Baltic Dry Index. 755 +02
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."
F. A. von Hayek
It is only August 6th, in the sleepy and
wet Thames Valley this morning, and ominously for the coming winter, I saw my
first flight of geese flying in for the winter, from who knows where. While one
flight of geese doesn’t necessarily make for a harsh winter, this is the
earliest I’ve ever seen geese flying in to over winter in the UK and Ireland.
Is all the sabre rattling from the Baltic to the Ukraine upsetting the geese?
Note, due to family commitments the next LIR update
will be on Friday.
We open for the day with very bad news for the Fed’s
final bubble and the Great Disconnect. The global economy is just one shock
away from another crisis, says Fathom Consulting. So what could possibly go
wrong?
"The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."
Henry Hazlitt
Global economy one shock away from another crisis
Fathom Consulting warns that world is sliding towards its next "Minsky moment", with biggest risk stemming from China
The world is sliding towards
another debt-ridden disaster, with the eurozone and China one shock away from a
fresh crisis, according to a leading economics consultancy.
Fathom Consulting, which is run
by former Bank of England economists, said current levels of low volatility
masked systemic risks in the global financial system.
Danny Gabay, director of Fathom,
said an oil price shock would be enough to trigger a "hard landing"
in China as growth slowed, house prices plummeted and the country's already
huge amount of non-performing loans soared.
Mr Gabay drew parallels between
China today and America in 2006, when a number of households began to default
on their sub-prime mortgages but authorities played down the potential impact
on the rest of the global economy
He
said a spike in the oil price to $150 a barrel, from current levels of around
$105, would knock around two percentage points off headline growth in China.
"There are certain markets that cause us concern," said Mr Gabay.
"China is way out in front."
Fathom also said high levels of
non-performing loans in the eurozone posed a threat to the 18-nation bloc,
while a strong euro and contracting private sector credit would push the
eurozone into deflation within the next 12 months.
Charles Goodhart, senior economic
consultant at Morgan Stanley and a former Bank of England rate setter, compared
Fathom's assessment of global risks to the ideas of Hyman Minsky, who believed
that "stability is destabilising" and the global financial system
itself could generate shocks because of investor complacency.
More
So what could possibly go wrong? Well a botched American coup in the Ukraine leading to a trade war or far worse, for one. Will a botched coup bring on the next Lehman? Yesterday, Russia blocked imports of Polish apples. Russia is Poland’s main export market by far. US beef seems to be about to be replaced with South American beef, following Mr Putin’s World Cup, South American tour. Is/will anyone harvest the Ukraine’s grain?
"The history of paper money is an account of abuse, mismanagement, and financial disaster."
Richard M. Ebeling
Aug. 5, 2014, 7:10 p.m. EDT
Putin orders retaliation against U.S., Europe
Russian
President Vladimir Putin said he has ordered his government to prepare
retaliatory measures against U.S. and European sanctions imposed on Russia last
week, as the Kremlin stepped up pressure on Ukraine.
Mr. Putin has shown no outward sign of buckling under the weight of
sanctions--the harshest yet imposed by Brussels and Washington--aimed at
getting him to stop supporting pro-Russia rebels across the border in Ukraine.
The Russian Foreign MInistry described eastern Ukraine as on the verge of
a "humanitarian catastrophe" and said Tuesday it would push for an
international mission to help masses of civilians fleeing the fighting. Russia
called for a United Nations Security Council meeting on the issue Tuesday night.
The Ukrainian government dismissed the initiative as cynical and said it
had detected a major increase in Russia's military buildup across the border.
Kiev and Western capitals have said they fear Russia could send troops in to
support separatists under the guise of a mission to protect civilians. Moscow
denies any such intention.
But tension has been rising in recent weeks as Kiev's forces have gained
ground against rebels, nearly cutting off the separatist strongholds of Donetsk
and Luhansk from each other and their supply lines to Russia.
U.S. officials said Moscow had responded in the past week with a major
increase in supplies of weapons and fighters, as well as artillery and rocket
attacks across the border. Moscow denies that.
Moscow has been calling on Kiev to accept a cease-fire in a bid to save
the separatists from a military defeat that would be a political setback for
Mr. Putin as well.
In the last few days, Kiev's advance has appeared to slow amid heavier
rebel resistance. On Tuesday, a military spokesman said the military had
retreated from Yasinuvata, a small city on the northern outskirts of Donetsk,
only a day after reporting it had been taken.
More
Putin Lashes Out at West as Poland Cites Invasion Threat
Aug 6, 2014 5:30 AM GMT
Russian President Vladimir Putin ordered his government to respond to U.S. and
European sanctions as Poland said a renewed buildup of Russian troops on Ukraine’s
border raises the specter of a possible invasion. Putin said the government has proposed measures to retaliate against sanctions. Russia may limit or ban flights over Siberia by European carriers bound for Asia to retaliate against sanctions levied against the country, the Moscow-based Vedomosti newspaper reported yesterday, citing people familiar with the matter it didn’t identify.
“Political instruments of pressure on the economy are unacceptable, they contradict all norms and rules,” Putin said yesterday during a meeting with Alexey Gordeev, governor of the Voronezh region near Ukraine.
Any retaliation “must be done extremely carefully to support producers and avoid harming consumers.”
----Sikorski, whose country is among the EU nations seeking the toughest response to the Kremlin’s policy over Ukraine, said any incursion would be under the guise of a peacekeeping operation. Russia yesterday called for a humanitarian mission to East Ukraine, which is on the verge of a “catastrophe,” the Foreign Ministry said on its website.
The humanitarian situation in Ukraine is steadily worsening, John Ging, director of humanitarian operations for the United Nations, said at an emergency meeting of the Security Council yesterday in New York. He said the fighting has killed at least 1,367 people -- both civilians and combatants -- and wounded 4,087 since mid-April.
About 3.9 million people live in areas directly affected by violence and face imminent security threats, while more than 1,000 people flee conflict zones every day, said Ging, who cited a Russian estimate that 740,000 Ukrainians have crossed into Russia since the beginning of the year.
More
Vladimir Putin signs historic $20bn oil deal with Iran to bypass Western sanctions
Five-year accord will see Russia help Iran organise oil sales, but government denies it has violated international obligations
Vladimir Putin is eyeing a $20bn
(£11.8bn) trade deal with Iran that would see Russia sidestep Western sanctions
on its energy sector.
Under the terms of a five-year
accord, Russia would help Iran organise oil sales as well as “cooperate in the
oil-gas industry, construction of power plants, grids, supply of machinery,
consumer goods and agriculture products”, according to a statement by the
Energy Ministry in Moscow.
However, the Russian government
mysteriously withdrew that statement last night, saying it would issue a new
one on Wednesday.
Despite the U-turn, news of a
possible agreement hit US markets. The Dow fell 139 points, or 0.8pc, led by
energy companies such as Chevron, down 2.5pc, and ExxonMobil, down 1.9pc. Brent
Crude fell 1.5pc before recovering to trade down 0.7pc at $104.61.
A deal could see Russia buying
500,000 barrels of Iranian oil a day, the Moscow-based Kommersant newspaper has
previously reported. That would be about a fifth of Iran’s output in June and
half its exports.
There’s a question over “how
substantive this memorandum is”, Richard Mallinson, an analyst at Energy
Aspects in London, told Bloomberg. “There would be various practical
limitations in terms of Iran’s current production capacity, geography and
shipping logistics, as well as US sanctions.”
The move would be a win-win for
both nations after they were hit with Western sanctions aimed at limiting their
energy sectors.
More
Sanctions on Russia Failing to Staunch Energy Deals With Japan
Aug 6, 2014 5:13 AM GMT
Japan, dependent on imports
for almost all its fuel, is pursuing natural gas projects and energy purchases
in Russia
despite new sanctions last week designed to punish Vladimir
Putin and his associates. Japan won’t be keen on deeper sanctions that would curb its access to gas, oil and coal from Russia, said Will Pearson, a London-based director of Eurasia Group, an energy and natural resources consultant.
“Japanese firms are very interested in accessing Russian natural resources, thanks to their proximity,” he said.
Japan buys about 65 percent of the liquefied natural gas coming from Russia’s Sakhalin-2, a 9.6 million metric ton-a-year project, according to Leigh Bolton, managing director of Holmwood Consulting Ltd., a Surrey, England-based energy consultant. Neither country will break the contracts based on sanctions, he said.
Japan will freeze assets of individuals or groups involved in increasing instability in Ukraine and in the annexation of Crimea, Chief Cabinet Secretary Yoshihide Suga said July 28. Russia’s foreign ministry said July 29 that Japan’s new sanctions are “unfriendly, shortsighted” and will hurt bilateral relations.
Japan continues to view Russia as an important, resource-rich country, a Tokyo-based official at the Ministry of Economy, Trade and Industry said, asking not to be identified due to internal policy.
More
Statist Strongmen Putin-Xi See History’s Capitalism Clash
Aug 6,
2014 1:00 AM GMT
History isn’t over, after all.
----In
China, where
President Xi Jinping seeks to complete his country’s return to global
prominence, the government promotes domestic technology companies by unleashing
investigations of their U.S. competitors, including Redmond, Washington-based
Microsoft Corp. In Russia,
the imposition of European Union and U.S. sanctions over the conflict in
Ukraine already is claiming as collateral damage the operations of foreign
businesses such as London-based BP Plc (BP/) and Siemens AG of Munich.
“No
country is an island,” Bill Gross, chief investment officer of Newport Beach,
California-based Pacific Investment Management Co., the world’s biggest manager
of bond funds, tweeted on Aug. 1. “Global trade & growth will be affected
by Russia/EU/U.S. trade war.
State capitalism isn’t confined to China and Russia. The emirates of the Persian Gulf have long fused state and bazaar, while some specialists even see countries such as Brazil and Turkey as deserving of the label.
The latest convert is Hungary, where Prime Minister Viktor Orban said on July 28 he wants to abandon liberal democracy in favor of an “illiberal state,” citing Russia and China as examples.
“They’re not looking at the U.S. as a role model anymore,” says Aldo Musacchio, a professor at Harvard Business School in Boston and author of “Reinventing State Capitalism.” “Everyone is looking at China.
More
So what could possibly go wrong? The collapse of
the 35 year bubble in China for another.
China Default Storm Seen as Record Private Bonds Mature
Aug 6, 2014 3:00 AM GMT
The small companies that dominate China’s private
market for high-yield bonds face rising default risks as their debt obligations
soar to a record and economic growth slows to the lowest in more than two
decades. Privately issued notes totaling 6.2 billion yuan ($1 billion) come due next quarter, the most since authorities first allowed such offerings from small- to medium-sized borrowers in 2012, according to China Merchants Securities Co. The guarantor of debentures sold by Xuzhou Zhongsen Tonghao New Board Co. stepped in to help after the building-materials producer based in the eastern province of Jiangsu missed a coupon payment in March. Three other issuers have also faced “payment crises” this year, China Merchants said.
----The nation’s bond clearing house last month suspended valuation of privately placed securities sold by an auto-parts exporter after it failed to clarify media reports regarding a possible default. A polyester maker with similar notes had a bankruptcy application accepted in March.
“The current risks exposed in the private-bond market are probably a prelude to a storm,” said Sun Binbin, a Shanghai-based bond analyst at China Merchants. “There’s been improvement in only some sectors of the economy, not in all.”
More
China to punish Audi, Chrysler for anti-monopoly behavior
SHANGHAI/BEIJING(Reuters) - China said it will punish foreign car makers Audi and Chrysler as well as some 10 Japanese spare-part makers for violating the country's anti-monopoly law.
The National Development and Reform Commission (NDRC), responsible for enforcing rules against anti-competitive pricing, said on Wednesday that it had found Fiat SpA's (FIA.MI) Chrysler in Shanghai and Volkswagen (VOWG_p.DE)'s Audi in Hubei to be engaging in monopolistic behavior.
The government has also completed investigations into 12 Japanese auto-parts makers and will mete out punishment to those found to be breaking the anti-monopoly law, Li Pumin, spokesman of the NDRC, said at a press conference in Beijing. The NDRC did not identify the spare-part makers and did not say how many of them would be punished.
China is intensifying efforts to bring companies into compliance with an anti-monopoly law enacted in 2008, having in recent years taken aim at industries as varied as milk powder and jewelry.
----In the latest anti-trust blitz, foreign companies that have been targeted include U.S. chipmaker Qualcomm Inc (QCOM.O), which officials labeled as monopolistic last month and is widely expected to get a heavy fine. Last week, investigators stormed Microsoft Corp (MSFT.O) offices in four Chinese cities as part of an ongoing probe.
The NDRC said on Wednesday that it was also conducting an investigation into Daimler's (DAIGn.DE) Mercedes-Benz. Last week, the Jiangsu division of the NDRC conducted investigations into Mercedes-Benz dealers in five cities.
"Were we to be directed from Washington when to sow and when to reap, we should soon want bread."
Thomas Jefferson
At the Comex silver depositories Tuesday final figures were: Registered 60.36 Moz,
Eligible 115.37 Moz, Total 175.73 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Below, the Portuguese Madoff? I suspect that there’s
far more disaster to come.
It’s morally wrong to let a sucker keep his money.
Portuguese Bankster, with apologies to W. C. Fields.
Banco Espirito Santo Loan Mystery Confronts Derivatives Buyers
Aug 5, 2014 1:34 PM GMT
Some investors are waking up from a stimulus-induced malaise and realizing
they don’t exactly know what risk they’ve assumed. There’s a prime example in buyers of credit-linked notes created by Banco Espirito Santo SA last year.
Investors who bought the securities agreed to protect against losses on a 2 billion euro ($2.68 billion) pool of commercial loans made by the Portuguese bank, according to marketing documents reviewed by Bloomberg News. That was under the assumption that they stood to get annual returns in excess of 10 percent.
Now that Banco Espirito Santo’s finances are unraveling, investors in the Lusitano Synthetic II Ltd. deal are understandably getting nervous about the specific loans they’re guaranteeing. They asked for details last month, which the issuer is declining to give them, according to a July 23 notice on the Cayman Islands Stock Exchange.
The Lisbon-based lender’s sudden fall is a rude awakening for bondholders who’ve generally been rewarded for delving into the riskiest, most-illiquid securities for the past five years. The easy-money policies of central banks across the globe have propped up debt prices, suppressing borrowing costs so much that investors have piled on more and more risk to meet their return targets.
A Banco Espirito Santo official responded to e-mailed requests for comment by saying the bank may have a statement later.
Credit-linked notes work like traditional bonds with interest payments, except the principal gets wiped out when losses on the underlying debt accumulate enough. Such deals, which use credit-default swaps, have been used as way for banks to raise cash while offloading some of the risk tied to the loans they’ve made.
In Banco Espirito Santo’s case, investors who bought the 184 million euros of synthetic securities agreed to absorb losses on thousands of loans, according to the marketing documents. The notes were sold with expected returns of more than 10 percent, according to a person familiar with the matter who asked not to be named because the talks were private.
It’s not surprising the bondholders are now getting jittery. Banco Espirito Santo’s finances have quickly come undone. The lender said May 20 there was a “serious financial situation” at the bank’s holding company.
----Holders of the credit-linked notes requested information on July 4 about whether their investments were tied to loans extended to Grupo Espirito Santo or any of its affiliates, according to the notice published on the Cayman Islands Stock Exchange.
They were told that the deal was
designed to include a “blind pool” of obligations, and that the bank “is not
obliged to disclose, and has not disclosed, the identities of the reference
entities relating to the reference obligations,” the notice said.
It can’t be good to hear you
don’t have a right to know what you’re invested in at a time when it suddenly
matters
More
Credit Agricole writes off entire Banco Espirito Santo stake
Boss of French bank Jean-Paul Chifflet accuses parent family of misleading investors
French bank Credit Agricole has entirely written off the value of its 15pc stake in Banco Espirito Santo (BES), following the Portuguese lender’s government rescue.Jean-Paul Chifflet, the company’s chief executive, said he had never seen evidence of troubles at BES and accused its parent family of misleading investors as the charge wiped away Credit Agricole’s profits.
The €708m (£562m) charge reduced the value of the French bank’s stake in BES to zero and meant second-quarter profits fell from €696m to €17m.
It came two days after the Portuguese government stepped in to rescue its largest private bank with a €4.9bn bailout. Last week, BES revealed shock losses of €3.6bn due to a larger-than-expected exposure to the Espirito Santo family empire.
Credit Agricole’s €708m write-down was made up of its share of BES’s loss, totalling €502m, and the €206m value of the stake.
---- “We can only regret having been misled by the family with which Credit Agricole was trying to create a true partnership to build the biggest private bank in Portugal,” Mr Chifflet said.
More
"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."
John Exter
We are in a world of unrepayable debt with irredeemable paper money. Time for tangible assets.
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