Baltic Dry Index. 2292 -38
LIR Gold Target by 2019: $30,000. Revised due to QE programs.
If
economists could manage to get themselves thought of as humble, competent
people on a level with dentists, that
would be splendid.
John
Maynard Keynes.
Day one of
the Fedster’s gathering in Washington. To “taper” or not to taper, that is the
only item of any importance on the agenda. Few think that the Fedster’s will
dare to even hint at a nearby taper. Any suggestion that QE Forever isn’t
forever, and that even ever so slowly, the Fed is going to let the markets set
interest rates again will set of convulsions in our global markets.
Apart from
anything else, the ending of ZIRP in the USA will set off a global interest
rate explosion that will cost China billions on its US Treasury mountain, set
off a rout in India and Brazil, and very likely set off the events that lead to
the breakup of the European Monetary Union in its present form. It would go down in history as the Great Bernanke
Blunder. Once on the heroin of Quantitative Easing, free money from nothing, is
it possible to end QE without triggering
the event it was started to prevent? Is that why the US seems so keen to get
Japan into a clash with its giant neighbour China?
Below, this
morning’s gloomy update on the dismal science.
In central banking as in diplomacy,
style, conservative tailoring, and an easy association with the affluent count
greatly and results far much less.
J. K. Galbraith.
TIPS Wipeout Signals Fed Losing Fight Against Disinflation
Dec 16, 2013 5:25 PM GMT
Bond investors are signaling they expect the Federal
Reserve to lose its battle against disinflation, even after inundating the
U.S. economy with more than $3 trillion in the past five years. While central banks around the world are trying to spur demand and boost prices, signs are emerging that a slowdown in inflation is becoming entrenched. Treasury Inflation-Protected Securities are suffering unprecedented losses after consumer prices in the U.S. rose 1 percent last month, the smallest increase since 2009. Known as TIPS, the bonds have plunged 8.8 percent this year, the most since they were introduced in 1997, according to Bank of America Merrill Lynch indexes
More
http://www.bloomberg.com/news/2013-12-16/tips-wipeout-signals-fed-losing-fight-against-u-s-disinflation.html
China’s Treasury Holdings Approach Record After Taper Delay
Dec 17, 2013 4:14 AM GMT
China, the largest foreign
creditor to the U.S., increased its ownership of Treasuries in October to
almost the record level reached in July 2011 after the Federal
Reserve unexpectedly opted not to slow bond buying. Holdings rose $10.7 billion, or 0.8 percent, to $1.304 trillion, according to Treasury Department data released yesterday. China held a record $1.314 trillion in July 2011. Total foreign holdings of Treasuries rose $600 million, or 0.01 percent, in October to $5.65 trillion.
Fed officials surprised traders and roiled markets across the globe on Sept. 18 by maintaining $85 billion in monthly purchases. Policy makers won’t start curtailing quantitative easing this week either, according to 66 percent of economists surveyed Dec. 6 by Bloomberg. China’s demand for Treasuries rose as foreign currency reserves jumped 4.7 percent in the July-September period and the People’s Bank of China sought to keep the yuan within its managed trading range.
“As money enters that country, that gets
turned into intervention, and that intervention gets turned into Treasuries,”
said John
Briggs, a U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut,
one of 21 primary dealers that trade with the Fed. “When they didn’t taper a
lot of pressure came off of those markets and some money flowed into emerging
markets, including China.”
More
China Luxury Growth Slows to Weakest Pace Since 2000
Dec 16, 2013 4:01 PM GMT
China’s luxury spending grew this year at the slowest pace since at least
2000 as more shoppers traveled abroad and the government’s anti-corruption
efforts curbed purchases, consultant Bain & Co. said. Spending in luxury goods is estimated to have increased about 2 percent in 2013, compared with 7 percent last year, the Boston, Massachusetts-based company said in a report released yesterday. Growth in 2014 will be at a pace similar to this year, it said.
Demand for luxury items from Swiss watches and expensive liquor have slumped since President Xi Jinping ordered officials to cut down on lavish spending and stepped up investigations into graft. Kering (KER) SA’s Gucci sales fell in the third quarter and LVMH Moet Hennessy Louis Vuitton SA (MC) saw softening demand in perfume and cosmetics during the period amid a slowing economy and a shift to overseas purchases.
More
With sales
of luxury goods in China slowing, anyone want to place bets on France and Italy
ending 2014 still in the EMU?
The market can stay irrational longer than you can stay solvent.
John Maynard Keynes.
Fresh recession risk in France threatens political crisis
The threat of recession is a major upset for President François Hollande, who has talked up recovery and confidently declared the crisis over
France is on the cusp of a
triple-dip recession after a key gauge of manufacturing and services buckled in
December, leaving the country trailing far behind Germany and most of the
eurozone
The threat of relapse is a major
upset for President François Hollande, who has talked up recovery and
confidently declared the crisis over.
Markit’s preliminary - or “flash”
- index of purchasing managers estimate fell to a seven-month low of 47 in
December, far below the “boom-bust line” of 50.
“There is a very real danger that
France is slipping back into shallow recession and reinforces concerns about
France’s underlying competitiveness,” said Howard Archer from IHS Global
Insight, said:
The deteriorating picture for
France is in stark contrast to Germany, where manufacturing grew at its fastest
clip in 30 months. Markit’s composite estimate including services for Germany
rose to a healthy 55.2.
France risks being left behind as
the eurozone slowly recovers and Spain lures away investment after pushing
through reforms and cutting wage costs. Renault has switched output to plants
in Spain in recent months after winning concessions from workers.
Patrick Artus said France may
start to come under market pressure if it is the only major country in the
eurozone that fails to recover in 2014. “It is doubtful that investors will
continued to lend to France at interest rates of just 45 basis points above
German rates,” he said.
----The split in economic
performance between France and Germany cannot continue for much longer without
causing severe political strains. Goldman Sachs says France may have to endure
a 40pc fall in relative living standards against Germany to rectify the
imbalances.
More
Welcome back to the eurozone nightmare
Talk of eurozone turmoil may have been temporarily stilled by a fanfare over 'solidarity’, but the monetary union remains as flawed as ever
----Yet, the fear of the euro as a tinderbox, which at any minute could spark financial meltdown, seems to have gone. The euro as a ticking-time bomb, about to explode, causing another Lehman-style Minsky moment on global markets – all that has been dealt with, we think, sorted, solved?
I would like to tell you that’s
true. But I can’t, because it isn’t. The eurozone’s deep structural flaws
remain as ever they were.
This jerry-built monetary union,
for all the fanfare, arrogance and “solidarity”, is fundamentally just as
vulnerable as it was in the summer of 2012, when, suddenly, everyone started
worrying that the single currency wasn’t, as we’d always been told,
“irreversible”.
----Yet, consider the facts, and then ask yourself if the single currency really is a coherent, sustainable structure, or if, in fact, the entire edifice is balanced on the head of a pin.
Yes, Draghi pledged to do
“whatever it takes”. And so he set up the Outright Monetary Transactions
programme, endlessly cited as the eurozone’s main stabilising factor as it
allows the ECB to buy “unlimited” bonds issued by otherwise bankrupt eurozone
nations, essentially out of printed money.
As soon as the OMT was announced,
the “doom-loop”, within which busted banks and governments drag each other
down, was apparently broken. The clouds parted, and the eurozone’s turmoil was
no more.
The trouble is that the OMT is a
mirage. Under it, Draghi hasn’t yet bought a single government bond. Nor can
he, because it can only be used if a country is already in a Greek-style
bail-out involving endless humiliating conditions and democratic subjugation at
the hand of the International Monetary Fund and others.
That rules-out Italy and Spain,
the big two eurozone economies posing the greatest danger.
More
'Doom loop' tying European banks and governments reinforced
By Huw Jones LONDON
(Reuters) - European banks have filled their balance sheets with national
debt since 2011, bringing them easy profits but reinforcing a "doom
loop" linking weak banks to governments with shaky finances.The euro zone debt crisis showed banks can suffer big losses from holdings of their own countries' bonds, which in turn can torpedo state finances if banks need to be bailed out.
Policymakers have been trying to loosen the mutual exposure of banks and governments that ensured they dragged one another down during the crisis.
But the European Banking Authority (EBA), the European Union's banking watchdog, said on Monday the share of bonds issued by sovereigns under stress held by their domestic banks had "increased markedly" between December 2010 and June 2013.
---- In June this year, Spanish banks held 89 percent of the 199 billion euros of Spanish government debt held by the 64 leading banks surveyed by EBA, up from 78 percent in December 2010.
There were some big jumps at individual banks. Santander's (SAN.MC) net direct holding of Spanish bonds was 63.6 billion euros at end-June, up from 45.6 billion at the start of the year.
Italian banks held 76 percent of the 274 billion euros of Italian debt bought by the 64 banks, up from 59 percent.
Intesa Sanpaolo (ISP.MI) held 83.5 billion euros of Italian bonds in June, up from 77.4 billion in December. UniCredit's (CRDI.MI) holding of Italian bonds rose to 56.8 billion from 48.9 billion six months earlier.
Figures for Ireland, Greece, Cyprus, Britain were also high, with Finland the only one in single figures, at 6 percent.
More
We end for
the day with some light at the end of a very long tunnel for the Fed and Club
Med. If Madam Yellen can keep QE Forever and ZIRP running out to 2017, and Mr
Draghi can keep France, Spain and Italy from imploding out to 2017, a collapse
in the crude oil price might just save the day. Provided of course there really
is a whole lot more of cheap oil to be found in relatively stable Mexico. But
cheap oil in Mexico probably bankrupts Brazil’s offshore oil. But the problem
for all is getting through 2014, 2015, and
2016 before the cavalry might show up in 2017.
Long run is a misleading guide to current
affairs. In the long run we are all dead.
John Maynard Keynes.
North America to Drown in Oil as Mexico Ends Monopoly
Dec 16, 2013 5:54 PM GMT
The flood of North American crude oil is set to become a deluge as Mexico dismantles a
75-year-old barrier to foreign investment in its oil fields. Plagued by almost a decade of slumping output that has degraded Mexico’s take from a $100-a-barrel oil market, President Enrique Pena Nieto is seeking an end to the state monopoly over one of the biggest crude resources in the Western Hemisphere. The doubling in Mexican oil output that Citigroup Inc. said may result from inviting international explorers to drill would be equivalent to adding another Nigeria to world supply, or about 2.5 million barrels a day.
That boom would augment a supply surge from U.S. and Canadian wells that Exxon Mobil Corp. (XOM) predicts will vault North American production ahead of every OPEC member except Saudi Arabia within two years. With U.S. refineries already choking on more oil than they can process, producers from Exxon to ConocoPhillips are clamoring for repeal of the export restrictions that have outlawed most overseas sales of American crude for four decades.
“This is going to be a huge opportunity for any kind of player” in the energy sector, said Pablo Medina, a Latin American upstream analyst at Wood Mackenzie Ltd. in Houston. “All the companies are going to have to turn their heads and start analyzing Mexico.”
An influx of Mexican oil would contribute to a glut that is expected to lower the price of Brent crude, the benchmark for more than half the world’s crude that has averaged $108.62 a barrel this year, to as low as $88 a barrel in 2017, based on estimates from analysts in a Bloomberg survey. Five of the seven analysts who provided 2017 forecasts said prices would be lower than this year.
More
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 Kenneth Galbraith
At the Comex
silver depositories Monday
final figures were: Registered 52.34 Moz, Eligible 110.06 Moz, Total 171.40 Moz. Someone seems to be expecting a massive
December delivery.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
No crooks
today, they’re all heading to Washington DC.
The avoidance of taxes is the only intellectual pursuit that
carries any reward.
John Maynard Keynes.
"No man in the country is under the smallest
obligation, moral or other, so to arrange his legal relations to his business
or property as to enable the Inland Revenue to put the largest possible shovel
in his stores. The Inland Revenue is not slow, and quite rightly, to take every
advantage which is open to it under the Taxing Statutes for the purposes of
depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to
be astute to prevent, so far as he honestly can, the depletion of his means by
the Inland Revenue"
Lord
Clyde, Lord President of the Court of Session. Ayrshire Pullman Motor Services
v Inland Revenue (1929)
"Anybody has the right to evade taxes if he can get away
with it. No citizen has a moral obligation to assist in maintaining the
government.
J. P. Morgan.
J. K.
Galbraith
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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