Baltic Dry Index. 598 unch. Brent Crude 58.48
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
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
Today, as we await a possible Grexit over the weekend, or a full scale
war breaking out in Yemen, we close out the week with another look at China. In
its latest report on China, Citi thinks that China will only grow by about 3
percent this year, down from an official target of 7 percent. While the
official target will be hit with doctored figures just like in America, the
reality of only a 3 percent growth rate will hit the commodity economies, bulk
shipping and emerging markets hard. I suspect that even Citi’s 3 percent target
is too optimistic. Old dinosaur Graeme doesn’t think China will do more than
run in place.
What China’s ‘new normal’ means for commodities
Published: Mar 23, 2015 5:07 p.m. ET
HONG KONG (MarketWatch) — China’s “new normal” economy might suggest merely
impressive growth, rather than the magical growth of recent decades. But for
natural commodities and large swathes of the world economy, things may never be
the same again.In a new report, Citi argues that global economic growth is now undergoing a fundamental transition, with a shift away from the prevailing model of China as the world’s factory. In the previous decade, China hollowed out industry from just about every corner of the globe as it became the dominant manufacturer of everything from Apple AAPL, +0.70% iPhones to sneakers and furniture. At the same time, it also became the primary driver of global commodity demand, supporting a multiyear commodity super cycle.
But now, as commodities across the board continue to make fresh multiyear lows, it is clear this boom is over. Analysts are now grappling with the wider implications as the price declines stretch from weeks to months, forecasting an upheaval in industry structures, trade flows and commodity markets.
China’s weakening commodity demand looks to be structural and permanent. While recent strength in the U.S. dollar DXY, -0.04% may have contributed to global commodity weakness, the slowdown in China is the dominant factor. This is not just a cyclical pause but an act of considered government policy to finally rebalance the Chinese economy, which even eight years ago then-premier Wen Jiabao described as “unstable, unbalanced, uncoordinated and unsustainable.”
Beijing now effectively has no other option but to steer a new course due to environmental damage, industrial overcapacity and dangerously high corporate debt levels caused by the excessive investment that went before. And there can be little doubt this will mean lower growth.
Citi calculates that to begin rebalancing and bring investment’s share of gross domestic product down to 40% from the current 50%, investment growth would need to be around four percentage points lower than GDP growth. Based on the current 7% economic growth target, this would mean 3% investment growth.
This change will have profound
implications for commodity demand, given the exposure of most industrial
commodities to China, says Citi.
Just as China’s growth lifted
commodity-producing nations the world over, we can expect the reverse to also
be true, with investment plans pulled and assets written down as prices fall.
More
In other, better China news, BofAML, expects the IMF to add China’s yuan to the currencies that make up the Fund’s Special Drawing Rights. Essentially conferring the fiat currency yuan with reserve currency status. Well why not, as a fiat reserve currency it could hardly do worse than the dollar or euro. just another reason to keep some insurance in fully paid up physical gold and silver.
China’s yuan may join elite money club this year
Published: Mar 26, 2015 5:32 p.m. ET
Unit would join dollar, euro in IMF basket
Or so say strategists at Bank of America Merrill Lynch, writing in a note Wednesday that they believe the IMF will vote this October to include the yuan USDCNY, +0.09% as one of the units that make up the Fund’s “Special Drawing Rights” (SDR), a sort of meta-currency used in IMF transactions.
This might not seem like a big deal, but Merrill Lynch assures that it is. By joining the elite club — there are only four currencies in the basket right now: the U.S. dollar DXY, -0.05% , the euro EURUSD, -0.06% the British pound GBPUSD, -0.05% and the Japanese yen USDJPY, -0.01% — it would “legitimize its use as a reserve currency,” possibly reducing China’s cost of foreign borrowing and offering an “extra degree of freedom in financing future current-account deficits,” the strategists said.
In fact, given that the yuan already enjoys significant use as a reserve currency, its weighting in the SDR system would likely be higher than that of the pound and yen, they said. According to Merrill Lynch estimates, central banks around the world currently hold a total of more than $80 billion in Chinese government bonds, which would make it the seventh largest reserve currency on earth.
China, and in particular long-serving People’s Bank of China Gov. Zhou Xiaochuan, has for awhile now been pushing for inclusion in the SDR, which is reweighted just once every five years. They didn’t make the last cut in 2010, as the IMF deemed China’s current account hadn’t opened enough to meet the “freely usable” criteria required of SDR currencies.
But Merrill Lynch sees the Fund as likely to give the go-ahead at this year’s review. There’s now a lively offshore market USDCNH, +0.05% for the yuan (also known as the “renminbi” or “people’s currency”), for instance. Also, the strategists think the U.S. is unlikely to block the move, as it wants China more engaged in international institutions where Washington has wide sway, and in any case, it wouldn’t want to strain relations with Beijing.
More
But China’s stock market has turned into the bubble of
all stock market bubbles. Can China handle the inevitable bust? The inevitable
bust will probably mean that China’s GDP doesn’t grow at all.
China stocks may be in serious bubble
Published: Mar 26, 2015 11:45 p.m. ET
As market volumes explode, even teenagers are buying
HONG KONG (MarketWatch) — Some say that when the average “mom-and-pop” retail investors get back into the stock market, it could be time to get out. But what about when even teenagers start buying?China has entered a new stock frenzy, like something out of America in the Roaring 20s or the dottiest days of the dot-com bubble, with trading volumes continuing to push to new record highs.
On Wednesday, combined trading on the Shanghai and Shenzhen markets hit 1.24 trillion yuan ($198 billion), the seventh straight session in which turnover surpassed the 1 trillion yuan mark. By comparison, the New York Stock Exchange typically saw $40 billion-$50 billion a day in trading during the first two months of this year.
The Shanghai Composite Index SHCOMP, +0.08% is hovering near its seven-year closing high of 3,691, hit on Tuesday when the index completed a 10-session winning streak.
For the year so far, the benchmark is up 13.8%, making it the best-performing major East Asian stock index of 2015 to date, though it still has a way to go to match 2014’s 53% surge.
The lure of flush times on the Shanghai market is sweeping in unlikely investors by the hundreds of thousands. This week, both the China Securities Daily and the Beijing Morning Post had dueling reports about recent college graduates and, yes, teenagers buying shares.
More
“It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."
J. K. Galbraith. The Great Crash: 1929.
At the Comex silver
depositories Thursday final figures were: Registered 70.57 Moz, Eligible 104.61
Moz, Total 175.18 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Pilot's actions may add to Germanwings' liability in mountain crash: lawyers
NEW YORK/BERLIN |
(Reuters) - Lufthansa subsidiary Germanwings could face liabilities well
above the typical ceiling in airline crashes for the passengers who died on
Tuesday when one of its jets was flown into an Alpine mountain, some aviation
lawyers said. A lot will depend on whether the airline can defend itself against negligence claims given that prosecutors said on Thursday that a young German co-pilot locked himself alone in the cockpit of the Airbus A320 and set it on course to crash, killing all 144 passengers and six crew members.
An international agreement generally limits airline liability to around $157,400 for each passenger who dies in a crash if families do not sue, but if families want to pursue compensation for greater damages, they can file lawsuits.
Lawyers who have represented families in past airline disasters told Reuters on Thursday that potential lawsuits could focus on whether Germanwings properly screened the co-pilot before and during his employment, and on whether the airline should have had a policy requiring two or more people in cockpits at all times during a flight.
Justin Green, a partner at the law firm Kreindler & Kreindler in New York, said passengers' families would be justified in asking why Andreas Lubitz, the 28-year-old co-pilot, was allowed to be alone in the cockpit.
Pilots may temporarily leave the cockpit at certain times and in certain circumstances, such as while the aircraft is cruising, according to German aviation law.
Even if the practice was allowed, though, "this has been a known risk," Green said. He noted that some investigators believed that pilots intentionally downed a SilkAir aircraft in 1997 and an EgyptAir aircraft in 1999.
"This idea that one pilot could murder everyone on board and kill himself is something that's happened before and something that everyone knew about," Green said.
CASES RARELY GO TO TRIAL
Lufthansa will abide by international agreements dictating liability, its Chief Executive Carsten Spohr said.
"Honestly, it's one of my smaller worries," he told journalists on Thursday. "We will be able to meet the financial liabilities. Our first priority is to help the families where we can."
Under an international agreement known as the Montreal Convention of 1999, an airline generally cannot escape liability for a passenger death.
For each death, a carrier can be liable for up to 113,100 special drawing rights, a reserve asset created by the International Monetary Fund. On Tuesday, the amount was equal to about $157,400, or $22.7 million for 144 passengers.
The potential lawsuits for additional damages could be filed in any of several jurisdictions, including Germany where Germanwings is based and a number of different home countries of the passengers, such as Spain.
Passengers' families are limited to claiming provable damages, which vary depending on the jurisdiction but may include loss of support and pain and suffering, the lawyers said.
Bruce Ottley, co-director of the International Aviation Law Institute at DePaul University College of Law, said he was skeptical that Germanwings would need to pay above the Montreal Convention limit unless there is evidence the airline knew in advance the co-pilot was at risk.
But Ottley said airlines choose to settle legal claims in the vast majority of crashes, so the issues may never go to a judge or jury. "Very rarely do these things ever, ever go to trial," he said.
For Germanwings to limit its liability, it would have to establish that it and its employees and agents were not in any way at fault or that the accident had been caused solely by the fault of a third party, said Clive Garner, a partner at the law firm Irwin Mitchell in London. The firm has represented passengers' families in other aviation accidents, including a crash in Nepal in 2012.
"Given this scenario and what we know at the moment, Germanwings would be unlikely to be able to establish a relevant defense," Garner wrote in an email.
A $6.5 million claim for the loss of the plane itself was paid on Wednesday, insurance industry sources said.
More
http://www.reuters.com/article/2015/03/26/us-france-crash-liabilities-analysis-idUSKBN0MM32C20150326
Airlines introduce two-person cockpit rule after Alps crash
BERLIN/PARIS |
(Reuters) - Airlines rushed on
Thursday to change their rules so as to require a second crew member in the
cockpit at all times, hours after French prosecutors suggested a co-pilot who
barricaded himself alone at the controls of a jetliner had crashed it on
purpose.
The United States already
requires two crew members to be in the cabin at all times, but many other
countries do not, allowing pilots to leave the flight deck, for example to use
the toilet, as long as one pilot is at the controls.
That is precisely what French
prosecutors suspect happened on the Germanwings flight on Tuesday. They say
Andreas Lubitz, 27, locked the captain out and appears to have set the controls
to crash into a mountain, killing all 150 people on board.
Airlines including Norwegian Air Shuttle (NWC.OL), Britain's easyJet (EZJ.L), Air Canada (AC.TO), Air New Zealand (AIR.NZ) and Air Berlin (AB1.DE) all said within hours that they had introduced a requirement that two crew members be in the cockpit at all times.
Canada said it would immediately impose such a rule on all its airlines while those that already had such rules in place, including Ryanair (RYA.I), rushed to reassure customers.
Among the companies that did not announce such a policy change was Germanwings parent Lufthansa (LHAG.DE), whose CEO Carsten Spohr said he believed it was unnecessary.
---- The incident is likely to provoke further debate about the future of cockpit protections. Since the Sept. 11 attacks on the United States, regulators have required cockpit doors to be impenetrable when locked from the inside.
But the idea that pilots
themselves could be a danger creates reason to re-examine such policies, said
retired French crash investigator Alain Bouillard.
"Today we have the reverse
question: should we be blocking doors?" he said.
Last year's disappearance of
Malaysia Airlines 370 raised such questions, although whether the pilots played
any role in that plane's disappearance has never been confirmed.
LAM Flight TM-470 crashed in
Namibia in November 2013 after what investigators said were "intentional
actions by the pilot" after the first officer left the flight deck,
causing the death of 33 people.
More
Another spring weekend and the days are longer, the sun
warmer, the frosts fewer. The early spring flowers and blossoms are almost in
full bloom in my part of the Thames Valley, time to enjoy God’s gift of spring.
Sadly, our global news continues to get more threatening with each passing week.
Will Grexit happen over Easter? Have a great weekend everyone.
There can be few
fields of human endeavour in which history counts for so little as in the world
of finance. Past experience, to the extent that it is part of memory at all, is
dismissed as the primitive refuge of those who do not have the insight to
appreciate the incredible wonders of the present.
J. K. Galbraith.
The monthly Coppock Indicators finished February
DJIA: +120 Down. NASDAQ: +213 Down. SP500: +169 Down.
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