Wednesday, 20 April 2011

A Mild Restructuring.

Baltic Dry Index. 1271 -13

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

"The international monetary order is more precarious by far today than it was in 1929. Then, gold was international money, incorruptible, unmanageable, and unchangeable. Today, the U.S. dollar serves as the international medium of exchange, managed by Washington politicians and Federal Reserve officials, manipulated from day to day, and serving political goals and ambitions. This difference alone sounds the alarm to all perceptive observers."

Hans F. Sennholz

Today’s update is the last email update until Easter Monday, 25/4/2011. Check with the blog for updates.

We open today watching China. Lack of winter and spring rains has reduced China’s hydro-electric power to the point of power rationing. As bad that this is for life in parts of China, more worrying is what it is doing to grain and food production. With inflation believed by many China watchers to be running at close to 14%, any hit to food production boosting food price inflation threatens social instability later in the year. The past history of giant China, is one of periodic famines leading to massive internal turmoil and years of internal rebellion. Beijing’s top priority is avoiding any return of social instability. Mao’s murderous “Cultural Revolution” went on from 1965-1968, well within living memory for many older Chinese. Forget Mandarin class Jasmine Revolutions, any Egypt style revolution in China is more likely to see a return of the Red Guards. For those with shorter memories, in all the state encouraged violence, the British Embassy in what was then Peking, was burned to the ground.

There are reports that "Some historians have estimated that the combination of natural disasters combined with the political insurrections may have cost on the order of 200 million Chinese lives between 1850–1865.

04/19/2011 8:42 AM HKT

China regions face power shortage even before summer peak

Central China's Hubei province has joined a growing list of regions facing coal shortages, with a warning on Monday that it is very likely to start rationing power this month if coal supplies remain tight and low water stocks continue to curb hydropower generation.

China has warned that power shortages this summer could be the worst for years, with power generation and transmission systems unable to cope with rising demand. The east, north and south of China are likely to be hit the hardest.

Some central and southwestern Chinese provinces, however, have also begun feeling the pinch because their hydropower plants are wilting after a lack of rainfall.

Coal inventories in thermal power plants in regions with little of their own coal are dwindling due to pricing and transportation issues. Chinese thermal coal prices hit a three month high last week as power producers scrambled for summer supplies.

Coal inventories in thermal power plants in Hubei have fallen by 17,000 tonnes a day to 1.66 million tonnes on April 12, producing an even more serious shortage than last winter, a report on the State-owned Assets Supervision and Administration Commission website ( showed. The report was sourced from the State Grid Corp of China, the country's main power grid operator.

Given the high price of coal, most coal-fired power plants are taking a wait-and-see approach to purchases in hope that prices might fall, the report said.

Coal consumption also increased in Henan, the province that supplies most coal to Hubei, which in turn cut the amount available for Hubei.

Water levels in major hydropower plants in Hubei, except for the huge Three Gorges dam, were lower than historical averages after expected March rains did not come, the report added


Today is the one year anniversary of BP’s great Gulf of Mexico oil disaster. One year on, no one really knows how much ecological damage it caused, but the numbers are in on the damage it did to US oil production in the Gulf. Below the Journal takes up the story.

"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

APRIL 20, 2011

Spill's Toll on Oil Output Grows Clearer

Drilling Pause That Followed Explosion of Deep-Water Rig Leased by BP Saps Offshore Production

HOUSTON—One year after the BP PLC oil spill, Gulf of Mexico energy output is beginning to show the impact of the Obama administration's 10-month freeze on deep-water drilling.

Offshore oil production, most of which comes from the Gulf, is expected to average 1.55 million barrels a day this year, down 13% from 2010, according to the U.S. Energy Information Administration.

Following the April 20, 2010, blast on the Deepwater Horizon drilling rig operated by BP and the subsequent oil spill, the Obama administration stopped awarding permits for deep-water drilling until late February.

The drilling suspension, along with a new, slower permitting process, will result in the loss this year of about 375,000 barrels of oil a day, according to energy consultancy Wood Mackenzie. That is roughly equivalent to one-third of the production in Libya that remains shut down because of political turmoil there.

The setback for the Gulf's oil and natural-gas fortunes underscores the importance of what are known as development wells in maintaining production. Such wells are drilled in already discovered deep-water reservoirs to extract more oil and natural gas or stem output declines.

"None of those wells have been brought on-line; that's why we're seeing the big drop-off," said Matt Snyder, an analyst with Wood Mackenzie.

----Nowhere is the production drop-off more evident than in the fields operated by UK-based BP, which before last April's disaster had scored an astounding series of discoveries in the Gulf. Those successes, combined with the start-up of several projects, made BP the region's largest energy producer, surpassing Gulf pioneer and long-time leader Royal Dutch Shell PLC.

-----BP's Gulf production now stands at about 300,000 barrels equivalent of oil and natural gas a day, down from more than 400,000 before the spill, according to a company spokesman.

Other producers have also seen output declines, though less severe.

Back in Europe tiny Greece is conditioning the market for a coming default, politely called in the article below “ a mild debt restructuring”. How mild is mild probably lies in which side of the restructuring you’re on.

The fascination of shooting as a sport depends almost wholly on whether you are at the right or wrong end of the gun.

P.G. Wodehouse.

Greece forced to pay sky-high rates to borrow

Greece was forced to pay sky-high rates to borrow money for the next three months, amid reports Athens accepts that it has no alternative but to renege on the terms of its impossible debt burden.

By Emma Rowley 6:00AM BST 20 Apr 2011

The bailed-out nation sold €1.625bn (£1.43bn) of 13-week government bonds on Tuesday, but investors demanded a yield, or return, of 4.1pc to hold the debt - a quarter of a percentage point more than in a similar sale in February.

That means Greece pays a higher rate to borrow for three months than Germany pays for three decades, at 3.8pc.

The costs of servicing Greece's debt keep rising as markets ignore politicians' protestations that the country will not have to restructure the burden - effectively default, by changing its repayment terms.

A local report on Tuesday quoted a European Commission official as saying Greece "has realised that there is no other way and has accepted a mild debt restructuring".

Denials from the Commission, which argued that discussions were "not even" taking place between Brussels and the Greek government, could not convince investors.

Greek government 10-year debt is trading with a yield around 14pc, surpassing the peaks seen during the country's €110bn bail-out last year. The nation's weak economy, hobbled by a severe austerity programme, means it is seen as an impossibility that Greece will manage strong enough growth to support a debt equivalent to 144pc of output.

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."

Daniel Webster

At the Comex silver depositories Tuesday, final figures were: Registered 41.04 Moz, Eligible 62.08 Moz, Total 103.12 Moz.


Crooks and Scoundrels Corner.

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

Today, the scoundrels and unlovable rogues running Europe. In typical EU “lets make a backroom deal” Brussels’ style, German politicians negotiated a get out of jail deal for German automakers from the environmental pollution rules that were to be enforced on all the lesser Europeans. Only thing was, no one consulted German motorists. In the usual muddle that passes for policy in Brussels, with the highest prices for wheat in living memory, Germany would divert wheat to make ethanol and then blend into petrol at a 10% rate. Quite a shame that no one in either Brussels or Berlin bothered to find out if German cars can run on it. Below Der Spiegel covers the story in Germany. Shame that no one in Brussels thought up the wheeze to stop German traffic in 1940. As we wrote only yesterday, would you buy a used car from Berlusconi, Sarkozy, Merkel, Cameron? Today we can add Von Rompuy, Baroness Whatsit, Zapatero, Papandreou?

“Join in the new game that's sweeping the country. It's called "Bureaucracy" Everybody stands in a circle. The first person to do anything loses.”


E10 Debacle Puts the Brakes on Biofuels

By Dietmar Hawranek and Alexander Neubacher

An attempt to introduce the biofuel mixture E10 in Germany has been a disaster, after motorists refused to buy the supposed green gasoline. Car makers, oil companies and politicians have all tried to blame each other for the mess. Even environmentalists oppose the new fuel.

----The Easter travel season is coming up and Germany's filling stations need gasoline. Production is in full swing at the PCK refinery in Schwedt.

Not much is going on at the bioethanol refinery, however, where two tanks are filled to capacity with up to 100 million liters (26 million gallons) of the plant-based fuel, enough to make a billion liters of biofuel mixture. But demand is much lower than expected, which is why the entire production process now has to be shifted away from E10 -- a mixture of 10 percent ethanol and 90 percent gasoline -- and back to the old super unleaded fuel.

German motorists are to blame for the commercial failure of the supposed green gasoline. The first attempt by politicians to foist a product that is both expensive and environmentally questionable on consumers has failed.

----Of course, drivers are the ones paying for the setback. Oil companies, like Aral, Shell, Esso and Jet, have already raised their prices to recoup their additional costs. According to industry information, the cost of converting refineries and filling stations to E10 was in the triple-digit millions, while reversing the development is unlikely to be much cheaper.

And then there are the penalties the oil industry must pay the government now that it will not reach the legally mandated quota for plant-based fuels. An industry association anticipates penalties of up to €456 million ($552 million) for this year alone, which corresponds to about two euro cents per liter. Companies will presumably add this cost to the price of gasoline.

----The auto company executives have only themselves to blame for the debacle. Making sure that E10 would be a success ought to have been in their best interest, and yet there was little sign of any willingness to promote the fuel. Instead, they contributed to the general sense of uncertainty about E10.

Many car owners still aren't quite sure whether their vehicle can cope with E10. The manufacturers' lists are incomplete. This confusion even prompted the German Interior Ministry to instruct its employees not to fill up their official vehicles with biofuel until further notice. The same applied to all government agencies and organizations associated with the Interior Ministry, such as the Federal Police and the German Federal Agency for Technical Relief (THW), where officials were concerned that emergency vehicles could end up stalling because of engine damage.


“You will never understand bureaucracies until you understand that for bureaucrats procedure is everything and outcomes are nothing.”

Thomas Sowell.

Have a great Easter break everyone.

The monthly Coppock Indicators finished March:

DJIA: +160 UP 06. NASDAQ: +216 Down 01. SP500: +163 UP 6.

The Dow and SP 500 have reversed albeit by tiny margins, while the NASDAQ barely moved down. The Fed’s rigging of the indicators seems to have worked. Note: like all indicators, they were devised for normal markets not markets where the central bank is flooding the economy with new cash. In current conditions where risk is suspended by too big to fail, I doubt any indicators are showing more that where the Fed’s new cash is flowing in our world of casino capitalism.

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