Friday, 11 December 2015

All News is Good News Again.

Baltic Dry Index. 534 12.      Brent Crude 39.45

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

Why do economists exist?

So accountants have someone to laugh at.

Yesterday, all news became good news again for US stocks, albeit not vey convincingly. The Fedster’s New York team of riggers and fix-its didn’t seem to have their hearts into it yesterday. Why bother today if the real action is needed next week when the talking chair is supposed to end a three decade long bull market in US bonds.  Will a tiny 0.25 percent hike in the key US interest rate even be noticed?

Asia stocks head for weekly loss, China yuan hits four-and-a-half-year low

Fri Dec 11, 2015 12:13am EST
Asian shares were set for sizable weekly losses, with equities faltering again on Friday as plunging crude prices and a tumble in China's yuan to almost 4-1/2-year lows added to worries about receding global growth.

A supply glut in oil markets and cooling growth in China, the world's biggest commodities consumer, have pressured many asset markets ahead of a widely expected hike to U.S. interest rates by the Federal Reserve next week.

The People's Bank of China (PBoC) set its guidance rate at the weakest level in more than four years on Friday, a sign Beijing is permitting the currency to depreciate after it was included in the International Monetary Fund's reserve basket.

The lower fixings have also raised questions about how far the central bank intends to let it depreciate.

In the spot market, the yuan CNY=CFXS was changing hands at 6.4498, after taking out its August low hit after the unexpected devaluation of the Chinese currency and marking its lowest level since the middle of 2011.

"A U.S. rate hike would have a major impact on money flows out of emerging markets including Hong Kong and China," said Linus Yip, chief strategist at First Shanghai Securities.

"Also, if the yuan continues to depreciate, that's negative to stocks as well, because it means investors are not confident about China's economic restructuring."

Chinese shares were lower ahead of a spate of economic data scheduled to be released on Saturday. ECONCN

In commodities news, it’s becoming wipe out time in the oil patch. Which frackers will survive Christmas 2015 but not make it to Easter 2016?

OPEC Says Crude Production Rose to 3-Year High in November

December 10, 2015 — 11:15 AM GMT Updated on December 10, 2015 — 1:50 PM GM
OPEC raised crude output to the highest in more than three years as it pressed on with a strategy to protect market share and pressure competing producers.

Output from the Organization of Petroleum Exporting Countries rose by 230,100 barrels a day in November to 31.695 million a day, the highest since April 2012, as surging Iraqi volumes more than offset a slight pullback in Saudi Arabia. The organization is pumping about 900,000 barrels a day more than it anticipates will be needed next year.

Benchmark Brent crude dropped to a six-year low in London this week after OPEC effectively scrapped its output ceiling at a Dec. 4 meeting as de facto leader Saudi Arabia stuck to a policy of squeezing out rival producers. Members can pump as much as they please, despite a global surplus, Iran’s Oil Minister Bijan Namdar Zanganeh said after the conference. Brent futures traded near $40 a barrel in London on Thursday.

Non-OPEC supply will fall by 380,000 barrels a day next year -- compared with a 130,000-barrel drop projected last month -- to average 57.14 million a day, the organization said Thursday in its monthly report. 
An expected contraction in the U.S. will account for roughly half the decline, the group said. It increased estimates for non-OPEC supply in 2015 by 280,000 barrels a day.

In China news, the bad news just keep on coming. Never mind, for now, all news is back to good news.

China Swallows Its Mine Debt Bomb

Remember that Bugs Bunny scene where the Tasmanian Devil survives an explosion by eating the bomb? China's government is trying to do that for its indebted miners.

Rather than let the domestic mining industry be dragged down by its $131 billion of debts, the authorities are looking at setting up what amounts to a state-owned "bad bank" to segregate the worst liabilities and allow the remaining businesses to survive, people with knowledge of the matter told Bloomberg News.
China's mining debts $131 billion

China Minmetals, the metals trader and miner tasked with swallowing up China Metallurgical Group in a state-brokered merger, will be one taker, these people said. That should help with its net debt, which already stood at 136 billion yuan ($22 billion) in December 2014.

There'll be no shortage of others lining up for relief. Seven of the 17 most debt-laden mining and metals companies worldwide are in China, and all are state-owned or -controlled, according to data compiled by Bloomberg:

Western credit investors have become so chary of miners' debts that you can pick up bonds with a 100 percent annual yield if you're confident the companies will last the year, according to Gadfly columnist Lisa Abramowicz. Anglo American is firing 63 percent of its workforce and selling at least half its mines to cut debt, while Glencore today announced plans to further decrease its borrowings.

---- In China, things are considerably more relaxed. Chalco, one of the top five global aluminum producers, hasn't generated enough operating income to pay its interest bills in any half-year since 2011, according to data compiled by Bloomberg. Over the four-year period, interest payments have exceeded earnings by about 29 billion yuan, the data show:

---- It's a similar picture in China's coal industry. China Coal Energy, Yanzhou Coal, and Shaanxi Coal, the second-, fourth-, and fifth-biggest domestic producers by sales, have collectively spent 3.3 billion yuan more on interest over the last 12 months than they've earned from their operations.

This situation can't go on. While Chalco still has about 47 billion yuan in shareholders' equity on its balance sheet, it doesn't have an obvious path back to profitability and most of its excess interest payments were made before aluminum prices started to really slump, back in May. There are also some worrying dates looming: The company has 13.6 billion yuan in bonds maturing next year, and another 20.9 billion yuan in the two years following, according to data compiled by Bloomberg.

We end for the week with more sign of the growing EL NINO. While the US National Weather Service gets in a dither, if it walks like a duck springs to mind, In Australia and Japan they think this EL NINO is at or about to peak. Its effects will go on into spring though.

Japan weather forecaster says El Nino phenomenon is at its peak

Thu Dec 10, 2015 12:10am EST
Japan's weather bureau said on Thursday that the El Nino weather phenomenon is at its peak now and there is a strong possibility it would stretch into spring but weather would return to normal by summer.

The El Nino, or a warming of sea-surface temperatures in the Pacific, typically leads to scorching weather across Asia and east Africa but heavy rains and floods in South America.

Some climate experts have warned the current El Nino could emerge as one of the strongest on record.

Earlier this week, Australia's weather bureau said the current El Nino weather event is near its peak intensity and likely to persist well into 2016, but some indicators are showing signs of easing.

Two dead, thousands without power after U.S. Pacific Northwest storms

Thu Dec 10, 2015 1:45am EST
Drenching storms triggered mudslides and flooding in the Pacific northwest on Wednesday, knocking out power to thousands of people and leaving two women dead in Oregon, authorities and local media reported.
Portland has endured more than 5 inches of rain in three days, nearly as much as all of December in a typical year, and Seattle exceeded its normal December rainfall tally in just 8 days, the National Weather Service said.
The service said mountainous areas of Oregon and neighboring Washington state, where Governor Jay Inslee declared a state of emergency on Wednesday, have received more than a foot of rain.
The record-breaking storms opened sinkholes in several major roads, caused rivers to spill over their banks and closed roads and schools for a third day in the worst-hit areas across the region.
The Weather Service forecast said a number of major Puget Sound area rivers had overflowed, and it issued warnings of other floods.
National Weather Service meteorologist Gerald Macke said he could not definitively say whether the parade of storms was linked to the El Nino weather pattern. "Once or twice every winter we get prolonged flooding in our region, kind of like how in Oklahoma they get tornadoes."

Gas Producers Feel the Heat

While the Northeast is experiencing an unseasonably warm winter, natural gas companies are praying for cold.

Cold weather, of course, means more demand and higher prices for the 50 percent of Americans who heat their homes with gas. It also offers producers a chance to syphon off some of their ample inventories.

Gas output was particularly high this year despite already low prices. As you can see from the chart above, gas storage for the lower 48 states recently passed 4 trillion cubic feet -- a psychologically important level because it signals that storage is almost at capacity. If inventories top out, producers would likely dump product on the market at even lower prices.

Thanks to El Niño, this year has been rather warm and January is expected to be mild, deferring producers' dreams of a huge seasonal upswing in gas demand. The situation in the Northeast is particularly troubling.

The chart above shows how prices for gas in the Northeast can vary so much more than in other regions, especially in winter. A harsh winter -- like the last two -- is a good winter for producers, because there are more days when the temperature drops low enough for consumers to crank up the heat. The National Oceanic and Atmospheric Administration measures the need for gas heat by using the "heating degree days" index: the higher the number of such days, the colder the winter.

Another reason gas producers hate warm weather: Some of them are saddled with a lot of debt, and mounting inventories doesn't make it any easier to pay that down.

"We hang the petty thieves and appoint the great ones to public office.


At the Comex silver depositories Thursday final figures were: Registered 40.12 Moz, Eligible 118.32 Moz, Total 158.45 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
In fracker land, easy come easy go. The downside of fantasy accounting.
A fine is a tax for doing wrong. A tax is a fine for doing well.

Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke

December 10, 2015 — 12:00 AM GMT Updated on December 10, 2015 — 4:00 AM GMT
In an instant, Chesapeake Energy Corp. will erase the equivalent of 1.1 billion barrels of oil from its books. 
Across the American shale patch, companies are being forced to square their reported oil reserves with hard economic reality. After lobbying for rules that let them claim their vast underground potential at the start of the boom, they must now acknowledge what their investors already know: many prospective wells would lose money with oil hovering below $40 a barrel.

Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn’t be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.

But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years.

Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers’ reserves.
The reckoning is coming in the next few months, when the companies report 2015 figures.
What do you call an accountant with an opinion?
An auditor.

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?

Today something slightly different. That must have been some massive cost overrun even for the US Navy.

US Navy's first Zumwalt-class destroyer begins sea trials

December 9, 2015
The future USS Zumwalt (DDG 1000) has begun sea trials in the Atlantic Ocean. The largest destroyer ever built for the US Navy and the first of three Zumwalt-class destroyers left the General Dynamics' Bath Iron 
Works and traveled down the Kennebec River in Maine on Monday in the first of a series of tests leading up to her commissioning next year.

The Zumwalt is notable not only for its size, but also for its distinct tumblehome hull composite superstructure, which is part of a suite of advanced stealth features that reduce the ship's radar profile by a factor of 50 over current destroyer designs.
Carrying a crew of 130 and an air detachment of 28, the destroyer is armed with two 115 mm Advanced Gun Systems (AGS) firing rocket-powered precision Long-Range Land Attack Projectiles (LRLAP) with a range of 63 nm (117 km), which is three times greater than current surface gunnery.

In addition, there are 80 MK-41 peripheral vertical launch system (VLS) missile cells, a stern ramp for launching two Rigid Hull Inflatable Boats, and a flight deck for two MH-60R or one MH-60R and 3 VT Unmanned Aerial Vehicles. The Navy says this is the first US warship to incorporate the Integrated Power System (IPS), which is an all-electric system powered by gas turbines. This design was chosen not only chosen for economy and survivability, but also in anticipation of future energy weapons.
Named after former Chief of Naval Operations Adm. Elmo R "Bud" Zumwalt Jr, construction of the US$4 billion Zumwalt began in 2009 and it was launched in 2014. The Navy says that it's designed to operate independently in forward areas to provide presence and deterrence, as well as operating with joint and combined expeditionary forces as a multi-mission Anti-Air Warfare, Anti-Submarine Warfare, and Anti-Surface Warfare unit.
Originally, 32 of the Zumwalt-class ships were ordered, but cost overruns reduced this to three. Construction is already underway on the Michael Monsoor (DDG 1001) and the Lyndon B Johnson (DDG 1001).

Another weekend, and another week closer to Christmas. EL NINO rains seem to be hitting everywhere from the UK and Ireland, to Miami, to the North American Pacific Northwest. In the final day of the loons partying in Paris they think all the rain is from man made global warming caused by Volkswagen. Have a great weekend everyone. 2016 and disaster looms.

"Get a good night's sleep and don't bug anybody without asking me."

President Richard Nixon.

Advance notice. For a variety of reasons, including cost efficiency, I will be dropping the LIR newsletter from the start of next year, The (mostly) daily LIR update will still be available at the blog, where most of the readership now occurs.

The monthly Coppock Indicators finished November

DJIA: +25 Down. NASDAQ: +121 Down. SP500: +45 Down. 

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