Monday, 14 February 2011

China. Volcanoes.

Baltic Dry Index. 1178 +42

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

Due to travel, an abbreviated update this morning. We start with a subject we well covered before. Last year the Chinese economy moved into second place behind the US economy beating Japan into third place. Fourth place, if the EU economy is counted as number one, although in fairness that should be counted against NAFTA.

Japan's GDP Contracts, Surpassed by China in 2010

By Keiko Ujikane - Feb 14, 2011 2:03 AM GMT

Japan’s gross domestic product fell less than estimated in the fourth quarter in a pullback that may prove temporary as overseas demand revives production after the nation fell behind China as the world’s second-largest economy.

The annualized 1.1 percent drop in GDP in the three months through December was driven by a slowing in exports and fading of government stimulus programs, Cabinet Office figures showed today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 2 percent drop.


But China may slip back again later this year, if the long running drought lasts on through the spring.

China Drought Global Food Crisis to Trigger Many More Egypts

The Chinese government has reportedly decided to spend $1 billion to battle the drought plaguing huge areas in the north, as wheat prices continued their climb and the UN warned of serious consequences for the winter harvest.

The drought is the worst in six decades in many areas, and has left a swathe of grain-producing regions reeling from a lack of any significant rainfall in more than three months.

-----Eight major grain-producing provinces, including Shandong, Jiangsu, Henan, Hebei and Shanxi, have been affected. Together they produce more than 80 percent of China’s winter wheat. By Wednesday, a total of 7.8 million hectares of winter wheat had been affected by the drought in the eight provinces, accounting for 42.4 percent of their total wheat-sown area, according to the Ministry of Agriculture.


China's Snows Fail to Ease Drought That Pushed Up Wheat

By Bloomberg News - Feb 14, 2011 5:24 AM GMT

Snowfalls in China’s major wheat- growing regions failed to ease a drought, a government agency said. Wheat prices climbed to the highest level since August 2008 in Chicago and to a record in Zhengzhou.

The dry spell is likely to continue to affect crops as the weather is getting warmer and the winter wheat needs large amounts of water when turning green, Chen Lei, deputy director at the State Flood Control and Drought Relief Headquarters, said in a statement posted on its website on Feb. 12.


China Profits From Solar-Power Strategy as Europeans Backpedal

By Bloomberg News - Feb 14, 2011 12:00 AM GMT

China, the world’s biggest electricity consumer, is figuring out how to capture a larger share of the solar-energy market without losing money.

The government will spend at least a year studying Europe’s system of paying above-market prices for solar power before deciding if there’s a better way to spur clean-energy plants across China, said Wu Dacheng, an adviser to national power regulators. The delay has stalled projects planned on Chinese soil by developers such as First Solar Inc. of the U.S.

“We need to learn from European countries like Germany” that pay subsidized rates to spark solar-panel installations, Wu, vice chairman of the Solar Photovoltaic Committee of China’s Renewable Energy Society, said in an interview


We end for this shortened update with an item from the weekend update. Iceland is warning of more volcano trouble likely. After last year’s European travel disruption due to an Icelandic volcano, this year all European air travelers need to check that their travel insurance policies still cover disruption caused by volcanic eruption.

Icelandic volcano 'set to erupt'

Scientists in Iceland are warning that another volcano looks set to erupt and threatening to spew-out a pall of dust that would dwarf last year's event.

6:38PM GMT 08 Feb 2011

Geologists detected the high risk of a new eruption after evaluating an increased swarm of earthquakes around the island's second largest volcano.

Pall Einarsson, a professor of geophysics at the University of Iceland, says the area around Bárdarbunga is showing signs of increased activity, which provides "good reason to worry".

He told the country's national TV station that a low number of seismometer measuring devices in the area is making it more difficult to determine the scale and likely outcome of the current shifts.

But he said there was "every reason to worry" as the sustained earthquake tremors to the north east of the remote volcano range are the strongest recorded in recent times and there was "no doubt" the lava was rising.

The geologist complained that the lack of coverage from measuring devices means he cannot accurately detect the depth and exact location of the increased number of localised earth movements.

"This is the most active area of the country if we look at the whole country together," he told the Icelandic TV News. "There is no doubt that lava there is slowly growing, and the seismicity of the last few days is a sign of it.

"We need better measurements because it is difficult to determine the depth of earthquakes because it is in the middle of the country and much of the area is covered with glaciers."

Respected volcano watcher Jón Frímann, said on his volcano watch blog: "After the Eyjafjallajökull volcano eruption in the year 2010 it seems that geologists in Iceland take earthquake swarms more seriously then they did before."

He explained the Icelandic Met Office had on Sunday warned of the increased risk of a eruption in north-west side of Vatnajökull glacier due to the high earthquake activity in the area, and added: "It is clear that only time is going to tell us if there is going to be a eruption in this area soon or not."

The last recorded eruption of Bárdarbunga was in 1910, although volcanologists believe its last major eruption occurred in 1477 when it produced a large ash and pumice fallout. It also produced the largest known lava flow during the past 10,000 years on earth.

It is the second largest volcano on Iceland and is directly above the mantle plume of molten rock.

By comparison, Bárdarbunga dwarves the Eyjafjallajökull volcano, which shutdown most of Europe's airspace last year after its ash cloud drifted across the continent's skies.


At the Comex silver depositories Friday, final figures were: Registered 41.92 Moz, Eligible 60.50 Moz, Total 102.42 Moz.


Crooks and Scoundrels Corner.

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

Today, more of “when Wall Street calls, hang up”.

“God works in mysterious ways.”

Ebenezer Squid.

Sunday, February 13, 2011

Paulson Denies Culpability in Crisis, Yet Even Bear Turned Down His Deals

-----Signs of recklessness were more visible in 2004 and 2005, to the point were Sabeth Siddique of the Federal Reserve Board, who conducted a survey of mortgage loan quality in late 2005, found the results to be “very alarming”.

So why, with the trouble obvious in the 2005 time frame, did the market create even worse loans in late 2005 through the beginning of the meltdown, in mid 2007, even as demand for better mortgage loans was waning? It’s critical to recognize that this is an unheard of pattern. Normally, when interest rates rise (and the Fed had begun tightening), appetite for the weakest loans falls first; the highest quality credits continue to be sought by lenders, albeit on somewhat less favorable terms to the borrowers than before.

In other words: who wanted bad loans?

-----The obvious answer is that good loans did not generate hugely excessive bonuses, but bad loans did.

What happened is that the benefits for originating bad loans exceeded the cost of these negative consequences – someone was paying enough more for bad loans to overwhelm the normal economic incentives to resist such bad underwriting.

The best example of this is John Paulson, who earned nearly $20 billion for his fund shorting subprime. This amount of money was not ever possible or conceivable in the mortgage business prior to that point. The only way it could occur was through the creation of a tremendous number of bad loans, followed by a bet against them. Betting on good loans could never generate this much gain.


The monthly Coppock Indicators finished January:

DJIA: +161 Down 10. NASDAQ: +228 Down 10. SP500: +161 Down 4.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

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