Monday 9 December 2013

East Asia’s Push For War.



Baltic Dry Index. 2176 +31

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

“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.

As China and Japan spar with each other over the Diaoyu Islands in the East China Sea, and continue to make preparations for an eventual clash, South Korea suddenly wants in on the action. South Korea must reckon that with Japan holding a “Blank Cheque” from America, China is going to lose. Stay long physical precious metals. 2014 could get very hot.

South Korea to Extend Defense Zone in Reaction to China

By Yewon Kang & Sam Kim - Dec 9, 2013 4:28 AM GMT
South Korea will extend its air-defense identification zone to cover islands and an underwater rock, a move that threatens to further enflame tensions after China control over airspace claimed by neighbors.

The extension will take effect Dec. 15 and will include Socotra Rock, which is disputed by China and South Korea, as well the islands of Hongdo and Marado that already fall within Japan’s own air-defense zone, Defense Ministry policy official Jang Hyuk said yesterday at a briefing in Seoul.

----Tensions have risen in the East China Sea since China announced Nov. 23 it would introduce the zone that covers areas in which it is in disputes with Japan and South Korea. The U.S., South Korea and Japan have all run unannounced military flights through the area in a test of Chinese resolve.

“South Korea’s announcement was not surprising, it was a tit-for-tat action” for the Chinese move, Robert Kelly, an international relations professor at Pusan National University in South Korea, said by phone.
“Tensions will rise and continue for years, now with three nations’ overlapping zones.”

South Korea expanding its air defense zone into the areas of other nations may lead to controversy and tension, Taiwan’s Ministry of Foreign Affairs said in a statement yesterday.

Japan’s Chief Cabinet Secretary Yoshihide Suga said South Korea notified it in advance of the move and he didn’t see any immediate issue with the expansion. Relations between the two countries remain strained by lingering resentment over Japan’s occupation of Korea before and during World War II. Park has declined to meet Prime Minister Shinzo Abe without a stronger apology for Japan’s use of Korean sex slaves and other wrongdoing during the occupation.

----China rejected South Korea’s demand on Nov. 28 to readjust its air zone to exclude Socotra Rock, where South Korea has built a a research station and heliport. Both countries claim it as part of their exclusive economic zones. The submerged rock, called Ieodo in Korean and Suyan Rock in Chinese, also falls under Japan’s air defense zone.
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Japan to Boost Defense Ties With Philippines Amid China Concern

By Karl Lester M. Yap - Dec 8, 2013 3:01 PM GMT
Dec. 9 (Bloomberg) --Japan and the Philippines pledged to boost defense ties with both nations expressing concern over China’s establishment of an air defense identification zone in the East China Sea.

“Both of us have affirmed that China’s unilateral action to change the status quo by force or coercive action will bring back tension in this region,” Japan’s Defense Minister Itsunori Onodera told reporters in Manila Dec. 7 after meeting with Philippine counterpart Voltaire Gazmin. They agreed to “expand and deepen” cooperation on “defense authorities,” he said.

Japan and the Philippines are also boosting ties with other nations as they seek to counter China’s increasing assertiveness in staking territorial claims. Japan and China are disputing sovereignty over a group of islands known as Senkaku in Japanese and Diaoyu in Chinese, while the Philippines and China both claim areas of the fish and gas-rich South China Sea.

Specifics on expanded cooperation will be discussed by a working group, Onodera said. In June, Japan and the Philippines agreed to cooperate on the “defense of remote islands” and “protection of maritime interests” during Onodera’s first visit to the country.
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Meanwhile, drumming up a foreign escapade might be just what Beijing needs.

First China Default Seen as Record $427 Billion Debt Due

By Bloomberg News - Dec 9, 2013 3:28 AM GMT
Chinese company debt twice the size of Ireland’s economy will come due in 2014, spurring concern the nation is on the cusp of its first corporate bond default.

A record 2.6 trillion yuan ($427 billion) of interest and principal on securities issued by non-financial companies must be repaid next year, 19 percent more than this year and the most since China International Capital Corp. began compiling the data in 2008. Ten-year AAA corporate bond yields surged 89 basis points since Dec. 31 to 6.18 percent, touching a record 6.23 percent on Nov. 27. That compares with a 70 basis-point rise to 2.68 percent for similar-rated notes globally

Chinese company debt twice the size of Ireland’s economy will come due in 2014, spurring concern the nation is on the cusp of its first corporate bond default.

A record 2.6 trillion yuan ($427 billion) of interest and principal on securities issued by non-financial companies must be repaid next year, 19 percent more than this year and the most since China International Capital Corp. began compiling the data in 2008. Ten-year AAA corporate bond yields surged 89 basis points since Dec. 31 to 6.18 percent, touching a record 6.23 percent on Nov. 27. That compares with a 70 basis-point rise to 2.68 percent for similar-rated notes globally.

Bond sales by Chinese companies are down 23 percent to 1.57 trillion yuan this half-to-date compared with the first six months of the year, according to data compiled by Bloomberg
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China Trade Surplus Widens While Inflation Eases

By Bloomberg News - Dec 9, 2013 4:26 AM GMT
China’s trade surplus widened last month to the largest in more than four years as exports exceeded estimates, in a sign global demand is helping sustain a recovery in the world’s second-biggest economy.

The surplus was $33.8 billion as outbound shipments rose 12.7 percent from a year earlier and imports gained 5.3 percent, data from the General Administration of Customs showed yesterday in Beijing. Consumer prices rose a less-than-estimated 3 percent, a statistics-bureau report showed today

----“There are signs that the global activity and trade cycle is gaining momentum, driven by the recovery in high-income countries,” Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, who previously worked at the World Bank, said in a note. “China’s exporters are benefiting from that.
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Elsewhere in Asia, it was a case of major change in the world’s largest democracy. India’s existing government looks to be among the lamest of lame ducks.

India Opposition Eyes 2014 Win After Routing Singh in States

By Bibhudatta Pradhan & Ketaki Gokhale - Dec 9, 2013 3:25 AM GMT
India’s main opposition party won the most seats in four local polls held over the past month, giving it momentum ahead of a 2014 national election as voters punished Prime Minister Manmohan Singh’s ruling coalition.

The Bharatiya Janata Party was poised to wrest power from Singh’s ruling Congress party in both the western state of Rajasthan and the capital Delhi, where it’s battling the upstart Aam Aadmi Party, according to the Election Commission of India, which tallied votes yesterday. The BJP also won another term in Madhya Pradesh and Chhattisgarh states. Counting in Mizoram state began today.

----BJP victories in areas holding about a sixth of India’s 1.2 billion people would give it momentum to end the Congress party’s decade-long rule in elections due by May 2014 and install Narendra Modi as prime minister, an outcome favored by investors. India’s benchmark stock index will climb as much as 6 percent to a record by year-end if the BJP confirms exit poll predictions of winning four of the five state votes, according to the average of 10 estimates compiled by Bloomberg.

----Indian stock-index futures surged and rupee forwards strengthened today after the election results. SGX CNX Nifty Index futures for December delivery jumped 3 percent to 6,502.5 at 10:41 a.m. in Singapore. One-month rupee forwards increased 0.6 percent.

In Delhi, the BJP had 31 seats against 28 for the Aam Aadmi Party, which campaigned against corruption in contesting its first election. The incumbent Congress party had 8 seats in the capital, according to the commission.

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We end for the day with the good news. The glass is half full and filling, says ex-Goldman’s Sunny Jim O’Neill. If he’s right and an Asian war is avoided, the Great Disconnect is about to reconnect next year, as the Fed’s final bubble meets up with the end of ZIRP and QE Forever.

Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.

John K. Galbraith

Cheer Up: World Growth Is Accelerating

By Jim O’Neill Dec 8, 2013 11:00 PM GMT
Current pessimism about the world economy is overdone. The world’s three biggest economies -- the U.S., China and Japan -- are all in decent shape. Barring a major new deterioration in Europe and unforeseen calamities in the rest of the developing world, a moderate acceleration of global growth looks likely.

How much of an acceleration and how long it might last depend partly on something we can’t really know: the world’s long-term trend rate of growth. This would be a good number to know. It would make it easier to predict stress on scarce resources, for instance, or to decide whether inflation or deflation is in the outlook. Knowing whether growth is above or below trend would make it easier to judge whether the global stance of macroeconomic policy is too expansionary or too contractionary. Trend growth drives long-term welfare: Knowing how quickly living standards will advance would be useful in countless ways.

----The past is a guide, up to a point. In the 1980s, according to the International Monetary Fund, world growth averaged 3.4 percent; in the 1990s, it was 3.2 percent. Many economists take 3.3 percent as a plausible estimate of the trend. The trouble is, that apparent stability conceals a lot of variability around the average and, at the country level, from decade to decade. (Japan, for example, did far worse in the 1990s than it did in the decade before.)

Growth in the first decade of the new century was stronger than many people realize -- despite the recession in the latter years. Global growth averaged 3.7 percent from 2001 to 2010, actually better than in the 1980s and 1990s. Some, including myself, emphasize the emergence of the BRIC economies (Brazil, Russia, India and China): a structural development suggesting a faster trend. Others instead point to easy monetary policies. According to this more pessimistic view, the decade’s surge in commodity prices was an inflationary phenomenon -- a sign that the world was living beyond its means, with the crash of 2008-09 as the inevitable penance.

----Looking ahead, much depends on China. By the end of 2013, the Chinese economy will have increased its output by an additional trillion dollars, to more than $9 trillion. This will make it more than half the size of the U.S. Continued rapid growth in so big an economy will drive the global trend.

Based on the new policy framework outlined by the Chinese government last month and on the more optimistic tone of China-related financial markets, I continue to expect rapid expansion. If that turns out to be correct, something pretty bad would have to happen elsewhere for global growth to fall back to the rates of the 1980s and 1990s.
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At the Comex silver depositories Friday final figures were: Registered 52.73 Moz, Eligible 116.84 Moz, Total 169.57 Moz.   Someone seems to be expecting a massive December delivery.


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

Below, here we go again. Let’s just hope that this time it’s different. With zero interest rate policies the voodoo economics fad of the day, the gamblers are back chasing risk, says the BIS.  So what happens when the Fed tapers, or Italy, Spain or France go bust? Or even if the central banksters get the global recovery to self-sustaining speed and are forced to raise interest rates to head of a massive surge in global inflation?

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

J. K. Galbraith

BIS Rings Alarm on Record Payment-in-Kind Junk Bond Sales

By Katie Linsell - Dec 9, 2013 12:01 AM GMT
Record sales of high-yield payment-in-kind bonds is triggering uneasiness among international regulators who are concerned investors may suffer losses when central banks tighten monetary policy.

Issuance of the notes, which give borrowers the option to repay interest with more debt, more than doubled this year to $16.5 billion from $6.5 billion in 2012, according to data compiled by Bloomberg. About 30 percent of issuers before the 2008 financial crisis have since defaulted, the Bank for International Settlements said in its quarterly review.

Companies are taking advantage of investor demand for riskier debt as central bank stimulus measures suppress interest rates and defaults approach historic lows. The average yield on junk-rated corporate bonds fell to a record 5.94 percent worldwide in May, Bank of America Merrill Lynch index data show, while global default rates dropped to 2.8 percent in October from 3.2 percent a year earlier, according to a Moody’s Investors Service report.

“Low interest rates on benchmark bonds have driven investors to search for yield by extending credit on progressively looser terms to firms in the riskier part of the spectrum,” according to the report from the Basel-based BIS. “This can facilitate refinancing and keep troubled borrowers afloat. Its sustainability will no doubt be tested by the eventual normalisation of the monetary policy stance.”

The BIS was formed in 1930 and acts as a central bank for the world’s monetary authorities.

----Sales of payment-in-kind bonds last peaked in 2007 when companies issued $11.1 billion of the securities, Bloomberg data show. Offerings fell to $5.4 billion in 2008 and tumbled to $2.7 billion in 2010, the data show.

Schaeffler Holding GmbH & Co. was the biggest PIK issuer this year, selling an equivalent $2 billion of five-year notes in dollars and euros that pay a coupon of 6.875 percent, according to data compiled by Bloomberg. The German industrial-bearing maker said it issued the bonds as part of a 3.875 billion-euro ($5.3 billion) refinancing agreement.
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"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.

The monthly Coppock Indicators finished November:
DJIA: +190 Up. NASDAQ: +281 Up. SP500: +232 Up. The Fed’s final bubble continues to grow, until QE Forever isn’t forever. Up will remain up, until one fine day out of the blue the Fed finally loses control, or the next Lehman hits.

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