Thursday 20 September 2012

Thumbs Up Or Down?



Baltic Dry Index. 722  +25 Possible double bottom.

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

Some of the pain has to recede, and we have to roll up our sleeves and get to work. If people see us working and engaging and doing the right thing and sharing our views and it’s right and makes sense, and we communicate more, that would represent a step in the right direction. If we do that, in about 200 years people will start to trust us.”

Lloyd Blankfein, CEO Goldman Sachs Group Inc.

With the Baltic Dry Index appearing to have double bottomed, albeit weakly and possibly for technical or seasonal reasons, today we take a break from Europe’s never ending crisis. I have every confidence in Europe’s ditherers and serial bunglers to continue to make matters wealth destroyingly worse. Today we posit “is this the bottom?” Is it thumbs up or down in our global coliseum?

According to our “hopium” stock markets, it’s very definitely thumbs up. But they are just reacting to all the new money created out of nothing this month, by the ECB, the Fed, China and the BOJ. There are rumours that the Old Lady of Threadneedle Street will join the party by the end of the month. Stay long physical precious metals.  Crude oil was benefiting from QE speculation too, until yet more “flash crash” futures incidents Monday and yesterday, have raised yet more questions about the value of gambling futures markets in an age of super-fast computers front running ordinary clients. If you think this problem is bad now, just wait until the arrival of graphene based super-super-fast quantum computers, somewhere probably around the turn of the decade. Ebenezer Squid on steroids.

Below, our mixed bag of conflicting evidence. China’s princelings seem to be back buying bling. Japan’s exports to Europe fell off a cliff, and are about to do so to China. China’s manufacturing might just have hit bottom. FedX says the global economy is worsening and is about to start swinging the ax.
Sept. 20, 2012, 2:04 a.m. EDT

Swiss watch exports up 5.2% in August; Asia strong

ZURICH--Swiss watch exports climbed 5.2% on year in August driven by continuing robust demand from Asia, data released Thursday by Switzerland's customs office showed.

The value of watch exports reached 1.47 billion Swiss francs ($1.58 billion) in August, up 5.2% in real terms from the same month a year earlier. In nominal terms, the gain was 12.7%, the office said.

Swatch Group AG , Compagnie Financiere Richemont SA and privately held Rolex are the main producers.
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Sept. 19, 2012, 8:05 p.m. EDT

Japan's exports fall, trade deficit widens

LOS ANGELES (MarketWatch) -- Japan's trade deficit widened in August from a month earlier as both exports and imports fell, data released Thursday showed, but the results still managed to beat expectations. Total exports for the month dropped 5.8% from a year earlier, the Finance Ministry reported, though exceeding expectations in a Dow Jones Newswires poll for a 6.2% decrease. August imports lost 5.4%. The trade deficit reached 754.1 billion yen ($9.62 billion), below the year-earlier ¥777.5 billion deficit but wider than July's ¥517.4 billion trade gap and undershooting expectations for a ¥797.9 billion deficit. Exports to top trading partner China fell 9.9%, offset somewhat by a 10.3% rise in U.S.-bound shipments. Exports to the European Union fell 22.9%.
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Copper slips after China factory data

SINGAPORE | Wed Sep 19, 2012 11:55pm EDT
(Reuters) - London copper slipped on Thursday after data from top consumer China showed manufacturing activity steadying, but not improving, while enthusiasm waned over Japan's easing steps that pushed prices to a 4-1/2 month high in the prior session.

Manufacturing activity in China stabilised in September after hitting a nine-month low in August, even though output dipped to its lowest level in 10 months, a survey of factory managers showed on Thursday.

The HSBC Flash China manufacturing purchasing managers' index (PMI) ticked up to 47.8, from 47.6 in August. The PMI number, which provides the first glimpse of September's conditions for Chinese industry, seems to point to a month in which a slide was halted, but not reversed.

"We do see some things getting better from September as orders filter down into the market. The macro environment is improving and so are orders for cement, steel and copper," Singapore-based analyst Bonnie Liu of Macquarie said.

"The market has been too bearish on China over summer. Now they realize it's not that bad so you see some upside momentum. Still prices are not going to move up much because that demand is not that strong ... it's only a seasonal pick up for the fourth quarter."

----Copper prices were mired in a negative territory for most of the year until the European Central Bank said it would buy back bonds on September 6, which was followed by a round of easing by the United States and then by Japan on Wednesday.

LME copper prices have since rallied almost 10 percent.
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FedEx says economy is worsening, cuts outlook

FedEx says global economy is worsening, cuts outlook for full year by about 10 percent

NEW YORK (AP) -- FedEx Corp. says the global economy is worsening and it's cutting its forecast for the fiscal year ending in May.

The world's second largest package delivery company also said Tuesday that net income for the current quarter ending in November should fall well below last year's quarter. The stock lost about 2 percent in premarket trading.

----FedEx is seeing a drop in demand for more expensive priority services. As the global economy has slowed, FedEx customers have switched to cheaper deferred delivery services. FedEx hasn't been able to cut costs fast enough to match the decline in demand.

This trend is most prominent in the Express unit, where FedEx has already made cuts but plans to make more. It's reducing flights, taking planes out of service, and last month it offered buyouts to employees. Operating income in that unit, which is about double the size of any other, fell 28 percent in the first quarter. Revenue rose 1 percent as higher rates countered lower volume.

FedEx plans to announce a restructuring for that unit next month.
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We close for today with South Africa. Lonmin’s 22% pay rise for its miners, has left all South Africa’s other miners saying “me too.” I suspect that this problem is not going to go away anytime soon. We may soon have to learn to live without Platinum.

Lonmin deal stirs more South Africa mine strife

19th September 2012
JOHANNESBURG – South African police fired tear gas and rubber bullets on Wednesday to disperse protesters near a mine run by the world's biggest platinum producer Anglo American Platinum, as unrest spread after strikers at rival Lonmin won big pay rises.

Within hours of Lonmin agreeing pay rises of up to 22%, workers at nearby mines called for similar raises, spelling more trouble after six weeks of industrial action that claimed 45 lives and rocked South Africa's economy.

"We want management to meet us as well now," an organiser for the militant Association of Mineworkers and Construction Union (AMCU) at Impala Platinum, the second biggest platinum producer, told Reuters.

"We want R9 000 a month as a basic wage instead of the roughly R5 000 we are getting," said the organiser, who declined to be named fearing recriminations from the firm.

Jubilant workers at Lonmin's Marikana mine, 100 km northwest of Johannesburg, painted the deal as a victory for AMCU over the dominant National Union of Mineworkers (NUM), an ally of the ruling African National Congress.

President Jacob Zuma expressed relief at the pay deal after intense criticism from the opposition and media of the government's handling of the crisis - not least in the aftermath of the police killing of 34 Marikana miners on August 16.

The shootings, the bloodiest security incident in democratic South Africa's 18-year history, boosted an "Anyone but Zuma" campaign dividing the ANC, although he remains favourite to win an internal leadership election in December.

----Lonmin shares rose more than 9% in early trade on news of the pay deal, but gave up most of those gains as the reality of the extra costs to a company struggling with a shaky balance sheet and unprofitable mine shafts sunk in.

The wage deal could add 13% to the group's recurrent costs, plus an additional $10-million for a one-off back-to-work bonus, Nomura said in a note.
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“Call it the Goldman Sachs test. If this is something Goldman would do to its clients, don't do it."

Felix Salmon.

At the Comex silver depositories Wednesday final figures were: Registered 39.45 Moz, Eligible 100.96 Moz, Total 140.41 Moz.  


Crooks and Scoundrels Corner

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

Today, totally doubled over America. If you think things are bad in America now, just wait for what lies ahead say the WSJ.

"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

September 16, 2012, 7:03 p.m. ET

The Magnitude of the Mess We're In

The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States.

Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don't want, but need, to hear.

Where are we now?

Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.

The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.

The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.

Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.

The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself. It determines the interest rate by declaring what it will pay on reserve balances at the Fed without regard for the supply and demand of money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.

Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008.

The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year. If interest rates rise to 2%, and the Federal Reserve raises the rate it pays on reserves correspondingly, the payment rises to $30 billion a year. Would Congress appropriate that kind of money to give—not lend—to banks?

The Fed's policy of keeping interest rates so low for so long means that the real rate (after accounting for inflation) is negative, thereby cutting significantly the real income of those who have saved for retirement over their lifetime.

The Consumer Financial Protection Bureau is also being financed by the Federal Reserve rather than by appropriations, severing the checks and balances needed for good government. And the Fed's Operation Twist, buying long-term and selling short-term debt, is substituting for the Treasury's traditional debt management.

This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation. In that event, the Fed will have effectively turned the government debt and mortgage-backed securities it purchased into money that will have an explosive impact. If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.

----This is all bad enough, but where we are headed is even worse.

President Obama's budget will raise the federal debt-to-GDP ratio to 80.4% in two years, about double its level at the end of 2008, and a larger percentage point increase than Greece from the end of 2008 to the beginning of this year.

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http://online.wsj.com/article/SB10001424052702303561504577497442109193610.html?mod=googlenews_wsj

"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."

Hans F. Sennholz.

The monthly Coppock Indicators finished August:
DJIA: +76 Up. NASDAQ: +97 Up. SP500: +69 Up. All three indicators have reversed from down to up.

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