Baltic Dry Index. 1151 +02
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
Democracy is beautiful in theory; in practice it is a fallacy.
Benito Mussolini.
After San Francisco’s Channel 2 news was hoaxed
into announcing that the crashed Asiana Airways flight was being piloted by the
improbably named “Sum Ting Wong,” and “Wi
Tu Lo,” LIR readers this morning can be forgiven if they think that these are
the economists in charge of China’s struggling economy. From faraway London
this morning, it seems to me that China is headed into a crash landing. China’s
crash will take most of Asia with it. America and already dying Europe, are
helpless passengers aboard the Great Chinese Reconnect. In the immortal words
of America’s leading archaeologist, Frank Huguelet, aka Ric Savage, in “Dig
Wars,” “boom baby” is about to descend on our markets, whether Bernocchio
tapers or not. China’s Bernie Madoff time is here. We all know what happens
next, just not when.
It's good to trust others but, not to do so is much better.
Benito Mussolini
Wealth Products Threaten China Banks on Ponzi-Scheme Risk
By Bloomberg News - Jul 15, 2013 11:01 PM GMT
----China’s
credit crunch in June spurred hundreds of millions of households and companies
to divert a record share of their savings into wealth-management products, known as WMPs. The
amount of such investments surged eightfold from 2009 to 8.2 trillion yuan as of the end
of March, according to government data. That’s almost the size of the
Australian economy. Fitch Ratings put the amount even higher in May, at 13
trillion yuan. The flows are fueled in part by government efforts to curb property speculation and bolster the stock market, which has lost almost 40 percent of its value since 2010. Though offered by banks, WMPs are considered part of China’s shadow-banking system, estimated by JPMorgan Chase & Co. at $6 trillion, or 69 percent of gross domestic product.
WMPs look like time deposits to investors, except that about 70 percent of them don’t have their principal guaranteed by banks. About half invest in low-risk deposits, bonds and money markets. The rest venture into riskier areas including stocks, derivatives and loans to local governments and property developers, according the China Banking Regulatory Commission, which requires banks to register all WMPs they sell.
The investments are popular because they provide rates of return higher than savings deposits, which are set at 3 percent annually, below this year’s government targeted inflation rate of 3.5 percent.
As investors pile in, financial firms need more inflows of cash to pay off maturing products, resulting in mounting risks that prompted China Securities Regulatory Commission Chairman Xiao Gang to call them a “Ponzi scheme” even before the latest record purchases. Issuance of new products and borrowing from the interbank market are among the most common ways banks pay out maturing WMPs, according to Fitch.
----“In an environment where liquidity is tight, banks will find it more and more difficult to attract fresh money to keep the game going,” said May Yan, a bank analyst at Barclays Plc in Hong Kong. “Until investors are hit by a real default, they won’t understand what they are really buying into.”
Chinese banks, almost all state-controlled, have relied on such products to beef up their deposit base and finance long-term loans, some of which are held off their balance sheets and repackaged into assets to be sold to investors. Banks time the distribution and maturity date for the last days of the month so that the money can be returned to a saver’s deposit account and await purchase of new wealth-management products on the first day of the following month. That allows it to be considered a deposit on the bank’s balance sheet at month-end.
More
China Slowdown Sends Ordos to Bust as Li Grapples With Credit
By Bloomberg News - Jul 15, 2013 5:01 PM GMT
Posters of the Chinese character for good luck adorn shops bolted shut in
the northern city of Ordos, where cranes stand silently above half-finished
developments and doors on workers’ dormitories creak in the wind. Apartment sales have come to a virtual halt in the central district, real-estate agent Zhang Wei says. With the municipality’s revenue gains diminishing, the Inner Mongolian city that saw a surge in building during China’s record credit boom is now a showcase for the speculative financing Premier Li Keqiang is trying to curb.
In the past few years there was a lot of coal so people came from all over the country,” says Gao Wei, 30, smoking in an office that deals in second-hand construction machinery and had no clients that day. “Now the economy has collapsed, they’ve all gone.”
Ordos’s implosion stands at one extreme of a national slowdown that a government report yesterday signaled may deepen this quarter, with industrial output gains last month matching the weakest since the 2009 global recession. The challenge for Li’s administration is to assure growth is resilient enough for the world’s second-largest economy to weather busts in local finance and industries ridden by overcapacity.
“Ordos is a warning to other places in terms of how to guide the local economy and in what not to do,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “The local governments are still not waking up to what they should do in this new environment.”
----Nomura yesterday cut its growth estimate for next year to 6.9 percent from 7.5 percent, while JPMorgan Chase & Co. lowered its forecast to 7.2 percent.
More
Silver Shoplifters Steal Bowls of Rice as Abe Cuts Welfare
By Yoshiaki Nohara & Andy Sharp - Jul 16, 2013 4:04 AM GMT
Fumio
Kageyama was 67 when he first turned to crime, making an unsuccessful attempt
to rob a drunk passenger on a train in March 2008.
Given a suspended jail sentence, Kageyama was caught two months later stealing a bowl of rice and pork from a supermarket. This time, he went to prison for two years.
Kageyama, who spent 40 years as a construction worker on projects including the Takashimaya Co. department store in Shinjuku, Tokyo, and a bicycle-racing track in Maebashi, Gunma Prefecture, is part of a growing number of silver shoplifters. After he became too old to work, he wound up on the streets and turned to petty theft. Released from detention, he was caught again in April 2011 stealing hot-dog buns and fried noodles.
“It wasn’t great to get caught, but I just didn’t give a damn,” he said in an interview at a halfway house in Tokyo earlier this year, his hair cropped short and his skin tanned from years of outdoor work. “I never did it when I had a job.”
Crimes committed by Japan’s elderly have doubled in the past decade and shoplifters are now more likely to be over 65 than juvenile. With Prime Minister Shinzo Abe planning to cut welfare further in August to rein in the national debt, and some 4.47 million people set to join the ranks of retirees in the next 10 years, the senior citizens crime wave is a foretaste of the challenges Japan faces from a rapidly aging population.
“Crime is one of the problems regarding the elderly, along with pensions, nursing care, and the increased welfare burden,” said Koichi Haji, executive research fellow at the NLI Research Institute in Tokyo, an affiliate of Nippon Life Insurance Co., Japan’s biggest life insurer. “The government doesn’t know what to do. There is no underlying idea of how to deal with the falling population.”
More
http://www.bloomberg.com/news/2013-07-15/silver-shoplifters-steal-rice-as-abe-cuts-welfare-to-trim-debt.html
Indian Stocks Plunge Most in Two Weeks as RBI Tightens Liquidity
By Rajhkumar K Shaaw - Jul 16, 2013 5:10 AM GMT
Indian
(SENSEX) stocks tumbled the most in two weeks after the Reserve
Bank of India raised two interest rates
yesterday, stepping up efforts to aid the rupee after its plunge to a record
low. The S&P BSE Sensex slid 1.3 percent to 19,771.18 at 9:30 a.m. in Mumbai, ending three days of gains. State Bank of India tumbled the most since May, leading its peers lowers. The S&P BSE Bankex, a gauge of 13 lenders, sank 4.4 percent, the most since July 2009. Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, fell for the 11th day, a record run of losses
The central bank increased the marginal standing facility and the bank rate to 10.25 percent from 8.25 percent, and said it plans to sell $2 billion of government bonds on July 18, moves that worsen a tightening in liquidity across most of the biggest emerging markets. The rupee has weakened 8.2 percent against the dollar this year, hurt by the slowest economic growth in a decade and a record current-account deficit.
More
Across the English Channel in the continent made
for tanks, is there anyone left in public office even remotely what was once
termed “honest.” I mean seriously, would you lend German money to this den of
thieves? Stay long physical gold and silver for the tragic ending.
We open with EUSSR car sales at a 17 year low.
German imposed austerity death spirals have pushed Germania all the way back to
1996. Fiat Bravo/Brava anyone?
“Unprecedented monetary and fiscal stimulus has produced unprecedentedly weak recovery"
Albert Edwards. Societe Generale
European Auto Sales Fall to 17-Year Low on Unemployment
By Mathieu Rosemain - Jul 16, 2013 7:00 AM GMT
European car sales fell to a 17-year low in June as record unemployment in
the countries using the euro hurt demand at Fiat
SpA (F) and PSA Peugeot Citroen (UG). Registrations decreased 6.3 percent to 1.18 million vehicles from 1.25 million cars a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in an e-mailed statement. The figure was the lowest for the month since 1996, said Quynh-Nhu Huynh, the group’s economics director. First-half sales declined 6.7 percent to 6.44 million vehicles.
The unemployment rate reached 12.2 percent in the euro area in May, and was probably at that level for the entire second quarter, according to the median forecast of analysts surveyed by Bloomberg. Executives at both Peugeot and French competitor Renault SA (RNO) reiterated predictions this month that the region’s car market will contract 5 percent this year in the sixth full-year drop.
The ACEA figures come from the 27 nations that were EU members prior to Croatia joining this month, plus Switzerland, Norway and Iceland. Deliveries in western Europe, which excludes countries that have joined the EU since mid-2004, fell 6.2 percent to 1.11 million vehicles in June.
Four of Europe’s five largest automotive markets shrank last month, with deliveries in Germany, the biggest, dropping 4.7 percent, and demand falling 8.4 percent in third-ranked France. U.K. sales rose 13 percent.
More
Spanish prime minister rejects calls to step down over scandal
(Reuters) - Spanish Prime Minister Mariano Rajoy on Monday rejected calls to resign over a ruling party financing scandal and said he would not allow the matter to hold back his reform plans.
The political pressure mounted on Rajoy as the former treasurer of his center-right People's Party gave new testimony before a judge looking into the affair, saying he had made 90,000 euros in cash payments to Rajoy and party secretary-general Maria Dolores Cospedal in 2009 and 2010.
Rajoy had so far managed to limit the impact of the scandal, which involves alleged illegal donations by construction magnates that were supposedly distributed as cash payments to party leaders in return for juicy contracts.
----At the heart of the scandal is former party treasurer Luis Barcenas, 55, who was arrested in June and charged with bribery, money laundering, tax fraud and other crimes.
High Court
Judge Pablo Ruz questioned Barcenas behind closed doors for almost five hours
on Monday after he was transported from jail in a white and black van.
Barcenas,
once a trusted aide, turned over documents showing how he ran a secret slush
fund at the party for many years, and provided details of years of cash payouts
to party leaders, according to a source with access to the court proceedings.
Over his
more than 20 years handling PP finances, Barcenas accumulated as much as 48
million euros in Swiss bank accounts that prosecutors say he has failed to
adequately explain.
More
Deepening Spanish Credit Crunch Could Hit Banks, Economy, Says IMF
By REUTERS Published: July 15, 2013 at 10:04 AM ET
MADRID
— Spain's economic problems could tempt its banks to cut lending further, but
they need to resist this and boost their capital ratios by cutting cash
dividends or issuing new shares instead, The International Monetary Fund said.
The IMF,
which is monitoring Spain's banking reforms after a European bailout last year,
said in a report on Monday the lenders' solvency had improved.
But
economic problems including record unemployment had left the sector mired in a
deepening credit crunch.
That
pressure could push banks, whose profits will likely suffer, to further cut
lending as they shore up capital, hitting growth and potentially forcing the
government to rethink its plans for restructuring the sector.
"Financial
sector dynamics still contribute to recessionary pressures, with credit contraction
accelerating, lending standards tightening, and lending rates to firms
rising," the IMF said, in its third progress report on the sector.
Spanish
bank lending to the private sector was down 7 percent year-on-year in May and
the contraction was one of the fastest among advanced economies, the IMF said.
Spanish
banks, crippled by a 2008 property market crash, had to make billion of euros
worth of provisions against losses last year to repair their balance sheets.
The sector had to be bailed out with 41 billion euros (35.4 billion pounds) in
European aid to reinforce capital.
More
Greek Labor Unions to Hold General Strike Over Job Cuts
By Marcus Bensasson - Jul 15, 2013 3:41 PM GMT
Greek labor unions will hold their third general strike of the year tomorrow
as lawmakers in Athens
begin a two-day debate on legislation demanded by creditors that includes plans
to cut thousands of civil-service jobs. Government services will shut and transport will be disrupted with protests planned in the capital by public and private-sector trade unions. The unions have also called for a rally outside the parliament building on July 17 as the debate on the bill approaches its climax. Lawmakers are due to carry out a roll-call vote around midnight.
“The workers continue the struggle to put a final end to these policies that kill labor and drive the economy to ever deeper recession,” the Greek General Confederation of Labor, the country’s largest private-sector union, said in an e-mailed statement. “We demand a change to the politics of firings, privatization and divestiture of the public sector.”
The strike is the latest challenge from unions to Prime Minister Antonis Samaras, whose bill includes provisions to push through a plan to put 25,000 public employees on notice for possible dismissal. His government must pass the measures for the country’s euro-area and International Monetary Fund creditors to sign off on the latest loan disbursements from Greece’s 240 billion-euro ($313 billion) bailout.
About 4,200 teachers, school janitors and ministry employees will be placed in a “reallocation program” by the end of July. They will be joined in September by as many as 8,300 members of the municipal police force under the plan, which aims to deploy surplus staff to areas with needs. Employees will have to accept any job offer provided or face dismissal. Greek schools are shut until September for the summer vacation.
More
"Too bad ninety percent of
the politicians give the other ten percent a bad reputation."
Henry Kissinger
Henry Kissinger
From my
gloomy, if heat wave struck perspective in London, there never was a better
time to be first into the lifeboat, deep in the bunker as it were. Hurricane
Sandy is about to hit Asia.
At the Comex silver depositories Monday final figures were: Registered 49.11 Moz,
Eligible 116.73 Moz, Total 165.84 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
We open today with ex-Goldmanite “the Fabulous Fab,”
struggling to do “God’s work,” while a hopless romantic “who was love-struck by his girlfriend and filled
with self-doubt.” I wonder why Bernie never went for the public sympathy
defence. Ominously dubbed "the
Frenchman" by the SEC counsel, can a man named Fabrice get a fair
trial in 21st century America?
Below Fabrice, whose side is America’s FBI supposed to be on?
“Egol and Fabrice were way ahead of their time,” said one of the former Goldman workers.
“They saw the writing on the wall in this market as early as 2005.”
Fabulous Fab's sub-prime trial begins with love letter
Fabrice Tourre, a former Goldman Sachs banker, told his girlfriend the sub-prime mortgage market was doomed, as part of an “old fashioned love letter”, a court heard on the first day of a trial that has become a focal point for those seeking to apportion blame for the financial crisis.
Mr
Tourre, 34, is being sued by America’s Securities and Exchange Commission after
he allegedly tricked investors into backing a sub-prime mortgage vehicle called
Abacus.
The SEC
claims that Mr Tourre conspired with Paulson & Co, the hedge fund run by
John Paulson, to hook buyers by suggesting that Paulson was also backing the
vehicle, on the assumption that house prices would rise. In fact, Paulson had
taken a short position, betting that house prices would fall.
Jurors
gathered at a Manhattan court on Monday were shown an email Mr Tourre sent to
his girlfriend, another Goldman Sachs employee, in 2007, at the same time as he
was persuading investors to pile into Abacus.
In it,
the Frenchman warned her of his fears for the sub-prime mortgage market. He
said the "whole building is about to collapse any time now," but that
"Fabulous Fab" would survive.
He added:
"Anyway, not feeling too guilty about this, the real purpose of my job is
to make capital markets more efficient and ultimately provide the US consumer
with more efficient ways to leverage and finance himself, so there is a humble,
noble and ethical reason for my job ;) amazing how good I am in convincing
myself!!!" [sic]
The SEC
used the message to expose the Mr Tourre’s “state of mind”, in what it
described as tale of classic “Wall Street greed”, full of “lies, trickery and
deception”. However, lawyers for Mr Tourre, a Stanford Univesrity graduate, now
34, argued that the email revealed something altogether different.
They
painted a picture of Mr Tourre as a romantic, who was love-struck by his
girlfriend and filled with self-doubt.
‘“It’s an
old-fashioned love letter, sent late at night after a long day’s work,” said
his lawyer, Pamela Chepiga, noting phrases such as “darling” and “sweetheart”.
“It is his expression of deep love from an unworthy suitor…what this late night
email expresses is the self-doubt of a man about whom there is nothing
fabulous, struggling in a financial world that is very uncertain.”
The FBI's New Wiretapping Plan Is Great News for Criminals
By Bruce SchneierForeign Policy May 29, 2013
The FBI wants a new law that will make it easier to wiretap the Internet. Although its claim is that the new law will only maintain the status quo, it's really much worse than that. This law will result in less-secure Internet products and create a foreign industry in more-secure alternatives. It will impose costly burdens on affected companies. It will assist totalitarian governments in spying on their own citizens. And it won't do much to hinder actual criminals and terrorists.
As the FBI sees it, the problem is that people are moving away from traditional communication systems like telephones onto computer systems like Skype. Eavesdropping on telephones used to be easy. The FBI would call the phone company, which would bring agents into a switching room and allow them to literally tap the wires with a pair of alligator clips and a tape recorder. In the 1990s, the government forced phone companies to provide an analogous capability on digital switches; but today, more and more communications happens over the Internet.
What the FBI wants is the ability to eavesdrop on everything. Depending on the system, this ranges from easy to impossible. E-mail systems like Gmail are easy. The mail resides in Google's servers, and the company has an office full of people who respond to requests for lawful access to individual accounts from governments all over the world. Encrypted voice systems like Silent Circle are impossible to eavesdrop on—the calls are encrypted from one computer to the other, and there's no central node to eavesdrop from.
In those cases, the only way to make the system eavesdroppable is to add a backdoor to the user software.
This is precisely the FBI's proposal. Companies that refuse to comply would be fined $25,000 a day.
The FBI believes it can have it both ways: that it can open systems to its eavesdropping, but keep them secure from anyone else's eavesdropping. That's just not possible. It's impossible to build a communications system that allows the FBI surreptitious access but doesn't allow similar access by others. When it comes to security, we have two options: We can build our systems to be as secure as possible from eavesdropping, or we can deliberately weaken their security. We have to choose one or the other.
This is an old debate, and one we've been through many times. The NSA even has a name for it: the equities issue. In the 1980s, the equities debate was about export control of cryptography. The government deliberately weakened U.S. cryptography products because it didn't want foreign groups to have access to secure systems. Two things resulted: fewer Internet products with cryptography, to the insecurity of everybody, and a vibrant foreign security industry based on the unofficial slogan "Don't buy the U.S. stuff—it's lousy."
In 1993, the debate was about the Clipper Chip. This was another deliberately weakened security product, an encrypted telephone. The FBI convinced AT&T to add a backdoor that allowed for surreptitious wiretapping. The product was a complete failure. Again, why would anyone buy a deliberately weakened security system?
In 1994, the Communications Assistance for Law Enforcement Act mandated that U.S. companies build eavesdropping capabilities into phone switches. These were sold internationally; some countries liked having the ability to spy on their citizens. Of course, so did criminals, and there were public scandals in Greece (2005) and Italy (2006) as a result.
In 2012, we learned that every phone switch sold to the Department of Defense had security vulnerabilities in its surveillance system. And just this May, we learned that Chinese hackers breached Google's system for providing surveillance data for the FBI.
The new FBI proposal will fail in all these ways and more. The bad guys will be able to get around the eavesdropping capability, either by building their own security systems—not very difficult—or buying the more-secure foreign products that will inevitably be made available. Most of the good guys, who don't understand the risks or the technology, will not know enough to bother and will be less secure. The eavesdropping functions will 1) result in more obscure—and less secure—product designs, and 2) be vulnerable to exploitation by criminals, spies, and everyone else. U.S. companies will be forced to compete at a disadvantage; smart customers won't buy the substandard stuff when there are more-secure foreign alternatives. Even worse, there are lots of foreign governments who want to use these sorts of systems to spy on their own citizens. Do we really want to be exporting surveillance technology to the likes of China, Syria, and Saudi Arabia?
The FBI's short-sighted agenda also works against the parts of the government that are still working to secure the Internet for everyone. Initiatives within the NSA, the DOD, and DHS to do everything from securing computer operating systems to enabling anonymous web browsing will all be harmed by this.
What to do, then? The FBI claims that the Internet is "going dark," and that it's simply trying to maintain the status quo of being able to eavesdrop. This characterization is disingenuous at best. We are entering a golden age of surveillance; there's more electronic communications available for eavesdropping than ever before, including whole new classes of information: location tracking, financial tracking, and vast databases of historical communications such as e-mails and text messages. The FBI's surveillance department has it better than ever. With regard to voice communications, yes, software phone calls will be harder to eavesdrop upon. (Although there are questions about Skype's security.) That's just part of the evolution of technology, and one that on balance is a positive thing.
Think of it this way: We don't hand the government copies of our house keys and safe combinations. If agents want access, they get a warrant and then pick the locks or bust open the doors, just as a criminal would do. A similar system would work on computers. The FBI, with its increasingly non-transparent procedures and systems, has failed to make the case that this isn't good enough.
Finally there's a general principle at work that's worth explicitly stating. All tools can be used by the good guys and the bad guys. Cars have enormous societal value, even though bank robbers can use them as getaway cars. Cash is no different. Both good guys and bad guys send e-mails, use Skype, and eat at all-night restaurants. But because society consists overwhelmingly of good guys, the good uses of these dual-use technologies greatly outweigh the bad uses. Strong Internet security makes us all safer, even though it helps the bad guys as well. And it makes no sense to harm all of us in an attempt to harm a small subset of us.
About Bruce Schneier
Bruce Schneier is an internationally renowned security technologist, called a "security guru" by The Economist. He is the author of 12 books -- including Liars and Outliers: Enabling the Trust Society Needs to Survive -- as well as hundreds of articles, essays, and academic papers. His influential newsletter "Crypto-Gram" and his blog "Schneier on Security" are read by over 250,000 people. He has testified before Congress, is a frequent guest on television and radio, has served on several government committees, and is regularly quoted in the press. Schneier is a fellow at the Berkman Center for Internet and Society at Harvard Law School, a program fellow at the New America Foundation's Open Technology Institute, a board member of the Electronic Frontier Foundation, an Advisory Board Member of the Electronic Privacy Information Center, and the Security Futurologist for BT -- formerly British Telecom."God, no, we don't club baby seals. We club babies."
Goldmanite, quoted in The Times of London. November 8 2009
The monthly Coppock Indicators finished June:
DJIA: +145 Up. NASDAQ: +146 Up. SP500: +177 Unch The Fed’s
Final Bubble continues, but is struggling. The S&P500 moved sideways. The Dow and
Nasdaq both barely eked out a gain. In current highly volatile conditions and
controversial uncertain policy indecision at the Fed, Speculators would stay
long, investors would exit stocks for now or get fully hedged.
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