Baltic Dry Index. 1119 -18 Brent Crude 70.86
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
“It was the best of times, it was the worst of
times, it was the age of wisdom, it was the age of foolishness, it was the
epoch of belief, it was the epoch of incredulity, it was the season of light,
it was the season of darkness, it was the spring of hope, it was the winter of
despair.”
The
Talking Chair, with apologies to Charles Dickens.
With the price of Brent crude oil now yo-yoing around $70 a barrel, the
collapsing price of commodities is wreaking havoc in emerging market debt,
corporate and national. A black swan has flown in, generating chaos in the
central banksters best laid plans to Ponzi their way out of the Great Bust of
2007-2009. It’s all starting to go very off Keynesian script.
Just don’t let on
to the very disconnected global stock markets, who are now betting on a massive
boost from lower oil prices, plus yet more QE from the Fed and an initial round
of monetisation from the ECB.
Emerging Market Distressed Debt Loses Most Since 2008
Dec
2, 2014 8:26 AM GMT
Losses in emerging market distressed debt have mounted to the worst since
the global financial crisis led by Indonesian coal miner PT Bumi Resources and
ZAO Russian Standard Bank. Bank of America Merrill Lynch’s distressed emerging markets corporate index tumbled 2.7 percent yesterday after a 5.6 percent drop in November. The gauge, which tracks 108 dollar-and euro-denominated debentures from Russia to China and Brazil, has retreated 9.8 percent this year, the most since a 36.8 percent slide in 2008.
A glut in coal and iron ore, plunging oil prices and sanctions against Russia are pushing more companies to the brink of default. Hedge funds are shutting at a rate not seen since the credit crunch amid disappointing returns while the International Monetary Fund forecasts the global economy will expand 3.8 percent in 2015, below the boom years of 2004 to 2007, when growth was 4.9 percent or more.
“It’s a very bloody environment for most of the small- and mid-sized commodity players,” Heo Joon Hyuk, the New York-based head of global fixed income at Mirae Asset Global Investments Co., said by e-mail today. “And Russian corporates have one more burden above falling commodities -- funding restrictions.”
The losses in emerging markets mirror weakness in distressed debt worldwide as concerns mount that economic growth is slowing globally. Bank of America’s U.S. distressed high yield index, which tracks 195 dollar bonds from North America to Australia, has declined 14.9 percent this year, on track for the worst performance since a 44.9 percent slump in 2008.
Moody’s Investors Service cut its outlook for Russian Standard Bank to negative from stable in October, citing its “deteriorating asset quality” and first-half net losses that reflected its high provisioning charges for problem loans.
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In the dying EUSSR, add Great Britain to the list of sick EU nations Germany must soon bail out, says French bank SocGen. That just leaves Germany to bailout Belgium, France, Great Britain, Holland (the country not the French love rat,) Italy, Spain plus all the other odds and sods of continental Europe. Of course, for Germany to attempt to bail out Great Britain, GB and Germany have to still be in the EUSSR. When the next bust hits, I suspect that rather than try, Germany will exit the wealth destroying euro.
French bank dumps British assets, contrasts UK sclerosis with Francois Hollande miracle
'The UK cannot compete anymore. There has been zero structural reform,' says Société Générale
France’s Société Générale has
advised clients to liquidate British assets and dump sterling before the
elections, warning that the UK is badly governed and increasingly prone to
political risk.
“So far there has been zero
structural reform and no improvement in the twin deficits or exports despite a
significant devaluation of the currency. We are concerned,” it said.
Alain Bokobza, head of the French
bank’s global asset team, said much of Britain’s growth is driven by excess
leverage and a housing bubble. “This is due to lax monetary policy that needs
tightening. It is not sustainable,” he said.
The fact that the country is
still running a budget deficit of 5.5pc of GDP so late into the cycle - at a
stage when growth is mature, and should be generating a cascade of tax revenues
- means the economy is fundamentally out of kilter. The UK risks falling afoul
of markets once sentiment changes.
The irony of a French bank
blasting Britain for failing to implement supply-side reforms might cause a few
smiles in Paris, where socialist president Francois Hollande is pushing through
a raft of Thatcherite reforms against bitter opposition. The bank insists that
France is the new reform champion in Europe, and may soon leave Germany
languishing in inertia.
Société Générale said it may be a
treacherous time for global markets as liquidity drains away. “While in 2014,
the Fed still injected $460bn, nothing will be injected in 2015, and the Fed
will almost certainly hike rates. We expect a hiccup in global equity markets.”
Mr Bokobza said it is ominous
that the sterling crash in 2008-2009 has done so little to boost to exports, or
drive import substitution. Five years later, Britain is running a current
account deficit of 5.2pc of GDP.
This is the worst of any major
country in the world, and arguably the worst in Britain's modern peacetime
history, despite reassuring words from the Bank of England. “The numbers speak
for themselves. The UK cannot compete anymore and this shows Britain is in need
of structural reform,” he said.
Mr Bokobza said UKIP’s surge
“from victory to victory” has thrown the UK into political turmoil and sharpens
the market risk of EU withdrawal. He sees three likely outcomes in the general
elections in May, and none of them is appetising for global investors: a Labour
victory that implies a bigger state; a hung Parliament that would make it even
harder to cope with Britain’s twin deficits; or a Tory victory that brings the
UK closer to withdrawal from the EU. “We advise pension funds. We don’t gamble
with money,” he said.
It is already clear from
derivatives contracts that hedge funds have Britain in their sights. “There has
been a change of ambiance. The first point of attack for speculators is in the
currency market and we can see that there has been a switch to net short
positions,” he said.
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What actually happens when the next bust hits, might be something coming sooner than our complacent stock markets think. Interest rates seem to be tightening.
Five reasons why markets are heading for a crash
Hold onto your hats. Stock markets look much as they did in 2000 and 2007
Many stock markets are close to
their all-time highs, the oil price is plummeting, delivering a significant
boost to Western and Asian economies, the European Central Bank is getting
ready for full-scale sovereign QE – or so everyone seems to believe - the
American recovery is gaining momentum, Britain is experiencing the highest rate
of growth in the G7, God is in his heaven and all’s right with the world. All
good, then?
No, not good at all. I don’t want
to put a dampener on the festive cheer, but here are five reasons to think
things not quite the unadulterated picture of harmony and advancement many
stock market pundits would have you believe.
The first reason to worry is the
curiously juxtaposed state of asset prices, with generally buoyant equities but
falling sovereign bond yields and commodity prices. They cannot both be right.
High equity prices are – or at least, should be - indicative of investor
confidence and optimism. Low bond yields and falling commodity prices point to
the very reverse; they are basically a sign of emerging deflationary pressures
and a slowing economy. If demand was really about to roar away, both would be
rising along with equities, not falling. The markets have become a kind of
push-me-pull-you construct. They look both ways at the same time.
Yet this is no mere anomaly.
There is a good reason for these divergent asset prices – pumped up by central
bank money printing, abundant cash is desperate for fast vanishing yield, and
is chasing it accordingly. Spanish sovereign debt might have looked a good buy
a couple of years back, when the yield still factored in the possibility of
default.
But today, the yield on 10-year
Spanish bonds is less than 2pc. In Germany, it’s just 0.7pc, not much more than
Japan, which has had 20 years of stagnation and deflation to warp the
traditional laws of investment. If it is yield you are after, sovereign debt
markets are again exceptionally poor value, barely offering a real rate of
return at all. Commodities were the next port of call, but that game too seems
to be up.
The much trumpeted commodities
super-cycle has taken a giant lurch down, leaving hundreds of billions of
dollars in debt, extravagantly plunged into new reserves during the boom,
stranded by the receding tide.
With bonds and commodities having
run their course, equities and property have become the asset classes of last
resort. Any damage done to stock markets by the collapse in oil and mining
shares has been more than made up for by the boom in pharmaceutical and
technology stocks. Abundant buybacks and gushing dividends from companies that
cannot think of a productive use for the money have fed the frenzy.
More
Russian Woes Worsen as Recession Looms With Banks in ‘Panic’
Dec 2,
2014 3:59 PM GMT
Russia’s economic crisis
deepened as the government acknowledged it’s heading for recession and a former
central banker spoke of “some panic” in the financial system as oil prices
plunged.
Speaking a day after President Vladimir Putin said Russia is scrapping a proposed $45 billion pipeline to Europe, the government predicted the economy will contract next year and canceled a bond auction. It was also forced to pledge 39.95 billion rubles ($740 million) to support OAO Gazprombank, at least the third lender to secure a capital injection since U.S. and European Union sanctions curbed their ability to borrow.
The economy is succumbing to penalties imposed over the conflict in Ukraine as the plummeting ruble stokes inflation and a 30 percent drop in oil prices erodes export revenue. Russia may enter its first recession since 2009 in the first quarter, according to Deputy Economy Minister Alexei Vedev.
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China’s Bonds Extend Declines as Auction Yield Exceeds Estimates
Dec 3, 2014 5:11 AM GMT
China’s
bonds extended declines after the government sold debt at a higher yield than
analysts forecast, a sign of weakening demand for the securities. The Ministry of Finance auctioned seven-year notes to yield 3.60 percent today, according to a trader at a firm that participates in the auctions. The median estimate of five analysts and traders surveyed yesterday by Bloomberg was for a 3.44 percent rate, and the highest projection was 3.46 percent. Similar-maturity bonds yielded 3.49 percent in the secondary market on Dec. 2, ChinaBond data show.
The yield on sovereign bonds due September 2024 rose six basis points to 3.64 percent as of 12:55 p.m. in Shanghai, increasing for a third day, prices from the National Interbank Funding Center show.
“Demand is not good,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank Co. in Guangdong province. “Banks are setting aside more cash for year-end, and at the same time there is heavy profit-taking in the secondary market. Some investors are also shifting into stocks.”
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Fed Officials Stress Data Over Dates as Rate Rise Case Builds
Dec 3, 2014 5:01 AM GMT
Federal Reserve officials are signaling more confidence in the economy that
moves them nearer to raising interest
rates, and are stressing the liftoff is linked to data rather than
dates to avoid unsettling markets. Fed Vice Chairman Stanley Fischer said yesterday the central bank was getting closer to replacing a vow to hold rates low for a “considerable time” with guidance that tighter monetary policy will hinge on the economy’s performance.
The Federal Open Market Committee is embarking on a critical phase in its seven-year battle with a financial crisis, a recession and a sub-par recovery. If the economy keeps improving, officials will need to signal to investors that they’ll raise the federal funds rate without sending bond yields higher and slowing growth.
“FOMC members are a little bit challenged by the fear that they don’t want to rattle markets,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “It makes sense for them to proceed with caution.”
The policy-setting FOMC next meets on Dec. 16-17 and officials are expected to debate retaining their “considerable time” commitment. Officials have kept the rate pledge in place since their March meeting.
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Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.
John Kenneth Galbraith
At the Comex silver
depositories Tuesday final figures were: Registered 64.68 Moz, Eligible 113.29
Moz, Total 177.97 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today it’s Uncle Scam in the dock. As the Great
Nixonian Error of fiat money, nears its anarchic end, what passes for modern
money will end in revulsion.
Money,
again, has often been a cause of the delusion of the multitudes. Sober nations
have all at once become desperate gamblers, and risked almost their existence
upon the turn of a piece of paper.
Charles
Mackay. Extraordinary Popular Delusions and the Madness of
Crowds
Amount Of Treasury Debt Issued In Last Eight Weeks——$1.040965 Trillion!
by Contributor • December 1, 2014
By Terrence P. Jeffrey at cnsnews.comThe Daily Treasury Statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.
During those eight weeks, Treasury took in $341,591,000,000 in revenues. That was a record for the period between Oct. 1 and Nov. 25. But that record $341,591,000,000 in revenues was not enough to finance ongoing government spending let alone pay off old debt that matured.
The Treasury also drew down its cash balance by $45.057 billion during the period, starting with $126,568,000,000 in cash and ending with $81,511,000,000.
The only way the Treasury could handle the $942,103,000,000 in old debt that matured during the period plus finance the new deficit spending the government engaged in was to roll over the old debt into new debt and issue enough additional new debt to cover the new deficit spending.
This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme. “A Ponzi scheme,” says the Securities and Exchange Commission, “is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” says the Securities and Exchange Commission.
“With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” explains the SEC. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”
In testimony before the Senate Finance Committee in October 2013, Lew explained why he wanted the Congress to agree to increase the federal debt limit—and why the Treasury has no choice but to constantly issue new debt.
“Every week we roll over approximately $100 billion in U.S. bills,” Lew told the committee. “If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.”
“There is no plan other than raising the debt limit that permits us to meet all of our obligations,” Lew said.
“Let me remind everyone,” Lew said, “principal on the debt is not something we pay out of our cash flow of revenues. Principal on the debt is something that is a function of the markets rolling over.”
The vast amount of debt that the Treasury must roll over in such a short time frame is driven by the fact the Treasury has put most of the debt into short-term “bills” and mid-term “notes”—on which it can pay lower interest rates—rather than into long-term bonds, which demand significantly higher interest rates.
At the end of October, according to the Treasury’s Monthly Statement of the Public Debt, the total debt of the federal government was $17,937,160,000,000.
Of this, $5,080,104,000,000 was what the Treasury calls “intragovernmental” debt, which is money the Treasury has borrowed and spent out of trust funds theoretically set aside for other purposes—such as the Social Security Trust Fund.
The remaining $12,857,056,000,000 was “debt held by the public.” This part of the debt included $517,029,000,000 “nonmarketable” Treasury securities (such as savings bonds) and $12,340,028,000,000 in “marketable” Treasury securities, including bills, notes, bonds and Treasuring Inflation-Protected Securities.
But only $1,547,073,000,000 of the $12,857,056,000,000 in marketable debt was in long-term Treasury bonds that mature in 30 years. These bonds carried an average interest rate of 4.919 percent as of the end of October, according to the Treasury.
The largest share of the marketable debt–$8,192,466,000,000—was in notes that mature in 2,3,5,7 or 10 years, and which haf an average interest rate of 1.807 percent as of the end of October.
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“The Germans [your nation here] outside
looked from America to Russia, and from Russia to America, and from America to Russia
again; but already it was impossible to say which was which.”
With apologies to George Orwell and
Animal Farm.
The monthly Coppock Indicators finished November.
DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.
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