Fed Day – The Fed’s Talking Chair to Speak.

Baltic Dry Index. 484  -24.      Brent Crude 38.26

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

True, governments can reduce the rate of interest in the short run, issue additional paper currency, open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression. 

Ludwig von Mises.


The big day has finally arrived. Later today in Washington District of Crooks, the Fedster’s get to roll out their amazing talking chair, to hold forth on the Gospel of Mammon, Voodoo chapter and verse. Unbelievably one of two incredible things will happen. The Fedster’s  will raise their key interest rate by a miniscule quarter of one percent, their first raise in almost a decade. Or equally incredibly, they won’t! Such dumbed down nonsense is what passes for adult economic policy in the 21^st century after 44 years on the Great Nixonian Error of fiat money, communist money.

Below, the Telegraph on the canary in the Fed’s coal mine.

Is the next financial crisis nigh? Could closure of Third Avenue Fund finally explode the post-crisis asset bubble?

The closure of a number of US funds linked to the high yield corporate debt market is eerily reminiscent of the events that led up to the global financial crisis

By Jeremy Warner 8:26PM GMT 15 Dec 2015

As every student of recent economic history will know, the first rumble of thunder in the Global Financial Crisis came with the collapse in the summer of 2007 of two large Bear Stearns hedge funds. Investors demanded their money back, but managers were unable to liquidate their positions fast enough to deliver.

These early signs of panic were to snowball into an all-embracing run on the global banking system, forcing central banks to flood the market with cheap liquidity to prevent mass liquidation and economic collapse.

Are we about to see history repeat itself? That’s been the question on everyone’s lips since the closure last week – or “shuttering”, to use the technical term – of the Third Avenue Focused Credit Fund, one of a number of funds set up to chase yield in a world of poor to non-existent rates of return. Two other smaller US funds have also since taken action to prevent investors removing their money.

It’s all eerily reminiscent of the events leading up to the credit crunch of seven years ago. Did we learn nothing from the greatest financial crisis in history; and by treating its symptoms with vast quantities of central bank money printing, did we not merely set ourselves up for the next one?
More
http://www.telegraph.co.uk/finance/economics/12052433/Third-Avenue-could-be-the-event-that-will-finally-explode-the-post-crisis-asset-bubble.html

In the very real world of the commodity depression, Rio’s not cutting any iron ore production, says Rio’s CEO. It’s all the other’s that must cut if they want to survive. Of course if they do cut, Rio will just gobble up their market share. Just ask beleaguered Ivan Glasenberg over at Glencore how many followed him in cutting copper production.

Below, the commodities falling sword. Try not to look at the Baltic Dry Index.

Rio CEO Says Iron Ore Rivals `Hanging on by Their Fingernails'

December 15, 2015 — 12:00 AM GMT Updated on December 15, 2015 — 4:37 AM GMT

The iron ore collapse has pushed producers to the brink of survival, according to the head of the world’s second-biggest mining company.

“There are a lot of producers that we believed would leave the market that are hanging on by their fingernails,” Sam Walsh, chief executive officer of Rio Tinto Group, said in an interview with Bloomberg Television in London. “They are burning up cash reserves of their shareholders.”

Iron ore’s 45 percent retreat this year has left the industry on the precipice of an unprecedented shake-out as higher-cost suppliers are slowly forced to exit the market. Prices are continuing to fall as the largest companies, including Vale SA, Rio Tinto and BHP Billiton Ltd., expand production and grab market share.

Iron ore fell below $39 a metric ton last week, a record low in daily prices dating back to 2009. That’s down from near $190 in 2011, when Chinese demand was booming.

“I suspect that right now, even at a price of $39 a ton, there are people that are suffering pretty loudly,” Walsh said. “Sooner or later the adjustment will take place.”

The slump has hurt miners’ shares. Rio stock has lost 28 percent in Sydney this year, dropping to A$40.39 on Dec. 9, the lowest price since 2009, while BHP has fallen 40 percent. In Brazil, Vale has dropped 49 percent.

Rio and its rivals have been criticized by analysts, competitors and governments for pursuing a strategy of expanding lower-cost mines even as prices fell amid a global glut. Walsh said it would be abnormal for his company to consider withholding supply given that Rio is the lowest cost producer.
More
http://www.bloomberg.com/news/articles/2015-12-15/rio-ceo-says-iron-ore-rivals-hanging-on-by-their-fingernails-

Roach Sees Commodity Headwinds as Miners `in Denial' About China

December 15, 2015 — 2:34 AM GMT Updated on December 15, 2015 — 6:40 AM GMT

Commodities are at risk of extending declines as China’s slowdown hurts demand and the world’s largest user shifts its economic model away from raw materials, according to Stephen Roach, who said some producers haven’t yet faced up to the change.

“The China factor can’t be emphasized enough,” Roach, a senior fellow at Yale University, said in a Bloomberg Television interview in Hong Kong on Tuesday. China “has been the most commodities-intensive story that the world economy has seen in the post-World War Two period. Now China is shifting the model to more of a commodity-light, services-led economy.”

Raw materials sank to the lowest level since 1999 this week as China’s slowest expansion in a quarter of a century cut demand in a reversal of the pattern seen a decade ago, when booming growth in Asia fueled a surge across commodity prices that was dubbed the super-cycle. Continued concern about China, coupled with a rising dollar as the Federal Reserve raises rates, will make it difficult for commodities to rebound, according to Roach, a former non-executive chairman for Morgan Stanley in Asia.

 “Commodities are, after a super-cycle, obviously going the other way, big time,” Roach said. Some companies “are in denial that China is changing its character, its structure. It’s going to take a while for that to sink in, and until it sinks in, there’s still downward pressure on commodity markets and prices.”
More
http://www.bloomberg.com/news/articles/2015-12-15/roach-sees-commodity-headwinds-as-miners-in-denial-about-china

OPEC Sees Zero Impact on Oil Market From U.S. Lifting Export Ban

December 15, 2015 — 10:56 AM GMT

Oil prices won’t be affected by U.S. crude exports, according to OPEC’s top official.

“The net effect of export of American oil on the market is zero,” Abdalla El-Badri, secretary-general of the Organization of Petroleum Exporting Countries, said Tuesday. “This will have no effect on the price because the U.S. still is an importing country.”

The U.S. Congress is nearing a deal on the biggest shift in the nation’s oil policy in more than a generation by allowing the world’s largest oil and gas producer to sell crude abroad. Pressure has been building to lift the ban as new drilling technologies unlocked reserves in shale formations, pushing output and stockpiles to records while punishing prices.

“They export some, but they need to import the same quantity from somewhere else,” El-Badri said in New Delhi. The U.S may export light oil produced from shale formation while still importing heavier types of crude, he said.

The U.S. restriction on crude exports was established during the energy supply shortages of the 1970s. Senate leaders from both parties were near a deal Monday but faced resistance from House Democrats and some Republicans. House Democrats said they were willing to discuss lifting the trade restrictions, depending on what concessions they would get in exchange, according to a Democratic leadership aide.
More
http://www.bloomberg.com/news/articles/2015-12-15/opec-sees-zero-impact-on-oil-market-from-u-s-lifting-export-ban

Oil Approaching $35 Final Blow to Greenland's Exploration Dreams

December 14, 2015 — 3:09 PM GMT Updated on December 14, 2015 — 11:00 PM GMT

After decades of estimates that Greenland may be sitting on oil reserves big enough to meet almost two years of European demand, the Arctic island is throwing in the towel.

Oil is now simply too cheap for Greenland to continue dreaming of the oil bonanza that captured the imagination of its citizens less than a decade ago.

“It’s frustrating,” Kim Kielsen, the leader of Greenland’s home-rule government, said in Copenhagen on Monday. “There are still geological areas in which there is an interest, but the world price has dropped too far.”

With Brent crude hovering around $36 a barrel, prices have now plunged almost 70 percent since a June 2014 high. That’s nowhere near enough to make it profitable to try to extract oil off Greenland’s shores. The Geological Survey of Denmark and Greenland estimates production costs could be as high as $50 a barrel for the island, where exploration would be hampered by massive floating icebergs, among other Arctic-style impediments.

Greenland’s northeast may hold as much as 31.4 billion barrels of oil equivalent while a further 17 billion barrels may lie under the sea floor between Greenland and Canada, according to the U.S. Geological Survey.
More
http://www.bloomberg.com/news/articles/2015-12-14/oil-approaching-35-final-nail-in-greenland-s-exploration-dreams

What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit expansion is built on the sands of banknotes and deposits. It must collapse. 

Ludwig von Mises.

At the Comex silver depositories Tuesday final figures were: Registered 39.81 Moz, Eligible 119.10 Moz, Total 158.91 Moz.  

Crooks and Scoundrels Corner

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

Today, Marketwatch says “don’t panic” if you’re trapped in American “high yield” bonds. Don’t sell they pontificate, wait for the “inevitable” rebound. Strangely they don’t offer to cover any losses if their do nothing strategy goes wrong and the inevitable rebound fails to appear. Getting out early usually beats getting out late or last.

If you can keep your head when all about you   

Are losing theirs and blaming it on you,   

If you can trust yourself when all men doubt you,

You’re obviously out of the loop.

With apologies to Rudyard Kipling.

This is what to do if you own high-yield bonds

Published: Dec 15, 2015 5:18 a.m. ET

It was an investor’s worst nightmare: The Third Avenue Focused Credit Fund last week said it wasn’t allowing redemptions and it could take months to return shareholders’ money.

That came after the fund, which focuses on highly speculative and illiquid credits, suffered nearly $1 billion in investor outflows this year.

It only crystallized the growing fear that risk is rising in the $2 trillion high-yield bond market, a prime focus of yield-starved investors over the past few years.

Activist investor Carl Icahn poured gasoline on the fire when he tweeted Friday: “Unfortunately I believe the meltdown in High Yield is only just beginning.”

Icahn’s earlier warnings about high-yield bonds were echoed by Bond King Jeffrey Gundlach and by Michael Contopoulos, a high-yield strategist at Bank of America Merrill Lynch, who called high-yield debt a “slow-moving train wreck” whose “fundamentals are as poor as we have seen them.”

Investors are getting antsy. After pouring nearly $10 billion into high-yield bond funds and ETFs in October and the first week in November, they have since pulled out nearly $7 billion, according to Thomson Reuters Lipper.

One of the biggest high-yield bond ETFs, SPDR Barclays High-Yield Bond JNK, -0.80% saw investor outflows of over $1 billion in just the five trading days ended Dec. 10, according to ETF.com. Zacks Investment Research reported that the $10.7 billion ETF has lost 10.6% so far this year.

And, indeed, as I wrote here in November, risk is rising in the entire corporate bond market. Energy, of course, is the flash point, as plunging oil prices have caused huge strains on the balance sheets of energy companies, which accounted for five of the 12 U.S. corporate defaults in the third quarter.

But I don’t think you should follow the thundering herd in a race to the exits. Instead, you should be calmly preparing to prune your high-yield bond holdings. Here’s why.

First, panic selling never makes sense. You never get a good price, and though you might cut some of your losses, chances are you won’t be able to take advantage of the inevitable rebound.

More

http://www.marketwatch.com/story/this-is-what-to-do-if-you-own-high-yield-bonds-2015-12-15

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

India Approves 27 Mega Solar Power Parks With 18.4 GW Capacity

December 14th, 2015 by Saurabh Mahapatra
India’s Ministry of New & Renewable Energy has reported progress on the ambitious program of setting up ultra mega solar power projects across the country.

Replying to a query raised in the upper house of the Parliament, Minister for Coal, Power, and Renewable Energy Piyush Goyal stated that his government has given in-principle approval to 27 ultra mega solar power projects across 21 states with a cumulative capacity of 18,418 MW.

The ministry had initially set a target to have 25 solar power parks across various states with total capacity of 20 GW, with each project planned to have at least 500 MW of operational capacity. The current shortfall in the capacity target seems to be the result of paucity of large parcels of land. At least some states had to reduce the size of projects and increase their number, possibly due to lack of require land area.

The program is one of the mainstays of India’s ambitious target to increase the operational solar power capacity to 100 GW by 2022. The government has set a target to have these ultra mega solar power projects operational by April 2019. The total financial assistance the government has earmarked for the program is Rs 4,050 crore (US$623 million).

https://cleantechnica.com/2015/12/14/india-approves-27-mega-solar-power-parks-18-4-gw-capacity/

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.

http://londonirvinereport.blogspot.co.uk/

The monthly Coppock Indicators finished November

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