Petro-dollar Recession.

Baltic Dry Index. 817 -24        Brent Crude 53.89

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

“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”

“Adam Smith” aka George Goodman.

We open today with the Great Commodity Crash, specifically the oil industry. After a year of a massive price crash, our 21^st century world has entered something of a petro-dollar slump. Not only is the velocity of money slowing, but we seem to have entered a quantity of money slowdown, at least in the world outside of the QE forever central banks. I wonder where this petro-dollar recession shows up next? No more new cars or furniture says Saudi Arabia’s King Salman. I guess all those dirty diesel Volkswagens won’t be heading to Arabia anytime soon.

Wealth Funds From Oslo to Riyadh Raid Coffers to Offset Oil Drop

October 8, 2015 — 3:28 PM BST

From Oslo to Doha, Riyadh to Moscow, governments that rode crude’s historic rise to unprecedented wealth are now being forced to start repatriating their rainy-day funds just to make ends meet.

The halving of oil to less than $50 a barrel has the potential to alter one of the most powerful economic and political forces of the past half century: the rise of the petrostate. These countries led a surge in state investments in the U.S. and Europe that now totals about $7.3 trillion globally, according to the Sovereign Wealth Fund Institute.

During the last boom, the oil countries flaunted their wealth abroad by buying stakes in iconic companies such as Barclays Plc as well as trophy assets including Manhattan hotels, European soccer clubs and London luxury homes, often in the face of opposition from the local public.

Such swagger is fading.

The biggest fund, Norway’s, this week said it expects to tap its $820 billion stockpile for the first time next year to balance its budget, following similar moves across the Persian Gulf and in Russia. If sustained, the withdrawals may be felt by investors the world over, according to Michael Maduell, president of the Las Vegas-based Sovereign Wealth Fund Institute.

"If the wealth funds of Norway and the Gulf countries begin to slowly pull out, it will have an impact on financial markets," Maduell said by e-mail.

Looking ahead, TheCityUK, a lobby group for the financial services industry in London, expects sovereign-fund assets will increase by just 4 percent in 2015 to $7.4 trillion, well below the 12 percent average annual growth seen over the previous five years.

The amount of petrodollar investments in the five years through 2014 was on a similar scale to the Federal Reserve’s bond-buying program, known as quantitative easing, according to analysts at Barclays. As the flows have reversed, the world has lost about $400 billion in annual demand for financial assets, they said.

Nowhere is the decline more evident than in Saudi Arabia. The kingdom’s foreign holdings fell for the seventh month in a row in August to $654.5 billion, the lowest since February 2013, according to data from the Saudi Arabian Monetary Agency. The oil slump has spurred the biggest Arab economy to search for savings, contemplate project delays and sell bonds for the first time since 2007.

More http://www.bloomberg.com/news/articles/2015-10-08/wealth-funds-from-oslo-to-riyadh-raid-coffers-to-offset-oil-drop

No more new cars or furniture, says king as oil slump forces cuts on Saudi Arabia

Secret memo reveals King Salman imposing unprecedented austerity on public-sector budget as oil price languishes at under half of break-even level

Thursday 8 October 2015 17.51 BST
The Saudi government has banned official purchases of cars and furniture and slashed travel budgets and infrastructure spending as it faces its gravest fiscal crisis for years because of low oil prices, according to leaked internal government documents.

Secret Saudi policy memos issued by King Salman to the finance minister detail the new economic austerity measures to be implemented across all government ministries. Saudi public finances have been depleted this year by tumbling oil prices to such an extent that the kingdom is expected to run a deficit of at least 20% of GDP in 2015.

One letter marked “Highly Confidential and Most Urgent” dated 14-12-1436 (28 September 2015 in the Islamic calendar) gives strict instructions to stop any new projects, end the purchases of any new vehicles, furniture or other equipment, freeze all appointments and promotions, stop compensation payments for property, and halt any new rental agreements.

Expenditure from existing budgets and projects during the fourth quarter are forbidden to exceed 25% of the agreed totals, and expenditure on travel and other business-related expenses are not to exceed 15% of the original budget.

----Another leaked document on Ministry of Finance notepaper entitled “Instructions on closing the accounts and preparing the final account for the financial year 1436-37” ends with instructions that ministries must make final payments for the year-end before close of business on 15 November.

Since the Saudi fiscal year finishes on 30 December 2015, this suggests many Saudi civil servants could go unpaid for the final six weeks of the year.

More
http://www.theguardian.com/world/2015/oct/08/no-more-new-cars-furniture-king-oil-slump-forces-cuts-saudi-arabia

Goldman Sachs sees oil rally fading

Tom DiChristopher  12 Hours AgoCNBC.com

Goldman Sachs said Thursday it expects this week's oil rally to fade and reiterated its call that crude prices will remain lower for longer.

"We continue to view the oil market as oversupplied and with low prices required to achieve the sufficient rebalancing in 2016," Goldman analysts wrote.

U.S. crude has jumped 9 percent since Friday, when the U.S. Labor Department reported the United States added far fewer jobs than expected in September. The disappointing data increased investors' expectations that the Federal Reserve would postpone its first interest rate hike in nine years until 2016.

Goldman said the surge was likely driven by positioning and technicals rather than any change in fundamentals. The firm notes that oil's rally has coincided with a bounce in assets exposed to emerging markets, which typically experience outflows when rates rise.

The MSCI Emerging Markets Index is up more than 7 percent since Friday.

While the Fed's decision to leave rates near zero is a short-term boon to emerging markets, it is ultimately bearish because it suggests central bankers believe economic activity remains weak in both the U.S. and the developing world, Goldman noted. That raises the risk that oil demand remains skewed to the downside.

In a widely cited research note issued last month, Goldman said crude prices could fall as low as $20 if a drop-off in production takes place too gradually.

Saudi Arabia continues to rule out the prospect of reducing OPEC output in order to prop up prices, leaving the United States as the swing producer. But U.S. production has remained stubbornly high as American drillers have secured discounts from vendors, raised capital on debt and equity markets, and turned to more economic methods of plumbing for crude.
More
http://www.cnbc.com/2015/10/08/goldman-sachs-sees-oil-rally-fading.html

In other commodities news, wounded commodities trader and mining giant Glencore turns on zinc. Desperate times calls for desperate measures. Still it’s indirectly good news for silver, since silver is a by-product of the copper and zinc mines getting closed or reduced production.

Glencore Cuts Zinc Output to Defend Against Metals Price Plunge

October 9, 2015 — 12:28 AM BST Updated on October 9, 2015 — 4:19 AM BST

Glencore Plc plans to cut zinc production by about a third, having already curbed copper and coal output, as the Swiss mining and trading giant continues to navigate the rout in commodity prices that last week briefly wiped $6 billion from its market value.

The company is restructuring its finances and operations as it attempts to get ahead of investors’ concerns that it carries too much debt given its exposure to cratering raw materials prices. As a major supplier of base metals such as copper, nickel and zinc, its metals and minerals businesses delivered about 30 percent of its revenues last year.

Annual zinc output will fall by about 500,000 metric tons as Glencore suspends or cuts output from mines in Australia, Peru, and Kazakhstan, it said Friday in a statement. Global production was 13.3 million tons in 2014, according to the U.S. Geological Survey.

The curbs will shave about 100,000 tons from fourth quarter output, Glencore said, while production of other metals including lead and silver will also be affected. Zinc, which helps protect steel from corrosion, rose as much as 5.4 percent on the London Metal Exchange, the most in more than a month. Prior to Glencore’s announcement, it had fallen 23 percent this year.

“The main reason for the reduction is to preserve the value of Glencore’s reserves in the ground at a time of low zinc and lead prices, which do not correctly value the scarce nature of our resources,” the company said. Glencore is “positive about the medium and long-term outlook for zinc, lead and silver prices.”

Glencore rose 1 percent in Hong Kong trading to HK$14.38 by 11:12 a.m., leaving its decline over the year at 58 percent.

----Commodities prices have tumbled in recent months as producers of metals to energy struggle to curb surpluses due to slower economic expansion in China. The nation accounted for half of the world’s refined zinc consumption in 2014, according to Bloomberg Intelligence.

Glencore’s decision “may be an indication of just how weak demand is at the moment,” Perth-based Macquarie Group Ltd. analyst Ben Crowley said by phone. The producer’s full-year zinc output in 2014 was 1.4 million tons, according to its annual report.

More
http://www.bloomberg.com/news/articles/2015-10-08/glencore-to-cut-zinc-output-by-about-a-third-on-weaker-prices

We close for the week with Uncle Scam setting sail to provoke its leading creditor China.  My guess is that such a provocation will not go down well and will be met in kind.

U.S. to sail warships near disputed South China Sea islands: reports

Thu Oct 8, 2015 9:14am EDT

The United States is expected to sail warships close to China’s artificial islands in the South China Sea within the next two weeks to signal it does not recognize Chinese territorial claims over the area, media reports said.

The ships will sail within the 12-nautical-mile zones that China claims as territory around some of the islands it has constructed in the Spratly chain, the Financial Times and the Navy Times reported.

Chinese Foreign Ministry spokeswoman Hua Chunying told a regular news briefing on Thursday that China was paying attention to such reports, and that it and the United States have maintained “extremely thorough communication” on the South China Sea issue.

“I believe the U.S. side is extremely clear about China’s relevant principled stance," she said. "We hope the U.S. side can objectively and fairly view the current situation in the South China Sea, and with China, genuinely play a constructive role in safeguarding peace and stability in the South China Sea.”

The White House declined to comment on potential classified naval operations. The U.S. State Department and Pentagon did not immediately respond to requests for comment on the report.

U.S. President Barack Obama said he told Chinese President Xi Jinping he had "significant concerns" about the islands when Xi made his first state visit to Washington late in September.

    Xi said the islands were not being militarized, but Washington analysts and U.S. officials say the militarization already has begun, and the only question is how much military hardware China will install.

More
http://www.reuters.com/article/2015/10/08/us-usa-china-southchinasea-idUSKCN0S21D220151008

"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."

Murray N. Rothbard

At the Comex silver depositories Thursday final figures were: Registered 42.96 Moz, Eligible 120.18 Moz, Total 163.14 Moz. 

Crooks and Scoundrels Corner

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

No crooks today, just more on China amassing tons of physical gold. What does China know, or thinks it knows, that we don’t?

"The desire for gold is the most universal and deeply rooted commercial instinct of the human race."

Gerald M. Loeb

China making attempt to become gold trading center of the world

Amassing tons at a rate representing 90 percent of newly mined gold totals for 2015

By Paul Gilkes , Coin World Published : 10/07/15

The People's Bank of China is amassing tons of gold in an apparent effort to become the gold trading center of the world, according to Mike Fuljenz, a gold dealer and market analyst.

In The Mike Fuljenz Metals Market Report for the first week of October, Fuljenz writes that "transfers from Switzerland (a traditional gold trading center in Europe) to China are part of the global gold migration from the West to the East. China is also absorbing much of the gold sold by U.S. ETF [exchange-traded fund] traders. Sales in the new Shanghai Gold Exchange (SGE) exceed trading volumes at any other global gold market. Over 65 metric tons of gold were withdrawn in the week ending September 25, making a year-to-date total of 1,958.7 tons, an annual rate of nearly 2700 tons — which represents about 90 percent of the newly-mined gold totals this year."

According to EconomicInfoHub.com, China has spent the past six years importing thousands of metric tons of gold and buying all of its own domestic production.

EconomicInfoHub.com reports that according to Koos Jansen at BullionStar.com, "the China Gold Association (CGA) Yearbook listed net imports in 2013 at 1,524 tonnes, with an additional 428 tonnes from domestic production, a sum total of 1,952 tonnes. In 2014, China imported at least 1,250 tonnes and domestically mined 452 tonnes, for a sum total of 1,702 tonnes. Total imports amounted to more than 410 tonnes in the first two months of 2015 alone, which is a big jump from 2014 demand.

http://www.coinworld.com/news/precious-metals/2015/10/china-and-russia-buying-massive-amounts-of-gold.html

LAWRIE WILLIAMS: Chinese Gold Reserves Up Another 15 t as Forex Reserves Tumble $43bn

October 7 2015

Latest gold reserve figures from the Chinese central bank show that the country added another 15.01 tonnes in September.  At September’s average gold price that will have equated to around a little under US$600 million in value.  But total Chinese forex reserves dived by a massive $43.3 billion to their lowest level in over two years, so the official gold purchase figure – if it is to be believed – forms only a very small part of this.

Some see the additional gold taken into the bank’s coffers as yet another indication of China’s intent to diversify its forex reserves out of the dollar, but the amounts are tiny relative to the size of the country’s overall forex reserves which still sit at a massive $3.5 trillion! The big September fall (1.2%) in the latter either suggests a huge programme of mostly dollar denominated sales in order to maintain the country’s current currency relationship with the greenback and to help prop up the domestic economy, or perhaps some other unknown transactions involved – or a combination of both.

We can speculate that one such other transaction could be that China is buying much more gold than it is saying and holding it in other accounts which it doesn’t feel the need to report to the IMF as part of its official gold reserves.  It has done this in the past – for example claiming that its gold reserve total was unchanged from April 2009 to June this year and then suddenly announcing it had miraculously risen from 1,054 tonnes to 1,658 tonnes at the end of that month.  A rough calculation suggests that it had thus been buying an average of 8 tonnes a month over that six-year period – a figure which few analysts consider credible in that even some of the more conservative ones feel the country’s actual purchases have been perhaps more than 30 tonnes a month over that period of time. 

Since the uprating of its official gold reserve figure in June, China has been reporting ‘official’ monthly gold purchase figures in the interests of ‘transparency’ – 19 tonnes in July, 16 tonnes in August and now 15 tonnes in September.  But nothing in the Chinese economic system is truly ‘transparent’ in terms of official reporting, so why should anyone really believe the new monthly gold purchase figures either?  Indeed perhaps the real question is whether we should believe any of the global national official reserve figures shown in the table of top 20 official national gold reserves noted below.  Almost all countries are known to ‘manage’ their official statistics to suit their political masters and most have not reported any reserve changes for far longer than the Chinese non-reporting periods.

More

http://news.sharpspixley.com/article/lawrie-williams-chinese-gold-reserves-up-another-15-t-as-forex-reserves-tumble-usd43bn/239297/

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 21^st century onwards? DC? A quantum computer next?

  

The amazing affordable NexusHaus generates more energy than it consumes

2 days ago  under Architecture, Gallery, Prefab Housing, Solar Decathlon

NexusHaus is an affordable, plus-energy, one-story home designed by the students from the Technische Universität München (TUM) and the University of Texas at Austin (UTA) for the 2015 Solar Decathlon Competition. The prototype is made almost entirely from sustainable materials and is equipped with an efficient water-treatment system and rooftop solar panels. The team is currently building and testing the house in Austin, Texas.

This project addresses the lack of affordable housing in Austin, which is experiencing rapid population growth. The students decided to build a structure using cradle-to-cradle design principles, so the home is built almost entirely of renewable and reusable materials, with solar power modules mounted on the flat roof. Solar panels provide enough electricity for lighting, air conditioning, household appliances, and an electric car.

A heat pump is combined with an integrated thermal storage system to cool and heat the water circuit in an economically optimized way. Rainwater is collected in large storage tanks and can be used as drinking water with the help of a filter system. Gray water is used for the washing machine, sink, and shower, while an aquaponic system helps irrigate the food plants.

Most of the materials are pollutant- and toxin-free, and the components can be broken down and recycled. The team used renewable raw wood for the facade, while the bathrooms feature cradle-to-cradle ceramic tiles. NexusHaus is expected to be completed and tested by next summer, after which it will be transported to Irvine, California, where it will compete against other entries at the Solar Decathlon Competition taking place in October.

More

http://inhabitat.com/nexushaus-is-an-affordable-plus-energy-house-built-for-the-2015-solar-decathlon/

Have a great weekend everyone. Check the weekend update on the website.

"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

The monthly Coppock Indicators finished September

DJIA: +41 Down. NASDAQ: +138 Down. SP500: +65 Down.