Wednesday 26 March 2014

BUBA Surrenders! Club Med Wins!



Baltic Dry Index. 1578 -24

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

"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

Today we leave the war of words between tag team USA/EUSSR and Russia alone, a real war will come soon enough if anyone is foolish enough to impose real sanctions on Russia. We open today with Germany’s surrender to Club Med. The Bundesbank has finally joined the mass ranks of central banksters favouring QE Forever and the fiat currency race to the bottom, though for now, they say, they’d prefer to weaken the Euro via adopting negative interest rates. Another nail in the coffin of the Great Nixonian Error of Fiat Money. Germany has given the ECB the green light to start devaluing the euro against all comers. The “DM” euro is about to transform into the “Lira” euro. Let the currency wars truly begin. Stay long fully paid up physical gold and silver.

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

Harry Browne

Monks recant: Bundesbank opens the door to QE blitz

The last bastion is tumbling. Even the venerable Bundesbank is edging crablike towards quantitative easing.
It seems that tumbling inflation in Germany itself has at last shaken the monetary priesthood out of its ideological certainties.

Or put another way, the Pfennig has dropped that euroland is just one Chinese shock away from a deflation trap, an outcome that would play havoc with the debt dynamics of southern Europe, render the euro unworkable, and ultimately inflict massive damage on Germany.

Bundesbank chief Jens Weidmann was not exactly panting for QE in comments to Market News published this morning, it has to be said, but the tone marks a clear shift in policy.

"The unconventional measures under consideration are largely uncharted territory. This means that we need a discussion about their effectiveness and also about their costs and sideeffects", he said.

"This does not mean that a QE programme is generally out of the question. But we have to ensure that the prohibition of monetary financing is respected”.

At least we can put to rest the bogus argument that EU Treaty law (Article 123) prohibits QE by the European Central Bank. This claim was always a smokescreen.

Bond purchases are what used to be known as open market operations, a tool of central banks dating back into the mist of monetary history. Purchasing bonds across the board (not just the bonds of insolvent states) is a plain vanilla liquidity management tool.

Mr Weidmann says he prefers negative interest rates as the first resort. This is an admission that the ECB is alarmed by the strength of the euro as it hovers near the pain barrier of $1.40, since negative rates are a sure-fire way to drive down the currency.

"If you wanted to counter the consequences of a strong appreciation of the euro for the inflation outlook, negative rates would, however, appear to be a more appropriate measure than others", he said. Quite so.

The IMF’s Christine Lagarde says the deflation risk in Europe may be as high as 20pc, which is remarkable given how much damage it would do. Indeed, as one IMF paper explains, the trouble is already enormous even at ultra-low levels of inflation.
More

In true “buy when there’s blood in the streets” Rothschild style, Morgan Stanley is sticking to its buy recommendations on Chinese, and even more surprisingly, Russian stocks. A bet that China isn’t undergoing a “Minsky moment,” and that real sanctions aren’t going to be applied to Russia. Way too high risk for my old fashioned Scots conservative style of investing. But is the Obama government saying one thing on Russia in public, and quite another in private to Wall Street’s Great Vampire Squids?

“Call it the Goldman Sachs test. If this is something Goldman would do to its clients, don't do it."

Felix Salmon.

Morgan Stanley Recommits to 'Buy' Call on Chinese Stocks as Slowdown Deepens

Mar 26, 2014 2:09 AM GMT
Morgan Stanley (MS) is sticking to its buy recommendation on Chinese stocks, saying concern that there’ll be a “significant market disruption” in the world’s second-largest economy is overstated.

China’s consumption and services are bigger than officially reported, giving the economy more room to cope with slowing productivity growth, the Morgan Stanley analysts said. The government’s reforms and its “formidable” financial resources will help policy makers transform the economy without triggering a debt crisis, the analysts wrote in a report in which they kept their overweight calls on both Chinese and Russian equities.

The economy’s slowdown and rising debt levels pushed the Hang Seng China Enterprise Index (HSCEI), which tracks Chinese firms listed in Hong Kong, into a bear market on March 20. While Morgan Stanley’s analysts said that debate is mounting about whether China is approaching a “Minsky moment,” a term used to explain an asset collapse following the exhaustion of credit expansion, they said they remain bullish.

“The apparent deterioration in productivity and diminishing returns to leverage are not as severe as the consensus thinks when one takes into account true activity” in the consumer and service sectors of the economy, Morgan Stanley analysts led by Jonathan Garner wrote in the note.
More

In emerging market news, add Brazil to the general collapse of the EM Goldilocks story. In Brazil, the sky and more looks set to fall in. It’s one hell of a time to want to start a war in the former bread basket of Europe, the Ukraine.

Brazil's Biggest Drought In Decades Also Worsens Interest Rate Outlook

3/25/2014
Brazil’s worst drought in 50 years will have more than an impact on tomato prices (which rose over 20% recently).  Inflation is now seen cracking through 6% again and that means the Central Bank will likely have to rethink its desired plans to cut interest rates in the second half.

On Monday, the Central Bank’s Focus survey of economists had inflation forecast to hit 6.28% this year.

Last Friday’s release of the March IPCA-15 wholesale price inflation index confirmed the drought’s impact on food prices. The drought was so bad in Brazil’s semi-arid northeast that food inflation is expected to remain for most of the year now.  As it is, Brazil’s food prices have risen almost 20% year to date.

Since wholesale prices continue to rise rapidly, the food price component of the core IPCA inflation index will remain high in March and April, with some relief possibly by May, after the fall soy and corn harvest in a best case scenario.

On Tuesday, Nomura’s Latin America research team, lead by Tony Volpon, forecast March core inflation to rise 0.81% from February, higher than the 10-year average inflation for March of 0.46%.  April IPCA will likely rise 0.60% from March, also well above the average of 0.53%.

It gets worse.

In June, the World Cup comes to the country. More demand means higher prices.  Beyond the food component of inflation, many service prices are likely to be marked up for the tourists, and a good deal of those price hikes will likely last long after the FIFA fans vacate Brazil.

Volpon, Head of Emerging Markets Americas for Nomura, said he expects Brazil inflation to rise 6.1% by June and above 6.5% by September, temporarily breaching the upper bound of the Central Bank’s target range.

“The Central Bank will have to deliver another 25 basis points hike in April,” Volpon says, taking the benchmark Selic policy rate to 11%. Another hike is likely in May, with the rate rising to 11.25% and staying there until year-end.
More

Brazil at risk of recession as S&P downgrades debt to near junk

Rating agency cuts Brazil’s debt one notch to BBB-, citing “fiscal slippage”, bad economic management, and one-off tricks that flattered the public accounts

 Brazil’s sovereign debt is one step away from junk after Standard & Poor’s downgraded Latin America’s powerhouse economy, prompting a furious reaction from the Brazilian treasury.

The rating agency cut Brazil’s debt one notch to BBB-, citing “fiscal slippage”, bad economic management, and one-off tricks that flattered the public accounts. It warned of a widening trade deficit and weak growth for years to come.

Marcelo Carvalho from BNP Paribas said the former darling of the BRICs quartet is staring “down the barrel of a recession”, a viewed echoed on Tuesday by Mark Mobius from Templeton Emerging Markets.

The economy escaped recession with a rebound in the fourth quarter but has relapsed this year as punitive borrowing costs exact their toll. Carlyle Group had to inject $67m this month into its Urbplan real estate venture as unsold malls and commercial projects build up in the major cities. Rental prices fell 15pc in Sao Paulo last year.

Marcelo Ribera from the hedge fund Pentagono Asset Management in Brazil said the country’s “decade-long bubble” has burst, warning that the real is likely to fall by 40pc against the dollar as the excesses are purged from the system.

More

http://www.telegraph.co.uk/finance/economics/10722934/Brazil-at-risk-of-recession-as-SandP-downgrades-debt-to-near-junk.html

Brazil to order army into Rio slums as violence escalates before World Cup

Military deployment expected after spate of fire-bombings, murders and attacks on police bases in city's favelas

Monday 24 March 2014 13.36 GMT

The Brazilian authorities are poised to send the army into the slums of Rio de Janeiro less than three months before the World Cup. The move follows attacks on police that have resulted in the most tense standoff for years in the favelas.

The Rio state governor, Sérgio Cabral, has requested the reinforcements after assaults on police bases, apparently co-ordinated by the city's biggest gang, Comando Vermelho.

An escalation of murders, revenge killings and fire-bombings have prompted talk of a war between the police and gangsters. Favela residents and NGOs say the situation is now more tense than at any time since 2010, when the authorities began a "pacification" programme to regain control of communities from armed traffickers.

The government is expected to announce details of the military deployment in the coming days, before the expected arrival in June of hundreds of thousands of football fans, players and support staff for the seven World Cup matches that will be held in Rio.

The pacification campaign is a crucial element in the city's preparations for the tournament. Since it started, 38 police pacification units (UPP) have been established in favela communities, which are now occupied by more than 9,000 police.

Until last year, the gains in public security were evident. But confidence in the programme has been sapped by a series of human rights abuses by police officers.

Sensing a swing in public opinion, imprisoned Comando Vermelho leaders are said to have ordered their members to go on the attack.
More

We close for the day with US farmers telling China to get lost. We don’t need your imports of our corn, (maize) seems to be the message. With drought affecting large parts of Brazil and Argentina, alternative suppliers, food price inflation looks to be back on the cards for China later in the year, after last year’s spectacular price crash.

U.S. Farmers Mark Spring by Planting Corn Banned in China

Mar 25, 2014 11:01 PM GMT
Archer-Daniels-Midland Co. (ADM) and Bunge Ltd. (BG), two of the world’s largest grain traders, are facing a new obstacle in their quest to expand corn exports to China -- U.S. farmers.

Six months after China began rejecting shipments of a genetically modified corn, Bunge says it won’t take deliveries of the variety developed by Switzerland’s Syngenta AG. ADM will test the corn and may reject it as well. Even so, farmers will soon begin planting it this spring, more interested in its high yield for the domestic market than for exports.

Exporters and farmers going in two different directions on GMO corn underscores a new set of challenges faced by international agricultural commodity traders. Even as demand continues to grow in line with the global population, China and other countries have been slower than the U.S. to approve new types of crops amid concerns about food safety and threats to biodiversity from genetically modified organisms, or GMOs. China’s curbs on some modified corn threaten to block millions of tons of imports and in so doing cut into the profits of international trading houses.

----Traders rerouting shipments originally destined for China to other markets may lose $30 to $50 a ton, said Tim Burrack, an Iowa corn and soybean farmer who’s also the former chairman of the U.S. Grains Council’s trade committee.

----ADM declined to comment on the potential impact of China’s moves beyond the Decatur, Illinois-based company’s February statement, in which it said wide-scale planting of GMOs that aren’t approved by key importing countries will diminish the competitiveness of U.S. grain and feed exports. Bunge declined to comment on how it will be affected.

----As China curtails GMO imports, U.S. growers are seeking to boost yields in the wake of a 34 percent drop in corn prices over the past 12 months. U.S. farm income is forecast to fall 27 percent in 2014, or to the lowest since 2010, according to the U.S. Department of Agriculture.
More

“There are some bored foreigners, with full stomachs, who have nothing better to do than point fingers at us [China]. First, China doesn’t export revolution; second, China doesn’t export hunger and poverty; third, China doesn’t come and cause you headaches, what more is there to be said?”

President Xi Jinping

At the Comex silver depositories Tuesday final figures were: Registered 53.24 Moz, Eligible 128.49 Moz, Total 181.73 Moz.  

Crooks and Scoundrels Corner

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

Today, how America’s IRS intends to tax Bitcoin, and presumably all virtual currencies if they become available, hoping in the process to suppress virtual currencies. In principle I have nothing against virtual currencies, but since like fiat currencies there is nothing tangible backing them, I see little benefit to the monetary system in creating them. The downside is that as computer power advances in the years and decades ahead, I suspect that the likes of the NSA and GCHQs of the world, will develop ways to steal them and forge them.

Bitcoin Is Property, Not Currency, in Tax System: IRS

By Richard Rubin and Carter Dougherty  March 25, 2014 4:25 PM ED
Bitcoin Is Property Not Currency in U.S. Tax System, IRS Says

The U.S. government will treat Bitcoin as property for tax purposes, applying rules it uses to govern stocks and barter transactions, the Internal Revenue Service said in its first substantive ruling on the issue.

Today’s IRS guidance will provide certainty for Bitcoin investors, along with income-tax liability that wasn’t specified before. Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop.

The IRS, faced with a choice of treating Bitcoins like currency or property, chose property. That decision could reduce the volume of transactions conducted with the virtual currency, said Pamir Gelenbe, a venture partner at Hummingbird Ventures, which invests in technology businesses.

“It’s challenging if you have to think about capital gains before you buy a cup of coffee,” he said.
Charles Allen, chief executive officer of BitcoinShop Inc., an online marketplace, said he’d like to see the IRS reconsider its decision as virtual currencies develop.

“The implications this decision will have on the Bitcoin ecosystem are far reaching, and will be burdensome for both individual users of Bitcoins, Bitcoin-focused business and for the general adoption of virtual currencies,” he said, adding that Bitcoin users will adapt to the rules.

Technological Breakthrough

Bitcoin, the most popular digital currency, emerged from a 2008 paper written by a programmer or group of programmers under the name Satoshi Nakamoto. The Bitcoin network uses a public ledger to record transactions made under pseudonyms, a technological breakthrough that allows purchases and sales without using a trusted third party, such as Visa Inc. or Western Union Co.

Powerful computers that record the transactions and guard against double-spending the same currency generate new Bitcoins, a process referred to as mining. Mining has made some early Bitcoin adopters wealthy in dollar terms.

Others bought into the currency in early 2013, before its price rose more than 50-fold to peak at $1,200 in early December. A Bitcoin was worth $584.35 at 4:02 p.m., New York time, according to the CoinDesk Bitcoin Price Index. That’s less than 0.3 percent below today’s high.

Stock Investors

The IRS ruling means Bitcoin investors will be treated like stock investors. Bitcoins held for more than a year and then sold would face the lower tax rates applicable to capital gains -- a maximum of 23.8 percent compared with the 43.4 percent top rate on property sold within a year of purchase.

“The Internal Revenue Service’s guidance today provides clarity for taxpayers who want to ensure that they’re doing the right thing and playing by the rules when utilizing Bitcoin and other digital currencies,” Senator Thomas Carper, a Delaware Democrat, said in a statement.

For investors with losses, U.S. tax law allows taxpayers to subtract capital losses from any capital gains. They can also subtract as much as $3,000 of capital losses a year from ordinary income.

If Bitcoin were treated as a foreign currency, ordinary -- not capital gains -- tax rates would apply. Losses would be easier to deduct, however.

Capital Gains

As with stocks, Bitcoin dealers will be subject to different rules that wouldn’t allow for capital gains treatment.

Bitcoin miners will have to report their earnings as taxable income with a value equal to the worth on the day it was mined. If they mine as part of a business, they would have to pay payroll taxes as well.

The IRS will require information reporting similar to how the tax agency receives notification of stock transactions and payments to independent contractors.

“The danger is the creation of an electronic black market, similar to the cash economy,” Joshua Blank, a tax law professor at New York University, said in a December interview. “That’s what the IRS wants to avoid.”

The ruling takes effect immediately and covers past and future transactions and tax returns. The IRS said in the notice that it may offer relief from penalties to people who engaged in transactions before today and can show “reasonable cause” for underpayments or failure to file.

The ruling comes fewer than three months after National Taxpayer Advocate Nina Olson said the IRS should issue guidance to taxpayers on digital currency transactions.

“It is the government’s responsibility to inform the public about the rules they are required to follow,” Olson, who runs an independent office within IRS, wrote in her annual report to Congress in January. “The lack of clear answers to basic questions such as when and how taxpayers should report gains and losses on digital currency transactions probably encourages tax avoidance.”

Mt. Gox says working with police in missing bitcoin probe

By Sophie Knight TOKYO Wed Mar 26, 2014 1:33am EDT
(Reuters) - In the first confirmation of a criminal investigation at Mt. Gox, the failed Tokyo-based bitcoin exchange said on Wednesday it was working with the police "with regard to the disappearance" of bitcoins worth some $490 million at current prices.

Mt. Gox said in a brief statement on its website that it had submitted records and documents to the Tokyo Metropolitan Police as part of its civil rehabilitation application. A police spokesman declined to comment and said no announcements were planned.

Mt. Gox filed for bankruptcy protection in Tokyo on February 28, saying 750,000 bitcoins belonging to its customers and 100,000 of its own bitcoins were stolen by hackers who exploited a security flaw in its software. It also said $28 million were "missing" from its Japanese bank accounts.

It was not immediately clear if the police investigation was looking into those missing funds. A representative on a helpline for Mt. Gox creditors told Reuters the exchange had been working with the police as of "two days ago." Lawyers for Mt. Gox were not immediately available to comment.
more

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise. The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."

Hans F. Sennholz

The monthly Coppock Indicators finished February.

DJIA: +203 Up. NASDAQ: +353 Up. SP500: +255 Up. The new Fed bubble continues, what could possibly go wrong?

No comments:

Post a Comment