Baltic Dry Index. 1155 +08
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
“But
Cameron stood still a moment, held in
thought. As one wakened suddenly from a beautiful dream, who struggles to
recall it, but can recapture nothing but a dim sense of the beauty in it, the
beauty! Till that, too, fades away in its turn, and the dreamer bitterly
accepts the hard, cold waking and all its penalties.”
With apologies to Kenneth Grahame, The Wind in the Willows
The main events this week are likely to be the
Ukraine, and whether or not Friday’s cease fire becomes real, and what if any
sanctions the suicidal EU imposes on Russia, and in what manner Russia
retaliates. The second most big event of the coming week is President Obama’s
lead on tackling the murderous Islamic Nazi Caliphate, and with it its seeming growing
attraction to millions of disaffected young moslems all around the planet. All
too soon I expect to see Al Qaida like copycat atrocities from Africa to the west, to south east Asia. Particularly
concerning are Malaysia and Indonesia.
For the UK and Europe, it’s all about the apparent
surge in Scottish nationalism, likely leading to a yes vote in favour of
independence on Thursday the 18th. To say that rump UK (rUK) and the EU are totally unprepared for
such an outcome, is a gross understatement. If/when it happens, local breakaway
nationalist movements will be empowered from the Basques to the Russian
minority in Estonia. It’s likely to reinvigorate the independence movement in
Quebec. If non-entity Scotland can break the links of 300 years of the Union,
links far less long and tested will come under strain practically everywhere.
All the more so in the decade ahead, if independence works out to be a success.
One potential problem with independence lies in Scotland’s islands. If they
vote no and the mainland votes yes, the Hebrides might opt for Isle of Man
status, while the Shetlands are even more complicated. Denmark forfeited them
to Scotland for non-payment of a dowry, and the Danes with the islanders consent might opt to make good
on the dowry, filching much of Scotland’s oil.
Below, shock and awe in London and Brussels. China
issues some more dodgy figures. Japan joins in the Chinese Wobble. What else
could possibly go wrong?
"Scotland: a country for carrying out an undertaking of great advantage, but nobody to know what it is".
With apologies to The South Sea Bubble 1720
Pound Drops on Scotland; Asia Stocks Swing on China Trade
Sep 8,
2014 6:33 AM GMT
The pound slid to its weakest level since November and U.K. share-index
futures fell after a poll showed a majority vote in favor of Scottish
independence. Treasuries climbed with wheat while Asian stocks fluctuated as
Chinese imports unexpectedly fell. The British currency lost 0.8 percent to $1.6204 by 2:28 p.m. in Tokyo, extending last week’s 1.6 percent drop, while FTSE 100 Index contracts slipped 0.2 percent. The MSCI Asia Pacific Index (MXAP) fluctuated as the Hang Seng Index slipped 0.3 percent. Ten-year Treasury yields fell two basis points and Standard & Poor’s 500 Index futures retreated 0.1 percent after the U.S. gauge closed at a record Sept. 5. Wheat and soybeans rose a second day.
The percentage of voters in favor of Scotland breaking from the United Kingdom rose to 51 percent less than two weeks before the referendum, according to a YouGov Plc poll for the Sunday Times. China’s imports fell 2.4 percent in August, missing the 3 percent increase estimated by economists and helping to send the trade surplus to a record $49.8 billion. An unexpectedly weak U.S. payrolls report damped speculation the Federal Reserve will bring forward rate increases.
“Investors have so far expected a No vote,” said Hans Goetti, the Singapore-based head of investment for Asia at Banque Internationale a Luxembourg SA, which has $40 billion in assets. “If it goes the other way, you could expect some weakness in the pound. It would clearly lead to some volatility. The U.S. is growing. China is growing. But it’s stuck in second gear.” Investors are buying the “perceived safety” of bonds today. Longer-term, low yields make equities more attractive, he said.
The U.K. currency weakened to as low as $1.6165 today, the least since Nov. 26. Support for the No side dropped to 49 percent in the YouGov survey when undecided respondents were excluded.
More
Ten days to save the Union with Scotland
Cameron and Brown join forces to persuade Scots to stay British as Yes camp forges lead
By Peter Dominiczak, Simon
Johnson and Matthew Holehouse 8:46PM BST 07 Sep 2014
David Cameron and Gordon Brown
are to spearhead a final 10-day scramble to save the United Kingdom, following
a poll suggesting that Scotland is on the brink of voting to break up Britain.
Over the weekend the Prime Minister
held crisis talks with the Queen at Balmoral after the YouGov poll put Alex
Salmond’s campaign for independence was in the lead for the first time.
Later this week, Mr Cameron will
give details for the transfer of more powers to the Scottish Government if it
remains in the UK in an attempt to stem the growing support for independence.
Meanwhile, his Labour predecessor
announced a six-day tour in an attempt to convince undecided voters that voting
“No” is a “patriotic” act. It will include a speech with Ed Miliband — the
first time Mr Brown and Mr Miliband have shared a platform since Labour’s
election defeat in 2010.
More
China Posts Record Surplus as Exports-Imports Diverge
Sep 8, 2014 5:51 AM GMT
China’s trade surplus
climbed to a record in August as exports (CNFREXPY) rose on the back of increased
shipments to the U.S. and Europe, while imports fell for a second month as a
property slump hurt domestic demand. Exports increased 9.4 percent from a year earlier, the Beijing-based customs administration said today, compared with the 9 percent median estimate in a Bloomberg survey. Imports unexpectedly dropped 2.4 percent, leaving a trade surplus of $49.8 billion.
Divergent directions for exports and imports show China is some way from providing the global growth boost that IHS Inc. this month forecast will see it eclipse the U.S. economy in 2024. Languishing domestic demand underscores risks to the government’s economic-growth target this year of about 7.5 percent as home prices and construction fall, boosting chances of additional stimulus.
More
Japan Economy Contracts More Than Initial Estimate on Tax
Sep 8, 2014 2:21 AM GMT
Japan’s economy contracted
the most in more than five years, highlighting the challenge for Prime Minister
Shinzo Abe in steering the nation through the aftermath of a sales-tax
increase. Gross domestic product shrank an annualized 7.1 percent in the three months through June, the most since the first quarter of 2009, the Cabinet Office said today in Tokyo. The median forecast of 25 economists surveyed by Bloomberg News was for a 7 percent drop.
The blow from the sales-tax hike in April extended into this quarter, with retail sales and household spending falling in July. The government signaled last week that it is prepared to boost stimulus to help weather a further increase in the levy scheduled for October 2015.
More
We end for the day with David Stockman unpicking the
spin on Friday’s US employment figures.
Today’s Jobs Report And The Cult Of Central Banking: Counting Angels On The Head Of A Pin While Main Street Flounders
by David Stockman • September 5,
2014
That didn’t take long. The Fed’s
unpaid PR flack at the Wall Street Journal, Jon Hilsenrath, was out with hardly
an hour to spare after the August jobs report—relaying word from the Eccles
Building that ZIRP is in no danger of being rescinded early. Not
surprisingly, the economic patriots were soon out doing their
duty—that is, buying the dip yet again.
Recall that at their July
meeting our monetary central planners saw “significant
underutilization of labor resources”, which is code for
continued zero interest rates. At the time, they were looking at a
June unemployment of 6.1%. So according to Hilsenrath,
today’s weakish jobs report is good news for Wall Street’s free money
crowd.
The fact that unemployment hasn’t
fallen since the July meeting —and that job growth slowed in August— suggests
Fed officials won’t make big changes to their policy statement and the signal
they’re sending about rates when they meet Sept. 16 and 17.
Indeed, the Fed’s other unpaid
spokesman, Steve Leisman at CNBC, had already made the point within minutes of
the release. ZIRP will now last until next July, he opined. The danger
that money market rates would “rise” (to say 40 bps) as early
as March has been alleviated by the “disappointing” 142,000
print for August. Whew!
These people are counting angels
on the head of a pin. Like Draghi’s 10bps cut yesterday, a
potential delay in baby-step rate increases by three months next year is a
meaningless irrelevance. That such microscopic moves could be treated
with dead seriousness by the financial media and players in the casino is
simply evidence of how deep the cult of Keynesian central banking has
insinuated itself into the warp and woof of the financial system.
The truth is, labor market
“slack” is a red herring. The problem of tepid growth in jobs and incomes is
structural, and tweaking the monetary dials by a tick or two will not alleviate
it in the slightest. Compared
to 25bps from zero, consider what has really happened to the labor market since
the Fed went all-in for money printing after the dotcom crash. Back then there
were 75 million adults (over 16 years) who didn’t have jobs; today’s report
shows that there are about 102 million jobless adults.
And, no, that 27 million
gain in adult dependency is not due to well-deserved baby boomer retirements on
social security. There are only 7 million more recipients of old age and
survivors benefits today than there were in the year 2000. The
remaining 20 million are on food stamps, welfare, disability, veterans benefits
or are living in their parents’ basement or on the streets.
They have been made
jobless first and foremost by a financialized economy that does not
invest in productivity and growth, but mainly chases financial bubbles inflated
by ZIRP and the Fed’s insensible pursuit of “wealth effects” and stock market
props and puts. And that monumental deformation has been exacerbated
by the “off-shoring” of a huge swath of the tradable goods economy. The latter
is a direct result of 25 years of easy money and massive middle class
borrowing that has resulted in $8 trillion of cumulative domestic consumption
in excess of domestic production, and bloated domestic wages and costs that are
not competitive in the world economy.
Finally, throw in the
disincentives to work from a massive income transfer payment system and
safety net that encompasses 110 million citizens who live in
households with means tested benefits, and 150 million with
government benefits of all kinds including social insurance.
Now you begin to grasp what really matters. Indeed, these tidal
forces operating on the labor market shrink the impact of 10 or 25 bps
from zero on overnight interest rates to the equivalent of economic white
noise.
Since Greenspan launched the cult
of Keynesian central banking and the financialization of the American economy
in the late 1980s, the balance sheet of the Fed has grown from $200 billion to
$4.4 trillion—or by 22X. The S&P 500 is up 10X notwithstanding three
thundering booms and busts in the interim. Along the way, the great financial
markets of American capitalism have been destroyed as agents of productive
capital formation, efficient resource allocation and honest price
discovery. The have simply become a giant, central bank operated and
funded casino where the 1% gamble with make-believe money.
More
"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."
Murray N. Rothbard
At the Comex silver depositories Friday final figures were: Registered 63.87 Moz,
Eligible 116.30 Moz, Total 180.17 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Below, the Telegraph’s famous AEP, does a Stockman
like job on the ECB’s Thursday spin job.
The ECB is blowing smoke in our eyes
Ambrose Evans-Pritchard Last updated: September 5th, 2014Mario Draghi has played a weak hand with skill, as always. He is a superb actor.
Yet the package of measures unveiled by the ECB yesterday is pitifully small and mostly window dressing, an effort to buy time with a mix of vague gestures and outright gimmicks, a substitute for decisive action.
“This is a classic ECB play of the kind we have seen so many times over the last three years,” said Andrew Roberts, credit chief at RBS. “There is huge smoke and mirrors at the time of the announcement, but when you go through the figures 24 hours later you realise it is nothing like what you thought.”
The delirious reaction of market traders is interesting, but essentially just noise. What the ECB did will not move the macroeconomic dial by one iota.
As Christian Schulz from Berenberg Bank puts it, the latest rate cuts are a screen to “paper over divisions”.
The ECB could not secure German political consent for genuine reflation, so it put on a pantomime instead.
The new measures add little to what was already on the table in June. Some are marginally helpful, some trivial, with a shocking lack of detail about the one point that really matters.
The ECB has had years to plan asset purchases (QE Lite), yet Mr Draghi dodged all questions about the scale. You might conclude that there is still no real agreement on the course of action. Little wonder since Germany’s member of the ECB board – Sabine Lautenschlaeger – said only two months ago that QE is unthinkable except in an “emergency”, and no such emergency exists.
By default, the ECB is making the same mistake as the Bank of Japan in its dog days, trying to buy time with half measures, hoping that global recovery will lift Europe off the reefs without anything being done. They may get away with this, but there is a very high risk that Europe will instead remain trapped in mass unemployment, with ever rising debt ratios.
---- Mr Draghi said he hopes to “significantly stir” the ECB’s balance sheet back towards the levels of 2012 (€3.1 trillion). That means a €1 trillion boost, and there begins the first big confusion. Much of this will be in the form of cheap loans to banks (TLTROs) in exchange for collateral.
As the IMF said earlier this
summer, this not remotely akin to QE. The ECB is not taking the risk on its own
balance sheet. The monetary mechanism is entirely different, and far less
powerful.
---- Nor is it clear how much the ECB can really do since Mr Draghi made a throw away comment that it would buy only “high quality” assets. “It’s absolutely pointless. There is no point bothering if they are not going to take any of the bad stuff off bank’s balance sheets,” said Mr Roberts from RBS.
As for the ten basis point cut in
the main interest rate to 0.05pc, it will make no difference, beyond ensuring
that banks turn up to bid at the first TLTRO auction later this month rather
than waiting until December. Michael Kemmer from the German BDB banking
federation says the impact will be “negligible”.
Georg Fahrenschon from German’s
savings bank association called it “interest rate cosmetics”, warning that the
“latest mini-steps will achieve nothing”. They merely underscore that the ECB
has shot its bolt.
----The ECB is twisting itself in
knots, undertaking ever more complicated operations because it will not bite
the bullet and launch plain vanilla QE, a €1 trillion blitz of sovereign bond
purchases, starting immediately, and with no ifs and buts.
It is not doing this because
Germany has a de facto veto, and everybody knows that there will be a challenge
filed at the German constitution court the moment any such action is taken.
This is not a criticism of Germany. I entirely agree with German patriots who
say that QE is fiscal union by the backdoor and an assault on the budgetary
prerogatives of the Bundestag, an evisceration of German democracy. It is a
criticism of the irredeemably hopeless construction of monetary union. My
argument has always been that EMU should be dismantled because it is a creeping
danger to democracy.
If the brilliant Mr Draghi were
running a real central bank, he would simply carry out old-fashion open-market
operations – with an eight hundred year history – and keep buying assets on
whatever scale is needed to meet the ECB’s 2pc inflation target. Instead he
running a zoo. He is forced by abominable circumstances to blow smoke in our
eyes. He is good at it though.
More"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."
William F. Rickenbacker
The monthly Coppock Indicators finished Aug.
DJIA: +152 Down. NASDAQ: +312 Down. SP500: +231 Down.
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