Friday, 6 November 2015

“How High?”

Baltic Dry Index. 640 -17        Brent Crude 48.32

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

"Considerable uncertainty is attached to all economic estimates"

Fallen former guru Greenspan.

Just when US frackers and Canadian tar pit oilmen were hopeful that the price of crude oil was stabilising, albeit down in the 40s a long way off from 2014’s 100 dollar oil price, Bloomberg has news from Iran of a new oil glut coming for next year. In commodities, bust follows boom like night follows day, and both usually exceed to extremes.  As Iranian oil starts flowing again at some point next year, 20 dollar oil looks possible, unless there’s some miraculous surge in global demand. In 2015, in commodities, miracles are scarcer than profits in America’s frackers. While Chinese stocks ask “how high,” in commodities it’s more a case of how low is low enough to choke off production.

Iranian Oil Goes Back on the Market

After years of sanctions, the country is boosting production and aiming to win customers back from the Saudis and Russians.

November 5, 2015 — 12:07 PM GMT
The fate of the oil market in 2016 depends in large part on a series of oil fields with names such as Ahwaz, Gachsaran, Bibi Hakimeh, and Darkhovin. All of them are pumping crude buried thousands of feet under the hills of the Zagros mountain range in western Iran. Since mid-2012 the fields have been producing far below their capacity because of U.S. and European sanctions limiting Iranian oil exports. Now that Tehran has reached a deal with the Western powers to resolve the dispute over the country’s nuclear program, Iranian engineers are working to bring the fields back to full production.
“Immediately after lifting sanctions, it’s our right to return to the level of production we historically had,” Iran Oil Minister Bijan Namdar Zanganeh said in September, weeks before the first international oil conference held in years in Tehran.
The country’s return to the oil market comes as the world is producing much more oil than it needs. According to the International Energy Agency (IEA), global oil production in the first half of 2015 averaged 95.7 million barrels a day, while average daily consumption came in at only 93.8 million barrels. The difference of almost 2 million barrels a day—equal to the daily consumption of France—has forced traders to turn supertankers into floating storage facilities. The Iranians had to make a similar move when sanctions hit in 2012, converting their extensive fleet of crude tankers into giant storage bins that have spent much of the past three years anchored in the Persian Gulf.
More Iranian oil on the market in 2016 will extend the oversupply. The impact will reverberate across the world, hurting oil-producing countries such as Russia, Saudi Arabia, and Venezuela, as well as entrepreneurial shale companies in North Dakota and Texas, and major oil companies including ExxonMobil and Royal Dutch Shell. As traders anticipate the return of Iranian oil, the futures market is already lowering its expectations for prices next year, with contracts for December 2016 trading at less than $60 a barrel.

U.S. jobless claims post largest increase since February

Thu Nov 5, 2015 8:34am EST
Nov 5 - New U.S. applications for unemployment benefits last week recorded their largest increase in eight months, but remained at levels consistent with a fairly healthy labor market.
Initial claims for state unemployment benefits rose 16,000 to a seasonally adjusted 276,000 for the week ended Oct. 24, the Labor Department said on Thursday. It was the largest weekly gain since late February.
Claims had hovered near 42-year lows for much of October. The prior week's claims were unrevised.
It was the 35th straight week that claims were below the 300,000 threshold, which is normally associated with a strong jobs market.
Economists polled by Reuters had forecast claims rising to 262,000 last week. A Labor Department analyst said there were no special factors influencing the data.
The four-week moving average of claims, considered a better measure of labor market trends as it strips out week-to-week volatility, rose 3,500 to 262,750 last week. Last week's claims report has no bearing on the October employment report due for release on Friday.
New applications for jobless benefits were low last month relative to September. According to a Reuters survey of economists, nonfarm payrolls increased 180,000 in October, well above the average gain of 139,000 jobs for August and September. The unemployment rate is forecast at 5.1 percent.

Up next, the one way street, gambling dens of China. Below silly Bloomberg tries applying the “logic” of the Wall Street casino to the rigged, command driven, gambling dens of China. When Beijing Mandarins tell China’s stock markets to jump, they only have to ask “how high?” What could possibly go wrong?

"You can get much farther with a kind word and a gun than you can with a kind word alone."

Al Capone.

China's Stock-Market Bulls Are Back, But Where Are the Earnings?

November 5, 2015 — 4:00 PM GMT Updated on November 6, 2015 — 2:49 AM GMT
Hao Hong has seen this movie before, and it didn’t end well for China’s stock-market bulls.

Five months after an equity boom built on weak corporate profits turned into a $5 trillion crash, a similar scenario is playing out in China today. The benchmark Shanghai Composite Index has surged 20 percent from its Aug. 26 low, despite third-quarter profits that trailed analyst estimates at 68 percent of companies in the index, the eighth straight quarter of disappointing results.

The absence of a rebound in earnings is one reason why Hong, the chief China strategist at Bocom International Holdings Co., says the latest surge in stocks is a “bear market rally.” Foreign investors seem to agree: they’ve been selling mainland equities through the Shanghai-Hong Kong exchange link for four straight weeks, cutting holdings by the most in two months on Thursday.

“It’s very difficult to see this rally sustaining without an earnings recovery,” said Tony Chu, a Hong Kong-based money manager at RS Investment Management Co., which oversees about $18 billion. Foreign investors “don’t have a very strong medium-to-longer-term view.”

Confidence Revived

The rally in China follows an unprecedented government campaign to prop up share prices, along with increased monetary stimulus to combat the deepest economic slowdown in 25 years. The official support has helped revive confidence among local investors, spurring a pick-up in trading activity and sending the Shanghai Composite to an 11-week high on Thursday.

The $1.6 trillion recovery in Chinese share prices is also boosting valuations as earnings shrink. Trailing 12-month profits at Shanghai Composite companies have dropped 10 percent so far this year, leaving the index with a price-to-earnings ratio of 18. While that’s still below the multiple of 25 reached at the height of the boom in June, it’s about 38 percent more expensive than the five-year average.

We end for the week looking at Spain. As from next week things look likely to get quite interesting. Euros anyone?

Spain Court Ruling May Hasten Catalan Secession, Separatists Say

November 5, 2015 — 11:44 AM GMT
Spain’s Constitutional Court could trigger an acceleration of Catalonia’s breakaway efforts if it tries to stop the region’s parliament starting the process of secession, said the head of the region’s most important separatist civic group.

“If the Constitutional Court say that it’s not possible to vote” on a plan that would kick off the move, “then it’s opened the door to disobedience,” Catalan National Assembly’s Jordi Sanchez said in an interview Wednesday. “I think the Constitutional Court won’t do anything -- but if they do it, then it would be running ahead of the events.”

The Catalan Parliament is set to vote on a declaration that would initiate moves toward independence on Monday, a step that Spanish Prime Minister Mariano Rajoy says is illegal. The premier can attempt to block the move in Spain’s highest court, and the constitution also gives him the capacity to remove powers from the regional administration in certain circumstances.

“We’re facing the biggest threat to the constitutional order and the Spanish nation in decades,” Rajoy said in Madrid Wednesday. The government has all legal tools to face off Catalan plans to break away from Spain, but “prudence and proportionality” are key, he said.

---- Pro-secession parties and civic groups are already setting up alternative ways to keep control of Catalonia even if their lawmakers, which currently have an outright majority in the parliament, get suspended, said Sanchez. The Catalan National Assembly and Omnium Cultural, the region’s most important civic groups, are gaining importance in setting the political agenda in the pro-secession camp after they led hundreds of thousands at demonstrations in Barcelona during Catalan day on Sept. 11 over the past years.

“Nobody should forget that most of the city halls as well as most of the councilors are supporting the process” of independence, said Sanchez, without providing further details. “Citizens’ demands need to continue to stay visible.”

"Blessed are the young, for they shall inherit the national debt."

Herbert Hoover.

At the Comex silver depositories Thursday final figures were: Registered 43.06 Moz, Eligible 119.78 Moz, Total 162.84 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, the ever impressive David Stockman takes on the brain dead Japanese “investors.”  What were they thing when the bought into the Japan Post IPO?

The Japan Post IPO——-Now That’s A Ponzi!

by David Stockman • 
The global financial Ponzi gets crazier by the day, and more often than not the mad men who run Japan Inc. are front and center. But even Japan’s whacko Prime Minister, Shinzo Abe, has outdone himself with the Japan Post Holdings IPO.

We could start with the fact that after trading up roughly 25% from the offer price in an apparent fit of patriotic mania, the holding company and its two subsidiaries were valued at $140 billion. Needless to say, that sporty valuation was not owing to the fact that Japan’s 24,000 unit postal savings system has experienced a sudden spurt of growth.

In fact, revenue has been falling for years, and net profits have been nothing to write home about. Indeed, the group’s offering release indicated an expectation that the net income of Japan Post Holdings would drop 23% to 370 billion yen in the year ending next March 31.

Stated differently, Abe & Co have foisted on Japan’s retail public, which got upwards of 75% of the shares sold this week, the vastly inflated stock of a dying public bureaucracy which by its own admission is now “earning” 33% less than it did in FY 2013.

And this wouldn’t be the first time.  Back at the height of the dotcom bubble, the Japanese government sold the retail public 2.1 trillion yen ($18 billion) worth of shares in Japan’s wireless telecom services provider (NTT DoCoMo). In perhaps a foreshadowing of what comes next, the company’s implied total market cap of $220 billion at the time now stands at just $78 billion. That is, about $140 billion of bottled air was peddled to the Japanese citizenry.

Despite its insane overvaluation, at least DoCoMo was in an industry with a future. By contrast, the principle asset of Post Holdings is the Japan Post Bank, which is a relic of the Meiji Restoration created 1875.  
Needless to say, its millions of Japanese depositors are almost entirely over 65, and its President is an ex-BOJ bureaucrat who is, befittingly, 79 years old.

Nevertheless, the Post Bank alone was valued at $60 billion at the close of the first day of trading, representing 20X its most recent year net income of about $3 billion. But it’s no Goldman Sachs or even Citigroup. In fact, the Post Bank’s financial statement is a testament to the depredations of ZIRP, as it has been practiced in Japan for nearly two decades.

To wit, nearly 70% of the Post Bank’s $1.8 trillion of assets reported for FY 2014 were invested in Japanese government debt——from which it earned the grand sum of 93 basis points.

---- But here’s the giant snag. The Keynesian geniuses who run Japan Inc. are literally driving the yield on the nation’s towering pile of public debt toward absolute zero.  As a result of the BOJ’s massive $70 billion per month QE campaign, the central bank is providing a nearly endless bid for Japanese government bonds, and has now driven the 10-year yield to just 31 basis points, the 5-year to 5 basis points and the two year bond yield to zero!

So it was only a matter of time before the Post Bank’s earnings on its $1.1 trillion of government bonds would shrink to the vanishing point. Accordingly, its net interest margin would disappear entirely—even if it reduced its deposit rate to zero. And that’s not the half of it.

Japan’s population is aging so rapidly that its primary customer base is in a liquidation mode. That is, before Japan’s elderly households check-out entirely, the will liquidate most of the $1.5 trillion in deposits now lodged in the Post Bank.

"If you can count your money, you don't have a billion dollars."

Paul Getty.

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 or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Researcher develops material to create sustainable energy source

Date: November 2, 2015

Source: Florida State University

Summary: A new article details how this new material efficiently captures sunlight and then, how the energy can be used to break down water into oxygen and hydrogen. This process is known as oxidation, and it is also what happens during photosynthesis when a plant uses light to break down water and carbohydrates, which are the main energy sources for the plant.
In The Journal of Physical Chemistry, Assistant Professor of Chemical Engineering Jose L. Mendoza-Cortes details how this new material efficiently captures sunlight and then, how the energy can be used to break down water into oxygen (O2) and hydrogen (H2). This process is known as oxidation, and it is also what happens during photosynthesis when a plant uses light to break down water and carbohydrates, which are the main energy sources for the plant.
His discovery generates exciting new prospects for how this process could be used to forge new energy sources in a carbon neutral way. Potentially, hydrogen could be transported to other locations and burned as fuel.
"In theory, this should be a self-sustaining energy source," Mendoza-Cortes said. "Perhaps in the future, you could put this material on your roof and it could turn rain water into energy with the help of the sun."
But, unlike many other energy sources, this won't have a negative effect on the environment.
"You won't generate carbon dioxide or waste," he said. Mendoza-Cortes, a computational and theoretical chemist, said the challenge he faced was designing something that didn't rust from the process of breaking down water that also trapped the energy and was inexpensive to create. To do this, he initially developed a multilayered material out of manganese oxide, commonly known as birnessite.
But something exciting happened when Mendoza-Cortes and his team peeled back the layers of the material so just a single layer of the material remained -- it began trapping light at a much faster rate.
In technical terms, it transitioned from an indirect band gap material to a direct band gap one.
Light with photo energy can penetrate indirect band gap materials much more easily without getting absorbed and used for other purposes. Silicon, for example, is the most commonly known indirect gap band material. But to make the material effective, silicon solar cells are typically stacked and thus hundreds of micrometers thick. If they were any thinner, light would simply pass through them.
Creating a single-layer material that can efficiently trap light is a much more desirable outcome because it is much simpler and cheaper to manufacture.
"This is why the discovery of this direct band gap material is so exciting," Mendoza-Cortes said. "It is cheap, it is efficient and you do not need a large amount to capture enough sunlight to carry out fuel generation."

Another weekend. Be sure to check with the LIR blog for the weekend update. Have a great weekend everyone.

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.

The monthly Coppock Indicators finished October

DJIA: +31 Down. NASDAQ: +125 Down. SP500: +53 Down. 

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