Monday, 11 November 2013

The Drain From West to East.

Baltic Dry Index. 1581 -12

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

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein.

Gold demand in China is booming, with China probably displacing India this year as the world’s biggest consumer. And who can blame them. With the US Fed stuck on QE Forever and ZIRP, expanding its balance sheet by over a trillion dollars a year, and the euro heading for the scrap heap of history, who wouldn’t want to hold a part of their wealth in something other than pictures of dead US Presidents or pictures of imaginary bogus European buildings. While the western central banks rig the gold price lower, smart Chinese buyers are only too delighted to buy the west’s subsidised bullion. A trend that will only continue and grow for the rest of this century.

"The desire for gold is the most universal and deeply rooted commercial instinct of the human race."

Gerald M. Loeb

Gold Vault Opens in China as Bullion Goes From West to East

By Chanyaporn Chanjaroen & Stephen Engle - Nov 11, 2013 4:39 AM GMT
A gold vault that can store 2,000 metric tons, double China’s projected consumption this year, opened in Shanghai this month as owner Malca-Amit Global Ltd. seeks to benefit from rising demand in Asia’s largest economy.

The facility is the biggest for the Hong Kong-based company, and it can also store diamonds, jewelry and art, Joshua Rotbart, precious metals general manager, said in an interview. The site could hold bullion worth about $82.7 billion at today’s price, Bloomberg calculations show. China’s total demand may reach 1,000 tons in 2013, the World Gold Council forecasts.

Consumption in China may increase 29 percent to a record this year, overtaking India as biggest user as lower prices and higher incomes spur demand, according to the WGC. The investment in Shanghai’s new free-trade zone reflects a shift in world demand away from the U.S. and Europe toward Asia. Demand for gold jewelry, bars and coins in Greater China, India, Indonesia and Vietnam is now about 60 percent of the global total, up from 35 percent in 2004, according to HSBC Holdings Plc.

“Such a facility is a massive vote of confidence for the Chinese gold market,” said Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd. “The trend for demand has been very strongly positive,” said Klapwijk, who’s monitored precious metals since 1988.

----“There’s going to be more gold coming to China,” Rotbart said on Nov. 5. “This place can be used as a trade hub basically, so foreign banks can trade with domestic banks within this facility, saving costs and time.”

The Shanghai vault is targeted at international and Chinese financial institutions, as well as the arts community, Rotbart said at the Waigaoqiao free-trade area, where firms have fewer restrictions on investment and foreign-exchange requirements. Apart from Hong Kong and Singapore, where capacity is 1,000 tons each, Malca-Amit also has storage space in New York, Zurich, Geneva, London and Bangkok.

Meanwhile in dying Euroland, the ECB is in a big panic over following Japan into deflation. Worrying news from Citigroup. The west’s stock markets are insanely divorced from reality, relying solely on the Fed’s QE Forever policy of delivering up the next greater fool buyer in stocks and bonds.

"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

Reports of the survival of the eurozone may have been greatly exaggerated

Last week’s surprise interest rate cut by the European Central Bank (ECB) was largely a response to the looming danger of deflation in the eurozone

Just when you thought it was safe to go back into the water… Last week’s surprise interest rate cut by the European Central Bank (ECB) may have been taken as good news by the markets, but it was largely a response to the looming danger of deflation in the eurozone. And that is not good news at all.

----Like Mark Twain’s death, forecasts of the euro’s demise have proved premature. Yet at the heart of the simmering crisis lie two debilitating problems with the potential for a devastating interaction. The first is a loss of competitiveness by the peripheral countries, that has left them with depressed levels of GDP and high rates of unemployment. The second is appallingly high government debt.

The response of the eurozone to the debt problem has been to enforce austerity in the form of cuts in government spending and increases in taxes. That has been successful in reducing the size of the deficits in the peripheral countries. The policy for regaining competitiveness has focused on so-called internal devaluation, whereby the peripheral countries force their inflation rates to low levels. Deflation – that is to say, falling prices – if it occurs, would simply be a continuation of this policy. The faster prices fall, the sooner the affected countries will return to full competitiveness.

----But when you look at the feedback loop from prices to the debt problem, things look much worse. For if prices fall then, even if real GDP is static, its money value would fall.

Meanwhile, the money value of government debt would remain constant. This means that the ratio of government debt to GDP would rise.

As it happens, the ratio of debt to GDP has recently been on a rising trend even without deflation because, although government deficits have fallen in the peripheral countries, any deficit at all means that the stock of debt is rising. Meanwhile, until recently anyway, the GDP of the peripheral countries has been falling.

So what are the chances of deflation happening in the eurozone? Very high. The latest inflation figure showed a drop from 1.1pc to 0.7pc. Nor was this simply the result of a statistical quirk. The core rate of inflation also dropped to only 0.8pc. And in Greece, prices are already falling. The latest inflation figure was minus 1.9pc. Meanwhile, the price index is roughly flat in Ireland, Spain and Portugal. Inflation is stronger in the core countries, but it is still very low – about 1pc in France and 1.3pc in Germany.

What’s more, in September producer price inflation for the eurozone was minus 0.9pc. And wage inflation is very low, too. In the second quarter of this year, hourly wage costs rose by only 0.9pc year on year. In Greece, pay has fallen by about 10pc over the year.

Euro Zone’s Fizzling Growth Seen to Back Draghi Cut Case

By Stefan Riecher & Kristian Siedenburg - Nov 11, 2013 12:00 AM GMT
Euro-area growth data this week may show the region’s nascent recovery slowing to a crawl, supporting Mario Draghi’s case for an interest-rate cut to help the economy get back to its feet.

Gross domestic product in the region rose just 0.1 percent in the third quarter, according to the median forecast of 41 economists in a Bloomberg News survey. In the 3 1/2 hours before that report on Nov. 14, economists predict a series of data releases to show growth slowing in Germany and stalling in France, with Italy remaining mired in an unprecedented slump.

Such an outcome would confirm that the recovery is grinding after a second-quarter growth spurt of 0.3 percent that ended the region’s record-long recession. The data are due one week after the European Central Bank president’s surprise rate cut to 0.25 percent. Draghi said at the time that the euro zone faces the danger of a “prolonged” period of low inflation.


Draghi to Bernanke Inflation Slump Dims BOJ Target

By Masaki Kondo & Yumi Ikeda - Nov 11, 2013 1:11 AM GMT
Bank of Japan Governor Haruhiko Kuroda’s bid to end 15 years of persistent deflation is endangered by the failure of counterparts in the U.S. and Europe to meet their own price goals.

Citigroup Inc.’s Inflation Surprise Index for Group of 10 economies dropped to negative 21.80 in October, the lowest since April 1998 and signaling data fell short of analyst estimates. A BOJ board member was monitoring whether domestic consumer prices could keep rising with disinflation overseas, minutes of the Oct. 3-4 policy meeting released last week show.

Japan’s 10-year yield fell to a six-month low on Nov. 8 even after the BOJ restated its view that inflation will quicken toward its 2 percent target. Data this week may show the cost of goods traded among companies fell for the first time in almost a year in October.

----“Goods are made and moved worldwide, so their prices are more likely to go up and down in sync,” said Maiko Noguchi, a former BOJ official and a Tokyo-based senior economist at Daiwa Securities Co., Japan’s second-biggest brokerage. “If market participants believed the BOJ was on track to achieve its price target, the current yields would be too low.”

While we await definitive news of “reform” from China, we close today on the corner that the Bernanke Fed has painted itself into. Exiting Dodge at the end of January 2014, Bernocchio has every intention of leaving the coming disaster to his successor Janet Yellen. We then get to find out if QE Forever really is forever, and if it is just how much of Asia bolts for gold. But how likely is the Fed newbie to make bursting the Fed’s final bubble priority one? Stay long physical precious metals. In 2014, the race to the bottom in the fiat currencies is about to turn seriously scary.

"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

Fed Anxiety Rises as QE Increases Risk of Loss With Costs

By Caroline Salas Gage & Joshua Zumbrun - Nov 8, 2013 8:05 PM GMT
The longer the Federal Reserve continues its bond-buying stimulus, the higher the odds it will face a year without any money to give the U.S. Treasury after taxpayers received a record $88.4 billion profit in 2012.

The Fed’s financial-crisis actions -- from acquiring debt in the 2008 rescues of Bear Stearns Cos. and American International Group Inc. to three rounds of quantitative easing -- have led so far to the record payments. Now, the prospect of a stronger economy and rising interest rates means the value of the Fed’s bond holdings will fall at the same time its funding costs climb because the central bank pays interest on the excess reserves it holds for banks.

This could cause operating losses and invite increased scrutiny from lawmakers already critical of the central bank’s policies.

That’s a risk central bankers are grappling with as they consider when to slow the $85 billion monthly pace of their government and mortgage-backed securities purchases. Federal Reserve Bank of New York President William C. Dudley said in a speech last month that the central bank’s balance-sheet expansion does “create some budget risk” that threatens the institution’s independence.

“They’ve done a few things to try to insulate themselves from this concern, but I suspect in the back of their minds it still haunts them,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “It’s not going to go away.”

"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 Friday final figures were: Registered 44.13 Moz, Eligible 125.16 Moz, Total 169.29 Moz.  

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

Today we take a break from bent banksters and crooked politicians to cover the WSJ catching up with what readers of this blog have known and expected since 2004. Our new “Dalton Minimum” in sunspots is going mainstream at last. Perhaps now the world will come to grips with the potential for a serious bout of global cooling.

“Here is the truth: The Earth is round; Saddam Hussein did not attack us on 9/11; Elvis is dead; Obama was born in the United States; and the climate crisis is real.”

Al Gore.  Former US Presidential Contender.

Strange Doings on the Sun

Sunspots, Which Can Harm Electronics on Earth, Are Half the Number Expected

Something is up with the sun.

Scientists say that solar activity is stranger than in a century or more, with the sun producing barely half the number of sunspots as expected and its magnetic poles oddly out of sync.

The sun generates immense magnetic fields as it spins. Sunspots—often broader in diameter than Earth—mark areas of intense magnetic force that brew disruptive solar storms. These storms may abruptly lash their charged particles across millions of miles of space toward Earth, where they can short-circuit satellites, smother cellular signals or damage electrical systems.

Based on historical records, astronomers say the sun this fall ought to be nearing the explosive climax of its approximate 11-year cycle of activity—the so-called solar maximum. But this peak is "a total punk," said Jonathan Cirtain, who works at the National Aeronautics and Space Administration as project scientist for the Japanese satellite Hinode, which maps solar magnetic fields.

"I would say it is the weakest in 200 years," said David Hathaway, head of the solar physics group at NASA's Marshall Space Flight Center in Huntsville, Ala.

Researchers are puzzled. They can't tell if the lull is temporary or the onset of a decades-long decline, which might ease global warming a bit by altering the sun's brightness or the wavelengths of its light.

"There is no scientist alive who has seen a solar cycle as weak as this one," said Andrés Munoz-Jaramillo, who studies the solar-magnetic cycle at the Harvard-Smithsonian Center for Astrophysics in Cambridge, Mass.

To complicate the riddle, the sun also is undergoing one of its oddest magnetic reversals on record.

Normally, the sun's magnetic north and south poles change polarity every 11 years or so. During a magnetic-field reversal, the sun's polar magnetic fields weaken, drop to zero, and then emerge again with the opposite polarity. As far as scientists know, the magnetic shift is notable only because it signals the peak of the solar maximum, said Douglas Biesecker at NASA's Space Environment Center.

But in this cycle, the sun's magnetic poles are out of sync, solar scientists said. The sun's north magnetic pole reversed polarity more than a year ago, so it has the same polarity as the south pole.

"The delay between the two reversals is unusually long," said solar physicist Karel Schrijver at the Lockheed Martin Advanced Technology Center in Palo Alto, Calif.

Scientists said they are puzzled, but not concerned, by the unusual delay. They expect the sun's south pole to change polarity next month, based on current satellite measurements of its shifting magnetic fields.

At the same time, scientists can't explain the scarcity of sunspots. While still turbulent, the sun seems feeble compared with its peak power in previous decades. "It is not just that there are fewer sunspots, but they are less active sunspots," Dr. Schrijver said.

During my service in the United States Congress, I took the initiative in creating the Internet.

Al Gore. 1999.

The day I made that statement, I was tired because I had been up all night inventing the Camcorder.

Al Gore. 1999.

The monthly Coppock Indicators finished October:
DJIA: +178 Up. NASDAQ: +238 Up. SP500: +217 Up. The Fed’s final bubble continues to grow, until QE Forever isn’t forever.

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