Baltic Dry Index. 1181 -05
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.
Walter Bagehot. Lombard Street. 1873
So how well does a house of cards hold up when the
ground begins to wobble? Stick around we are about to find out, it seems to me.
But first this earthquake.
German Anti-Euro Party Advances in Merkel Homeland Voting
Sep 14,
2014 11:00 PM GMT
Germany’s anti-euro party swept into two eastern state parliaments,
expanding its challenge to Chancellor
Angela Merkel in a region mostly dominated by her Christian Democrats since
the Berlin Wall
fell 25 years ago. As Alternative for Germany drew protest voters from across the political spectrum, Merkel’s party was within reach of holding Thuringia and the Social Democrats won re-election in Brandenburg in regional elections yesterday, according to projections by public broadcasters ARD and ZDF.
Alternative for Germany, founded last year with a platform of dismantling the euro area, was projected to take 12 percent in Brandenburg and 10 percent in Thuringia. The party, known as AfD, won its first state parliament seats in Saxony last month.
“This gives us huge momentum,” party leader Bernd Lucke said in televised comments. “We won’t just sit back and let the other parties spout their empty rhetoric.”
More
The next Lehman was out there, even before the
EUSSR decided to commit suicide and follow America’s lead and impose sanctions
on Russia for reacting to Uncle Scam’s murderous botched Kiev coup. With the
sanctions all too likely to blow up continental Europe, the Basel based BIS is
now warning about an alarming approaching crisis in emerging market debt.
It all goes “BOOM” if interest rates rise or the
dollar strengthens. Two highly probable events, all too likely now to happen
simultaneously. The UK seems about to split up, weakening Sterling along the
way. US sanctions on Russia will have a negligible impact on the USA, but
that’s not true about the Eurozone sanctions. Russian blowback is very likely to
crater the euro and continental Europe. A massive dollar rally looks likely to do
in everyone else.
Our QE and ZIRP house of mal-investment cards is
about to get shaken and stirred. Pretty soon “the next Lehman” is about to come
crashing out of the trees, OGX style. Never heard of OGX? Scroll down. Deficits
didn’t matter until one day suddenly they did. QE and ZIRP don’t matter until
one day they will, is the message now coming out from the BIS. The funny thing
about houses of cards is just how fast they collapse. Not to worry, the Yellen
Put is still there, right?
BIS Sees Bond Risks as Emerging-Market Company Debt Matches GDP
Sep 14, 2014 11:00 AM GMT
International borrowing by companies in some emerging markets now
matches the output of their economies, leaving bondholders more vulnerable to
interest rate or currency shocks, according to the Bank for
International Settlements. Borrowers from Brazil to China may need to refinance about $90 billion next year and as much as $130 billion by 2017-2018, economists Michael Chui, Ingo Fender and Vladyslav Sushko wrote in the BIS Quarterly Review. That may be challenging should the dollar strengthen and domestic economies slow, they said.
Companies in developing countries issued almost $375 billion of international debt between 2009 and 2012, more than double the amount sold in the four years before the 2008 financial crisis, according to the Basel-based BIS. Higher rates or weaker currencies could push up bond yields which in turn would hold back growth, damaging issuers, economies and bondholders including international investors and local banks.
“Rising interest rates and depreciating exchange rates will tend to raise the cost of servicing these debts, denting profits or depleting capital cushions unless appropriate hedges are in place,” the BIS economists wrote. “Stress on corporate balance sheets could rapidly spill over into other sectors, inflicting losses on the corporate debt holdings of global asset managers, banks and other financial institutions.”
More
Russians Skip Riviera Jaunt as Sanctions Ground Private Jets
Sep 12, 2014 10:11 AM GMT
For years, Nice Cote d’Azur airport received a steady stream of
wealthy Russians touching down in corporate jets on their way to holiday homes
on the French Riviera. As the Ukraine crisis deepens, that’s begun to change. European Union sanctions curbing travel for leading Russian business people and politicians have started to bite, causing private-aircraft flights from Moscow to Nice to drop 5 percent in the seven months through July, the first fall since 2009.
“A lot of Russians bought property in the south of France, they love to come here,” said Umberto Vallino, head of business aviation development for Nice, Cannes and St. Tropez airports. “This is the first year we’ve noticed a reduction in traffic.”
----The decline in Moscow-Nice flights reached 9 percent in June, he said, while research from business aviation consultant WingX Advance shows the number of services from the Russian capital’s Sheremetyevo airport to the French city fell by 32 in the year through August, with 13 fewer flights from nearby Domodedovo and 25 fewer from St. Petersburg’s Pulkovo hub.
Operations from Moscow Vnukovo to Geneva and Zurich in Switzerland have also declined, with the routes showing drops of 49 and 30 flights respectively versus a year earlier, and there have been 36 fewer services to London Luton, according to WingX. Some other routes have shown gains, including Vnukovo to Vienna, Paris Le Bourget and Farnborough, southwest of London.
----“If the situation continues to escalate there’s a danger that the Russians will stay away completely,” Jens Dreyer, managing director at Frankfurt-based Aviation Broker GmbH, said in an interview. “Without them, everything will go down the drain. They’re the driving force in the industry.”
Dreyer, whose company arranges
more than 1,000 flights a year, said he rates Moscow Vnukovo “the most
important airport for business aviation in Europe.
----With summer visits to the French Riviera on the decline, Alpine ski trips similarly popular with Russian private jet customers are also facing a slump, Geneva Airport CEO Robert Deillon said in an interview.
“I don’t know if we will see many
Russians in Courchevel this winter,” he said.
More
Ex-Billionaire Charged by Brazil With Financial Crimes
Sep 13, 2014 9:40 PM GMT
Brazilian federal prosecutors in Rio de Janeiro state accused former
billionaire Eike Batista
of financial-market crimes and are seeking to freeze his assets. The charges of insider trading and market manipulation carry jail sentences in Brazil of as much as 13 years, according to a statement posted on the office’s website. The freeze could affect assets valued at as much as 1.5 billion reais ($641 million), and may include homes, cars, boats, airplanes and financial holdings, the statement said.
Sergio Bermudes, a civil lawyer who says he is coordinating Batista’s judicial affairs, said he expects a “long proceeding where you have a defendant who will have a chance to produce all evidence.”
“From what I have read, they are groundless,” Bermudes, referring to the charges, said in a telephone interview from Rio de Janeiro. “I believe that there has been a wrong interpretation of facts.”
Once the world’s eighth-richest person, Batista’s commodities empire collapsed last year, led by flagship Oleo & Gas Participacoes SA, formerly known as OGX. The Rio de Janeiro-based company filed for bankruptcy protection in October after spending more than 10 billion reais since it was founded in 2007. Batista’s shipbuilding company has also entered Brazil’s judicial-recovery process.
Prosecutors accused Batista of using privileged information in the sale of OGX stock. The alleged market manipulation refers to a so-called $1 billion put option the entrepreneur pledged that was never exercised.
Batista, 57, is already accused by the country’s securities regulator of insider trading over his sale of shares in the oil company before its downfall. Batista’s lawyers have said he sold the shares to pay back creditor Mubadala Development Co. and not because he anticipated project failures, according to a document obtained by Bloomberg.
The 1.5 billion reais is approximately equal to the damage to financial markets as a result of the crimes he’s accused of, according to prosecutors.
In the “what do they know that we don’t”
department. The UK, soon to be rUK?, is about to issue Yuan bonds. Well they’ve
got to be safer than “Gilts” if the Union splits, right?
U.K. to Sell First Yuan-Denominated Bonds for Currency Reserves
Sep 12, 2014 5:45 PM GMT
The U.K. government plans to sell the world’s first non-Chinese sovereign
bond denominated in renminbi,
to finance the nation’s foreign-currency reserves. The issue is a “real landmark in the development of the renminbi as an international currency,” Chancellor of the Exchequer George Osborne said today at a press conference in London after talks with Chinese Vice Premier Ma Kai.
The U.K. in June became the first European nation to sign an accord with China to allow the direct exchange of the renminbi, or yuan, for British pounds. Sterling is the fifth major currency to trade directly against the yuan in Shanghai, joining the Australian and New Zealand dollars, the Japanese yen and the U.S. dollar. China is trying to strengthen commercial relations with countries including the U.K. as it seeks to expand trade.
The Bank of England will act as the Treasury’s agent for the sale, which will take place in “coming weeks and months” subject to market conditions, according to a statement on its website. The BOE invited banks to join the syndicate for the sale, which is intended to be a one-time issuance of “benchmark size.”
The yuan was set at 9.9799 per pound at 4:18 p.m. London time, according to the China Foreign Exchange Trade System. More than 60 percent of yuan payments outside China are made in London, the U.K. Treasury said March 26, citing data from the Society for Worldwide Interbank Financial Telecommunication, known as SWIFT.
More
China Factory-Output Slump Tests Premier Li’s Resolve
Sep 13, 2014 5:01 PM GMT
China’s industrial
output rose at the weakest pace since the global financial crisis and
fixed-asset investment growth trailed projections, adding to evidence the
world’s second-biggest economy is losing momentum. Factory production rose 6.9 percent from a year earlier in August, the National Bureau of Statistics said yesterday in Beijing, compared with 9 percent in July and the 8.8 percent median estimate in a Bloomberg News survey. Retail sales gained 11.9 percent and fixed-asset investment in the January-August period increased 16.5 percent.
The data signal the impact of China’s property slump on the economy is deepening, with the decline in home sales accelerating last month and electricity output falling for the first time since 2009. The slowdown will test Premier Li Keqiang’s reluctance to spur growth with monetary stimulus, as risks multiply to his 2014 expansion goal.
“Li should be worried if he’s serious about meeting his 7.5 percent target,” said Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “For the sake of his credibility, he may want to use further policy levers to achieve his target,” such as lowering reserve requirements for the country’s largest banks, Liu said.
More
Li’s Options Narrow as China Growth Slowdown Deepens
Sep 15, 2014 3:56 AM GMT
Chinese Premier Li Keqiang’s options have narrowed: stimulate or miss his
2014 growth target. The weakest industrial-output expansion since the global financial crisis, and moderating investment and retail sales growth shown in data released Sept. 13, underscore the risks of a deepening economic slowdown led by a slumping property market. Stocks, metals and currencies including the Australian dollar fell as analysts cut their forecasts for 2014 growth.
“This is a pretty important wakeup call that they need to do more,” said Helen Qiao, chief Greater China economist at Morgan Stanley in Hong Kong. “The government is trying very hard to reach this particular target rate, which will not necessarily be mission impossible if they roll out more easing measures starting from now. The risk is they could underestimate how much more easing tools they need.”
The slowdown in August economic data that included a second straight decline in imports and a 40 percent drop in the broadest measure of new credit will test Li’s resolve to avoid stronger monetary stimulus to meet his 7.5 percent goal.
More
http://www.bloomberg.com/news/2014-09-14/li-s-options-narrow-as-china-growth-slowdown-deepens.html
We end for
today with a warning from the past for Bonnie Scotland. Split, and the
BOE stops singing “You’ve got a friend in me.”
A
permanent Governor of the Bank of England would be one of the greatest men in
England. He would be a little 'monarch' in the City; he would be far greater
than the 'Lord Mayor.' He would be the personal embodiment of the Bank of
England; he would be constantly clothed with an almost indefinite prestige.
Everybody in business would bow down before him and try to stand well with him,
for he might in a panic be able to save almost anyone he liked, and to ruin
almost anyone he liked. A day might come when his favour might mean prosperity,
and his distrust might mean ruin. A position with so much real power and so
much apparent dignity would be intensely coveted.
Walter Bagehot. Lombard Street. 1873
At the Comex silver depositories Friday final figures were: Registered 63.69 Moz,
Eligible 118.15 Moz, Total 181.84 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, what happens next in the UK come Friday after Scotland votes the Union up or down. I suspect that if the Scots vote “No,” meaning yes to the Union, “Wee Ecks” Nats will merely move on to the Canadian “never-endum.” Voting every few years until they either win or get chucked out by rUK tired of the whole thing. My solution to a Yes vote i.e. no more Union, have Parliament dissolve the Union for Scotland at midnight December 31, 2014. Then hold elections in rUK, and Scotland if they want, and let the new governments negotiate the terms of the split at their leisure. Set up a Commonwealth arbitration panel to decide on contentious issues. (What if Scotland, like Greenland, considered joining Canada!)
Below, the Sassenach Telegraph takes a shot at what comes next after all the votes are counted north of the border.
Scottish independence: whichever way the vote goes, Britain will be changed for ever
The political and economic fallout of the referendum will be profound. The Telegraph's Political Correspondent outlines a few possible outcomes in the event of a Yes or No
By Tim Ross 7:00PM BST 13 Sep
2014
What next for Scotland if the
vote is Yes?
Once the empty bottles have been
cleared away after Alex Salmond’s victory party, attention will move to
negotiations with London over the terms on which Scotland will separate from
the rest of the UK.
Legally, David Cameron is under
no obligation to agree to any of Mr Salmond’s specific demands, which will be
complex and lengthy, and are expected to involve teams of hundreds of legal
advisers and officials on both sides.
The Scottish government would
also need to enter negotiations with the European Union and the United Nations,
among others, as it seeks to carve out a new space for Scotland on the world
stage.
MPs would be asked to repeal the
1707 Acts of Union before passing a Bill granting Scotland independence from
the UK on the terms agreed in the negotiations.
Mr Salmond has proposed that
Scotland would attain full independence from the UK on March 24, 2016. If he
succeeds, the elections for the Scottish parliament on May 5, 2016 would
establish the first government of the newly independent country.
What next for Scotland if the
referendum result is No?
If the union survives Thursday’s
plebiscite, it seems clear that in some important ways it will never be the
same again.
All three Westminster parties
have promised more devolution to Holyrood, including sweeping new powers to set
income tax levels, outlined by Gordon Brown.
There are many on the pro-union
side, however, who fear that the scars of the divisive referendum will take
decades to fade. One Conservative MP said the union would be “like a damaged
marriage”.
If Scotland votes No by a narrow
majority, the independence issue is unlikely to recede for long. Mr Salmond may
seek a fresh mandate for a new referendum in a few years’ time, the so-called
“never-endum” scenario.
What next for the economy if the
vote is Yes?
Major companies and banks –
motivated by nothing other than their own business prospects – have drawn up
plans to flee Scotland if it votes to leave the UK.
Banks, ranging from the Japanese
giant Nomura to the Royal Bank of Scotland, have taken steps to insulate
themselves from the fall-out from a Yes vote. There are plans to relocate
offices and substantial funds are already being moved.
The pound slumped on the
international markets in the wake of polls showing a surge in support for the
Yes campaign and almost £1.24 billion has already been taken out of British
equity funds amid the uncertainty over Scotland’s future.
These pre-vote jitters – on the
strength of a few polls – will pale in comparison with the market mayhem that
would be unleashed in the event of a Yes vote.
If Scotland is allowed to keep
the pound in a currency union, as Mr Salmond believes it will be, major
questions will be placed over the UK’s economic outlook.
If Scotland is denied a currency
union, Mr Salmond has vowed not to pay Scotland’s share of the UK’s debt. This
would push the remainder of the UK’s debt up to an estimated 85 per cent of
national income. Analysts say this would make it more difficult for the UK to
regain its AAA credit rating. It would also make it harder for an independent
Scotland to borrow.
What next for the economy if No?
While many executives will
breathe a sigh of relieve, the idea that everything would carry on as before
may be optimistic.
Much depends on how big a No vote
the electorate delivers. A narrow majority against independence of less than
five per cent, which seems entirely possible, may not be decisive enough to
close down the questions over Scotland’s future for long.
Businesses hate uncertainty and
some fear that lingering doubts could damage the UK’s recovery. It remains to
be seen whether the hundreds of millions of pounds that have flowed out of
Scottish investments in recent weeks would return, and how quickly.
More
Below, it’s an ill wind and all that.
Scottish Independence Could Be Boost for London Property
Sep 15, 2014 12:01 AM GMT
London’s property market
could benefit if Scotland
votes for independence and some financial institutions decide to relocate to
the U.K., according to Rightmove Plc. London would be a “logical destination, creating extra employment and knock-on demand for homes,” Rightmove said in its monthly house-price survey today. The report showed asking prices for homes in the capital rose 0.9 percent in September from August, ending three months of declines.
Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc said last week they plan to move their legal bases to England if Scotland votes for independence on Sept. 18. The latest polls show the referendum result is too close to call.
“Whilst it’s all speculation at present, the drop-off in foreign-based buyers could be replaced in part by individuals and companies moving out of an independent Scotland,” said Miles Shipside, a director at Rightmove. “Their funds and target price brackets may not be as high as those of overseas investors, but could they nevertheless put a further strain on the capital’s limited housing supply?”
More
The
mercantile community will have been unusually fortunate if during the period of
rising prices it has not made great mistakes. Such a period naturally excites
the sanguine and the ardent; they fancy that the prosperity they see will last
always, that it is only the beginning of a greater prosperity. They altogether
over-estimate the demand for the article they deal in, or the work they do.
They all in their degree—and the ablest and the cleverest the most—work much
more than they should, and trade far above their means. Every great crisis
reveals the excessive speculations of many houses which no one before
suspected, and which commonly indeed had not begun or had not carried very far
those speculations, till they were tempted by the daily rise of price and the
surrounding fever.
Walter Bagehot. Lombard Street. 1873
The monthly Coppock Indicators finished Aug.
DJIA: +152 Down. NASDAQ: +312 Down. SP500: +231 Down.
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