Baltic Dry Index. 926 -17 Brent Crude 47.96
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
Any
sudden event which creates a great demand for actual cash may cause, and will
tend to cause, a panic in a country where cash is much economised, and where
debts payable on demand are large. In such a country an immense credit rests on
a small cash reserve, and an unexpected and large diminution of that reserve
may easily break up and shatter very much, if not the whole, of that credit.
Walter Bagehot. Lombard Street. 1873
Today we open with Glencore facing a big, likely expensive decision day tomorrow, at its giant if environmentally dirty, zinc mine in the Northern Territory, Australia. Is Glencore the poster boy for the great commodity malinvestment bubble that was ultimately a consequence of the great gambling bubble spawned by the Great Nixonian Error of fiat money? Gambling replaced investment, under fiat money, as bad money drove out good, and financialised paper games grew to become the only game in town. Replace “country” with “Company” in Walter Bagehot’s quote above, and we get a pretty good idea of Glencore’s predicament.
When Greenspan’s Bubbleworld blew up spectacularly in 2007-2009, it increasingly looks like all the Central Bankster’s horses and men, QE forever and ZIRP, can’t put our Humpty Dumpty Greenspan bubble world back together again. Did Glencore just run out of road and talent? How many more will fall?
Glencore Faces Yet Another Debt Challenge With Credit Due by May
September 30, 2015 — 12:49 AM BST
Add another looming problem to the list for Glencore Plc, the commodity
group that’s lost almost $45 billion in market value this year.
A quarter of the beleaguered firm’s bonds and credit lines are due for
refinancing by next May, compared with 9 percent for its peers, according to
data compiled by Bloomberg. Glencore may have options for delaying the deadline
for part of that $13.8 billion in lifeblood financing, but given that some of
its debt is already trading like junk as the stock plummets, any bond
refinancings will probably be pricey.
Shares of Glencore dropped 73 percent this year as a rout in commodities
fueled by a slowdown in China’s economic growth threatened to shrink the
company’s revenue as it attempts to manage its debt load. The company earlier
in September announced a $10 billion debt-reduction program and cut its $30
billion of borrowings to protect its credit rating amid the commodity selloff.
http://www.bloomberg.com/news/articles/2015-09-29/glencore-faces-yet-another-debt-challenge-with-credit-due-by-may
Glencore's Biggest Risk Is Hiding in Plain Sight: David Fickling
September 30, 2015 — 3:21 AM BST
What you don’t know can hurt you, so it’s understandable that analysts
have raised questions about Glencore’s opaque
commodity-trading business. Without the ability to work out how it
makes money, the unit is a “black box,” according to Morningstar’s David Wang.
But there’s more to fear from what’s in plain sight. Capital spending
has been the biggest single drain on Glencore’s cash flow in every year since
it started the takeover of Xstrata in 2012:
Even after announcing a $10 billion debt-reduction plan earlier this month, the company still expects to spend $10 billion to $10.5 billion by 2017 on capital works at its mines, farms, oil wells and processing facilities.
These aren’t the best tier-1 assets favored by BHP Billiton and Rio Tinto, Bernstein analysts led by Paul Gait wrote in a note to clients Tuesday, even if they’re still profitable right now.
That means that they’re more vulnerable to any further downturn in commodity prices, and in the meantime are throwing off less cash to help Chief Executive Officer Ivan Glasenberg reduce debt.
Glencore and, in particular, Xstrata rode the commodities boom by buying unloved assets just as a turn in the market during the 2000s was about to send them surging in value.
These takeovers didn’t always come cheap. While Glencore spent a median 1.4 times book value on the 20 deals for which valuation data are available, the 10 comparable pre-takeover transactions made by Xstrata came at 4.2 times book, according to data compiled by Bloomberg. That’s more than double the 2 times multiple in more than 3,500 deals across the mining, energy and agriculture sectors, separate data show.
The wave of deals also turned the new Glencore into a quite different business from the highly liquid, asset-light operation founded in 1974 by Marc Rich. Rich borrowed money from his father and father-in-law and got a partner to sell his vintage car to cobble together his 2 million Swiss francs of seed capital, according to the 2010 biography “The King of Oil.”
Using letters of credit secured against cargoes of oil and materials, the business could always settle its debts in a hurry. Moreover, by depending on volatility in commodity prices rather than the quality of any underlying assets, it could prosper in bear as well as bull markets.
Selling a tanker full of oil is easy; getting rid of a colliery is harder. Rio Tinto tried to sell some of its Australian and New Zealand aluminum operations back in 2011. Almost four years later, they’re still for sale, the Financial Times reported in May.
People think Glencore’s problem is its mysterious trading business. The more boring but pressing issue is its mediocre mining business. The company took on too much debt to buy assets which the market is now revaluing downwards.
More
Australian officials threaten to close giant Glencore zinc mine
Glencore Plc's McArthur River zinc mine in Australia could be ordered to
close unless it improves its environmental record and increases a financial
bond covering rehabilitation of the site, according to government officials.
Residents near the zinc mine, one of the world's biggest, have
complained of smoke coming from a waste rock dump, traces of lead in fish, and
a contamination incident last year which resulted in cattle in the area having
to be destroyed.
Adam Giles, the chief minister of the Northern Territory where the mine
is located, said his government had been talking to Glencore for months about
the need to come up with a plan to control increased levels of reactive waste
rock, a chemical which turns into sulphuric acid when it meets water.
"We have been working with the mine itself to increase its level
and standards of environmental protection at the site," Giles told
Australian Broadcasting Corp.
"We have been adamant that unless Glencore fixes its environmental
procedures and practices we will close the mine."
Miners in the Northern Territory are required to lodge a bond to cover
100 percent of the final remediation cost at every stage of the mine's life.
Glencore’s chief operating officer for zinc in Australia, Greg Ashe,
said the mine was engaged in a process with the government around the bond and
was committed to finding a balanced solution that meets the expectations of the
government, the mine and the community.
"McArthur River and Glencore have been very frank with the
government and the community about the environmental and operating challenges
we've been facing," Ashe told a mining conference in the Northern
Territory city of Darwin.
"The McArthur River Mine will continue to operate so long as we are
able to extract and process the ore safely, so long as we're able to maintain
our social license to operate and so long as we're economic."
A spokesman for Northern Territory Minister for Mines and Energy David
Tollner said Glencore had been issued with an Oct. 1 deadline to lodge an
amended bond.
More
In China, don’t expect a quick fix says LVMH. Not exactly
what Glencore wanted to hear.
LVMH's Biver Sees More Difficult 2016 for Swiss Watch Industry
September
29, 2015 — 11:35 AM BST
LVMH watch chief Jean-Claude Biver said 2016 is set to be a tougher year
for the Swiss watch industry because of the economic slowdown in China.
While revenue at LVMH brands such as Hublot should continue growing at a
double-digit rate in 2015, “the problem might be next year,” Biver said in an
interview Tuesday with Bloomberg Television. “Not only for us, but also for the
whole industry.”
The introduction of Apple Inc.’s smartwatch, combined with a surge in
the Swiss franc and China’s slowing economy, have clouded the outlook for Swiss
timepieces. Exports fell in August, heading for the first annual decline in six
years, and Swiss watchmaker executives are the most pessimistic in four years,
according to a study published this month by Deloitte LLP.
“Hong Kong is suffering,” said Biver, who announced in August that TAG
Heuer was closing a store in the island city as high rental costs and declining
numbers of customers weighed on margins. “There is also a problem in China.”
Swiss watchmakers have struggled with a shrinking Chinese market since
the country’s government started discouraging exuberant spending among
officials in late 2012.
More
In VW news, bad news just keeps piling up like unsold
diesels.
VW May Be Dropped by Swedish National Pension Funds Amid Scandal
September 29, 2015 — 6:27 PM BST Updated on September 29, 2015 — 11:00
PM BST
Sweden’s national pension funds may drop Volkswagen AG as an investment
option amid concerns that future returns will suffer after Europe’s biggest
carmaker cheated on emissions tests in some of its diesel cars.
The Third Swedish National Pension Fund, AP3, which managed 304 billion
kronor ($36.3 billion) at the end of June, and the Ethical Council it has with
the AP1, AP2 and AP4 funds will now evaluate the emissions scandal, Peter
Lundkvist, head of corporate governance at AP3, said by phone on Tuesday. While
VW "was prior to this definitely a company that belonged in our
portfolios," that may no longer be the case, he said.
"What we do when faced with a situation like this is to evaluate
based on our exclusion method, which looks at whether a company has breached
any conventions that the Swedish state has signed," Lundkvist said.
"That doesn’t seem to be the case with Volkswagen but we’ll now discuss
Volkswagen in our Ethical Council and we’ll talk to the company. It’s unlikely
that we would exclude the company because of the emissions scandal, but we may
decide not to hold Volkswagen shares because of our view on future
returns."
More
Diesel Scandal Undercuts One of VW's Few Strengths in Showroom
September 30, 2015 — 5:01 AM BST
Volkswagen’s admission this month that it was lying to customers about
the benefits of diesel engines hit where it hurts: the showroom.
The German brand had been counting on fuel-efficient and fun-to-drive
diesel-powered cars to turn around its slump amid a U.S. truck and SUV boom.
Now, with its smaller diesels pulled from dealer lots while engineers work on a
fix, analysts are split on whether VW will be the only major automaker to
report a sales decline for September.
No one is more eager for a VW refit than Alan Brown, who runs the
nation’s largest Volkswagen store. Even with 22 percent of his 237-vehicle
inventory now quarantined, he said customers at Hendrick VW haven’t
stopped asking about the cars. Last weekend, his team sold six new vehicles and
handled questions from customers who like the diesels, wanted to know when
they’d be available and wondered what kind of discounts they’d soon carry.
----America’s love of trucks and SUVs, fueled by available credit, affordable fuel and the latest technology, is helping push auto sales to the highest level in more than a decade. Industry researcher LMC Automotive is raising its 2015 total light-vehicle sales forecast to 17.2 million units from 17.1 million units.
When automakers report September sales on Thursday, the industry may show a 13 percent jump in car and light-truck deliveries, for an annualized rate, adjusted for seasonal trends, of 17.7 million, the average of 12 analyst estimates in a Bloomberg survey. The projected gains include 19 percent at Ford Motor Co., 14 percent at Fiat Chrysler Automobiles NV and 9.3 percent at General Motors Co. At Toyota Motor Corp., sales may rise 16 percent, seven analysts estimate. (For a detailed breakdown of estimates, click here.)
Volkswagen, including Audi, is likely to be the odd one out: Four analysts are evenly split between those who predict a decline or a gain. Their average estimate, for a 0.8 percent increase, is the lowest of any major automaker. If sales do rise, analysts said it may be that VW, like other automakers, benefited from Labor Day weekend, a traditional car-shopping holiday which last year fell in August. It would also likely be because of Audi: The average of three estimates for just the VW brand is for a 6.7 percent decline.
More
We end for the day with US frackers finally
running out of road. Most were unprofitable with West Texas Intermediate at
$100. At $45, most face restructuring at best, bankruptcy at worst. Last decade was so last decade. It’s not the
Greenspan-Bernocchio Bubbleworld anymore. The Fed’s talking chair seems to have
run out of ideas.Chesapeake Energy to cut 15% of workforce
Published: Sept 29, 2015 4:38 p.m. ET
Chesapeake
Energy Corp. CHK, +1.19%
said late Tuesday it reduced its workforce by 15%, or roughly about 800
workers, as part of a cost-cutting plan on weak oil and natural gas prices. The
move will result in a one-time charge of $55.5 million in the third quarter,
the company said. Shares of Chesapeake were down 0.2% in after-hours trade
after closing 1.2% higher to $6.79 during the regular session. The stock is
down 65% year to date.
“But it [the boom] could not last forever
even if inflation and credit expansion were to go on endlessly. It would then
encounter the barriers which prevent the boundless expansion of circulation
credit. It would lead to the crack-up boom and the breakdown of the whole
monetary system.”
Ludwig
von Mises.
At the Comex silver depositories
Tuesday final figures were: Registered 45.26 Moz, Eligible 120.98 Moz, Total
166.24 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
No crooks today, just more on the giant global commodities
malinvestment bubble now burst and its aftermath now sweeping over emerging
markets.
IMF: Commodities slump could hold growth rates lower for longer
Date September 29, 2015 - 4:57AM
Australians might have to get used to slower growth rates as commodity price
weakness persists and investment outside mining struggles to pick up the slack,
says the International Monetary Fund.The IMF, in its latest World Economic Outlook series, says the sharp decline in many metal and energy prices over the past few years will shave about 1 percentage point off gross domestic product growth rates between 2015 and 2017 in commodity-reliant emerging markets.
According to its formula, growth rates in Australia could slip to 1.8 per cent over the next three years, from 2.8 per cent between 2012 and last year.
However, reforms designed to smooth out the peaks and troughs of previous commodity booms means developed economies such as Australia should not suffer as much, the IMF says.
"Whether the decline in growth has opened up significant economic slack – that is, has increased the quantity of labour and capital that could be employed productively but is instead idle – and the degree to which it has done so are likely to vary considerably across commodity exporters," the IMF says.
"The variation depends on the cyclical position of the economy at the start of the commodity boom, the extent to which macroeconomic policies have smoothed or amplified the commodity price cycle, the extent to which structural reforms have bolstered potential growth, and other shocks to economic activity."
At the end of June, Australia's economic growth was running at 2 per cent, down from 2.5 per cent at the end of the first quarter.
Some indicators point to a further slowing in the growth rate, with the most bearish investment bank economists warning that Australia could struggle to reach 2 per cent growth this year. Goldman Sachs rates the chances of a recession at one in three.
----Although the commodities-related downswing is more marked in emerging markets whose economies aren't as open and flexible as Australia's, developed world commodities exporters are also vulnerable to slower growth when export prices come down, the IMF says.
Norway, one of the world's biggest oil exporters, last week cut its key overnight deposit rate to a record low 0.75 per cent in an effort to arrest declining growth rates and rising unemployment. Canada, another developed economy, has slipped into recession because of soft oil and gas prices.
"Commodity-exporting economies are at a difficult juncture," the IMF says.
"Global commodity prices have declined sharply over the past three years, and output growth has slowed considerably among commodity-exporting emerging market and developing economies."
The IMF's warning echos those of a long list of Australian experts.
More
Solar & Related Update.
With events happening fast in the development of solar power and graphene, 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? DC? A quantum computer next?These Incredible Saltwater Batteries Are Designed To Store Renewable Energy
Now we can clean power even when the sun isn't shining or the wind isn't blowing.If we're going to use renewable power in a big way, we're going to need better battery storage. Because solar and wind are intermittent sources of energy, they need to be backed up for when they're not there, because, say, it's night time.
Also, we're currently wasting a lot of renewable power because we don't use it at the moment it's produced. Wind turbines are a bit like car factories that only sell half their vehicles; when there's more power generated by turbines than the grid can handle, that power is "curtailed" and lost, rather than saved for another time.
There are few things that separate Aquion's saltwater batteries—which are designed for renewable energy storage—from other new batteries. For one, they're entirely non-flammable, unlike some lithium-ion batteries that have sometimes caught fire. And second, they're easily disposed of (Jay Whitacre, who invented them, calls them the "first Cradle-to-Cradle batteries"). But perhaps the most important thing is that they're available at all. There are dozens of interesting storage technologies in development these days. But the field is notorious for producing good ideas that, for one reason or another, aren't quite ready for prime time.
"A lot of things that are put forward as the next thing in batteries actually have very unexplored scalability," says Whitacre, a professor at Carnegie Mellon University’s College of Engineering. "Our team's decision very early on was not to work on things that didn't have an obvious path to manufacturing. We started from almost 'how do I manufacture this?' rather than 'what material should I use?'"
The batteries are made from non-toxic materials like salt water, carbon and manganese oxide, and packaged into stackable modules. They don't have the energy density of lithium-ion batteries (say, the ones used in electric cars) but they also don't degrade as quickly and don't need the same "thermal management" (i.e. equipment to make sure they don't heat up or cool down too much). And, as already mentioned, they're non-toxic, unlike lead batteries.
Aquion produces them from a former car factory outside Pittsburgh and already has several dozen customers. For example, a resort in Hawaii, Bakken Hale, has a 1MW battery stack, allowing it to completely rely on its solar panels for power.
Whitacre opened Aquion Energy in 2008, receiving venture finance from Kleiner Perkins Caufield & Byers a little time later. The company started manufacturing last year. Whitacre himself recently picked up the $500,000 Lemelson-MIT Prize, which recognized his ability "to connect laboratory discovery, policy impact and entrepreneurial savvy."
Whitacre plans to use the money partly to pursue new fundamental battery research, though only the most practical kind. "I want to do work that is more useful near-term," he says.
The monthly Coppock Indicators finished August
DJIA: +65 Down. NASDAQ:
+168 Down. SP500: +92 Down.
