Wednesday, 25 September 2013

Great Expectations.

Baltic Dry Index. 2021 +74

LIR Gold Target by 2019: $30,000.  Revised due to QE programs.

Die, my dear Doctor, that's the last thing I shall do!

Lord Palmerston.

The Baltic Dry Index has just doubled in under two months. The global economy booms again, at least according to those booking dry bulk shipping. The glass isn’t half full, its about to overflow. And next year it’s going to be even better. Below Bloomberg covers the growing boom. Those of a timid disposition, should stop reading after the first article and definitely not scroll down to Crooks Corner.

“It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."

J. K. Galbraith. The Great Crash: 1929.

Shippers Poised to Return to Profit as Cargoes Grow 10%: Freight

By Rob Sheridan - Sep 24, 2013 12:01 AM GMT
The shipping industry hauling commodities from coal to crops to iron ore is poised to return to profit for the first time since 2010 as the biggest capacity glut in its history diminishes.

Trade in the three largest dry-bulk cargoes will expand 10 percent to a record 2.91 billion metric tons in 2014, according to ACM Shipping Group Plc, the third-largest listed shipbroker. Rates will exceed owners’ break-even levels in 2014 for each of the four main vessel classes, according to 34 analyst estimates compiled by Bloomberg. Investors can profit by buying freight swaps, which are mostly trading below the analysts’ forecasts.

The industry is emerging from its largest-ever glut after record rates five years ago spurred owners to order an unprecedented number of vessels. Shipyards built about 4,300 carriers since then, which lined up end to end would stretch for about 570 miles, or about the length of the U.K. Deliveries are now slowing after earnings that fell as much as 84 percent since 2008 curbed orders.

----The Baltic Dry Index, a measure of freight costs, almost tripled to 1,947 this year, according to the Baltic Exchange, a London-based publisher of prices on more than 50 maritime routes. Rates for iron ore-carrying Capesizes led the surge, jumping more than sevenfold to $38,397 a day as China bought record amounts of the raw material used to make steel.

----The anticipated rally in rates depends on China because the country’s imports represent 38 percent of all iron-ore, coal and grain shipments, according to data from Clarkson Plc, the biggest shipbroker. Japan, the second-largest destination, accounts for 13 percent of cargo demand.

China’s $8.23 trillion economy will expand 7.4 percent next year, the weakest pace in 23 years, according to the average of 53 economist estimates compiled by Bloomberg. That’s still more than three times the global average. Japan’s growth will slow to 1.55 percent in 2014 from 1.9 percent this year, the average of 46 forecasts shows.

With so much of the shipping boom China and Japan centric, we take note of current Asian and global developments. Far from the glass overflowing, it still looks to be half empty to this old dinosaur trader with crash season just six days away.

"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."

John Exter

China Beige Book Shows Slowdown, Opposite Official Data

By Bloomberg News - Sep 25, 2013 3:41 AM GMT
China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed.

Increases in business-investment and real estate revenue also slowed, while service industries picked up and employees became tougher to find, the survey from New York-based China Beige Book International said yesterday. The report is based on responses from 2,000 people from Aug. 12 to Sept. 4 as well as 32 in-depth interviews conducted later in September.

The quarterly report, which began last year and is modeled on the U.S. Federal Reserve’s Beige Book business survey, diverges from government figures showing faster factory-output gains in July and August that have spurred analysts from Citigroup Inc. to Deutsche Bank AG to raise expansion estimates. Nomura Holdings Inc. is among banks skeptical that any rebound will be sustained next year.

The results “show the conventional wisdom of a renewed, strong economic expansion in China to be seriously flawed,” China Beige Book President Leland Miller and Craig Charney, research and polling director, said in a statement.

The data “reveal weakening gains in profits, revenues, wages, employment and prices, all showing slipping growth on-quarter -- no disaster, but certainly not the powerful expansion suggested by the consensus narrative.”

----The first China Beige Book, from the second quarter of 2012, said the economy was picking up, a few months ahead of official data indicating a rebound. This year’s second-quarter report showed expansion slowing across the country and a decline in companies taking out loans.

Debt Disaster Seen Unless VAT Rises to 20% by 2020: Japan Credit

By Rocky Swift & Shigeki Nozawa - Sep 25, 2013 1:52 AM GMT
Japan must raise its sales tax to at least 20 percent by the time the Olympics come to Tokyo in 2020 to avert a “disaster” in its bond market, according to the head of a panel advising the world’s biggest pension fund.

The consumption levy, due to increase in April for the first time since 1997, will need to quadruple from current levels to handle Japan’s increasing welfare costs and rein in the nation’s debt, said Takatoshi Ito, who leads an investment panel for the 121 trillion yen ($1.23 trillion) Government Pension Investment Fund. He said funds like GPIF are at risk of being too dependent on Japanese government bonds, where 10-year yields of 0.670 percent are the lowest globally.

Prime Minister Shinzo Abe is expected to decide next month if Japan’s economy can weather an increase in the tax to 8 percent in April. Current rates of 5 percent are a fifth of the value-added taxes imposed in Nordic countries like Sweden, and need to be raised to prevent the implosion of a debt burden that’s more than double the size of Japan’s economy, Ito said.

“There is a narrow path to escape from the disaster,” Ito, the dean of Tokyo University’s Graduate School of Public Policy, said in an interview yesterday. “The good news is that there is a big fiscal space to increase taxes.”

Abe will announce his decision on Oct. 1 after the release of the Bank of Japan’s Tankan survey of business sentiment.

----The BOJ unveiled an unprecedented monetary stimulus program in April, saying it would double monthly JGB purchases to more than 7 trillion yen in pursuit of a 2 percent inflation target. The easing has kept a lid on bond yields as it helped Japan’s exporters by sending the yen to a 4 1/2-year low of 103.74 per dollar in May. It was at 98.74 as of 9:41 a.m. in Tokyo.

Federal Reserve considers explicit pledge: Low rates if inflation stays down

By Ylan Q. Mui, Published: September 23

The Federal Reserve is leaning toward an explicit commitment to keep interest rates at rock-
bottom levels, as long as inflation remains low.

The pledge would be an attempt to strengthen assurance that the central bank will not tap the brakes on the recovery until it is certain that the momentum can be sustained. The Fed already has vowed not to raise rates — a move that would slow economic growth — at least until the unemployment rate falls to 6.5 percent or inflation rises above 2.5 percent.

It is strongly considering adding a third prong to that promise: not to move if inflation is below a certain target.

“To the extent that we could provide precise guidance, I think that would be desirable,” Fed Chairman Ben S. Bernanke told reporters recently.

But settling on the parameters for that guidance will probably take time and spark heated debate. The Fed attempted to provide similar details on when it would begin winding down a separate stimulus program that pumps billions of dollars directly into the economy each month. But the effort backfired, roiling the markets and prompting investors to doubt the Fed’s word.

We end for the day with China and the Ukraine. China has just leased 100,000 hectares of the Ukraine’s arable land, or maybe it’s just 3,000 hectares to start. Either way, China seems to be placing a long term bet on stability returning to the Middle East. It’s a very long shipping route from the Black Sea to southern China. Maybe shipping will boom after all.

China 'to rent five per cent of Ukraine'

Ukraine has agreed a deal with a Chinese firm to lease five per cent of its land to feed China's burgeoning and increasingly demanding population, it has been reported.

It would be the biggest so called "land grab" agreement, where one country leases or sells land to another, in a trend that has been compared to the 19th century "scramble for Africa", but which is now spreading to the vast and fertile plains of eastern Europe.

Under the 50-year plan, China would eventually control three million hectares, an area equivalent to Belgium or Massachusetts, which represents nine per cent of Ukraine's arable land. Initially 100,000 hectares would be leased.

The farmland in the eastern Dnipropetrovsk region would be cultivated principally for growing crops and raising pigs. The produce will be sold at preferential prices to Chinese state-owned conglomerates, said the Xinjiang Production and Construction Corp (XPCC), a quasi-military organisation also known as Bingtuan.

XPCC said on Tuesday that it had signed the £1.7 billion agreement in June with KSG Agro, Ukraine's leading agricultural company. KSG Agro however denied reports that it had sold land to the Chinese, saying it had only reached agreement for the Chinese to modernise 3,000 hectares and "may in the future gradually expand to cover more areas"

----With its current population of 1.36 billion predicted by the UN to rise to 1.4 billion by 2050, China is among the leading renter of overseas farmland in Africa, South America and Southeast Asia, though the XPCC deal would make Ukraine China's largest overseas farming centre.

China consumes about one-fifth of the world's food supplies, but is home to just nine per cent of the world's farmland, thanks in part to rapid industrialisation.


As of September 23, Ukraine harvested over 35 mln tonnes of grains - Ministry of Agrarian Policy

As of September 23, Ukraine harvested 35.125 mln tonnes of grains and pulses throughout the areas of 11.17 mln ha (71% of the plan), with the average yield of 3.14 t/ha, declared the Ministry of Agrarian Policy and Food of Ukraine.

According to the Ministry, on the same date last year agrarians harvested 30.688 mln tonnes of grains throughout 11.39 mln ha, with the average yield of 2.69 t/ha.

---- Besides, as of the reporting date Ukraine planted winter grains throughout the areas of 1.488 mln ha (18%), including wheat - 1.351 mln ha (20%), barley - 37.1 thsd ha (3%), rye - 99.6 thsd ha (33%). Ukrainian agrarians planted winter rapeseed throughout 757.8 thsd ha (82%).

"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

At the Comex silver depositories Tuesday final figures were: Registered 43.70 Moz, Eligible 120.21 Moz, Total 163.91 Moz.  

Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.

Today, the unthinkable. What if America doesn’t raise its debt ceiling and Uncle Sam actually has to make hard choices? Our markets complacently assume that this won’t happen. Yet again, one or both parties will blink and forge a last minute compromise. But what if this time it’s different?  What if both parties shoot themselves in the foot? Is the markets overconfidence misplaced?

They couldn't hit an elephant at this distance.

The last words of Union General John Sedgwick.

Analysis: Washington to Wall Street - Threat of default is real

WASHINGTON | Tue Sep 24, 2013 7:25pm EDT
(Reuters) - Money lenders trust America so implicitly that they generally dismiss the risk it won't pay its debts. But in the U.S. capital, fears are growing that political dysfunction might trigger the unthinkable.
Government veterans from both political parties are aghast that lawmakers openly speak of managing a default that could be triggered next month if they don't authorize more borrowing.

Another reason for concern is that the debate over the debt ceiling appears stuck on a Republican demand for big spending cuts in exchange for raising the $16.7 trillion borrowing limit.

This could be too tall an order because Washington is already slashing spending on almost everything but the welfare state. To go further, Congress would likely have to make cuts in sacrosanct programs like pensions and healthcare for the elderly, something lawmakers appear loath to do.

"The ingredients to put together a deal are diminishing," said Tony Fratto of consultancy firm Hamilton Place Strategies, which advises investors on the workings of Washington. "Only the tough choices are there," said Fratto, who was a spokesman at the White House and Treasury during the Bush administration.

Most discussion in Congress in recent days hasn't even been focused on the debt ceiling. Rather, lawmakers are racing to approve legislation to keep most government offices running past this month when budgets are due to expire.

Now even the Treasury secretary, whose role usually includes telegraphing confidence to Wall Street, is expressing concern about the nation's ability to keep paying the bills.

"I am nervous by the desire to drive this to the last minute," Treasury Secretary Jack Lew told a business forum last week. Lew described himself as "anxious."

And well he should be, said Steve Bell, an analyst at the Bipartisan Policy Center, which estimates the government will begin defaulting on its obligations between October 18 and November 5.

----A U.S. default would rock Wall Street and quite possibly trigger another economic crisis in a nation still struggling to recover from the 2007-09 recession. Borrowing costs could spike across the economy.

The last debt ceiling showdown in 2011 pushed the nation to within days of missing payments and led ratings firm Standard and Poor's to strip Washington of its sterling credit rating.

That time around, Congress and the White House averted crisis by agreeing to deep spending cuts that were enacted this year but which largely spared so-called entitlement programs like Social Security pensions and Medicare insurance.

With the least difficult cuts already made, it could be much harder to reach a new budget-tightening deal before the nation runs out of cash. The White House has pledged not to even engage Republicans in a debate over the limit on borrowing.

----"Since irreconcilable differences are hardening. There is an increased likelihood that Congress and the president will not agree to raise the debt ceiling before time runs out," Ray Dalio, founder of Bridgewater Associates, one of the world's largest hedge funds, wrote in a report.

Lew's expressed anxiety stands in contrast to the tone of his predecessor, Timothy Geithner, who steadfastly described default as "unthinkable" in 2011.

"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

The monthly Coppock Indicators finished August:
DJIA: +162 Down. NASDAQ: +189 Up. SP500: +194 Down.

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