Baltic Dry Index. 1139 +09
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
Any
sudden event which creates a great demand for actual cash may cause, and will
tend to cause, a panic in a country where cash is much economised, and where
debts payable on demand are large. In such a country an immense credit rests on
a small cash reserve, and an unexpected and large diminution of that reserve
may easily break up and shatter very much, if not the whole, of that credit.
Walter Bagehot. Lombard Street. 1873.
As both Taiwan and China brace for Typhoon Soulik, a different sort of Typhoon is about to
hit the global markets. As Europe dies
under the folly of the euro, China’s great growth machine seems to have lost
its sponsor. Forget 7.5% GDP, not that anyone believes the official figures,
China may be contemplating a 6% official GDP. Say goodnight, Australia, Brazil,
and all the other non-precious metals commodities economies. Say goodnight
Uncle Sam, Ben Bernanke, John Bull, Mark Carney, Mario’s Draghi and Barroso. After
four decades on the Great Nixonian error of fiat money, when China sneezes we
all get flu. For more on this scroll down to Crooks Corner.
We open today with
our very wobbly and greatly disconnected world.
Nor
is this the only changeable element in modern industrial societies. Credit—the
disposition of one man to trust another—is singularly varying. In England,
after a great calamity, everybody is suspicious of everybody; as soon as that
calamity is forgotten, everybody again confides in everybody. On the Continent
there has been a stiff controversy as to whether credit should or should not be
called capital:' in England, even the little attention once paid to abstract
economics is now diverted, and no one cares in the least for refined questions
of this kind
Walter Bagehot. Lombard Street. 1873.
Asian stocks turn somber as China risk looms
SYDNEY |(Reuters) - Investors in Asian stocks turned cautious on Friday even after a record closing high on Wall Street, and a selloff in the dollar paused as markets braced for Chinese GDP data that could give telling evidence of weakness in the world's second biggest economy.
Economists polled by Reuters see China's second-quarter GDP growth at a median 7.5 percent. The data is set to be released on Monday.
Foreshadowing an even slower growth rate, China's finance minister said he expected a 7 percent pace for this year, which would be below the government's own official forecast.
"China's weak foreign trade data for June provide a pessimistic edge to second quarter GDP estimates. Monthly data, including industrial production and fixed investment, show China's economy slowed further in the second quarter," said Alaistair Chan, an economist at Moody's analytics in Sydney.
"This year is shaping up to be the slowest since 1999, and the risk is increasing that full-year GDP growth will come in below the government's 7.5 percent target."
More
China finance minister signals may accept growth below 7 percent
SHANGHAI |(Reuters) - China's finance minister signaled that Beijing may be willing to tolerate economic growth in the second half of the year significantly below 7 percent, marking the most sobering comment to date from a senior policymaker on the country's slowdown.
Speaking in Washington, Lou Jiwei said growth in the world's second-largest economy could be 7 percent this year, the official Xinhua news agency reported on Friday. That would mean growth coming in below the government's official target for the first time in living memory.
----"There is no doubt that China can achieve the growth target, though the 7 percent goal should not be considered as the bottom line," Xinhua reported in paraphrasing Lou's remarks made on the sidelines of the U.S.-China Strategic and Economic Dialogue.
Corporate
and investment bank TD Securities said the comments implied a sharp slowdown in
economic growth in the rest of the year.
"It's
not hard to do the math to work out that 6 percent (year on year) GDP growth is
required by year end to achieve that," Annette Beacher, head of Asia
Pacific research FX and rates strategy of TD Securities, said in a client note.
Chinese
authorities, worried about over-investment and strong growth in informal
lending, have indicated they are prepared to tolerate slower economic growth rates
as they drive through structural reforms.
More
Renewed fear of global recession as companies rein in spending plans
Growth in spending on machinery and investment by the world’s 2,000 biggest companies has begun to contract for the first time since the Lehman crisis, led by sharp falls in China and a near collapse in Latin America.
Standard
& Poor’s warned that the global cycle for capital investment has already
rolled over, with early signs pointing to deepening contraction of 5.4pc in
2014. “The capex recovery appears to be ending before it has really begun,”
said the agency’s Gareth Williams.
Company
spending plans are watched as an early warning gauge for the economy. The
drastic falls in large parts of the world doom hopes for strong recovery later
this year, and even point to a recession risk.
The
International Monetary Fund has cut its global forecast for this year to 3.1pc,
sharply downgrading Russia, Brazil, South Africa, India and Mexico, as well as
Italy and Germany. “Policymakers everywhere need to increase efforts to ensure
robust growth,” it said.
The
unexpected pull-back in company spending is a serious blow. It had been assumed
that firms must soon start to spend their huge cash piles, helping to kickstart
recovery. “This is a pretty troubling snapshot of the global economy and it
shows endemic lack of confidence. Companies are still worried, and there still
is excess capacity in autos and other industries,” said Mr Williams.
S&P
said the commodity bloc had been hit hardest as the energy and materials boom
turns to bust, with capex likely to drop by more than 20pc in Australia and
40pc in Latin America in 2014.
The
resource industry accounted for 42pc of global capex spending last year. This
is now crumbling, with little else ready to take its place. “If the commodity
'super cycle' is drawing to an end, capex growth rates could remain depressed
for years,” said S&P.
The grim
data come amid fresh signs of a trade slump in Asia. “Recent Asian export data
have been little short of disastrous. Momentum has turned negative, running at
-3pc in May,” said Mole Hau from BNP Paribas.
More
And so to the never ending crisis known as Europe,
where everything is being run for the benefit of a German late September election.
The trouble is, Club Med and France don’t seem able to make it as far as
September. Everything closes down in Europe in August. Sharpen up the
guillotine, grease up the tumbrils. For Europe an interesting late summer lies
ahead.
"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
Portugal president throws politics into disarray
LISBON |(Reuters) - Portugal's president threw the bailed-out euro zone country into disarray on Thursday after rejecting a plan to heal a government rift, igniting what critics called a "time bomb" by calling for early elections next year.
President Anibal Cavaco Silva proposed a cross-party agreement between the ruling coalition and opposition Socialists to guarantee wide support for austerity measures needed for Portugal to exit its bailout next year, followed by elections.
----Cavaco Silva was Portugal's longest-serving elected prime minister from 1985 to 1995 for the ruling centre-right Social Democrats and is seen by analysts as valuing political stability above all else. He has often said he does not want to use "the atomic bomb," referring to snap elections.
Under
Portugal's constitution, the president has the power to dissolve parliament and
call elections.
Cavaco
Silva's move drew sharp criticism in a country that has descended into its
worst economic slump since the 1970s under the weight of austerity imposed by
the bailout.
Portuguese
markets fell in reaction to the president's move. Stocks declined 1.7 percent
and 10-year bond yields climbed eight basis points to 6.97 percent.
More
'John
Bull can stand many things, but he cannot stand two per cent.'
Walter
Bagehot. Lombard Street, 1873.
At the Comex silver depositories Thursday final figures were: Registered 48.65
Moz, Eligible 117.30 Moz, Total 165.95 Moz.
Crooks and
Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, be very afraid, says David Stockman,
President Reagan’s first Budget Director. The Greenspan-Bernanke bubbles
machine has run out of bubbles. When the Fed’s final bubble bursts, as it will,
three decades of mal-investment has to be put right. The whole article plus
graphs are well worth the read.
So what is happening at bottom is
that Bernanke is printing money so that Uncle Sam can keep massively borrowing,
and thereby fund a simulacrum of job growth in the HES Complex. Call
it the Bed Pan Economy.
When it finally crashes, Ben Bernanke
will be more reviled than Herbert Hoover. And deservedly so.
David Stockman.
David Stockman: "The Born-Again Jobs Scam"
Submitted by David Stockman,
author of The
Great Deformation,
No, last
week’s jobs report was not “strong”. It was just another edition of the
“born again” jobs scam that has been fueling the illusion of recovery during the
entire post-crisis Bernanke Bubble. In fact, 120,000 or 62 percent of the
June payroll gain consisted of part-time jobs in restaurants, bars, hotels,
retail and temp agencies. The average pay check in this segment amounts to
barely $20,000 per year, which is a sub-poverty level income for a family of
four, and compares to upwards of $50,000 per year for goods producing jobs in
the BLS survey.
Altogether,
the government has reported 2.8 million of these part-time job gains since the
Great Recession officially ended in June 2009, accounting for a predominant
share of the ballyhooed pick-up of 5.3 million total jobs. It goes
without saying, however, that the principal of one-job-one-vote does not
apply in economics. What matters are aggregate dollar earnings. On that
front, the Commerce Department figures for total private wage and salary income
are just plain punk. Nearly six years on from the December 2007 peak, real
payroll disbursements are still down by nearly 1 percent. What kind of
“recovery” is that about?
Measured
on an income equivalent basis, then, a majority of the big rebound in the BLS
headline number has consisted of “40 percent jobs”. Granted, these fractional jobs
do provide a monthly feed to headline stalking HFT algos and the gist for the moronic
jobs number guessing game conducted by unemployable Wall Street executives
otherwise known as “street economists”. But not by a long shot do they prove
that the Fed’s money printing spree is beginning to bear fruit, as claimed by
the cheerleading section of the Wall Street Journal shortly after the BLS
release.
Indeed, once
upon a time financial journalists actually worked for a living by digging
for facts, rather than simply re-posting the spin issued by Washington’s
various ministries of truth. In this instance, even a modicum of investigation
by the WSJ would have revealed that the 2.8 million part-time jobs “created”
since June 2009 reflect the rebirth of the very same 2.8 million jobs that were
first generated between 2000 and 2007. That this obvious fact has been
completely ignored is not surprising. After all, the reigning doctrine
in the Keynesian puzzle palace inhabited by officialdom and financial
journalists alike, calls for digging and refilling economic holes as the
national policy of first resort.
The BLS
data exhibit this syndrome with uncanny exactitude. In early 2000 there were
34.7 million jobs in the part-time economy. In response to the dotcom crash,
the Fed ignited the housing and credit bubbles via Greenspan’s 1% money
experiment, causing a consumption boom fueled by home ATM withdrawals and other
consumer borrowings. Accordingly, activity rates in leisure and
hospitality, retail and personal services (think yoga teachers and gardeners)
temporarily soared, with the part-time job count climbing by the aforesaid 2.8
million by late 2007. But this peak of 37.2 million part time jobs was pure
bubble economics--- attested to by the fact that every single one of these new
jobs vanished during the 18 months of bubble liquidation otherwise known as the
Great Recession. Indeed, when the NBER declared the bottom in June 2009, the
part-time job count stood at 34.5 million, a hair under where it started at
the turn of the century.
----The self-evident implication of this born again jobs saga is that the nation’s employment problem is structural and an enduring consequence of the end of the 30-year debt super-cycle, not a cyclical shortfall that can be fixed by juicing the speculative classes. Indeed, a brief glance at the horrid trend in “breadwinner” jobs demonstrates in spades that the problem is structural and therefore wholly outside of the Fed’s remit---even granted its spurious claim that it is printing money with reckless abandon because its “dual mandate” requires it.
The
“breadwinner jobs” category includes construction, mining, manufacturing,
the white collar professions, business management and support services,
financial services, information and technology, government service excluding
education, wholesale trade, transportation and warehousing and real estate
agents, among others. This is the heart of the Main Street economy, where
the average pay-rate is upwards of $50,000 annually---just enough to support a
family, at least in some lower cost regions. Here the June BLS report
clocked-in at 67.56 million jobs (50 percent of the NFP total), and there was
nothing whatsoever impressive about the number. As shown below, breadwinner
jobs have been shrinking at a stunning rate for the entire duration of the 21st
century.
----Thus, the miserable breadwinner job trend shown below actually understates the nation’s structural employment problem---even as that cardinal reality remains virtually unknown to our feckless monetary politburo. To be precise, there were 61.5 million full-time breadwinner jobs in the private sector during January 2000. Setting aside the shrinking government sector jobs embedded in the graph below, there were just 56.5 million private sector breadwinner jobs contained in the allegedly “robust” report for June 2013.
Indeed, we
have been losing private sector breadwinner jobs at the rate of 31,000 per
months for thirteen and one-half years running.
----In short, Fed policies are mangling the Main Street economy by disabling the pricing mechanism in all financial markets, diverting capital to unproductive speculation and rent-seeking and leaving genuine entrepreneurs and businessmen adrift in a fog of financial disorder. Needless to say, the result is tepid growth of incomes and jobs----a lamentable condition that the Fed cannot fix with “moar” monetary stimulus because decades of the latter are what has caused the problem.
More
importantly, the impossibility of fixing a structural problem with Keynesian
cyclical medicine means that the monetary politburo will descend into an ever
more incoherent babble as the “incoming data” fail to match its clueless
forecasts. In this regard, not only were Wednesday’s minutes an embarrassing
exercise in Washington pettifoggery, they were also self-evidently a fraud and
lie-----spun well after the meeting in an attempt to undo Bernanke’s original
message. It is bad enough that the nation’s vast, infinitely complex $16
trillion economy is being run by an unelected 12-person monetary politburo. But
now the commissars have completely lost both their bearings and their
credibility.
Under
these circumstances healthy capitalist financial markets would be
afraid---very afraid. But there are no honest markets left----just a
big romper room where the boys and girls and algos endeavor to extract
windfalls from central bank word clouds. Still, the magnitude of the
deformation that the Fed has wrought in the financial system cannot be
under-estimated: there remain even now tens of thousands of punters, fund
managers and home gamers who do not see the Fed’s desperate incoherence,
believing instead that “the market is cheap” and that buying the dips is a no
loose proposition.
More
Below, we have been here before.
That
which has been is that which will be, And that which has been done is that
which will be done. So there is nothing new under the sun.
Ecclesiastes 1:9
Lord Macaulay has graphically described one of the periods of excess. He
says—
VI.16
'During the interval between the Restoration and the Revolution the
riches of the nation had been rapidly increasing. Thousands of busy men found
every Christmas that, after the expenses of the year's housekeeping had been
defrayed out of the year's income, a surplus remained; and how that surplus was
to be employed was a question of some difficulty. In our time, to invest such a
surplus, at something more than three per cent., on the best security that has
ever been known in the world, is the work of a few minutes. But in the
seventeenth century, a lawyer, a physician, a retired merchant, who had saved
some thousands, and who wished to place them safely and profitably, was often
greatly embarrassed.
---- There were
a few joint stock companies, among which the East India Company held the
foremost place; but the demand for the stock of such companies was far greater
than the supply. Indeed the cry for a new East India Company was chiefly raised
by persons who had found difficulty in placing their savings at interest on
good security
---- 'The natural effect of this state of things was
that a crowd of projectors, ingenious and absurd, honest and knavish, employed
themselves in devising new schemes for the employment of redundant capital. It
was about the year 1688 that the word stockjobber was first heard in London. In
the short space of four years a crowd of companies, every one of which
confidently held out to subscribers the hope of immense gains, sprang into
existence—the Insurance Company, the Paper Company, the Lutestring Company, the
Pearl Fishery Company, the Glass Bottle Company, the Alum Company, the Blythe
Coal Company, the Swordblade Company. There was a Tapestry Company, which would
soon furnish pretty hangings for all the parlours of the middle class, and for
all the bedchambers of the higher. There was a Copper Company, which proposed
to explore the mines of England, and held out a hope that they would prove not
less valuable than those of Potosi. There was a Diving Company, which undertook
to bring up precious effects from shipwrecked vessels, and which announced that
it had laid in a stock of wonderful machines resembling complete suits of
armour. In front of the helmet was a huge glass eye like that of a Cyclops; and
out of the crest went a pipe through which the air was to be admitted. The
whole process was exhibited on the Thames. Fine gentlemen and fine ladies were
invited to the show, were hospitably regaled, and were delighted by seeing the
divers in their panoply descend into the river and return laden with old iron
and ship's tackle. There was a Greenland Fishing Company, which could not fail
to drive the Dutch whalers and herring busses out of the Northern Ocean. There
was a Tanning Company, which promised to furnish leather superior to the best
that was brought from Turkey or Russia. There was a society which undertook the
office of giving gentlemen a liberal education on low terms, and which assumed
the sounding name of the Royal Academies Company. In a pompous advertisement it
was announced that the directors of the Royal Academies Company had engaged the
best masters in every branch of knowledge, and were about to issue twenty
thousand tickets at twenty shillings each. There was to be a lottery—two
thousand prizes were to be drawn; and the fortunate holders of the prizes were
to be taught, at the charge of the Company, Latin, Greek, Hebrew, French,
Spanish, conic sections, trigonometry, heraldry, japaning, fortification,
bookkeeping, and the art of playing the theorbo.'
The panic was forgotten till Lord Macaulay revived the
memory of it.
Walther Bagehot. Lombard Street, 1873.
It
takes two or three years to produce this full calamity, and the recovery from
it takes two or three years also. If corn should long be cheap, the labouring
classes have much to spend on what they like besides. The producers of those
things become prosperous, and have a greater purchasing power. They exercise
it, and that creates in the class they deal with another purchasing power, and
so all through society. The whole machine of industry is stimulated to its
maximum of energy, just as before much of it was slackened almost to its
minimum.
Walter
Bagehot. Lombard Street, 1873.
Have a great weekend everyone. Time to enjoy God’s
high summer and His plethora of wild summer flowers.
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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