Baltic Dry Index. 1127 -08
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."
Antony C. Sutton
For more on our developing new Carbon Age, scroll
down to Crooks Corner. Regular readers know that I think that super material graphene,
and nano-carbon developments, will greatly reshape our 21st century
future, hopefully resetting our collapsed global casino gambling economy. But
somehow we have to get from mid-2013 and the impending doom of QE forever, to
roughly 2020. Stay long physical precious metals for the collapse of the euro
and other fiat currencies. The Great Nixonian Error of fiat currency has long
since passed its sell by date.
We open with what we reported on yesterday. China,
like the Fed blinked. Faced with even the Bernanke hint of the Fed tapering QE
forever, Bernocchio panicked the horses and frightened the ladies. The Fed has
been in a panicky U-turn ever since. Now China has put a 7% growth rate floor
under its economy. In a command economy like China’s it’s an easy target to
hit. Everyone will just report the new number. But China is a shadow banking
bubble just approaching its pin. What Xinhua says won’t be tolerated and what
actually happens will probably be two very different things.
"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
China capitulates
Economics Last updated: July 23rd, 2013
Once
again, China has concluded that it is too dangerous to let the Ponzi Scheme
collapse.
First we
had an article in Xinhua saying that growth below 7pc would “not be tolerated”.
Now we
have a clear statement from Premier Li Keqiang that growth must not fall below
the government’s “lower limit” of 7.5pc for 2013, and 7pc thereafter.
Already
we hear talk of more investment on railway projects, social housing,
infrastructure, green energy, sewage, broadband and G4, the tried and tested
levers of fiscal stimulus.
Ting Lu
from Bank of America calls it the “Li Keqiang Put”. That is certainly what it
looks like.
Moves
last week to liberalise interest rates were seen by many in China – though not
all – as a disguised way to lower borrowing costs and avert a wave of
bankruptcies.
So there
we are, the on-again off-again credit boom may soon be on once more, even
though each extra yuan of credit now generates less than 0.2 yuan of growth
compared to 0.85 before the Great Recession.
It all
feels like last summer when the authorities responded to the sharp slowdown
(hard landing?) by cranking up stimulus.
Mr Li’s
implicit argument is that kicking the can down the road buys time to push
through the market reforms needed as China abandons its obsolete, top-down,
investment-driven, 1980s catch-up model, and switches instead to a grown-up
economy.
No doubt
Mr Li genuinely hopes to push though these reforms, but he is up against an
army of vested interests, and half the Standing Committee.
As the IMF’s
Article IV report makes clear, very few reforms have actually happened.
Investment is still 48pc of GDP. The savings rate is still rising. China still
has the most deformed economy of any major country in modern history.
More
July 23,
2013, 11:20 p.m. EDT
China manufacturing weakening in July: HSBC
LOS ANGELES (MarketWatch) — China’s manufacturing-sector
activity is slowing further in July, with new factory orders deteriorating at a
faster pace, according to preliminary data out Wednesday from HSBC and Markit.
The
so-called “flash” version of HSBC’s Chinese manufacturing Purchasing Managers’
Index dropped to 47.7, an 11-month low. It was down from a final result of 48.2 for June, with any reading below 50 indicating a
contraction in activity. A separate government version of the June PMI printed
at 50.1.
The
flash PMI — which includes about 85%-90% of the survey responses that will be
used for the final version — also showed employment in the sector sliding at a
quicker pace than in June. However, new export orders decreased at a slower
rate, HSBC said.
HSBC
chief China economist Hongbin Qu said that the preliminary result “suggests a
continuous slowdown in manufacturing sectors, thanks to weaker new orders and
faster destocking. This adds more pressure on the labor market.”
More
Below one of the best “China experts” sees a
parting of the ways between America and China and the dying Eurozone and trade
war Japan. For once I think he has misread the current reality. I don’t think
that America can abandon QE forever without triggering the collapse QE was
brought in to prevent. QE forever will go on forever until fiat currency faces
universal revulsion. Then the Fed’s final bubble implodes. While Mr Xie foresees
gold at $3,000 per troy ounce in 5 years, on QE forever I see closer to $30,000
in near worthless fiat dollar towards the end of the decade. The longer the
voodoo policies of ZIRP and QE forever run, the worse the aftermath when both
errors end.
"When paper money systems begin to crack at the seams, the run to gold could be explosive."
Harry Browne
July 24, 2013, 12:20 a.m. EDT
What diverging monetary policies signal: Andy Xie
Commentary: Gold prices will top $3,000 per ounce in five years
By
Andy Xie
BEIJING (Caixin Online) — The monetary policies of major economies
are diverging for the first time since 2008. The euro zone, Britain and Japan
are sustaining quantitative easing, while the United States, China and other
major emerging economies are on a tightening path.
The
divergence is creating trends in some markets, volatility and confusion in
others.
The
U.S. dollar DXY +0.10% is
on a strong trend, as the expectation of the Fed’s tightening is driving
deleveraging of dollar-financed carry trades. On the other side of the strong
dollar are a weak pound GBPUSD
-0.06% ,
euro EURUSD
-0.10% and
yen USDJPY
+0.23% .
The
decline of commodity currencies is the clearest trend. The Australian dollar AUDUSD
-0.36% ,
Canadian dollar USDCAD
+0.18% and
the currencies of several commodity-export-dependent emerging economies have
declined sharply. The trend is likely to continue throughout the year.
Stocks
will remain volatile on conflicting news regarding liquidity and growth. Fueled
by asset inflation, the United States’ growth rate is picking up, and dollar
liquidity is receding in anticipation of higher interest
rates ahead.
The
growth outlook for Europe and Japan remains fragile. Their quantitative easing
is likely to remain intact through 2013. Most big companies are global in their
sales and earnings. Hence, their stocks will fluctuate with mixed news on
growth and liquidity.
A limited
crisis in emerging markets is still possible. As hot money is leaving them,
they are facing difficulties in adjusting to the tighter liquidity environment.
The recent political disturbances in Brazil, Egypt and Turkey amplify the
uncertainties.
Gold is
likely to perform well in the second half of 2013. While the rising U.S. dollar
keeps downward pressure on the price of gold, rising global uncertainties
support its role as a safe haven. Further, gold pricing is shifting to the East
from the West.
The
Shanghai market is likely to overshadow London or New York within five years.
Hence, the price of gold will increasingly track China’s monetary policy rather
than that of the United States.
More
Currency Revulsion
by Edward Harrison / on 1 October 2011 at
20:00 /
I have said it a few times but it bears repeating: If you march down to the
government with your paper IOU with $100 printed on it to demand your money,
the government will simply hand you another paper IOU with the exact same
amount printed on it. As the British ten pound note says, “I promise to pay the
bearer on demand the sum of [fill in the blank sum][fill in the blank fiat currency].”
All US government obligations are substantially identical promises to repay a
specific amount of the currency unit of account backed by nothing but taxing
authority. So, Treasury bonds don’t ‘fund’ anything. If the Treasury were allowed to run overdrafts at the central bank, the US government could stop issuing bonds altogether and credit bank accounts with keystrokes. As I see it, in a fiat money environment, the first function of the Treasury bonds is to serve as a vehicle to add or subtract reserves in the system to help the Federal Reserve hit a target Fed Funds rate. The second is to give holders of government obligations a return on their investment. After all, bank notes or bank reserves don’t pay much if anything.
But what about currency revulsion, you ask? What if government deficit spends out of control?
Well, that’s the confidence trick of fiat currency. If confidence in the currency erodes, tax evasion will rise, citizens will begin surreptitiously using other media of exchange to transact and inflation and currency depreciation will spiral out of control. Notice, however, I mention currency depreciation and inflation instead of national solvency.
Clearly the US government cannot involuntarily default on a currency obligation it can manufacture in infinite quantities. The same is true in Japan or Australia. Ask yourself why Italy and why not Japan when thinking about highly indebted nations under attack in the sovereign debt crisis. Japan is sovereign in its currency. Bond market participants know this. That is also why US yields are under 3% and Spanish yields are not. That is why Ireland could default but the UK will not.
Obviously, I am not talking about willingness to pay, “the Ecuador question” which plagues the US, but rather ability to pay.
More
Below, be it ever so slowly in Europe if not
America, the long arm of the law still reaches banksters. Of course “Dr. No” is
innocent unless found guilty, and merely starting trial.
Banks are an almost irresistible attraction for that element of our society which seeks unearned money.
J. Edgar Hoover
HSH Nordbank’s ‘Dr. No’ CEO Faces First German Trial Over Crisis
By Karin Matussek - Jul 24, 2013 12:01 AM GMT
With a former HSH Nordbank AG executive nicknamed “Dr. No” and a
collateralized-debt obligation transaction called Omega 55, the first German
criminal trial over the financial crisis could be the backdrop for a James Bond
thriller. Dirk Jens Nonnenmacher, the 50-year-old ex-chief executive officer given the nickname by the media because of his Ph.D., is one of six former HSH Nordbank management board members scheduled to go on trial in Hamburg today. Another former CEO, Hans Berger, is also a defendant.
The two men were charged with breach of trust and false accounting over the Omega 55 transaction, the 2007 CDO package that prosecutors said led to 160 million euros ($211 million) in losses. Two years later, the Hamburg-based lender was bailed out at the height of the financial crisis with 30 billion euros in aid from German state and federal governments.
“On the day it was signed, the transaction incurred a loss of 62 million euros,” Hamburg prosecutors’ spokeswoman Nana Frombach said in an interview. “From no point of view was the deal reasonable and it contradicted previous decisions by the management board.”
Prosecutors throughout Germany have investigated lenders that faltered during the financial crisis. While charges have also been brought against former managers at Bayerische Landesbank, SachsenLB and Landesbank Baden-Wuerttemberg, none of them have gone to trial yet.
More
We end for today with a new examination of casino
capitalism “rent seeking.” Is High Frequency front running great or what?
It’s morally wrong to let a sucker keep his money.
W. C. Fields. Wall Street Ethicist.
Quants: the maths geniuses running Wall Street
Forget Gordon Gekko. Old-style City traders are being replaced by maths geniuses who use super-computers to beat the markets. But are 'quants’ a force for good or evil?
By
Sarfraz Manzoor 7:00AM BST 23 Jul 2013
At seven
minutes past one on the afternoon of Tuesday April 23 this year a tweet from
the AP news agency in Washington was published. It read “Breaking: Two
Explosions in the White House and Barack Obama is injured.” This was not true –
the AP account had been hacked by a shady group of
technology nerds calling themselves The Syrian Electronic Army – but
within milliseconds the tweet had been noticed and flagged by trading computers
on Wall Street.
Programmed
to scan the internet for words or phrases that might effect stock markets, the
unthinking machines had immediately seized upon the tweet, noted the proximity
of the words “Obama”, “explosions” and “White House” and unleashed a torrent of
trades. Within seconds, the Dow Jones had plunged 140 points and more than $200
billion of capital had been wiped out.
A few
minutes later the report was exposed as a hoax and the markets quickly returned
to their pre-tweet levels. But, to many, the idea that one fake tweet could
have such an enormous impact on the financial markets was incredible. Who was
running Wall Street? Humans or machines?
If you
thought “humans”, you were woefully out of date. Over the past decade or so
there has been a technological coup d’etat on the trading floor. The old “Masters
of the Universe” – the Gordon Gekko types with their slicked-back hair and
$5,000 suits – have been superseded by unbelievably powerful computers capable
of analysing vast amounts of data and buying or selling shares in the blink of
an eye. Today, if you visit a trading floor, instead of pumped-up men in loose
ties screaming down the phone, you are more likely to see rows of
studious-looking people (most of them still men) sitting in front of computer
screens, quietly monitoring trades being carried out on their behalf by
machines.
Around 70
per cent of the orders to buy or sell on Wall Street are now placed by software
programs, and the studious-looking people, mathematical geniuses who are
responsible for writing these programs, are the new “smartest guys in the
room”. It is the age of the algorithm.
----At the same time, the job prospects for scientists had nosedived. Since the 1969 moon landing, the American government had cut funding for science programmes and diverted it to the war in Vietnam.
“A
generation of physicists who had gone to graduate school left with their PhDs
and entered a severely depressed job market,” explains James Owen Weatherall,
author of The Physics of Finance. They had to earn a living somehow,
and, seeing how much money that there was to be made on Wall Street, many
decided to move into finance.
In
Britain, the fall of the Soviet Union led to an influx of Warsaw Pact
scientists. In both cases, these scientists brought with them a new methodology
based on analysing data and also a faith that, using sufficient computing
firepower, it was possible to predict the market. It was the start of a new
discipline, quantitative analysis, and the most famous “quant” of all was a
shambling donnish maths genius with a scraggly beard and aversion to socks
called Jim Simons.
For those
who know their physics, Simons is a living legend. A piece of mathematics he
co-created, the Chern-Simons 3-form, is one of the most important elements of
string theory, the so-called “theory of everything”. Highly academic, Simons
never seemed the sort of person who would gravitate to the earthy environs of
Wall Street. But in 1982, he founded an extraordinarily successful hedge fund
management company, Renaissance Technologies, whose signature fund, Medallion,
went on to earn an incredible 2,478.6 per cent return in its first 10 years,
way above every other hedge fund on the planet, including George Soros’s
Quantum Fund.
----In 2010, a company called Spread Networks laid a new direct cable between New York and Chicago, going straight through the Allegheny mountains, which shaved a little bit more than 1,000th of a second off the transmission time between stock exchanges.
For the
opportunity to use a similarly fast tube between New York and London, Jones’s
old bank was asked to pay $50 million. “It would have given us an advantage
over others of about a six thousandths of one second,” says Jones.
This
focus on the shortest of short-term gains has vastly increased volatility.
“Warren Buffett owns shares in Coca-Cola and when they go down he says 'I’m
holding on to them because I think they will go back up’,” says Jones. “But the
HFT guy, all he cares about is the next millisecond. And when too many people
start panicking about the next millisecond that’s when you have a crash.”
More
"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."
Henry Hazlitt
At the Comex silver depositories Tuesday final figures were: Registered 47.54 Moz,
Eligible 116.54 Moz, Total 164.08 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
No crooks today, just a glimpse at our future. At
least for those of us who live in the planet’s towns and cities. Over the next
decade or two, our busses, cars and lorries, will increasingly switch over to
electric power. Our trains will undergo a carbon revolution too, although that
is more 20s and 30s I think. Regular readers of the LIR already know that I
expect great things from our coming new Carbon Age, largely based on graphene
and nano-carbon materials. Unless we
want a world of grossly polluted cities and towns like China, graphite,
graphene and nano-carbon technologies, coupled with new battery technologies,
probably based on lithium despite the recent Dreamliner problem, seem to be our
21st century future. When we finally defeat the electricity grid
storage problem, as we likely will this decade and next, the age of cheap electricity
will dawn.
While the present iteration of Electric Vehicles
seem to have been produced merely to make the euro look viable in comparison,
it’s only the 1900s in the EV age. Graphene is about to burst out from the labs
later this decade.
BMW takes a gamble as it prepares to blaze a trail with luxury electric cars
With a range of less than 100 miles and a hefty price tag, it is little wonder that BMW's first electric cars are described by the company's chief executive as a "calculated risk."
The
world's biggest luxury car maker unveils its first electrical offering, the i3,
on Monday. It is the first in a series of electric cars from the German car
maker and boasts a range of innovations including a lightweight shell of carbon
fibre-reinforced plastic.
BMW is
gambling that drivers will soon be ready for a premium version of the
all-electric car, which has so far gained only a tiny sliver of the market.
Sales of
battery-powered vehicles are rising but from a very low base. Last year drivers
in the UK bought just over 1,200 all-electric cars compared with nearly 2m
petrol or diesel cars.
Both the
high price of the first electric cars and fears of being stranded at the
roadside by a flat battery have acted as a deterrent, analysts say.
BMW
predicts that, as people increasingly move to live in cities and governments
get tougher on environmental regulation, demand for electric cars will
increase.
"More
and more people are living in cities, with restrictions on travelling into the
city – both emissions and access," a BMW spokesman said.
"As
time goes on, these legal restrictions will become ever tighter.
"We've
looked at the driving profiles of people in metropolitan regions and a car with
a range of 150km [93 miles], which needs to be charged two to three times a
week, is something which meets people's needs completely."
In an
attempt to assuage customers' fears about range, the i3 will come as part of a
package deal that includes the loan of a petrol car for use in holiday driving.
A similar deal is being offered by Fiat, whose 500e electric model comes with
12 days a year of alternative transport in a conventional car. Drivers of the
i3 will also be able to plug in a small petrol engine that extends the car's
range to around 180 miles.
For BMW,
the i3 is an opportunity to re-invent the luxury car. Luxury is "not about
being able to drive thousands of miles but about the quality of the vehicle, a
special design and taking pleasure in driving," the BMW spokesman said.
The i3,
he added, "is still recognizably a BMW but a different BMW from all the
others". Its specifications suggest that it will be a sporty and agile
urban car. It boasts acceleration from 0-60mph in about seven seconds and a
tight turning circle of just 32 feet. Like all electric cars, it has
"instant torque" – the entire force of the engine is available as
soon as the accelerator pedal is pressed.
Analysts
suggest BMW is attempting to create a new market in premium electric cars. As
yet, it has few rivals.
Californian
electric car maker Tesla recently posted its first quarterly profit, sending
its share price soaring, and expects to sell around 21,000 of its model S
sedans this year. General Motors is also targeting affluent electric motorists
with the Cadillac ELR.
More
Graphene
Graphene is an allotrope of carbon. In this material, carbon atoms are arranged in a regular hexagonal pattern. Graphene can be described as a one-atom thick layer of the mineral graphite (many layers of graphene stacked together effectively form crystalline flake graphite). Among its other well-publicised superlative properties, it is very light, with a 1-square-meter sheet weighing only 0.77 milligrams.The Nobel Prize in Physics for 2010 was awarded to Andre Geim and Konstantin Novoselov at the University of Manchester "for groundbreaking experiments regarding the two-dimensional material graphene".[1]
More
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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