Baltic Dry Index. 910
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
The only function of economic forecasting is to make astrology
look respectable.
John Kenneth Galbraith
We open today, in still freezing and chilly,
but returning to work London, with yet another red flag from across the
Atlantic. America’s latest Fed promoted stock market bubble might not be
different this time, after all. Ominously for a US stock bubble making all-time highs, the
Institute for Supply Management unexpectedly reported yesterday, that its index
of US national factory activity fell to 51.3 last month from 54.2 in February. The
good news is that it’s still above 50. The bad news is that it fell and is not
very much above 50 either. Despite the Fed bashing out 85 billion a month of
Wall Street’s little helpers, there’s very little sign of any trickle-down
effect.
“If you feed enough oats to the horse, some will pass through to
feed the sparrows.”
John Kenneth Galbraith
Cooling factory activity hints at slowing economy
WASHINGTON
| Mon Apr 1, 2013 6:32pm EDT
(Reuters)
- Factory activity grew at the slowest rate in three months in March,
suggesting the economy lost some momentum at the end of the first quarter as
the effects of tighter fiscal policy started kicking in.
Data so
far this year had shown little sign that higher taxes, and the $85 billion in
across-the-board government spending cuts that took effect March 1 known as the
"sequester," had weighed on economic activity.
"It
suggests the economy was probably starting to slow at the end of the quarter,
possibly reflecting the impact of the fiscal headwinds coming from
sequestration and higher taxes," said Millan Mulraine, a senior economist
at TD Securities in New York.
The
Institute for Supply Management said on Monday its index of national factory activity
fell to 51.3 last month from 54.2 in February. A reading above 50 indicates
expansion in the manufacturing sector. New orders, a key indicator of future
growth, accounted for much of the drop in the index.
The ISM
report was at odds with a separate report showing that factories gained steam
in March on strong order growth, closing out the best quarter for the sector in
two years.
Financial
data firm Markit said its Manufacturing Purchasing Managers Index rose to 54.6
last month from 54.3 in February. A reading above 50 indicates expansion.
While the
two surveys use the same sub-indexes, they assign different weights to the
components.
Economists
and investors placed more emphasis on the ISM survey, which has a longer
history and has been generally a good gauge of overall U.S. economic activity.
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In other “this time it’s not different” bubble news, central bank zero
interest rate policies are generating a new “junk bond” bubble. The next Lehman
is out there and everyone knows it. It is why every bankster and great vampire
squid keeps on looting the system via the bonus scam. Get it while the getting’s
good!
There can be few fields of human endeavour in which history counts for
so little as in the world of finance. Past experience, to the extent that it is
part of memory at all, is dismissed as the primitive refuge of those who do not
have the insight to appreciate the incredible wonders of the present.
John Kenneth Galbraith
Time bomb to the next crash is ticking as debt sales surge
After every crash there will always be a handful of experts pointing out that they had seen it all coming years before.
When
dotcoms crashed, sub-prime imploded and banks collapsed it was not hard to find
the markets’ Cassandras who had spotted the problem and either made millions
betting against the bubble or written a book explaining how it was all going to
go wrong.
Today,
another bubble is ballooning but unlike those that have gone before it most
investors, policymakers and analysts are well aware of its existence and the
problems it could create.
Sales of
high-yield debt – or, as they were once known, junk bonds – have exploded this
year. In January alone, non-investment grade Asian companies, those whose debt
is ranked by credit rating agencies as riskiest, sold just over $9bn (£6bn) of
high-yield bonds, a year-on-year increase of more 6,000pc, according to figures
from data provider Dealogic. In Europe, sales of high-yield debt is also running
at record levels and nearly $30bn of bonds have been sold so far this year.
The
massive increase so soon after a financial crisis that was caused in part by
the credit meltdown has raised fears that less than five years on from the
bankruptcy of Lehman Brothers and the near failure of Royal Bank of Scotland
and HBOS, the world is setting itself up for another crash.
In large
part, the explosion in demand for high-yield debt has been a direct consequence
of the response of Western governments to the last crisis. Since Lehman’s
collapse, some $12 trillion has been pumped into the global financial system by
central banks across the world in an effort to prop up banks and maintain low
interest rates.
The
impact of this unprecedented monetary stimulus has been to create a potent mix
of historically low yields on government bonds and rising inflation, forcing
even the most conservative of investors to hunt for yield in an effort to
preserve their capital and achieve a return.
“What
you’ve basically seen is people who don’t really want to take more risk being
forced up the risk curve to get the yield they need,” says one London-based
bond trader.
More
Coutts warns clients of threat from debt markets amid bubble fears
Coutts, the high-end private bank, has warned its clients against exposing their fortunes to a potential collapse of the high-yield debt market amid growing concerns of a new global credit bubble.
Senior managers at the private bank, whose customers include a who’s who of British society, are being discreetly advised to reduce their holdings of high-yield bonds, according to an internal warning seen by The Daily Telegraph.
----- Fears have been raised as investors increase the risk they are taking on the bonds by borrowing further. Coutts’ investment strategy committee has become concerned at the use by some wealthy individuals of borrowed money to enhance returns from high-yield investments and is understood to have begun advising clients to avoid the practice.
“If and
when yields rise, the impact of these bonds, magnified with leverage, could
lead to serious losses,” said one investment manager.
The use
of borrowed money to enhance returns has become particularly prevalent in Asia,
where local and international private banks have used guarantees of access to
loans to win business.
---- This practice has led to fears of a new bubble in high-yield debt as investors buy riskier bonds using more borrowed money.
Among the
products causing most concern are CoCos – contingent convertible bonds – that
either transform into ordinary shares or are wiped out when a bank’s capital
levels fall below a given level.
One of
Britain’s leading bond funds has warned against buying CoCos, claiming they are
“dreadful” for investors. “By losing all value prior to existing credit and
equity investors, this bond is essentially providing insurance to every other
investor. In short, investing in these bonds is like being in a reverse lottery
where someone gives you one pound every week and then suddenly turns up
demanding millions,” said Christine Johnson, manager of Old Mutual’s corporate
bond fund.
More
“Men
of conservative temperament have long suspected that one thing leads to
another.”
John Kenneth Galbraith
At the Comex silver depositories Monday final figures were: Registered 43.00
Moz, Eligible 121.44 Moz, Total 164.44 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, welcome to
the sad arrival of Europe’s newest currency the Eurus, aka the Cyprus euro. The
Eurus was once a part of the European Monetary Union but has now become fully detached.
Not quite a full sovereign currency, the Eurus can’t be devalued by Cyprus in
an attempt to help rebuild their broken economy. Poor Cyprus now gets the worst
of all possible currency outcomes.
I suspect that this
lonely little suspect fiat currency, will soon be getting some company from the
Spairo, the Euraly, the Sloro, the Eurobourg and eventually the Francro.
Getting Chancellor Merkel re-elected this September is going to come at a very
high price for much of Euroland and the serfs. Stay long physical precious metals. The ill
thought out EMU will all too soon turn into a dead duck.
In central banking as in diplomacy,
style, conservative tailoring, and an easy association with the affluent count
greatly and results far much less.
John Kenneth Galbraith
Cyprus’s Dangerous, Necessary Capital Controls
By the Editors Apr 1, 2013 11:09 PM GMT
Picture not being able to cash a check, transfer money electronically or
withdraw more than $385 a day from your bank. Or imagine being searched by
airport gendarmes making sure you aren’t taking more than $3,800 of your own
money out of the country. These are the indignities Cypriots must endure after the country’s $13 billion bank rescue. For the first time in the history of the single currency, a euro country is imposing capital controls, even for transfers within the union. It’s as if California barred residents from moving their savings to banks in Oregon.
The unfortunate rule of thumb on capital controls is that they are easy to impose, difficult to enforce and almost impossible to lift. Iceland, whose banks ran into similar trouble as Cyprus’s, adopted emergency controls in 2008. Five years later, they’re still in place.
At first, Cypriot officials pledged that the controls would last about a week, but quickly revised that to about a month. Hardly anyone believes even that timeframe. The minute Cyprus lifts its controls, money will fly to safer havens. Even insured deposits -- the ones that were protected by the European Union’s bail-in, which required all other creditors to take losses -- will probably flee.
In imposing capital controls, Cyprus has detached itself from Europe’s monetary union. A euro deposited in a bank in Cyprus is no longer worth the same as one deposited in France or Germany. It can’t be easily withdrawn, spent or converted, and is therefore a second-class euro. The consequences are going to be harsh, with some economists now warning of Greek-like shrinkage of Cyprus’s gross domestic product. As long as capital controls are in force, no one is going to buy Cypriot government or corporate debt, or make direct investments in Cypriot businesses.
It’s too late to suggest that Cyprus should have been more prudent. It isn’t too late, though, to warn other countries away from the practices that caused this debacle. The biggest lesson is obvious, but worth stating clearly: Don’t let your banks get too big to save.
----Luxembourg and Malta, two euro-area countries whose banking sectors dwarf their national economies, should take heed. Luxembourg’s financial industry assets are 22 times the size of its annual output. Bank assets in Malta, which hopes to replace Cyprus as Europe’s newest offshore money haven, are about eight times the size of its economy.
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“Faced with the choice between changing
one's mind and proving that there is no need to do so, almost everybody gets
busy on the proof.”
John Kenneth Galbraith
The monthly Coppock Indicators finished March:
DJIA: +119 Up. NASDAQ: +132 Up. SP500: +157 Up.
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