Tuesday 30 December 2014

Grexit Looms. Cliff Diving.

Baltic Dry Index. 782 -06   Brent Crude 57.76

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

"Sooner or later both the Greek population and international creditors will tire of fighting a losing battle, leading to a break-up of the currency union as Greece pulls out, probably followed by other countries"

Douglas McWilliams, chief executive of the Centre of Economics and Business Research.

In the unloved, wealth destroying,  dying Euroland, the sky fell in yesterday.  All the EUs bribes came to nought. Greeks will get to vote on January 25th on the EU up or down. After going on 5 years of rape and pillage by Berlin and Brussels, even the dumbest Greek by now has figured out, the present economic policy is a total disaster, and it’s time to default and renegotiate the debt. If that means Euro exit, so what. It can hardly be worse than what the Greek serfs are undergoing now. If that means exiting the EU too, good. They can always apply to China and old protector Russia for help.  2015 already looks like becoming a year for the history books.

"We take a decision, then put it on the table and wait to see what happens. If there is no protest, because most people have no idea what we are doing, we take step after step until we are beyond the point of no return."

Jean-Claude Juncker. Failed Luxembourg Prime Minister and ex-president of the Euro Group of Finance Ministers. Confessed liar. EC President.

Greece comes back to haunt eurozone as anti-Troika rebels scent power

Greece's finance minister warns ECB could “strangle the Greek economy in a split second” if it cuts off life-support for banks.

The eurozone’s long-simmering crisis has returned with a vengeance as snap elections in Greece open the way for an anti-austerity government and a cathartic showdown over the terms of euro membership.

Yields on 3-year Greek debt surged 185 basis points to 11.9pc on Monday amid default fears after premier Antonis Samaras failed to win the extra votes in parliament needed to avert a general election on January 25, despite dire warnings that such an outcome risked “bankruptcy and exit from the euro.”

The upset opens the door for the hard-Left Syriza movement, which has vowed to tear up Greece’s hated ‘Memorandum’ with EU-IMF Troika creditors “on its first day in office”, and threatened to default on up to €245bn of rescue loans unless the EU grants debt relief.

Syriza is leading by 29.9pc to 23.4pc in the latest Palmos Analysis poll, though other surveys are closer. It is likely to become the first truly radical group to take power in any EMU state since the creation of monetary union. A quirk in Greece’s electoral law gives the winning party an extra fifty seats in parliament.

Alexis Tsipras, the bloc's firebrand leader, vowed to overthrow of the austerity regime and launch new era of social salvation, claiming the government’s campaign of “blackmail and terror” had failed. “There will be an end to austerity. The future has started,” he said.

Markets were caught off-guard. Flight to safety drove yields on German 10-year Bunds to an historic low of 0.54pc, while the Athens bourse crashed 10pc before partly recovering in late trading.

German finance minister Wolfgang Schauble warned Greeks not to play with fire by pressing impossible demands. “Fresh elections won’t change Greece’s debt. Each new government must fulfil the contractual obligations of its predecessors. If Greece chooses another way, it’s going to be tough,” he said.

"The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe."

Mikhail Gorbachev

At the Comex silver depositories Monday final figures were: Registered 64.60 Moz, Eligible 111.87 Moz, Total 176.47 Moz.   

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

And in commodities, is the fiat money, debt fuelled,  “Super-cycle” finally over?

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

Commodity Prices Are Cliff-Diving Due To The Fracturing Monetary Supernova—The Case Of Iron Ore

by David Stockman • 
Crude oil is not the only commodity that is crashing. Iron ore is on a similar trajectory and for a common reason. Namely, the two-decade-long economic boom fueled by the money printing rampage of the world’s central banks is beginning to cool rapidly. What the old-time Austrians called “malinvestment” and what Warren Buffet once referred to as the “naked swimmers” exposed by a receding tide is now becoming all too apparent.

This cooling phase is graphically evident in the cliff-diving movement of most industrial commodities. But it is important to recognize that these are not indicative of some timeless and repetitive cycle—–or an example merely of the old adage that high prices are their own best cure.

Instead, today’s plunging commodity prices represent something new under the sun. That is, they are the product of a fracturing monetary supernova that was a unique and never before experienced aberration caused by the 1990s rise, and then the subsequent lunatic expansion after the 2008 crisis, of a cancerous regime of Keynesian central banking.

Stated differently, the worldwide economic and industrial boom since the early 1990s was not indicative of sublime human progress or the break-out of a newly energetic market capitalism on a global basis. Instead, the approximate $50 trillion gain in the reported global GDP over the past two decades was an unhealthy and unsustainable economic deformation financed by a vast outpouring of fiat credit and false prices in the capital markets.

For that reason, the radical swings in commodity prices during the last two decades mark the path of a central bank generated macro-economic bubble, not merely the unique local supply and demand factors which pertain to crude oil, copper, iron ore, or the rest.  Accordingly, the chart below which shows that iron ore prices have plunged from $150 per ton in early 2013 to about $65 per ton at present only captures the tail end of the cycle.

What really happened is that the central bank instigated global macro-economic bubble ripped commodity pricing cycles out of their historical moorings, resulting in a one time eruption of price levels that had no relationship to sustainable supply and demand factors in the mines and petroleum patch. What materialized, instead, was an unprecedented one-time mismatch of commodity production and use that caused pricing abnormalities of gargantuan proportions.

Thus, the true free market benchmark for iron ore is the pre-1994 price of about $20-25 per ton. This represented the long-time equilibrium between advancing mining technology and diminishing ore grades available to steel mills in the DM economies.

But as shown below, after Mr. Deng institutionalized export mercantilism and printing press prosperity in the form of China’s red capitalism in the early 1990s, iron ore prices broke orbit and soared to $100 per ton in the second half of the decade and then went parabolic from there. After peaking at $140 per ton on the eve of the financial crisis,China’s mad cap “infrastructure” stimulus boom after 2008 drove the price to a peak of $180 per ton in 2011-2012. To wit, iron ore prices peaked at nearly 9X their historic range.

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

Henry Hazlitt

The monthly Coppock Indicators finished November.

DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.  

Monday 29 December 2014

A New Reality.

Baltic Dry Index. 782 -06   Brent Crude 59.84

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

"When a President does it, that means that it is not illegal."

President Richard Nixon.

In the Great Nixonian Error of fiat money, a new reality has emerged in the 21st century. China. While the Great Nixonian Error will eventually result in a fiat money disaster and global revulsion from fiat money scams, we are only in the first phase of that end game. Whether the GNE dies from a hard landing in China, the collapse of the unloved dying Euro project, the collapse of Uncle Scam’s American frackers, or the collapse of the Middle East’s tyrannies under the budgetary pressure of living with 50 dollar oil, the Great Nixonian Error will die long before we get global GDP into the quadrillions. Until then though, China has just altered the game. Not for them a US run global scam, that targets all non-compliant lesser nations. “Don’t tread on me, Uncle Scam. We are not Russia, not even close.”

Quadrillion - 1,000,000,000,000,000 in seconds:
Quadrillion - 31,700,000 years

China Steps In as World's New Bank

Dec 25, 2014 6:00 PM EST
Thanks to China, Christine Lagarde of the International Monetary Fund, Jim Yong Kim of the World Bank and Takehiko Nakao of the Asian Development Bank may no longer have much meaningful work to do.

Beijing's move to bail out Russia, on top of its recent aid for Venezuela and Argentina, signals the death of the post-war Bretton Woods world. It’s also marks the beginning of the end for America's linchpin role in the global economy and Japan's influence in Asia.

What is China's new Asian Infrastructure Investment Bank if not an ADB killer? If Japan, ADB's main benefactor, won't share the presidency with Asian peers, Beijing will just use its deep pockets to overpower it. Lagarde's and Kim’s shops also are looking at a future in which crisis-wracked governments call Beijing before Washington.

China stepping up its role as lender of last resort upends an economic development game that's been decades in the making. The IMF, World Bank and ADB are bloated, change-adverse institutions.  When Ukraine received a $17 billion IMF-led bailout this year it was about shoring up a geopolitically important economy, not geopolitical blackmail.

Chinese President Xi Jinping's government doesn't care about upgrading economies, the health of tax regimes or central bank reserves. It cares about loyalty. The quid pro quo: For our generous assistance we expect your full support on everything from Taiwan to territorial disputes to deadening the West’s pesky focus on human rights.

This may sound hyperbolic; Russia, Argentina and Venezuela are already at odds with the U.S. and its allies. But what about Europe? In 2011 and 2012, it looked to Beijing to save euro bond markets through massive purchases. Expect more of this dynamic in 2015 should fresh turmoil hit the euro zone, at which time Beijing will expect European leaders to pull their diplomatic punches. What happens if the Federal Reserve’s tapering slams economies from India to Indonesia and governments look to China for help? Why would Cambodia, Laos or Vietnam bother with the IMF’s conditions when China writes big checks with few strings attached?

Beijing’s $24 billion currency swap program to help Russia is a sign of things to come. Russia, it's often said, is too nuclear to fail. As Moscow weathers the worst crisis since the 1998 default, it’s tempting to view China as a good global citizen. But Beijing is just enabling President Vladimir Putin, who’s now under zero pressure to diversify his economy away from oil. The same goes for China’s $2.3 billion currency swap with Argentina and its $4 billion loan to Venezuela. In the Chinese century, bad behavior has its rewards.

"It doesn't matter if you're rich or poor, as long as you've got money."

Joe E. Lewis

At the Comex silver depositories Friday final figures were: Registered 64.60 Moz, Eligible 111.88 Moz, Total 176.48 Moz.   

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

If all else fails, immortality can always be assured by spectacular error.

J. K. Galbraith.

The Keynesian End Game Crystalizes In Japan’s Monetary Madness

by David Stockman • 
If the BOJ’s mad money printers were treated as monetary pariahs by the rest of the world, it would at least imply that a modicum of sanity remains on the planet. But just the opposite is the case. Establishment institutions like the IMF, the US treasury and the other major central banks urge them on, while the Keynesian arson squad led by Professor Krugman actually faults Japan for being too tepid with its “stimulus”.

Now comes several new data points that absolutely confirm Japan is a financial mad house—-even as its policy model is embraced by mainstream officials and analysts peering from a distance. Front and center is the newly reported fact from the Cabinet Office that Japan’s household savings rate plunged to minus 1.3% in the most recent fiscal year, thereby entering negative territory for the first time since records were started in 1955.

----Since Japan famously and doggedly refuses to accept immigrants, its long-term demographics are rigidly baked into the cake. Accordingly, anyone who will make a difference over the next several decades has already been born, counted, factored and attrited into the projections.

Japan’s work force of 80 million will thus drop to 40 million by 2060. At the same time, its current 30 million retires will continue to rise, meaning that its retiree rolls will ultimately exceed the number of workers.

Given those daunting facts, it follows that on the eve of its demographic bust Japan needs high savings and generous interest rates to augment retirement nest eggs; a strong exchange rate to attract foreign capital to help absorb its staggering $12 trillion of public debt, which already stands at a world leading 230% of GDP; and rising real incomes in order to shoulder the heavy taxation that is unavoidably necessary to close its fiscal gap and contain its mushrooming public debt.

With its debilitating Keynesian fiscal and monetary policies now re-upped on steroids under Abenomics, however, it goes without saying that nearly the opposite conditions prevail. Most notably, no household or institution anywhere in Japan can earn anything on liquid savings. The money market rate which determines deposit money yields was driven from a “high” of 100 basis points (as ridiculous as that sounds) at the time of the financial crisis to 10 basis points today, which is to say, nothing.

----In fact, however, failing to think more than one step ahead, the BOJ actually wants banks, households and other financial institutions to sell their shirts at a handsome profit. That is to say, the BOJ’s bond purchase program is now so massive that it is buying 100% of the government’s gross debt issuance. In practical terms this means the float of public debt is actually being shrunk, and that the government bond market for all practical purposes has been extinguished by the BOJ.

There is nothing left except one relentless bid by the central bank. Recent data from Japan’s government pension insurance fund (GPIF), for example, show that the GPIF alone has already sold several hundred billions dollars worth of government bonds to the BOJ.

Needless to say, this radical monetization of the entire government bond market is an act of financial suicide. The BOJ now dares not stop the printing presses because absent the central bank’s big fat bid, the market would gap up violently. Yet 40% of Japan’s government revenue is already absorbed by servicing its gargantuan public debt. Even a 180 basis point increase in average yields (meaning that the 10-year JGB would still be under 2%) would absorb the remainder. That’s right, 100% of government revenue would be pre-empted by debt service.

This obviously amounts to a fiscal Looney Tunes scenario, but it is nonetheless embedded in the math. Even after the consumption tax increase from 5% to 8%, Japan’s general government is spending about 100 trillion yen per year while obtaining only 50 trillion yen in tax

"The history of paper money is an account of abuse, mismanagement, and financial disaster."

Richard M. Ebeling

The monthly Coppock Indicators finished November.

DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.  

Sunday 28 December 2014

Oil – Russia, Europe Outlook.

Baltic Dry Index. 782 -06   Brent Crude 59.45

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

Below the outlook as per the OECD on Friday.

Russia's crisis has no end in sight as $50 oil looms, says OECD

Russia is moving towards autarky in the face of falling oil prices and tensions with the West that have left no end in sight for the country's economic woes, says OECD chief economist

There is no end in sight for Russia’s economic crisis, as crippling sanctions and tumbling oil prices leave the country staring into an abyss, the Organisation for Economic Co-operation and Development has warned.
Catherine Mann, the OECD’s chief economist, said Russia was moving closer to shutting itself off from the rest of the world, while the West’s sanctions against Moscow over its annexation of Crimea in Ukraine had left no end in sight for the country’s woes.

“It’s very difficult to tell what will get Russia back on track,” she told The Sunday Telegraph. “The end game is autarky, and for an economy to return to being disconnected from the global economy, to be farming its own land for food, for the energy to be only used within its own economy, to not import clothing and machinery – this requires painful restructuring.”

Vladimir Putin, Russia's president, has already admitted that sanctions against the country will lead to two years of economic hardship, and has forced cabinet ministers to work over the Orthodox Christmas holiday in January as policymakers grapple with the country’s crisis.

Ms Mann said it was difficult to see Russia emerging from crisis while tensions continued with Ukraine. “A better strategy would be the geo-political one, and there is a sense that president Putin would rather move in that direction. But from the perspective of the countries that have imposed sanctions there does not appear to be a loosening of their resolve, so from that standpoint I don’t see any changes.”

Ms Mann also believes oil prices will tumble to $50 a barrel next year if Opec continues to fuel a global supply glut and growth remains sluggish.

----Preliminary calculations by the Paris-based think-tank suggest the recent oil price fall to $60 a barrel from $115 this summer will boost growth across the club of 34 developed nations by 1pc through cheaper oil import bills alone.

The benefit to South Korea, which relies on imports to meet about 97pc of its energy needs, is expected to be as large as 2.7pc of gross domestic product (GDP) through import channels, while the UK is expected to receive a boost of 0.5pc of GDP, or around £9bn in today's money.

However, Ms Mann said countries that rely heavily on oil revenues to fuel growth such as Norway will see as much as 6.5pc shaved off GDP in 2015.

While the OECD has not calculated how the Russian economy will be affected by the fall in oil prices, the country's central bank has said GDP could contract by 5pc next year if oil stays at around $60 a barrel.

But Ms Mann said Russia's economic slump was unlikely to lead to civil unrest. "Russian citizens have gone through tremendous amounts of change and have been pretty resilient in the face of those changes," she said.
She also warned that urgent reforms were still needed in the eurozone's top economies in order to lift the single currency bloc out of its chronic malaise.

"There are a variety of reforms that need to be done in various countries," she said. "France is eroding its future by wasting its youth, Germany is eroding its future through lack of investment. Both have work to do.

"[France has] 25pc youth unemployment. Many people identify with the jobs that they do and it is part of the fabric of their lives. If a whole generation doesn’t get to experience that, a country is worse off. It’s very simple."

At the Comex silver depositories Friday final figures were: Registered 64.60 Moz, Eligible 111.88 Moz, Total 176.48 Moz.   

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

And in China, yet more sign of a coming hard landing.  Just don't let on to stock markets.

China’s Industrial Profits Drop Most in Two Years Amid Slowdown

Dec 27, 2014 5:34 AM GMT
China’s industrial profits fell the most in two years last month, the latest data to show a deepening slowdown in the world’s second-biggest economy as pressure grows on the nation’s central bank to ease monetary conditions.

Total profits of China’s industrial enterprises in November dropped 4.2 percent from a year earlier, the National Bureau of Statistics said today in Beijing. That followed October’s 2.1 percent decline and a 0.4 percent increase in September. It’s the biggest slide since August 2012, when profits slumped 6.2 percent.

Mired in industrial overcapacity, factory-gate deflation and a housing slump, China is headed for its slowest full-year economic expansion since 1990. A Chinese factory index fell to a seven-month low in December, while growth in aggregate financing, the broadest gauge of credit, trailed estimates in November, and imports unexpectedly dropped amid weak demand.

The monthly Coppock Indicators finished November.

DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.