-----That will lave little room for growth both in economic measures and in most investment classes, Roubini said.
"There is that risk because the problems on the macro level are first in the euro zone. Then in China there is evidence of economic slowdown...Japan is in trouble and US economic growth is going to slow down," he said. "There is also regulatory risk because we don't know how financial reform is going to occur."
-----As for Europe, he called fixing the debt problems in Greece and other troubled nations "mission impossible" and said tough decisions will need to be made.
"What needs to be done is clear. We need to raise taxes and cut spending. Otherwise we're going to get a fiscal train wreck," he said. "It's going to take years of sacrifices."
http://www.cnbc.com/id/37259541
With an EU finance ministers meeting underway, and the UK’s new BOGOF Prime Minister off touring Paris and Berlin, we’ll give Europe a rest for today. More probably on the blog at the weekend.
We end today with, probity challenged BP, who now say that they are capturing 5,000 barrels of “oil” a day from their leaking oil well in the Gulf of Mexico. So that’s alright then, since the well was officially only leaking 5,000 barrels a day into the Gulf. Very generously, BP, is not going to seek reimbursement from the American people, they say, presumably following PR advice from Ebenezer Squid.
“We have said we're not going to hide behind a $75 million cap on the liabilities. To date, we have spent more than half-a-billion dollars on the spill response. We're not going to ask for reimbursements for the American people for that effort.”
Bob Dudley. BP.
BP now siphoning 5,000 barrels a day from sub-sea spill
Disaster marks one-month anniversary of April 20 accident
NEW YORK (MarketWatch) -- The daily volume of oil being collected from the leak on the sea floor of the Gulf of Mexico is now around 5,000 barrels, BP PLC said Thursday, as the environmental disaster marks one month since the Deepwater Horizon rig exploded in a fireball.
BP Plc spokespeople conceded that despite the oil sucked up the mile-long siphon hose inserted into the broken well pipe on the sea floor, more oil continues to leak into the Gulf of Mexico. That means the leak is greater than the official estimate of 5,000 barrels a day.
To get to the bottom of the issue, the White House asked BP to publicly disclose measurements of the size of the leak under the sea, and its impact on air quality.
-----BP said it's managed to boost to 5,000 barrels a day the amount of oil running from a mile-long collection pipe that reaches down to the broken well pipe, up from 3,000 barrels on Wednesday.
-----Meanwhile, the Environmental Protection Agency asked BP to use a less toxic form of chemical dispersants to break up its oil spill.
BP must apply the new form of dispersants within 72 hours of submitting the list of alternatives, according to reports.
http://www.marketwatch.com/story/deepwater-horizon-disaster-marks-one-month-2010-05-20
Of course, anyone who has looked at BP’s video of the two parts of the leak, has been well aware that far more than 5,000 barrels a day was pouring out into the Gulf. Experts have estimated the oil spill at anywhere from 12,500 bpd to 87,000 bpd, with many experts suggesting a flow of between 30,000 bpd and 50,000 bpd. So where is all that unrecovered oil going? My guess is that by using toxic dispersants at the site of the leaks, BP is generating a hidden massive plume(s) of heavy oil emulsion, that is very slowly making its way to the surface far from the scene of the disaster. Where it ends up is anyone’s guess because no one is looking for it anymore following last weekend’s announcement of a Manhattan sized plume of what appears to be oil, slowly drifting at three to four thousand feet down in the Gulf. I suspect that bad as BP’s troubles have been, BP hasn’t seen anything yet. So where did the “official” estimate of 5,000 bpd come from? The legal or the PR department? Sooner or later someone important is going to ask “what did you know and when did you know it?” BP’s stock is likely to be as toxic as BP’s missing oil for many years to come.
Video of BP oil flow from the BOP
http://www.youtube.com/watch?v=V7Vkgr-FEgg
Below, a dark plot gets a whole lot darker.
"Nothing contributes so much to the prosperity and happiness of a country as high profits."
David Ricardo, 19th century economist.
BP Smoking Gun? Oil Giant Skipped Critical Testing Hours Before Explosion
First Posted: 05-20-10 02:15 PM Updated: 05-20-10 06:10 PM
New revelations about BP's operations on the Deepwater Horizon oil rig on the day of the explosion are being described as the smoking gun that proves the oil giant's culpability in the disaster.
BP hired a reputable oilfield service company to test the strength of cement linings on the well, but then sent the company's workers home 11 hours before the explosion on April 20 -- "without performing a final check that a top cementing company executive called 'the only test that can really determine the actual effectiveness' of the well's seal," reports the New Orleans Times-Picayune:
A spokesman for the testing firm, Schlumberger, said BP had a Schlumberger team and equipment for sending acoustic testing lines down the well "on standby" from April 18 to April 20. But BP never asked the Schlumberger crew to perform the acoustic test and sent its members back to Louisiana on a regularly scheduled helicopter flight at 11 a.m., Schlumberger spokesman Stephen T. Harris said.
At a few minutes before 10 p.m., a belch of natural gas shot out of the well, up a riser pipe to the rig above, igniting massive explosions, killing 11 crewmembers and sending millions of gallons of crude oil into the Gulf. The rig's owner, Transocean, blames failed cement seals, installed by Halliburton, for the disastrous blowout.
http://www.huffingtonpost.com/2010/05/20/bp-smoking-gun-oil-giant_n_583590.html
At the Comex silver depositories Thursday, final figures were: Registered 52.82 Moz, Eligible 64.35 Moz, Total 117.17 Moz.
Day 12 of Hitler’s attack in the west that almost brought down western civilization. We continue our daily update on the “Dunkirk” page.
Dunkirk & the Battle of France – Day by day 70 years on.
http://londonirvinereport.blogspot.com/p/dunkirk-battle-of-france.html
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Crooks & Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, the NY Times of yet another rising pension problem in the land between the now iridescent seas. Once America belatedly starts on its own austerity programs, I suspect that financially stressed US taxpayers are going to go ballistic over public pensions.
"There's a sucker born every minute."
P.T. Barnum.
Padded Pensions Add to New York Fiscal Woes
By MARY WILLIAMS WALSH and AMY SCHOENFELD Published: May 20, 2010
In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year.
It’s what the system promised, said Mr. Tassone, now 47, adding that he did nothing wrong by adding lots of overtime to his base pay shortly before retiring. “I don’t understand how the working guy that held up their end of the bargain became the problem,” he said.
Despite a pension investigation by the New York attorney general, an audit concluding that some police officers in the city broke overtime rules to increase their payouts and the mayor’s statements that future pensions should be based on regular pay, not overtime, these practices persist in Yonkers.
The city has even arranged for its police to put in overtime as flagmen on Consolidated Edison construction sites. Though a company is paying the bill, the city is actually reporting the work as city overtime to the New York State pension fund, padding future payouts — an arrangement at odds with the spirit of public employment, if not the law.
The Yonkers experience shows how errors, misunderstandings and wishful thinking are piling hidden new costs onto New York’s public pension system every year, worsening the state’s current fiscal crisis. And the problem is not just in New York. Public pension costs are ballooning everywhere, throwing budgets out of whack and raising the question of whether venerable state pension systems are viable.
In fact, the cost of public pensions has been systemically underestimated nationwide for more than two decades, say some analysts. By these estimates, state and local officials have promised $5 trillion worth of benefits while thinking they were committing taxpayers to roughly half that amount.
According to pension data collected by The New York Times from the city and state, about 3,700 retired public workers in New York are now getting pen-sions of more than $100,000 a year, exempt from state and local taxes. The data belie official reports that the average state pension is a modest $18,000, or $38,000 for retired police officers and firefighters. (The average is low, in part, because it includes people who worked in government only part time, or just a few years, as well as surviving spouses getting partial benefits.)
Roughly one of every 250 retired public workers in New York is collecting a six-figure pension, and that group is expected to grow rapidly in coming years, based on the number of highly paid people in the pipeline.
http://www.nytimes.com/2010/05/21/business/economy/21pension.html?hp
In 1863, a rival of Cornelius Vanderbilt, Daniel Drew, began shorting the stock of Vanderbilt's New York and Harlem Railroad (later to merge into the New York Central). This was in league with New York politicians who revoked construction permits to damage the value of the railroad. Vanderbilt, however, had bought up all the outstanding stock. Drew and his allies were legally liable to produce stock that Vanderbilt wouldn't let them purchase. In the end, Vanderbilt let them off with a $5 million loss. Drew summed up the mess with a jingle: "He that sells what isn't his'n, must buy it back, or go to prison."
Another weekend, and our weather is finally turning hot to match the political mood in Europe. As seen from London, the French are mad at the Germans for not working hard enough to maintain Club Med’s lifestyle and future aspirations. The Germans are mad with the Greeks, for bringing up the war, cheating on their taxes and avoiding work. Everyone else in Euroland is also mad at the Greeks for turning the world’s spotlight on the other cheating EMU nations and trashing the ECB, turning it from a Bundesbank clone into a passable copy of the Argentine central bank. Stay long physical precious metals. It doesn’t get any better as the fiat currencies start to fail. Have a great weekend everyone.
"There is nothing in the business situation to justify any nervousness."
Eugene M. Stevens, President Continental Illinois Bank, October 1929.
The monthly Coppock Indicators finished April:
DJIA: +245 UP. NASDAQ: +448 UP. SP500: +276 UP. The great Bull market goes on with the all three continuing higher in positive numbers. But how much Bull is enough?
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Help the LIR fight Banksterism, the EU, and for sound money.
If you can, help the LIR stay around and make a difference. Please make a donation at the PayPal link on the website or better still become a sponsor for what looks like an exciting 2010. Capitalism not banksterism. Many thanks to all who have helped.
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Sunspots – A 22 year colder world? (From 2004?)
Spotless Days May 20
Current Stretch:12 days
2010 total: 33 days (24%)
2009 total: 260 days (71%)
Since 2004: 802 days
Typical Solar Min: 485 days
The long minimum seems to have ended, or has it?
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