Tuesday 30 September 2014

What Happens Next?

Baltic Dry Index. 1062 +13

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

"There is no reason whatever to fear a crash".

Charles Mackay. 2 October 1845, Glasgow Argus, on Railway Mania.

What does China know that we don’t? Below China Investment Corp sold a major stake in Asia’s biggest commodity trader. Dr. copper, iron ore, crude oil prices, and  the Baltic Dry Index struggling around 1000, are all signalling an economic slowdown ahead, and that’s not good for commodities. But does CIC know more about the slowdown in China than the rest of us? With China about to head off for a week of holidays, and the Hong Kong Federation of Students calling for more street demonstrations on October 1st and October 2nd, the next few days are critical. Suddenly America’s War Party has gone into hiding.

Noble Drops Most Since 2012 as CIC Cuts Stake: Singapore Mover

By David Stringer and Jonathan Burgos Sep 30, 2014 3:34 AM GMT
Noble Group Ltd. (NOBL), Asia’s biggest commodity trader by revenue, fell the most in almost two years in Singapore trading as its second-largest shareholder offered to sell part of its stake.

China Investment Corp.’s Best Investment unit offered 300 million Noble shares at S$1.32 to S$1.35 in a block trade, according to a term sheet obtained by Bloomberg. A trade of that size took place at S$1.32 at 9:16 a.m. local time.

Noble tumbled 7.5 percent to S$1.29 at 10:12 a.m. local time, the biggest decline since Nov. 14, 2012. The benchmark Straits Times index lost 0.8 percent. Prior to the trade, Best Investment held 930.6 million shares, or about 14 percent, of Hong Kong-based Noble, according to data compiled by Bloomberg. The CIC offer was reported earlier by the Wall Street Journal.

China Factory Gauge Falls From Initial Reading

By Bloomberg News Sep 30, 2014 3:46 AM GMT
A Chinese manufacturing gauge fell from an initial reading a week ago as a property slump weighs on the world’s second-largest economy.

The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics for September was at 50.2, lower than the preliminary figure of 50.5 and unchanged from August. Numbers above 50 signal expansion. The Hang Seng Index in Hong Kong extended losses after the report.

Economists have cut estimates for this year’s gross domestic product growth after data on industrial profits, factory output and credit showed a deteriorating outlook. While the government has set an expansion target of about 7.5 percent for this year, Premier Li Keqiang and other policy makers have insisted for months they don’t need strong stimulus measures.

“The reading shows China’s economy is still biased toward weakening,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. “It’s quite clear that the central bank is reluctant to conduct any broad-based easing, and the economic weakness is likely to continue.”

Hong Kong Protesters Block Roads as Leaders Set Deadline

By Bloomberg News Sep 30, 2014 4:42 AM GMT
Small numbers of protesters continued to block roads in central Hong Kong in the fifth day of pro-democracy demonstrations as leaders warned the standoff would escalate if their demands are not met.

Crowds swelled to the tens of thousands last night as police largely kept their distance, avoiding the clashes of Sept. 28 that seemed to fuel the demonstrations. By morning, enough people remained in the Admiralty district for key roads to stay blocked as workers commuted by foot and metro. The benchmark Hang Seng Index (HSI) declined for a second day, slipping to a three-month low.

----The Hong Kong Federation of Students said yesterday that more people will join the protests on Oct. 1 and 2 if the government fails to respond. Protest organizers are insisting that the city’s top political figure, Chief Executive Leung Chun-ying, resign and that the government in Beijing drops plans to control who gets to run as Leung’s successor in 2017.

 “We wish Hong Kong people can show Beijing that we will stay strong,” Chan Kin-man, a leader of Occupy Central with Love and Peace, a group involved in the protests, told reporters yesterday. “We wish people can keep on till at least October 1, and we might have to fight for a longer time.”

How to End Hong Kong Protests a Tricky Question for Xi

By David Tweed Sep 29, 2014 11:27 PM GMT
The most violent protests in Hong Kong in almost 50 years pose a dilemma for President Xi Jinping: clear the streets and risk embedding anti-China sentiment in a city that has prized its relative freedom, or make concessions and appear weak at home.

Tens of thousands of protesters returned to the streets last night, refusing to back down after Hong Kong police on Sept. 28 fired tear gas and pepper spray in the worst clashes since unrest swept the city in 1967, led by pro-Communist groups inspired by Mao Zedong’s Cultural Revolution. The protests prompted banks to close branches in the central area and pushed the main Hong Kong stock market index down 1.9 percent yesterday.

As China prepares to celebrate the 65th anniversary of the establishment of the People’s Republic of China, Xi may want to demonstrate his grip on power on the mainland as he presses an anti-corruption drive that has snared senior officials and seeks to curb separatist sentiment in the Xinjiang region. Even so, acting forcefully to quell the protests may threaten Hong Kong’s standing as a city where businesses prize the rule of law and citizens cherish their freedom of expression.

“When push comes to shove, Xi Jinping has to calculate what this means for his own authority,” said David Zweig, professor of political science at the Hong Kong University of Science and Technology. “It is a delicate balance between not having a terrible outcome in the streets and looking weak. I am not sure if the students quite understand that.”

Elsewhere in East Asia, there was more economic gloom too. Suddenly the Great Global Wobble looks like something much more ominous.

Japan’s Output Unexpectedly Slumps as Retail Sales Rise

By Keiko Ujikane Sep 30, 2014 5:45 AM GMT
Japan’s output unexpectedly fell while stronger retail sales and an improving job market showed resilience in the world’s third-biggest economy as Prime Minister Shinzo Abe weighs another sales-tax increase.

Industrial production declined 1.5 percent in August from July, compared with the median estimate of economists surveyed by Bloomberg News for a 0.2 percent gain. Retail sales increased 1.9 percent and the jobless rate slid to 3.5 percent.

The data underscore headwinds for manufacturers as the yen trading near a six-year low fails to lift output, even as domestic demand crawls back after a blow from April’s tax hike. Abe’s government has signaled it’s prepared to boost stimulus to help consumers and businesses weather any further increase in the levy next year.

“Consumption related data shows signs of picking up but production is weak, so the negative side prevailed overall,” said Akiyoshi Takumori, chief economist, Sumitomo Mitsui Asset Management Co.

We end for September on an up note. The future is bright and green. With next generation solar panel efficiencies of 30 to 40 percent less than a decade away, I think Mr. Zheng is on to something which isn’t just the usual casino capitalism rent seeking. President Obama tucks in.

This ailing continent needs newer and better politicians. But where could we find them? There is no sign of a European Obama or anything remotely like him.

Der Spiegel

Property Tycoon Revealing $20 Billion Solar-Led Portfolio

By Ehren Goossens Sep 30, 2014 12:00 AM GMT
The Hong Kong property tycoon who gathered almost $20 billion in Chinese solar manufacturing assets is expanding his reach in other green energy technologies and may seek Wall Street money to do it.

Zheng Jianming, chairman and founder of Asia Pacific Resources Development Investment Ltd., is considering a public listing for the holding company he created to manage what may be the biggest collection of solar-manufacturing businesses.

The Hong Kong-based company is also investing in battery technology, electric cars, geothermal systems and even units that use seawater to store electricity. The goal is to supply clean energy for almost every aspect of daily life, “from the power source to heating and cooling, lighting and vehicles,” Zheng said.

“If a city were to implement all of these technologies it would basically be low-carbon,” he said in an interview in New York. “My vision for this company isn’t just for China. I want to create a global company.”

Zheng, 50, estimates he’s invested $2.5 billion to $3 billion in clean power over the past decade. That includes almost $1 billion to become the largest shareholder in Shunfeng Photovoltaic International Ltd. (1165), a panel maker and power-plant developer based in Changzhou, China, with shares listed in Hong Kong.

Smog Clouds Shanghai’s Drive to Become Global Financial Center

By Bloomberg News Sep 29, 2014 11:00 PM GMT
Shanghai is cracking down on polluters with the introduction of stricter fines to combat the hazardous smog levels that are testing its drive to become a global financial center.

Beginning tomorrow, the city will boost the maximum penalty for pollution fivefold to 500,000 yuan ($82,000). Repeat offenders, whether companies or individuals, risk additional fines.

The penalties are designed to address the growing problem of deteriorating air quality in China’s second-most populous city. Dirty air undermines quality of life and threatens to discourage foreign financial industry talent from choosing the city over places like Hong Kong or Singapore as it tests open-market policies with a free-trade zone.

“High-end financial talent usually has a high work intensity combined with greater mobility,” Li Zhiguo, an associate professor from Shanghai’s Fudan University, said by e-mail. “They’re more sensitive to air quality issues.”

Shanghai’s level of PM2.5, the small particles that pose the greatest risk to human health, averaged 62 micrograms per cubic meter in 2013, almost double the national standard of 35, the Shanghai Environmental Protection Bureau said in its annual environmental report. The average PM2.5 level in major financial hubs globally is 20, Fudan University’s Li said

Obama tucks into halibut and mango creme brulee while Indian PM fasts during White House dinner

Months after being elected in a landslide, India's dynamic but controversial new prime minister Narendra Modi comes to Washington to reboot ties with America despite religious festival

Barack Obama and Narendra Modi, India's new prime minister, had plenty on their plates when they met for a working dinner at the White House on Monday - or at least one of them did.

As a strict Hindu, Mr Modi was observing a fast for the festival of Navrati, so sipped only the warm water that has sustained him for the nine holy days which have fallen during his whirlwind tour of the US, leaving presidential chefs with something of a dilemma.

In the end, the menu card suggested Mr Obama did not hold back. Along with the other guests he ate avocado, goat's cheese and baby bell peppers to start, followed by pan-friend halibut and mango creme brulee for afters.

Indian officials said said Mr Modi had urged the president to tuck in. "Please don't feel embarrassed & please continue with your food," he said.

"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Alan Greenspan

At the Comex silver depositories Monday final figures were: Registered 66.19 Moz, Eligible 116.49 Moz, Total 182.68 Moz.    

Crooks and Scoundrels Corner

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

As goes California today so goes America tomorrow. As goes America today, so goes the rest of the world tomorrow. The Great Drought in California is pushing food produce prices higher. Will 2015 see the return of more normal levels of inflation? It will if the dip in oil prices proves to be only a temporary short term dip.

California harvest much smaller than normal across crops

By Dale Kasler The Sacramento Bee Published: Sunday, Sep. 28, 2014 - 12:00 am
It’s harvest time in much of California, and the signs of drought are almost as abundant as the fruits and nuts and vegetables.

One commodity after another is feeling the impact of the state’s epic water shortage. The great Sacramento Valley rice crop, served in sushi restaurants nationwide and exported to Asia, will be smaller than usual. Fewer grapes will be available to produce California’s world-class wines, and the citrus groves of the San Joaquin Valley are producing fewer oranges. There is less hay and corn for the state’s dairy cows, and the pistachio harvest is expected to shrink.

Even the state’s mighty almond business, which has become a powerhouse in recent years, is coming in smaller than expected. That’s particularly troubling to the thousands of farmers who sacrificed other crops in order to keep their almond orchards watered.

While many crops have yet to be harvested, it’s clear that the drought has carved a significant hole in the economy of rural California. Farm income is down, so is employment, and Thursday’s rain showers did little to change the equation.

An estimated 420,000 acres of farmland went unplanted this year, or about 5 percent of the total. Economists at UC Davis say agriculture, which has been a $44 billion-a-year business in California, will suffer revenue losses and higher water costs – a financial hit totaling $2.2 billion this year.

Rising commodity prices have helped cushion at least some of the pain, but more hurt could be on the way. With rivers running low and groundwater overtaxed, the situation could get far worse if heavy rains don’t come this winter.

----Central Valley residents don’t have to look far to see the effects. Roughly one-fourth of California’s rice fields went fallow this year, about 140,000 acres worth, according to the California Rice Commission, leaving vast stretches of the Sacramento Valley brown instead of their customary green.

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."

Daniel Webster

The monthly Coppock Indicators finished Aug.

DJIA: +152 Down. NASDAQ: +312 Down. SP500: +231 Down.  

Monday 29 September 2014

Is China The Next Ukraine?

Baltic Dry Index. 1049  +11

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

“Those who don't know history are destined to repeat it.”

Edmund Burke

We open today with China, and disturbing news from Hong Kong. Is this just a one off response to bungling by out of touch apparatchiks in Beijing and Hong Kong, or the start of another reckless US War Party financed Kiev style coup, shortly to be spread into China proper? Who benefits from turning China into a second Ukraine? How long before the PLA puts “boots on the ground” to use President Obama’s words? Stay long gold and silver. 

Taking down China will surely take down us all. If America’s War Party over reached in the Ukraine, taking on China is madness on steroids. Hong Kong is supposed to demonstrate to Taiwan why it needs Uncle Scam after all. My guess is we will not wait very long for a Beijing reaction.

Hong Kong Dollar, Stocks Retreat Amid Protest Crackdown

By Kana Nishizawa, Weiyi Lim and Fion Li Sep 29, 2014 5:01 AM GMT
Hong Kong’s stocks fell the most in almost three weeks, the city’s currency dropped and equity-market volatility surged amid the biggest police crackdown on protesters since the city returned to Chinese rule.

The benchmark Hang Seng Index (HSI) sank 1.8 percent as of 11:33 a.m. in Hong Kong, headed for the biggest loss since Sept. 10, as developers and retailers tumbled. A gauge of stock volatility jumped 17 percent, poised for the steepest surge in seven months. The city’s currency dropped to a six-month low and one-year interest-rate swaps climbed the most in 15 months.

Thousands of pro-democracy protesters remained near government offices in the Admiralty district after weekend clashes with police, who fired tear gas and pepper spray. While demonstrators still blocked one of the main roads into the central business area, calm returned as people returned to work.

“In terms of sentiment the market is likely to remain very cautious,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management, which oversees about $1.7 trillion worldwide. “This is a very unusual situation for Hong Kong. In the short term there’s going to be shock to the markets but it’s still more important to look at aspects such as fundamentals and valuations.”

Rallies that sprang up in the shopping neighborhoods of Causeway Bay and Mong Kok after police used tear gas on the crowds yesterday were dwindling. Even as the streets calmed, workers said they would go on strike, and protesters pledged to return.

The showdown adds to concerns about falling retail sales and rising U.S. interest rates that fueled a 6.5 percent drop in the Hang Seng Index from this year’s high on Sept. 3 through last week.

Alibaba Slumps in First Week as Short Sellers Enter Trade

By Belinda Cao Sep 28, 2014 5:00 PM GMT
Day one for shareholders of Alibaba Group Holding Ltd (BABA) was great. Week one proved less so.
China’s largest e-commerce company slumped 3.7 percent to $90.46 last week after having soared 38 percent in its Sept. 19 debut on the New York Stock Exchange.

Alibaba, which was founded 15 years ago by Jack Ma, started trading after its record $25 billion initial public offering amid reports that indicated the world’s second-largest economy is slowing as the housing market slumps. While investors looking to tap into the world’s largest market of Internet users piled into the IPO, the economic slowdown is spurring concern the company, which gets almost 90 percent of its sales from China, may struggle to sustain growth.

Offshore Yuan Falls Most in Two Weeks Amid Hong Kong Protests

By Lilian Karunungan Sep 29, 2014 4:07 AM GMT
The yuan traded in Hong Kong fell the most in two weeks on concern clashes between pro-democracy protesters and the police in the city will deter investors.

Over the weekend police fired tear gas and pepper spray to scatter protesters in the largest crackdown since the Asian city returned to Chinese rule. The People’s Bank of China reduced the yuan’s reference rate by 0.05 percent to 6.1539 against the dollar, the weakest the level in three weeks, as the Bloomberg Dollar Spot Index advanced for a sixth day and before the start of a week-long national holiday from Oct. 1 to Oct. 7.

“Investors are jittery and wouldn’t want to get too exposed to Hong Kong-related assets,” including the offshore yuan, said Suan Teck Kin, a Singapore-based economist at United Overseas Bank Ltd. “I expect the yuan to weaken onshore and offshore with the holidays coming up as people will want to close their positions.”

----Profits at industrial companies in China declined last month for the first time in two years, an official official report showed Sept. 27. The figures confirm evidence of a significant slowdown in manufacturing, and will affect Chinese asset prices, Dariusz Kowalczyk, Hong Kong-based strategist at Credit Agricole CIB, wrote in a note today.

Protesters in Hong Kong are demanding Chief Executive Leung Chun-ying resign. The demonstrations were spurred by the Chinese government’s decision last month that candidates for the 2017 election of the city’s leader be vetted by a committee. The pro-democracy forces say the system is designed to produce a new leader effectively handpicked by the government in Beijing.

We close for the day with dying Europe, busy committing economic suicide for Uncle Scam. And Russia hasn’t really retaliated yet, just sounded off about the last round of idiotic EU sanctions, and winter looms. Below paymaster Germany proposes to make Europe’s death even quicker.  Which country will be first to exit the euro?

"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.

Germany’s fiscal tightness threatens eurozone revival

The German mantra has long been that the rest of the eurozone has been insufficiently Germanic

----But as the days have passed, I have found myself musing on why it is that the eurozone economy is currently doing so badly.

Quite how badly it is doing only comes clearly into focus when you look at it in comparison with the rest of the world. In Q2 output in the eurozone was flat. In Germany, Italy and Greece it contracted. This followed a less than stellar Q1, when eurozone GDP grew by 0.2pc. And in 2013 it contracted by 0.4pc.

You could be forgiven for thinking that the recent sluggishness in the eurozone is part of generalised world economic weakness. But this isn’t true. Admittedly, there are pockets of softness. The Chinese economy has undoubtedly slowed and some judges think that it will slow a good deal further. But this softness is for Chinese domestic reasons. The rest of emerging Asia does not share this softness. Russia too has weakened but that again is for largely domestic reasons, made worse by sanctions and anxiety about the country’s position in the world.

The recent softness of commodity prices, especially oil, could be taken to confirm the hypothesis of weak world demand. But this doesn’t stack up either. Price weakness is due to increased supply, affecting both oil and agricultural softs. As the eurozone is a substantial net consumer of these commodities, price weakness should have helped, rather than hindered, its recovery.

----So why the weakness in the eurozone? One explanation is that the Ukrainian crisis has depressed activity in Europe’s core, especially in Germany. There is something in this. The weakness of German business confidence is partly caused by this, as Germany is a substantial exporter to Russia. But this explanation alone does not bear much weight.

It is striking that some of the peripheral countries, especially Spain, have cut back their imports and increased their exports. This may have made things more difficult for the two big surplus countries, Germany and the Netherlands. To the extent that this has happened it is deeply ironic. For the German mantra has long been that the rest of the eurozone has been insufficiently Germanic. If the peripheral countries battened down the hatches and behaved as though they were, if not Prussian, then at least Bavarian, all would be well. In fact, I always suspected that Germany was able to be so Germanic precisely because the other members of the eurozone were not – that is to say, they spent freely and ran substantial current account deficits.

Meanwhile, two of the zone’s largest economies, France and Italy, are mired in a slump that is of domestic origin. Uncompetitive and anti-business, badly governed and failing to reform, short of a miraculous transformation or a strong pick-up in demand elsewhere, these countries will struggle to deliver reasonable growth.

In the face of all this, the German government is planning to run a balanced budget over the next several years even though the Maastricht Treaty would allow it to run a deficit of 3pc of GDP. German fiscal plans envisage its debt to GDP ratio falling sharply. So the German public finances will be in much better shape than just about anywhere else in the advanced world – including the UK. Bully for them. But this fiscal tightness will only worsen the economic crisis caused by a lack of domestic demand.

"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

At the Comex silver depositories Friday final figures were: Registered 66.49 Moz, Eligible 116.89 Moz, Total 183.38 Moz.    

Crooks and Scoundrels Corner

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

Today, more on our new lawless age. The scandal that broke last week at the UK’s largest supermarket chain, seems all too likely to grow. Our central bank stock market global bubbles are completely vulnerable to our new lawless age. Unlike the banksters, however, UK grocers no matter how big, aren’t eligible for mountains of free cash from the BOE. But if Tesco’s accounts are dodgy, are all the other retail accounts pure as the driven snow? I suspect that we are about to findout.

Investigation into Tesco's £250m profit shortfall unearths 'corruption' of culture

Poor company culture is to blame for improper practices at the supermarket giant, it is claimed

The investigation into a £250m black hole in Tesco’s profits is centring on the culture of the retailer, with concerns that managers may have been pressurised into using improper practices.

A source said there were fears there had been a “corruption of virtues” among staff and that the key to the investigation was establishing “what led people to do these things” and “why people didn’t say things earlier”.

The source said the incident was a “human tragedy”, adding: “Why did people go over lines that basic values suggest they shouldn’t have, we need to look at the culture.”

Tesco is reeling from one of the worst weeks in its history after a whistleblower in the company’s accounting team alerted new boss Dave Lewis to a £250m shortfall in the retailer’s expected half-year profits. The shortfall was caused by Tesco booking income from deals with suppliers earlier than it should at the same time as pushing back costs.

Four executives have been suspended, including the UK chief executive Chris Bush. The company has hired Deloitte and its legal firm Freshfields to investigate the cause of the shortfall. They are also looking at whether Tesco’s accounting problems spread beyond the last six months and the UK food business. It is understood the retailer has still not given the all-clear to its overseas operations and its accounts before the last six months.

----Tesco shares fell by 16pc last week as the City reacted to the crisis. However, its struggles are good news for one of Britain’s biggest hedge funds, Lansdowne Partners, which is sitting on a profit of more than £65m as a result of the debacle. Lansdowne, which is run George Osborne’s best man Peter Davies, holds a short position of 0.62pc in Tesco shares. According to filings with the Financial Conduct Authority, it first took this position in November 2012. Since then, shares in Tesco have fallen by more than 40pc, meaning that Lansdowne is sitting on a healthy paper profit.

One former supermarket executive said it was likely that management and the buyers at Tesco had been under “extreme pressure” as sales fell in 2014. They said the practice of bringing forward profit is likely to have been “widespread” given the scale of the shortfall and questioned the quality of the governance at Tesco.

“It does not take a whistleblower to discover this,” they said. “You have to be seriously off the pace not to know this is what was going on.”


Low-price Aldi is new ‘consumer champion’

Aldi's sales grew 35.7pc to £5.3bn in 2013, with like-for-like sales up 30pc

The UK bosses of Aldi say the discount retailer is benefiting from a “lack of trust” in traditional supermarkets and that its sales have actually been boosted by the price war among the "big four"

Speaking as Aldi unveils a stellar set of annual results, Matthew Barnes and Roman Heini said the German retailer had emerged as the new “consumer champion”.

Aldi reported that sales grew 35.7pc to £5.3bn in 2013, with like-for-like sales up 30pc, driving pre-tax profits up 65.2pc to £261m. The company said it paid £62.8m of corporation tax in the UK, a rate of 24pc.

Mr Barnes said Aldi had a “spectacular” year, but is growing even faster in 2014.

The rise of Aldi highlights the pressure on the “big four”, Tesco, Asda, Sainsbury’s and Morrisons. Sainsbury’s is expected to post a fall in like-for-like sales of roughly 3.5pc on Wednesday, while Tesco is reeling from a trio of profit warnings and the discovery of a £250m black hole in its accounts.

"a company for carrying out an undertaking of great advantage, but nobody to know what it is".

The South Sea Bubble 1720

The monthly Coppock Indicators finished Aug.

DJIA: +152 Down. NASDAQ: +312 Down. SP500: +231 Down.