Baltic Dry Index. 828 - 01
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."
Leonard Read
Abeonomics has suddenly started to go badly wrong
in Japan. As the US and UK head off into a long weekend and the start of
summer, when we return back to the casino next Tuesday, by then both nations
stock markets may be way behind the curve of a crashing Japan. The Fed’s final bubble,
the Great Disconnect in stocks and bonds, now needs the Fed’s micro management.
Yet even that may not be enough with the BRICs in deep trouble and France
leading Euroland to the new Waterloo.
Getting through next week merely buys the Fed a
bigger and bigger problem, assuming they can actually micro manage well enough
to get through next week. The problem is the week after, and the week after,
and the week after. The whole world has now turned skittish, fearing a return
to 2007-2009, but with bank deposits now open to outright official theft. The
great stock market crash of 1987 is as nothing, if Japan and China blow up next
week.
I suppose this isn’t the time to bring up Sunday
evening’s great sunset conjunction of Jupiter, Mercury and Venus, peak May 28th.
(Look west just after sunset before Venus drops below the skyline. Mercury is
fainter and just a little above Venus.) Anyone know what Iceland’s volcanos are
up to? What could possibly go wrong?
Veteran fears 'beginning of the end' for Japan as bond market buckles
Global markets face a witches’ brew of new risks as Japan’s monetary adventure wobbles, China slows further and the US Fed prepares to shut the spigot of dollar liquidity.
Yields on
10-year Japanese bonds (JGBs) have doubled in a month and spiked dramatically
to 1pc on Thursday, triggering a 7.3pc crash in the Nikkei stock index. It was
the biggest one-day fall since the tsunami two years ago, comparable with wild
moves seen at the height of the Asian crisis in 1998.
The
contagion effect set off a retreat from stocks across the world, though Wall
Street later pared losses. The iTraxx Crossover or “fear gauge” for corporate
bonds jumped 25 points to 392.
The Bank
of Japan (BoJ) intervened with $20bn (£13bn) to drive down yields again but the
failure to ensure an orderly debt market has started to rattle investors.
Banks, pension funds and insurers appear to be dumping JGBs for fear of being
caught on the wrong side of a bond rout.
Richard
Koo from Nomura, an expert on Japan’s Lost Decade, said the sell-off in recent
days has shown that the BoJ may not be able to hold down yields “no matter how
many bonds it buys”. This could lead to a “loss of faith in the Japanese
government” and the “beginning of the end” for its economy, if handled badly.
The drama
in Tokyo came amid fresh signs that China is struggling to manage the hangover
from its four-year lending boom, which has pushed credit to 200pc of GDP and
spawned a shadow banking system.
The HSBC
manufacturing index tipped below the contraction line to 49.6 in May. “There is
simply no recovery,” said Yao Wei from Societe Generale.
China’s
leaders are walking a fine line, reluctant to overdo stimulus for fear that it
will leak into the property bubble and perpetuate a deformed structure. Fitch
says the economic return on lending has collapsed over the past four years from
a ratio of 0.8 to 0.35, a sign of credit exhaustion.
Morgan
Stanley has stopped relying on Chinese growth data to assess growth, using
proxies such as Korean exports and Taiwan bonds.
“China is
slowing hard. We are concerned that leverage is higher than reported, and banks
have a huge maturity mismatch,” said Hans Redeker, the bank’s currency chief.
Global equities
have risen 27pc since July, lifted first by the Fed’s “QE3”, then the move by
Mario Draghi at the European Central Bank to back-stop Italy and Spain, and,
finally, by the reflation blitz of Japan’s premier, Shinzo Abe.
Mr
Redeker said this phase is over as the Fed shifts gears, with the latest Fed
minutes showing that several rate-setters want to wind down bond purchases as
soon as June. Chairman Ben Bernanke has given mixed signals, but it is clear
that the Fed’s centre of gravity is shifting.
“The Fed
is moving to neutral. That is why stocks are getting hammered. It is toxic for
anybody around the world who relies on dollar funding, and that means emerging
markets,” said Mr Redeker.
----Marc Ostwald of Monument Securities said Ben Bernanke had “signed the death warrant for markets”, while Julia Coronado from BNP Paribas said the Fed’s minutes were “simply astounding”, creating total confusion over when it will taper off QE. “What may be in store over the next few months is a showdown between the markets and the Fed,” she said.
The mere
promise of “Abenomics” has lifted Japanese equities by 70pc since November, with
foreign hedge funds accounting for a third of all net long positions, but the
dark side is becoming clear. The BoJ is purchasing enough bonds to cover 70pc
of Japan’s budget deficit this year under the new governor, Haruhiko Kuroda.
This is $70bn a month, almost as much as the Fed in an economy one third the
size.
More
Staying with Asia, yet another sign of the Chinese
yuan rising to replace the US dollar at least in Asia. Despite what the micro
managers of the Fed’s final bubble might think in New York, tomorrow will not
be like today, which was like yesterday.
The self-excluded communist third of the world has returned to fiat
currency capitalism, and isn’t much bothered about trading outside of the
dollar. When the Fed’s final bubble bursts, hopefully not next week,
Euro-America becomes the big loser to Asia, although it’s a decade of pain for
both. But it’s the west that has furthest to fall when the great Nixonian Error
of fiat money ends.
Yuan Gold Trade in Hong Kong Triples as Currency Gains Cut Risk
By Fion Li & Michelle Yun - May 24, 2013 3:44 AM GMT
Trading in gold using the Chinese currency has tripled in Hong Kong this
year as the yuan’s
rally to a 19-year high helps limit risks for jewelers. Average daily volume was 6.5 billion yuan ($1.1 billion) in the first five months of this year, compared with 1.8 billion yuan for the same period in 2012, according to the Chinese Gold & Silver Exchange Society, the city’s century-old bullion house. That exceeds the 4.9 billion yuan target set when the contracts were introduced in October 2011.
Yuan-based markets and financial services in Hong Kong are expanding as the city seeks to cement its status as the major offshore trading hub for China’s currency. The yuan touched 6.1279 per dollar today in Shanghai, the strongest since the government unified the official and market rates at the end of 1993. Last week, bets against gold by hedge funds and other speculators reached an unprecedented 74,432 short contracts, according to the U.S. Commodity Futures Trading Commission.
“Yuan appreciation helps as jewelers who receive yuan from clients become more willing to buy gold bars in the currency to minimize exchange-rate risks,” Haywood Cheung, president of the society, said in a May 15 interview in Hong Kong.
The yuan rose 0.6 percent this month, the best performance in Asia, as Premier Li Keqiang signaled China will unveil a plan on capital-account convertibility this year. People’s Bank of China Deputy Governor Yi Gang said in April the yuan’s trading band will be widened “in the near future.” The central bank sets a daily reference rate for the currency, which can diverge from the fixing by a maximum 1 percent.
China may double the band within a year, Ma Jun, chief
economist for Greater China at Deutsche Bank AG, said at a press conference
in Singapore
on May 22. The nation has designated Qianhai district of Shenzhen, a city that
borders Hong Kong, as a testing ground for freer cross-border yuan usage. The
yuan climbed as much as 0.1 percent today to a 19-year high of 6.1279 per
dollar in Shanghai after the central bank strengthened its fixing by 0.13
percent to a record 6.1867.
More
In commodities news, “The Bernank” signalled a
return to gold this week, say the “experts.” To me it doesn’t matter. Holding
physical gold and silver is a long term hedge against the perversion and
destruction of our fiat money error. Like deficits didn’t matter until one day
they did, owning physical gold won’t matter until one day out of the blue it
will.
"Until government administrators can so identify the interests of government with those of the people and refrain from defrauding the masses through the device of currency depreciation for the sake of remaining in office, the wiser ones will prefer to keep as much of their wealth in the most stable and marketable forms possible - forms which only the precious metals provide."
Elgin Groseclose
Gold Traders Most Bullish in a Month After Bernanke: Commodities
By Nicholas Larkin - May 24, 2013 6:53 AM GMT
Gold
traders are the most bullish in a month after Federal Reserve Chairman Ben S.
Bernanke signaled record stimulus will continue until the economy improves.
Twelve
analysts surveyed by Bloomberg expect prices to rise next week, with nine
bearish and eight neutral, the highest proportion of bulls since April 26.
Prices rose 58 percent since 2008 as the Fed led central banks in debt
purchases. Bullion is poised for its first weekly gain in three and trading and
investment company Degussa Goldhandel GmbH said demand this month will be
double the first-quarter average.
---- “Gold should still be in demand as an alternative
currency,” said Daniel Briesemann, a commodities analyst at Commerzbank AG
in Frankfurt. “The quantitative easing by central banks should lead to a
depreciation in rates for major currencies and in the end should also lead to
some inflation concerns, although this is not an issue at the moment. As long
as institutional investors are selling gold ETP holdings, this will probably
outweigh robust retail demand.”
More
In Euroland, blame it on man-made global warming
from Co2. More leeches urgently required at the ECB.
German First-Quarter Growth Damped by Construction, Investment
By Jeff Black - May 24, 2013 7:00 AM GMT
The German economy’s return to growth in the first quarter was hampered by
declines in construction activity and investment as a severe winter and a
recession in Europe
damped demand. Construction fell 2.1 percent from the fourth quarter and capital investment dropped 1.5 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product increased 0.1 percent, the office said, confirming a May 15 estimate. From a year earlier, the economy shrank 0.2 percent when adjusted for working days.
With the 17-nation euro area mired in recession and the coldest March in a quarter-century freezing building activity, Europe’s largest economy has relied on domestic demand to haul it back to growth. GDP fell 0.7 percent in the fourth quarter of 2012.
“The somewhat disappointing first-quarter result was due mainly to the cold weather and the sensitivity of companies to developments in the rest of Europe,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “While that uncertainty hasn’t quite fully dissipated yet, there should be a rebound in construction activity in the second quarter and we could see better-than-expected results.”
Household spending rose 0.8 percent in the first quarter, while public spending fell 0.1 percent, today’s report showed. Exports declined 1.8 percent and imports dropped 2.1 percent. Domestic demand didn’t add to growth as stronger consumption was offset by weaker investment, while net trade contributed 0.1 percentage point to GDP.
More
"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
At the Comex silver depositories Thursday final figures were: Registered 43.72
Moz, Eligible 121.62 Moz, Total 165.34 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
No direct crooks today, just another example of the unintended consequences
of the Great Nixonian Error of fiat money. On fiat money, America’s once great economy
was perverted from a real economy making and trading products and generating
widespread wealth, into a financialised casino, rent seeking economy, with those
closest to the Fed with access to the Fed’s free money merely gambling in
takeovers, derivatives and derivatives on derivatives. Money was displaced from
real investment into mal and mis-investment. Along the way America’s
infrastructure got short changed.
Bridge Collapse in Washington State Sends Cars Into River
By Ted Bunker - May 24, 2013 4:49 AM GMT
A section of a major interstate highway in Washington state collapsed today, sending an unknown number of
cars and people into the rushing waters of the Skagit River north of Seattle,
according to police. The bridge carried both the north- and south-bound lanes of Interstate 5, which runs the length of the U.S. West Coast from Mexico to Canada. State Patrol Trooper Mark Francis said that “people and cars in water” in a Twitter message.
Images on local television station websites showed at least two vehicles in the river, including one with a man sitting atop his vehicle’s roof. There were no reports on the number of people involved or any deaths or injuries.
Rescue efforts by local police are under way, Francis said.
The U.S. National Transportation Safety Board is aware of the I-5 bridge collapse and is “gathering information,” Kelly Nantel, an agency spokeswoman, said in an interview. The NTSB, based in Washington, investigates major transportation accidents in the U.S. and determines their causes.
In August 2007, an interstate highway bridge collapsed in Minneapolis, sending rush-hour traffic into the Mississippi River and killing 13 people and injuring 145 -- the worst such event in 25 years. The NTSB inquiry into the collapse found that steel plates used to connect the 40-year-old structure’s beams were too thin, causing it to fail.
The bridge over the Skagit River was built in 1955 and is considered functionally obsolete, according to the National Bridge Inventory Database.
"The paper standard is self-destructive."
Hans F. Sennholz
Another weekend, and the unofficial start of summer too. In the UK time
to take in the sight of the late bluebells now being caught up by the nettles,
ferns, and brambles. In the UK and Europe, time to watch 2 unknown German Football
teams compete in London Saturday, for some sort of football competition. On
Sunday to watch the Monaco Grand Prix. The racing may not be very interesting
but background makes up for the lack of passing opportunities. In America, time
to watch the mayhem at the 97th running of the Indianapolis 500.
Sadly unavailable here. Have a great,
enjoyable, weekend everyone.
The monthly Coppock Indicators finished April:
DJIA: +133 Up. NASDAQ: +139 Up. SP500: +170 Up. Another Fed bubble underway. But when to jump
off before it ends?
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