Baltic Dry Index. 1067 +19 Brent Crude 56.55
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
No enemy is worse than bad advice.
Sophocles.
To the Greeks, the rout began
at least four years ago, for the rest of us, commodities are signalling that it’s
just getting underway in earnest. Industrial commodities like iron ore and
copper have been telegraphing trouble coming for many months. Crude oil prices
since at least last November. More on
the end of the Great Nixonian Error of fiat money later.
Up first, snake bit Europe is
dying trying to cope with miniscule Greece. But we still have Portugal, Spain,
Italy and France to come! Greece was just for starters.
Some people make things happen, some watch while
things happen, and some wonder what happened. What happened?
Tsipras, Krugman, Draghi. With apologies to anon
and legion.
Greece debt crisis: The euro is a disaster even for the countries that do everything right
Monday 20 July 2015
The euro might be worse for you than bankruptcy.
That, at least, has been the case for Finland and the Netherlands, which
have actually grown less than Iceland has since 2007. Iceland, you might
recall, basically went bankrupt in 2008.
Now, it's true that Finland and the Netherlands have had their fair
share of economic problems, but those should have been manageable. Neither
country is a basket case, and both have done what they were supposed to do. In
other words, they've followed the rules, and the results have still been a
catastrophe. That's because the euro itself is. Or, if you want to be polite,
the common currency is "imperfect, and being imperfect is fragile,
vulnerable, and doesn't deliver all the benefits it could." That was European
Central Bank chief Mario Draghi's verdict on Thursday.
So
what's happened to them? Well, just your run-of-the-mill bad economic news.
It's only a slight exaggeration to say that Apple has kneecapped Finland's
economy. Its two biggest exports were Nokia phones and paper products, but, as
the country's former prime minister Alex Stubb has said, the iPhone killed the
former and the iPad killed the latter. Now, the normal way to make up for this
would be to cut costs by devaluing your currency, except that Finland doesn't
have a currency to devalue anymore. It has the euro. So instead it's had to cut
costs by cutting wages, which not only takes longer, but also causes more
economic damage since you have to fire people to convince them to take pay
cuts. The result has been a recession longer than anything in Finland's living
memory, longer even than its great depression in the early 1990s. It hasn't
helped, of course, that the rules of the euro zone have forced Finland's
government to cut its budget at the same time that all this has been happening.
More
Greek debt crisis: Economist Paul Krugman admits he 'overestimated the competence of the Greek government'
Monday 20 July 2015
Paul Krugman, a Nobel Prize winning economist, issued his verdict on the
way the Greek government handled the eurozone crisis and found he may have
"overestimated the competence of the Greek government."
In an interview with CNN, Krugman said that it didn’t even occur to him
that Greece would make a stand against its European lenders without having made
a plan for an exit from the euro if things went wrong.
"Amazingly, they thought they could simply demand better terms
without having any backup plan. So certainly this is a shock," Krugman
told Fareed Zakaria on his CNN show, Fareed Zakaria GPS.
"I
mean, the new terms are even worse, but the terms they were being offered
before were still not going to work. So I, you know, I may have overestimated
the competence of the Greek government," Krugman said.
----Krugman
had urged the Greek people to vote ‘no’ in the referendum. He has been an
outspoken opponent of the single currency in Europe. “Greece should vote “no,”
and the Greek government should be ready, if necessary, to leave the euro,” he
wrote in the New York Times in June. His most recent comments come in
light of the Greek government’s lack of preparedness.
More
Next Up On Europe’s Default Block——-Why Portugal’s Debts Are Unsustainable
by ZeroHedge •
Everyone seems to be focusing on Greece these days – a country so
indebted that it needs even more loans to repay just a fraction of its gigantic
credits. Clearly this is unsustainable and something has to give. Even the IMF
agrees.
But what about the other Southern European countries?
Actually, Portugal’s financial situation is looking particularly shaky,
and any hiccups could have serious cross-border repercussions from Madrid all
the way to Berlin.
The prevailing narrative is that Portugal has been a star pupil compared
to Greece, with austerity delivering much better results:
---- The Bank of Portugal (“BdP”), Portugal’s central bank, publishes debt statistics of key sectors in the economy on a quarterly basis. The link to the latest publication can be found here.
As of March 2015, non-financial public sector debt stood at €288 billion, or 166% of GDP. You may think that there’s something odd right there because you are used to hearing that the Portuguese government “only” owes 130% of its GDP. That’s because the media generally uses Maastricht treaty calculations, not the total amount that the government owes as a whole (which includes public companies, for instance). But what’s 36 percentage points of GDP among friends?
OK, let’s do some math:
- We start by dividing €288 billion by 166% to find out what nominal GDP the BdP used in its calculation: about €174 billion;
- Next, let’s assume that the cost of debt on all that government debt is only 1%. In this case, the annual interest expense for the government should be 1% x €2.88 billion, or €2.88 billion. We know that this is very low as the actual interest expense in 2014 was almost €7 billion (and likely not all of it, but government accounts can get quite murky);
- Then we assume that Portugal’s nominal GDP grows at 1%, which is not stellar but certainly better than recent years – from December 2011 to December 2014, the average nominal growth rate was actually -0.6% (BdP figures). So that’s 1% x €174 billion, or €1.74 billion;
- Finally, we compare the assumed interest costs with the nominal GDP growth: €2.88 billion vs €1.74 billion.
USING FAIRLY OPTIMISTIC ASSUMPTIONS, THE PORTUGUESE ECONOMY IS UNABLE TO GROW ENOUGH TO COVER THE INTEREST ON ITS GOVERNMENT DEBTS, LET ALONE AFFORD ANY PRINCIPAL REPAYMENTS!
More
We close today with commodity markets, I think signalling the arrival of the next global recession. The Squids will say it’s just rotation out of commodities ahead of the Federal Reserve and Bank of England getting ready to abandon ZIRP and start raising interest rates again, ending the bond bull market that started under Paul Volker all the way back in 1981. Well maybe. An alternative possibility is that China’s raw materials consumption bubble has burst along with their stock market, and that most industrial commodities are now, just like crude oil, in gross over supply. With the northern hemisphere harvest season just getting underway, grains and other food commodities come under seasonal selling pressure. Gold and silver get liquidated in the great commodity scramble to raise cash.
Commodity Rout Worsens as Prices Tumble to Lowest Since 2002
July 20, 2015 — 6:56 AM BST Updated on July 20, 2015 — 3:13 PM BST
The rout in commodities deepened with prices touching the lowest since
2002 as the prospect of higher U.S. interest rates sent gold tumbling.
Raw materials are losing favor with investors as the dollar gains amid
signals from Federal Reserve Chair Janet Yellen that the central bank may raise
rates this year on the back of an improving U.S. economy. Higher borrowing
costs curb the attractiveness of commodities such as gold, which doesn’t pay
interest or give returns like assets including bonds and equities.
The Bloomberg Commodity Index dropped as much as 1.4 percent, falling
for a fifth day in the longest stretch of declines since March. Gold futures
sank to the weakest in more than five years while industrial metals, grains,
Brent crude and U.S. natural gas also slid as a measure of the dollar climbed
to the highest since April 13.
“Any increase in U.S. interest rates should further strengthen the
dollar, prompting more fund outflows from commodities, metals and
emerging-market assets,” Vattana Vongseenin, the chief executive officer of
Phillip Asset Management Co. in Bangkok, said by phone.
The Bloomberg Commodity Index slid 1.3 percent to 96.2949 at 10:10 a.m.
New York time, after touching 96.1913, the lowest since June 2002.
With raw materials fetching lower prices, shares of commodity producers
are tumbling. The 15-member Bloomberg Intelligence Global Senior Gold Valuation
Peers Index, which includes AngloGold Ashanti Ltd. and Newcrest Mining Ltd.,
dropped as much as 8.4 percent.
More
BHP Creditor Confidence Wanes as Commodity Rout Risks Rating Cut
July 20, 2015 — 3:00 PM BST Updated on July 21, 2015 — 1:25 AM BST
BHP Billiton Ltd.’s creditors are becoming more wary as plunging energy
and metal prices weigh on the outlook for debt sold by the world’s biggest
miner.
The cost of protecting the Melbourne-based producer’s bonds against
non-payment has risen 24 basis points over the past 12 months to 87 basis points
as of Monday and is at its highest level in almost five years versus the local
credit-default swap benchmark, CMA data show.
Ebbing Chinese demand for raw materials and excess supply are spurring
wider credit spreads for commodity producers amid the prospect for rising U.S.
policy rates. Both Standard & Poor’s and Fitch Ratings Ltd. have a negative
outlook on BHP and rank it A+, the fifth-highest level. Bloomberg’s
default-risk model suggests the credit assessors are scoring the miner one
grade too high.
More
While I think that commodity prices still have further to fall, to me the selloff in precious metals represents a great long term buying opportunity. The Great Nixonian Error of fiat money, is coming to its close. The bubble global economy it spawned has passed its sell-by date. Greece is far from fixed, and we still have Portugal, Spain, Italy and France to come. The US economy, despite all the smoke and mirrors, is far from having achieved sustainable escape velocity. China is merely the world’s largest Ponzi scheme that’s now starting to fail under its own excess. Physical gold and silver are about to come back into great favour in the decade ahead.
Below, more signs of trouble ahead.
IBM revenue falls for 13th straight quarter; shares dip
Shares of the world's largest technology services company fell about 5 percent in after-market trading on Monday.
IBM is deep in transition, and has been selling businesses such as low-end servers, cash registers, and semiconductors to focus on high-growth areas like security software, cloud services and data analytics.
The company, which sold its x86 server business to Lenovo Group Ltd (0992.HK) last year, has continued realigning its operations by paying contract-chipmaker Globalfoundries Inc to take over its loss-making semiconductor unit this month.
More
Qualcomm preparing to lay off several thousand employees: tech website
Chipmaker Qualcomm Inc is preparing to lay off several thousand
employees, or more than 10 percent of its 30,000-strong workforce, the
Information website reported on Monday.
The chipmaker is expected to announce the job cuts when it releases its
quarterly results on Wednesday, the tech website reported, citing people inside
and outside of the company.
Qualcomm, which reported a 46 percent drop in second-quarter profit in
April, is facing increasing competition from Taiwan's MediaTek Inc and a
handful of small Chinese companies that specialize in making chips for
low-priced phones.
More
The most likely way for the world to be destroyed,
most experts agree, is by accident. That’s where we come in, we’re economists.
We cause accidents.
Anon. With apologies to computer experts.
At the Comex silver depositories Monday
final figures were: Registered 58.96 Moz, Eligible 119.56 Moz, Total 178.52
Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Europe Is One Recession Away From An Implosion
by Goldcore • July 19, 2015
Europe’s next recession will “kill the euro” according to
economist, writer and journalist David McWilliams.
McWilliams, who is among the best economics commentators from the only
Anglophone nation in the euro – Ireland, warns that we only have a few months
to plan an alternative to the disastrous consequences on peripheral nations of
what he sees as German hegemony.He describes the mismanagement of the euro currency as “both laughable and terrifying”.
Marathon negotiation sessions are not conducive to clear headed, rational decision making on the future of a nation or the eurozone. Indeed, it smacks of coercion.
He lambasts the suggestion offered that Greece could have a “temporary euro”, adding, “If the board and management of a public company dealt with problems like this, the share price would collapse. There is quite simply no corporate governance within the euro”.
David McWilliams believes that Germany is out control. France is no longer strong enough to offer a counterweight and Britain is happy to allow the circus to continue as they focus on potentially getting out of the EU.
He describes last weekends negotiations in Brussels as a “teutonic
kangaroo court”. Should Britain successfully navigate its way out of the EU,
other countries will likely follow rather than exist as provinces of Germany.
Norway and Switzerland have coped just as well from the outside as their
EU neighbours.
He makes the obvious, though seldom heard assertion that “when economic
negotiations stop making economic sense, you should begin to question the
motives of the EU”.
Pointing to the plundering of Greek state assets to pay off creditors
whilst forcing further austerity on the Greek people. Each previous round of
austerity has caused the economy to contract further – thus forcing Greece into
a debt trap from which it cannot escape. We believe this is a crucial point.
While Germany have played a major role it in the subjugation of Greece
it is worth asking who truly benefits from economic negotiations that have
stopped making economic sense.
----McWilliams highlights the dramatic
u-turn in policy where membership of the EU is now conditional.
When Mario Draghi initiated the “whatever-it-takes” mass purchase of bonds
of peripheral nations the message was clear – the euro is forever. Now,
however, countries must bend to Germany’s demands which are the demands of
politicians who want to keep their electorate happy if they are to be
re-elected.
“Countries that don’t play ball with Germany will see their banking
system used against their democratically elected politicians. The banking
system is the soft underbelly and the Germans are prepared to orchestrate bank
runs in member states to get their way. This is not only new, it is
outrageous.”
McWilliams writes that Irish policy makers need to focus on a Plan B and
indeed all governments in the EU are likely considering a ‘Plan B’. Indeed, we
know the pragmatic Germans have done.
For example, if and when Germany’s economy overheats and rates need to
rise, they will rise regardless of the capacity of the heavily indebted
peripheral nations to deal with such rises. Mortgage holders in Ireland and
throughout the EU would be crucified if the ECB rate moved anywhere near the historical
norm of around 6%.
More
Economics is extremely useful as a
form of employment for economists.
John Kenneth Galbraith.
Solar & Related Update.
With events
happening fast in the development of solar power, I’ve added this new section.
Updates as they get reported. Is converting sunlight to usable cheap AC energy
mankind’s future from the 21st century onwards? A quantum computer
next?
No update today.
The monthly Coppock Indicators finished June
DJIA: +98 Down. NASDAQ:
+192 Down. SP500: +127 Down.
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