Baltic Dry Index. 943 +21 Brent Crude 48.14
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
“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.
This morning Europe is in crisis. Catalonia, Spain’s richest region just about voted to leave Spain. While Scotland voted last year 55:45 to remain in the United Kingdom, Catalonia Seems to have voted 48:52 to leave Spain. But it’s much more complicated than that. The separatist parties hold a majority in Catalonia’s parliament. Spain’s ruling party and the loyal opposition party were well and truly trounced. Spanish debt now becomes suspect. Spain remaining intact becomes suspect. What happens in the next 18 months is completely uncertain. Catalonia give a big boost to nationalist Parties in France, and elsewhere in Europe. Brexit just became a very real reality.
Victorious Catalan separatists claim mandate to break with Spain
Separatists on Sunday won a clear majority of seats in Catalonia's
parliament in an election that sets the region on a collision course with
Spain's central government over independence.
"Catalans have voted yes to independence," acting regional
government head Artur Mas told supporters, with secessionist parties securing
72 out of 135 seats in the powerful region of 7.5 million people that includes
Barcelona.
The strong pro-independence showing dealt a blow to Spanish Prime
Minister Mariano Rajoy, three months before a national election. His
center-right government, which has opposed attempts to hold a referendum on
secession, has called the separatist plan "a nonsense" and vowed to
block it in court.
Spain's constitution does not allow any region to break away, so the
prospect remains highly hypothetical.
The main secessionist group "Junts pel Si" (Together for Yes)
won 62 seats, while the smaller leftist CUP party got another 10, according to
official results.
They jointly obtained 47.8 percent of the vote in a record turnout of 78
percent, a big boost to an independence campaign that has been losing support
over the last two years.
Both had said before the vote that such a result would allow them to
unilaterally declare independence within 18 months, under a plan that would see
the new Catalan authorities approving their own constitution and building
institutions like an army, central bank
and judicial system.
and judicial system.---- The vote in Catalonia, Spain's second-most populous region, is widely expected to influence the course of the Spanish general election in December.
Spain's two dominant parties - the ruling People's Party and the
opposition Socialists - lost tens of thousands of votes compared with the last
election in 2012, boding ill for their national ambitions, although the PP
suffered a much deeper setback than its rival.
Morehttp://www.reuters.com/article/2015/09/28/us-spain-catalonia-idUSKCN0RQ0RN20150928
Below, the other reason Europe is in crisis. Volkswagen, a company with 600,000 employees, mostly in Germany, is in deep existential trouble following it criminal insanity. The illegality seems to have gone right to the top, and existed since 2007. Worse. The company seems to have ignored many warnings not to employ emissions defeat software, resulting in many thousands of tons of health harming pollutants spewing out into the world’s cities and streets. The biggest impact will be in Europe and Germany, where diesel engines make up nearly 50 percent of auto sales. This criminal corporate will get worse before it gets better. How long before VW closes down diesel production lines, laying off German workers? How long before German GDP takes a hit? Forget about German leadership in Euroland now. When Germany speaks no one will be listening. This morning Europe is in deep and deepening crisis.
German Transport Authority Asks VW to Present Car Clean-Up Plan
September 27, 2015 — 2:49 PM BST
Germany’s car regulators have asked Volkswagen AG to provide a plan by
Oct. 7 for if and when its vehicles will meet national emissions requirements,
after the company admitted cheating on U.S. air-pollution tests.
The Federal Motor Transport Authority sent a letter to VW requesting a
“binding” program and schedule for a technical solution, Transport Minister
Alexander Dobrindt said Sunday in an e-mailed statement.
Volkswagen will present a plan in the coming days for how it will fix
its affected vehicles and will notify customers and relevant authorities, Peter
Thul, a company spokesman, said by phone. Bild reported earlier about the
letter.
VW may have known for years about the implications of software at the center of the test-cheating scandal, newspapers reported. Robert Bosch GmbH warned VW in 2007 that its planned use of the software is illegal, according to Bild. A Volkswagen employee did the same in 2011, Frankfurter Allgemeine Zeitung reported. Volkswagen is investigating and will present its findings as soon as they’re available, Thul said, declining to elaborate.
VW may have known for years about the implications of software at the center of the test-cheating scandal, newspapers reported. Robert Bosch GmbH warned VW in 2007 that its planned use of the software is illegal, according to Bild. A Volkswagen employee did the same in 2011, Frankfurter Allgemeine Zeitung reported. Volkswagen is investigating and will present its findings as soon as they’re available, Thul said, declining to elaborate.
VW scandal exposes cozy ties between industry and Berlin
It was the spring of 1995 and the newly appointed environment minister was trying to convince her cabinet colleagues to back a bold new set of anti-smog rules that included tougher speed limits and summer driving bans.
But Matthias Wissmann, the transport minister with close ties to industry, was having none of it. He questioned whether Merkel's measures would cut pollution levels at all and vowed to fight any attempt to impose speed limits on the Autobahn.
Wissmann's argument won the day, reducing Merkel to tears, according to a 2010 biography by Gerd Langguth. For the ambitious young minister from the communist East it was a lesson about how politics worked in a united Germany.
Much has changed in the intervening years. Merkel is now in her third term as chancellor. Wissmann heads the Verband der Automobilindustrie (VDA), the influential lobby group for German automakers.
But there is one constant: the clout of the auto industry in German politics.
This relationship, which some describe as symbiotic, bordering on incestuous, is in the spotlight now, as Volkswagen (VOWG_p.DE), the country's largest carmaker, reels from an emissions scandal that has forced out its long-time CEO Martin Winterkorn and sent its stock careening lower.
More
Did Privilege Enable Volkswagen’s Diesel Deception?
Few complained about Volkswagen’s
special privileges while it was producing good cars. But it turns out it
wasn’t.
September
24, 2015 — 8:10 PM BST
----In Europe, most golden shares are held in utilities and telecoms,
companies that were state monopolies before being privatized. For more than a decade,
the European Union, as it expanded and liberalized its common open market, has
been trying to undo the persistence of state control. But there is one golden
share that has endured, a German law so breathtakingly exceptional it can only
be called what it is in fact called—“das VW-Gesetz,” the Volkswagen Law. It is
explicitly designed for a single company. Germany has managed to defend its
golden share against the EU because VW had built a reputation as a force for
good: responsible corporate citizen, pioneer in environmental progess. That
reputation has just run out of Fahrvergnügen.
Regulators in the U.S., France, South Korea, Italy, and now Germany have
announced investigations into whether Volkswagen purposely designed software so
its diesel engines could defeat emissions tests. The company will recall
11 million cars, and its stock has fallen as much as 30 percent on the
news. The company quickly set aside $7.3 billion to cover costs related to
the scandal, a figure that may fall short of the mark.
---- the Volkswagen Law, Saxony has a controlling interest with virtual veto
power—the golden share. Weil is both government minister and owner. This is a
coziness that is exceptional even in consensus-driven Germany.
Publicly held German companies have two boards. Executives sit on the
management board. They are in turn controlled by the supervisory board, which
includes shareholders and labor leaders. Broadly, Germany’s dual-board
structure preserves executive independence. Yet at Volkswagen, labor has an
extra friend on the top board: the state. “You have the voice of the government
present in the shareholder meetings,” says Carsten Gerner-Beuerle, an expert on
corporate governance at the London School of Economics. “That is not something
you’d see in any other board.”
In Lower Saxony, labor leaders deliver votes to endemically left-center
state governments, which in turn use their veto to keep Volkswagen’s 72,000
German jobs in place. Working together, labor and government have extraordinary
power at Volkswagen. There is no evidence to link this power to the company’s
diesel deception, though the setup does help shield the company from the
capital markets. Porsche learned this lesson when it borrowed heavily to try to
buy Volkswagen in 2008. Lower Saxony’s golden-share veto protected Volkswagen,
and overleveraged Porsche found itself acquired instead.
More
In US oil patch news, it’s blow
out Armageddon ahead for most. Most are reaching the end of any hedges they may
have put on against future production, just as banks and hedge funds are
turning off the tap of new cheap finance. Even the lucky handful able to secure
new credit, at 45 dollar oil, it won’t come with a 100 dollar interest rate. Q4
15 heralds a bloodbath in US tight oil and Canada’s tar sands.
Junk-Debt Investors Fight for Scraps as U.S. Shale Rout Deepens
September
25, 2015 — 9:57 PM BST
It’s every U.S. shale investor for himself as the worst oil rout in
almost 30 years drags down its latest victims.
Investors in $158.2 million of Goodrich Petroleum Corp.’s debt agreed to
take 47 cents on the dollar in exchange for stock warrants for some note
holders and a lien on Goodrich’s oil acreage, according to a company statement
today. That puts them second in line if the Houston-based company liquidates
its assets in bankruptcy and pushes the remaining holders of $116.8
million in
original bonds to the back of the pack.
original bonds to the back of the pack.
"In the industry it’s called ‘getting primed,’" said Spencer
Cutter, a credit analyst with Bloomberg Intelligence. "It’s every man for
himself. They’re trying to get in and get exchanged, and if you can’t you’re
getting left out in the cold."
Wildcatters attracted billions of dollars during the boom after years of
near-zero interest rates sent investors hunting for returns in riskier corners
of the market. U.S. high-yield debt has more than doubled since 2004 to
$1.3 trillion while the amount issued to junk-rated energy companies has grown
four-fold to $208 billion, according to Barclays Plc. Most of the companies
spent money faster than they made it even when oil was $100 a barrel and are
struggling to stay afloat with prices at $45.
----This was Goodrich’s second exchange this month. Three weeks ago, the
company swapped $55 million on convertible notes for bonds worth half as much.
To sweeten the deal, it lowered the share price at which investors can turn
their notes into stock to $2.
Investors who didn’t participate in Goodrich’s earlier exchange took
another hit with today’s swap because it put holders of the new bonds ahead of
them in liquidation. Prices fell four cents to 18 cents on the dollar,
according to Trace, the bond-price reporting system of the Financial Industry
Regulatory Authority.
Goodrich isn’t the only one. Earlier this month, Halcon paid about 65
cents on the dollar to investors in $1.57 billion of the company’s debt, in
exchange for being third in line to get paid if the company fails. The
Houston-based company is led by Floyd Wilson, who became a legend in the shale
patch after selling his last company, Petrohawk Energy Corp., to BHP Billiton
Ltd. for $15.1 billion four years ago.
Once again, the leftover unsecured bondholders lost value. The notes
fell after the swap was announced Aug. 27, and are now trading at about 35
cents on the dollar from about 46 cents before the announcement.
"The bubble is bursting," Cutter said. "And if oil
stays where it is, the worst is yet to come."
We end for the day with stock market rigging China. China has shot
itself in the foot.
Asset managers slap health warnings on China funds in risk rethink
Fund managers are adding new warnings to China investment products in a
bid to reduce their legal liability if regulators repeat the heavy-handed
intervention in financial markets that rattled investors globally.
Hedge funds, asset managers and exchange traded fund (ETF) providers are
scrambling to add the new disclosures to legal fund documents following
watershed government actions in recent months that are now forcing managers to
rethink China investment risk.
The legal measures illustrate the degree to which China's market
intervention is set to have a tangible long-term impact on investor confidence.
Rather than shrugging off the actions of the government, fund managers see the
intervention as a material risk going forward, lawyers and fund managers said.
"The government's actions have shown their lack of confidence in
the market mechanism and its ability to achieve stable levels reasonably
swiftly," said Sanjiv Shah, chief investment officer at London-based Sun
Global Investments, which manages money for high net worth clients.
"This further damages the confidence of existing and prospective
investors."
The disclosures on trading halts, liquidity freezes, short-selling bans,
and other regulatory restrictions, could see retail investors, pension funds,
and insurers pull more money out of these products in coming months.
More
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.
At the Comex silver depositories Friday
final figures were: Registered 46.22 Moz, Eligible 121.23 Moz, Total 167.45
Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
No crooks or bent politicians today, just words of
wisdom from one of the top analysts on Wall Street. Some interesting thoughts
on China’s figures and some interesting thoughts on gold.
Jim Grant On Helicopter Money And The Comeback Of Gold
by James Grant • September 26, 2015
Interview by CHRISTOPH GISIGER at Finanz und Wirtschaft
James Grant, Wall Street expert and editor of the investment journal
«Grant’s Interest Rate Observer», warns of ever more extreme central bank
policies and bets on the comeback of gold.
The global financial markets are under severe stress. The postponed
interest rate hike in the United States, the fast cooldown of the Chinese
economy and the crash in the commodity complex are causing a great amount of
unease among investors. Fear is growing that the world slips into recession.
«Central bank policy is intended to paper over the cracks in the systems. Seven
years after the outbreak of the financial crisis we’re paying for this with a
lack of growth», says James Grant. The sharp thinking editor of the iconic Wall
Street newsletter «Grant’s Interest Rate Observer» draws worrisome parallels
between the command based central planning of the Chinese economy and the
economic policies in the West. He also doubts that Fed Chair Janet Yellen is
the right fit for the top job at the world’s most powerful central bank.
Looking for protection he points to gold and shares of gold miners
Jim, since the fall of Lehman Brothers seven years have passed now. In
what kind of world are investors living in today?
It seems longer ago, doesn’t it? Certain things have not changed. The
first of those permanent things is the nature of human beings who operate in
markets and their tendency to buy high and sell low. That is just as it was the
day before Lehman failed and it’s just as it will be forever. What’s new and
different is the larger than life presence of government in our markets, both
with respect to regulation and with respect to the management and the
production and the manipulation of money.
Are you referring to super low interest rates?
There is nothing so terribly new about very low interest rates. In the
19th century interest rates fell for most of the area from the end of the
Napoleonic wars in 1815 to the turn of the 20th century. But something new
under the sun might be very well the hyperactivity of our central banks.
But without their interventions we might be even worse off today.
We are living in the age of magical thinking. Governments through
central banks have muscled down money market interest rates to zero and in some
cases below zero. Not content with that, they have implemented what economists
chose to call «the portfolio balance channel». That’s a very fancy phrase
meaning higher stock prices in the interest of rising aggregate demand. That
was the theory of the Bernanke Fed and it certainly was the theory of the
Chinese communists who sponsored the fly away levitation of the Shanghai
A-shares. So the world over – and this goes for Europe as well – central
bankers have taken it upon themselves to sponsor great bull markets in the
hopes of making people spend more because they will feel richer. That was the
theory. But they neglected to think through the full consequences of these
policies.
The
slowdown in China is putting the financial markets under a lot of stress. How
bad is the situation?
If I
were a member of the ruling elite of the Chinese communist party I would say to
myself: «Wait a second, we were just doing what the capitalist West was doing
for the sake of economic recovery: Manipulating interest rates,
administering asset prices through QE and inducing people through broad winks
and nudges to taking risks and thereby seeding bull markets. When things went
to smash in 2008 they didn’t arrest short sellers but they did threaten them as
well. So what are we doing that’s different?» What China is doing different is
that they’re doing it more ham handed. But aren’t there rather obvious
analogies between old fashioned marxist central planning of the entire economy
and our style of western central banking in which they seek to impose certain
outcomes through the manipulation of prices?
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?Moody's: Declining battery prices could lead to commercial and industrial customer adoption in 3-5 years
Global Credit Research - 24 Sep 2015
New York, September 24, 2015 -- Commercial and industrial use of lithium-ion
batteries for energy storage could become economically viable in the next three
to five years if the decline in battery prices persists, according to a new
report by Moody's Investors Service. Battery prices have declined more than 50%
since 2010. Expanded battery use will be credit negative for US merchant
generators in the longer-run due to the subsequent lower prices for capacity
and peak energy. Regulated utilities will see a smaller impact, but will face
cost-shifting issues. Practical applications of batteries include peak-shaving, where commercial and industrial customers could satisfy a portion of their peak power demands with a battery that charges at night and is used during peak load hours. At the grid level, batteries can be used to integrate renewable energy and supplement ancillary services which helps with minute-to-minute grid stability.
"New York City stands out as the most promising economic market for peak-shaving because of its high demand charges, followed by California, Hawaii and the northeastern states," says Moody's VP -- Senior Credit Officer Swami Venkataraman, lead author of the report. "Current battery prices are only about 20-25% greater than breakeven levels for peak-shaving applications in New York City."
The report said other battery applications such as grid-based storage are less economically viable and, most likely, will need to initially rely on contracts with utilities. Regulatory support provided by states such as California, New York and Hawaii will be critical to increasing volume growth that will eventually lead to further battery price declines.
In the long term, merchant generators such as Calpine Corp. (B1 positive), NRG Energy Inc (Ba3 stable) and Dynegy Inc (B2 stable), could face lower capacity prices if commercial and industrial demand for power materially drops during the peak hours of the day. Grid-connected batteries could further lower on-peak energy prices and dampen power price volatility, a credit negative.
Moody's says batteries are also credit negative, though less so, for regulated utilities, such as Pacific Gas & Electric Co. (A3 Stable), Southern California Edison Co. (A2 stable), Hawaiian Electric Co Inc. (Baa1 negative) and Consolidated Edison of New York Inc. (A2 stable)
"Peak shaving will lower power bills for commercial and industrial customers, which will lead to regulated utilities shifting costs from battery customers to non-battery customers to recoup the revenue losses", says Venkataraman. "But grid storage also represents a potential investment opportunity for regulated utilities".
Aside from falling prices, other factors affecting battery growth rate and adoption include customer electric usage, improvements in battery reliability, local fire and safety codes and battery technical specifications.
https://www.moodys.com/research/Moodys-Declining-battery-prices-could-lead-to-commercial-and-industrial--PR_335274
The monthly Coppock Indicators finished August
DJIA: +65 Down. NASDAQ:
+168 Down. SP500: +92 Down.
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