Monday 6 April 2015

Greece Saved – Again!



Baltic Dry Index. 588 Thursday     Brent Crude 55.65

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

“When it becomes serious you have to lie.”

Yanis Varoufakis, with apologies to EC President Juncker.

We open this morning with our faith restored in miracles. In Washington on Easter Sunday, Greece promised to repay in full its IMF loan falling due thi Thursday. But this being the EUSSR, you have to wonder if Greece just isn’t using rule 101 of failed Luxembourg Prime Minister, and now EC President Juncker’s play book and the European ethics regarding “seriousness.” And anyway, it wasn’t Easter for Greeks, that comes next Sunday for Orthodox Christians.

Below,  Madam Legarde tells of her Funds sudden new love and affection for tax and work shy Greece. Has the IMF really changed its spots?

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

J. K. Galbraith.

IMF chief Christine Lagarde: Greece will pay us back

Following threats the Leftist government would miss a key €450m loan repayment, Greece's finance minister assures the IMF will be repaid this week

Greece's finance minister has reassured the International Monetary Fund his government will make a key debt repayment this week after meeting with chief Christine Lagarde in Washington.

Following two hours of talks, Ms Lagarde said she had received "confirmation by the minister that payment owing to the Fund would be forthcoming on April 9."

Greece's growing insolvency problems have raised fears the country would become the first developed nation to ever fall into an arrears process with the IMF.

However, the informal talks with Yanis Varoufakis on Easter Sunday seemed to have repaired relations between the parties, with Ms Lagarde saying both sides had "agreed that effective cooperation is in everyone’s interest."

"I reiterated that the Fund remains committed to work together with the authorities to help Greece return to a sustainable path of growth and employment," said Ms Lagarde in a statement.
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http://www.telegraph.co.uk/finance/economics/11517720/IMF-chief-Christine-Lagarde-Greece-will-pay-us-back.html

In other dubious news this morning, global FX reserves are now falling. It’s not only commodity prices in a state of collapse. I suspect this is just the start of a new global recession.

Once Over $12 Trillion, the World’s Reserves Are Now Shrinking

10:00 PM BST April 5, 2015
The decade-long surge in foreign-currency reserves held by the world’s central banks is coming to an end.

Global reserves declined to $11.6 trillion in March from a record $12.03 trillion in August 2014, halting a five-fold increase that began in 2004, according to data compiled by Bloomberg. While the drop may be overstated because the strengthening dollar reduced the value of other reserve currencies such as the euro, it still underlines a shift after central banks -- with most of them located in developing nations like China and Russia -- added an average $824 billion to reserves each year over the past decade.

Beyond being emblematic of the dollar’s return to its role as the world’s undisputed dominant currency, the drop in reserves has several potential implications for global markets. It could make it harder for emerging-market countries to boost their money supply and shore up faltering economic growth; it could add to declines in the euro; and it could damp demand for U.S. Treasury bonds.

“It’s a big challenge for emerging markets,” Stephen Jen, a former International Monetary Fund economist who’s co-founder of SLJ Macro Partners LLP in London, said by phone. They “now need more stimulus. The seed has been sowed for future volatility,” he said.

----China, the world’s largest reserve holder, together with commodity producers contributed to most of the declines, as central banks sold dollars to offset capital outflows and shore up their currencies. A Bloomberg gauge of emerging-market currencies has lost 15 percent against the dollar over the past year.

China cut its stockpile to $3.8 trillion in December from a peak of $4 trillion in June, central bank data show. Russia’s supply tumbled 25 percent over the past year to $361 billion in March, while Saudi Arabia, the third-largest holder after China and Japan, has burned through $10 billion in reserves since August to $721 billion.
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We close for today’s holiday Monday across much of the world giving the last word on recessions to America’s brilliant David Stockman. Shame he wasn’t quite so brilliant when employed in the roaring 80s by Roy Rogers. The benefits of the Great Nixonian Error of fiat money were all front-loaded, and long ago dissipated in war, lifestyle and unrepayable debt.  Like Moses we face a long period in the wilderness. Greenspan-Bernanke-Yellon’s Mammon has turned out to be a false God after all. It wasn’t a free lunch it now transpires.

Meet The New Recession Cycle——Its Triggered By Bursting Bubbles, Not Surging Inflation

by David Stockman • April 3, 2015
----In a word, their father’s business cycle model was premised on a “clean balance sheet” world driven by main street borrowing. In fact, however, we have now passed through the “peak debt” horizon and are in a bubble finance world driven by Wall Street speculation. That passage changes everything.

To be sure, the old fashioned main street cycle was the work of the Fed no less than today’s. After all, the business cycle itself is essentially a product of central banking.

Indeed, central banks function akin to the 12-year old who killed his parents and then begged the court for mercy on the grounds that he was an orphan. That is, they inherently generate credit inflations and the resulting economic boom and bust—–only to then claim indispensability in reversing the recessionary slump and avoiding a plunge into depressionary darkness.

But there were some big differences between then and now. The Fed of yesteryear was reactive, prudent and pre-Keynesian. It occasionally raised interest rates to “lean against the wind” in the event of too much economic boom and rising inflation; and it moderately lowered rates and loosened monetary conditions once inflation had abated and idle labor and capital resources had become too large. But mostly it was a passive watchman.

Stated differently, the gentle hand of modest federal funds rate adjustments over a few months time designed to lightly guide the macro-economy is one thing. Today’s heavy handed 75-month stretch of ZIRP and chronic financial repression aimed to control, manage  and manipulate the short-run path of GDP is quite another.

Likewise, back then we had what amounted to central banking in one country—-something very different than today’s globally synchronized convoy of Keynesian central banks all racing in the same direction of ease and rampant money printing. So too, US labor costs were on par with the rest of the mainly European industrialized world versus today’s billion-plus pool of  cheap labor in China and the EM.

Most importantly, back then household balance sheets were relatively unleveraged, enabling a robust response to changes in the price of credit and a consequent mobilization of consumer spending. By contrast, for 80% of today’s debt saturated household balance sheets, spending is essentially constrained to current wages and income regardless of the price of credit.

Finally, the old time capital markets were relative honest, which meant that debt and equity capital were priced correctly and that executives were rewarded for investing in long-term productive assets. Needless to say, that’s light years of difference from today’s utterly dishonest financial casino’s where debt is drastically underpriced and financial engineering maneuvers like stock buybacks and M&A deals are deeply subsidized and powerfully rewarded.

These profound differences have caused the Fed-influenced business cycle to play out far differently. In the 1960s and 1970s, for example, cutting interest rates caused housing starts and business investment to boom. Then when credit-fueled demand got way ahead of supply——wages and prices tended to accelerate sharply. You got “inflation in one country” because there was no mobilized cheap labor pool and export factories in Asia to constrain the classic wage-price-cost spiral.

Yes, there was industrial trade, but European wage levels and union-based adjustment rigidities tended to parallel those in the US, and therefore did not really function as an economic circuit breaker. So eventually, the Fed had to throw on the brakes in order to extinguish the very wage-price spiral it had triggered in the first place.

After Nixon’s destruction of the Bretton Woods gold exchange standard at Camp David in August 1971 and the elimination of the modest financial discipline that it provided, the Fed’s impact got more intense and the business cycle far more volatile. As shown below, when the Nixon-Burns regime threw open the monetary spigot in the run-up to the 1972 election, the economy boomed initially because the response to cheap and abundant credit was fast and furious.

But it soon led to a rip-roaring wage and price spiral notwithstanding the clumsy system of wage and price controls that the Nixon Administration had also launched at Camp David. And it is crucial to understand how and why that played out so differently back then——compared to the allegedly inflationless tsunami of money printing today.

The big difference was no China, no endless rice paddies and rural villages that could be drained of cheap labor and mobilized into the world’s commercial economy. China’s incipient billion person anti-inflation force was starving in the rural villages owing to the calamites of the Great Leap Forward, where villagers had dutifully melted-down their hoes and plows to make backyard steel, and the Cultural Revolution, which had paralyzed economic life entirely.

----The bottom line is therefore straight forward. The credit channel of monetary policy transmission is now broken and done. The impact of ZIRP and QE never leaves the canyons of Wall Street——meaning that it functions to inflate financial assets rather than main street wage and prices as it did during the era of inflation in one country.

But that makes for both a considerable irony and an incendiary danger. Today’s clueless Keynesian central bankers essentially believe that they can keep the pedal-to-the-metal until a 1970’s style inflationary spiral arises. But none is coming because  the worldwide central bank money printing spree of the last two decades has generated massive excessive capacity and malinvestment all around the planet. What is coming, therefore, is not their father’s inflationary spiral, but an unprecedented and epochal global deflation.

So the central banks just keep printing, thereby inflating the asset bubbles world-wide. What ultimately stops today’s new style central bank credit cycle, therefore, is bursting financial bubbles.
That has already happened twice this century. A third proof of the case looks to be just around the corner.
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"On the whole human beings want to be good, but not too good, and not quite all the time.”

George Orwell.

At the Comex silver depositories Thursday final figures were: Registered 70.30 Moz, Eligible 106.19 Moz, Total 176.49 Moz.  

Crooks and Scoundrels Corner

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

In commodities news, a vicious commodities bust is now underway. More sign of a slowing global economy and  excess production unable to service unprecedented malinvestment debt.

Iron ore rout persists after hitting 10-year low on China fear

Price of the steelmaking commodity has continued to plummet amid fears of Chinese demand.

Iron ore prices have hit a new 10-year low sending shockwaves through the global mining industry and sparking concern among analysts that smaller producers could soon be forced out of business.

The price of a tonne of quoted on the Quingdao China index fell to $47.08 (£31) yesterday, building on a week of declines amid an ongoing slowdown in consumption in the world’s second-largest economy.

Benchmark and premium prices for the steel-making ingredient are down more than 50pc year-on-year.

That has hit shares in the biggest London-listed mining companies such as BHP Billiton, Rio Tinto and Anglo America, which account for the vast majority of seaborne iron ore. Shares in BHP Billiton - the largest mining company traded on the FTSE - were down 2.4pc at around 1434p yesterday.

These companies have continued to boost production of iron ore despite a slowdown in demand in a desperate race to gain market and cut costs. Rio Tinto now claims it is producing ore in the Pilbara mines of West Australia for as little as $17 per tonne.

“The three major iron ore producers are steadily scaling up their production and thus their supply on the seaborne market and thereby crowding less competitive suppliers out of the market,” said Commerzbank yesterday.

“The resulting production cuts and shutdowns are not sufficient to absorb the additional supply, however. Producers in China in particular are no longer profitable. Mine closures there will thus mean that China will increasingly have to import iron ore, though this will hardly help the price in the present environment. The current momentum points to even lower iron ore prices in the short term,” said the bank.

As the price of iron ore continues to plummet, capital expenditure among the world’s top 10 mining companies is expected to fall to around $64bn this year, down from almost $80.1bn two years ago when the industry really started to wake up to the scale of the slowdown in commodities demand, especially in Asia.

Big mining groups such as BHP Billiton and Rio Tinto have also rejected calls from their smaller rivals to place caps on production in order to support prices.
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Iraq’s Four-Mile Line of Supertankers Fuels Ship-Rates Surge

11:16 AM BST April 2, 2015
Iraq’s biggest oil exports in more than three decades and winter winds are helping to keep shipping rates at a six-year high as a four-mile line of supertankers waits to load the nation’s crude.

There are 22 of the industry’s biggest tankers, or almost 5 percent of the fleet, waiting to collect cargoes from the Basra Oil Terminal in the Persian Gulf, from where most of Iraq’s crude is shipped. The daily rate for supertankers transporting crude from the Middle East to Japan rose to $51,042 on Thursday, bringing the average for this year to $61,306, data from the Baltic Exchange in London show.

Iraq’s oil output is rising faster than any other nation in OPEC as supplies from its southern oil province expand even as Islamic State fighters seize parts of the north. Tankers leaving Basra in the past week waited an average of 16 days, ship tracking data compiled by Bloomberg show. That compares with about 10 days normally, said Odysseus Valatsas, chartering manager at Dynacom Tankers Management in Glyfada, Greece.

“The fact is it will definitely affect the market,” Valatsas, whose company’s biggest tankers can transport about 28 million barrels of crude, said by phone Thursday. “The more ships that are missing in the market, the higher the chance the market has to go up.”

Iraq’s crude exports jumped 15 percent last month to 2.98 million barrels a day, the highest in 35 years, Oil Ministry spokesman Asim Jihad said by phone from Baghdad on Wednesday. The nation pumped 3.7 million barrels a day in March, the most since at least 1962, according to data compiled by Bloomberg.

----The 22 supertankers located near Basra in data compiled by Bloomberg on Wednesday would stretch for about 7,300 meters, or 4.5 miles, lined end to end. Each of the vessels, known in the industry as very large crude carriers, can load about 2 million barrels. There are also 11 smaller Suezmax ships waiting.
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"Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."

Andrew Mellon.

The monthly Coppock Indicators finished March

DJIA: +118 Down. NASDAQ: +209 Down. SP500: +161 Down.  

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