Thursday 18 December 2014

“Patience.”



Baltic Dry Index. 827 -11   Brent Crude 61.30

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

When you want to fool the world, tell the truth.

Count Otto von Bismarck.

The Fed’s talking chair spoke, and the S&P 500 surged. No doubt goosed  by the NY Fed terrified of the December stock meltdown and the coming oil patch bust for early next year. This time round, the Fedster’s message was “muddled.”  2004s “considerable period” had morphed into 2013-2014s “considerable time,” according to Bloomberg, but yesterday the Fed used the dreaded code word “patient,” last used in 2004 followed 3 months later by a rate hike. The New York Fed and the Wall Street Squids might be baiting and switching for the last of the greater fools. An oil bust sinks all ships. Smart money continues to exit stocks.

Below, the state of our rigged markets this morning. Brent crude has bounced about 3 dollars from its early week lows. Are the Fedster’s now trying to rig oil for Mr. Putin and those deeply indebted American frackers?

Never believe anything in politics until it has been officially denied.

Count Otto von Bismarck.

Russian Crisis Spillover to U.S. Economy Likely to Be Small, Yellen Says

By Matthew Boesler and Jeff Kearns Dec 17, 2014 8:38 PM GMT
Federal Reserve Chair Janet Yellen said today that she and her colleagues discussed Russia’s economic crisis at this week’s policy meeting and agreed it would have little impact on the U.S. economy.

“We discussed what the potential spillovers are to the United States, which could occur both through trade and financial linkages, but these linkages are relatively small,” she said at a press conference after a meeting of the Federal Open Market Committee in Washington.

“U.S. banks’ exposure to Russian residents is really quite small in terms of relative to their capital,” Yellen said. “In terms of the portfolios of U.S. residents, there are Russian securities, but they account for a very small share.”
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Asian Stocks Rise After S&P 500 Surges on Fed; Oil Swings

By Emma O’Brien and Nick Gentle Dec 18, 2014 5:08 AM GMT
Asian stocks climbed, with the regional benchmark index rebounding from an almost nine-month low, after a Federal Reserve pledge to be patient on interest-rate increases sent U.S. equities up the most since 2013. Precious metals advanced and oil swung between gains and losses.

The MSCI Asia Pacific Index advanced 0.8 percent by 2:06 p.m. in Tokyo, as Hong Kong’s Hang Seng Index (HSI) climbed from its lowest since May and Japan’s Topix index headed for its biggest gain in a month. Standard & Poor’s 500 Index futures slipped 0.1 percent after the U.S. gauge jumped 2 percent, erasing about half of its December drop. Crude oil traded at $56.41 a barrel in New York. South Korea’s won fell 0.7 percent versus the dollar and China’s yuan was at the weakest since July. Gold climbed 0.6 percent.
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Yellen Makes It Clear That Fed’s Patience on Rates Has Limits

By Rich Miller Dec 18, 2014 1:11 AM GMT
Federal Reserve Chair Janet Yellen restored clarity to the central bank’s monetary policy plans, saying it was on course to raise interest rates, though not right away, after officials issued a statement that some Fed-watchers found confusing.

Yellen told reporters following a two-day meeting that the Fed is likely to hold rates near zero at least through the first quarter. She also laid out the economic parameters that would need to be met for liftoff to begin later in the year and said that rates probably would be raised gradually thereafter. They may not return to more normal levels until 2017, she added.

“The statement was a bit clumsy, while I thought Yellen was very clear,” said Eric Green, head of U.S. rates and economic research at TD Securities USA in New York, who formerly worked at the New York Fed.
“The second half of the year we are getting higher rates and the market has to price that in.”

----The Fed said it can be “patient” in its approach to raising the benchmark lending rate from a range of zero to 0.25 percent, where it has been since December 2008. At the same time, policy makers said that language was “consistent” with their prior guidance that rates would be held near zero for a “considerable time” after they ended their asset purchases in October.

“The statement was muddled,” said Eisenbeis, who is now vice chairman and chief monetary economist for Cumberland Advisors in Sarasota, Florida.

The reluctance to drop the previous language completely reflects the difficulty the committee is having in moving away from giving time-based guidance on rates and toward letting economic statistics speak for themselves.
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Fed’s Yellen all but rules out rate hike until April at earliest

Published: Dec 17, 2014 3:51 p.m. ET
WASHINGTON (MarketWatch)—Federal Reserve Chairwoman Janet Yellen on Wednesday all but ruled out an increase in interest rates until April at the earliest.

Yellen said Fed policy makers thought it was “unlikely” the economy would show enough vigor to justify the first rate increase since 2006 “for at least the next couple of meetings.”

Asked how many meetings equals a couple, Yellen was emphatic: two.

The Fed’s next meeting is in late January. After that, the Fed does not meet again until March 17-18.

The third meeting of the year takes place April 28-29, with another strategy session in June.
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Below, an alternate take by America’s leading expert.

I’m Not Buying It——Not The Wall Street Rip, Nor The Keynesian Rap

by David Stockman • December 17, 2014
First comes production. Then comes income. Spending and savings follow. All the rest is debt…….unless you believe in a magic Keynesian ether called “aggregate demand” and a blatant stab-in-the-dark called “potential GDP”.

I don’t.  So let’s start with a pretty startling contrast between two bellwether data trends since the pre-crisis peak in late 2007—debt versus production.

Not surprisingly, we have racked up a lot more debt—notwithstanding all the phony palaver about “deleveraging”.  In fact, total credit market debt outstanding—-government, business, household and finance—-is up by 16% since the last peak—from $50 trillion to $58 trillion. And that 2007 peak, in turn, was up 80% from the previous peak (2001); and that was up 103% from the business cycle peak before that (July 1990).

----Moreover, the virtue of the industrial production index is that it is a measure of physical output, not sales dollars which reflect inflation; or if deflated into “real” terms, the data points are not distorted by Washington’s fudging and finagling of the prices indices.

So how are we doing on production of things the American economy consumes day-in-and-day out?  Well, at the most recent data point for November, production had soared…….all the way back to where it was in January 2003!

That’s right. Domestic output of food and beverages, paper, chemicals, plastics, textiles and finished energy products (e.g. gasoline), to name just a few, has experienced no net growth for nearly 11 years.

----Thus, during the peak-to-peak cycle between 2000 and 2007, industrial production was reported to have generated a modest 1.5% per year growth rate. But that was almost entirely accounted for by construction materials and defense equipment. Production of non-durable manufactured goods during that period, by contrast, expanded at just a 0.2% annual rate.

But, alas, defense production inherently destroyers economic wealth, whether it provides for the national security or not. And the housing and commercial real estate construction boom did not add to permanent output growth and wealth at all; it amounted to a bubble round trip that has gone nowhere on a net basis during the last 11 years. And the graph below which documents this truth is in nominal terms, meaning that real private construction spending for residential housing, offices, retail and other commercial facilities actually declined by 10-15% after inflation during that period.

Stated differently, bubble finance does not create growth; it funds phony  booms that end up as destructive round trips.

Yet, here we are again. The graph below reflects production of oil and gas, coal and other mining products including iron ore and copper. It has soared by 35% since the 2007 peak, and accounts for virtually all of the gain in industrial production ex-utilities over the last seven years.

Yet the plain fact is, the above explosion of mainly oil and gas production did not reflect the natural economics of the free market, and certainly no technological innovation called “fracking”. The later wasn’t a miracle; it was just a standard oilfield production technique that was long known to the industry, if not to CNBC. It became artificially economic during recent years only due to the massive and continuous distortions of both commodity prices and capital costs caused by the world’s central bankers.
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Elsewhere, China is about to start dumping NSA tainted USA technology. Who needs “backdoor” rigged Microsoft, Intel, Cisco, Apple and Google, when local Chinese technology is more secure.  In unintended consequences, the NSA just generated a new Chinese technology industry. It’s a funny old world in our new lawless age. Now Uncle Scam is about to buddy up with communist Cuba.

China is Planning to Purge Foreign Technology and Replace With Homegrown Suppliers

By Bloomberg News Dec 18, 2014 2:50 AM GMT
China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, stepping up efforts to shift to Chinese suppliers, according to people familiar with the effort.

The push comes after a test of domestic alternatives in the northeastern city of Siping that was deemed a success, said the people, who asked not to be named because the details aren’t public. Workers there replaced Microsoft Corp.’s (MSFT) Windows with a homegrown operating system called NeoKylin and swapped foreign servers for ones made by China’s Inspur Group Ltd., they said.

The plan for changes in four segments of the economy is driven by national security concerns and marks an increasingly determined move away from foreign suppliers under President Xi Jinping, the people said. The campaign could have lasting consequences for U.S. companies including Cisco Systems Inc. (CSCO), International Business Machines Corp. (IBM), Intel Corp. (INTC) and Hewlett-Packard Co.

“The shift is real,” said Charlie Dai, a Beijing-based analyst for Forrester Research Inc. “We have seen emerging cases of replacing foreign products at all layers from application, middleware down to the infrastructure software and hardware.”

China is moving to bolster its technology sector after Edward Snowden revealed widespread spying by the U.S. National Security Agency and accused the intelligence service of hacking into the computers of Tsinghua University, one of the China’s top research centers. In February, Xi called for faster development of the industry at the first meeting of his Internet security panel.
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We end with the dying EUSSR. Greece takes the lead again from Great Britain in the rush to the door marked EU exit.

Greece Fails to Gather Support to Elect New President

Dec 17, 2014 10:01 PM GMT
Greece moved a step closer to early elections after Prime Minister Antonis Samaras failed to gather enough support for his nominee in a parliamentary vote for a new head of state.

In voting in Athens yesterday, 160 lawmakers in Greece’s 300-seat chamber backed Samaras’s candidate for the presidency, Stavros Dimas, short of the 200 votes required in the first of three attempts this month. Samaras has 155 lawmakers in his governing coalition and failure to rally enough support for Dimas will lead to the dissolution of parliament.

--- Attention now turns to the second vote on Dec. 23, when Samaras again needs a two-thirds majority to win. If he fails in the third attempt, set for Dec. 29, parliament is dissolved and early elections will be called.

---- With polls putting anti-austerity opposition party Syriza ahead of Samaras’s New Democracy, the prospect of early parliamentary elections has roiled financial markets in Greece, evoking memories of the height of the financial crisis in 2012 when the country’s euro membership was in jeopardy.

“The government’s scaremongering was unsuccessful,” Syriza leader Alexis Tsipras told reporters. Those comments were echoed by Panos Kammenos, head of the opposition Independent Greeks party, who said the “operation to terrorize lawmakers” had failed. Fotis Kouvelis, leader of Democratic Left, said the result “opens the road for new elections.”
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All treaties between great states cease to be binding when they come in conflict with the struggle for existence.

Count Otto von Bismarck.

At the Comex silver depositories Wednesday final figures were: Registered 64.59 Moz, Eligible 110.82 Moz, Total 175.41 Moz.   

Crooks and Scoundrels Corner

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

Below, the reality of the spreading oil bust. Buy the dips of course. This time its different.

People never lie so much as after a hunt, during a war or before an election.

Count Otto von Bismarck.

Loan Gains Erased With Debt Headed for First Loss Since 2008

By Christine Idzelis Dec 16, 2014 9:28 PM GMT
Gains on loans made to riskier U.S. companies have been wiped out for the year and the debt is on track to post its first annual loss since 2008.

The debt has dropped 0.79 percent, with declines this month erasing annual returns that were as high as 2.6 percent in July, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index. Returns were 5 percent last year.

The debt is tumbling along with junk bonds as the plunge in oil prices is making it harder for riskier companies to raise debt. Investors pulled $1.05 billion from loan funds and $1.89 billion from high-yield bond funds last week in the U.S., according to Lipper.

The retreat has reduced speculative-grade bond returns for the year to 0.36 percent through Dec. 15, according to a Bank of America Merrill Lynch index. The debt gained 7.4 percent in 2013.
http://www.bloomberg.com/news/2014-12-16/loan-gains-erased-with-debt-on-track-for-first-loss-since-2008.html 


Politics is not an exact science.







Count Otto von Bismarck.

The monthly Coppock Indicators finished November.

DJIA: +136 Down. NASDAQ: +262 Down. SP500: +204 Down.  

1 comment:

  1. Confusing Coppock Indicators. In my world "+" before an index has always meant Up not Down.

    GG

    ReplyDelete