Tuesday, 15 December 2015

The Day Before.

Baltic Dry Index. 508  -14.      Brent Crude 37.76

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

Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.

John Kenneth Galbraith

Fed day minus one, and just one day left to place your bets in the 21st century casino, formerly known as stock and bond markets. Will the Fedsters burst the  Fed’s final bubble tomorrow? In the Journal yesterday, the Fed’s pet hack, Jon Hilsenrath wrote that the Fed rate hike is off again, but yesterday’s market action didn’t seem to take much notice.  They seemed more concerned at the rapidly growing crisis in US high yield bond funds.  It reminded me of 2007 and the earthquake in Bear Stearns and BNP Paribas.

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.

Bill Gross: High-yield pain is the start of something

7 Hours Ago
Stresses in the high-yield bond market mark the start of a new trend, according to bond expert Bill Gross, but it's not necessarily cause for panic.

Anxiety about junk bonds were fired up on Friday after investment firm Third Avenue Management froze investor withdrawals from its nearly $1 billion junk bonds fund. Amid turmoil, the company announced its separation from CEO David Barse on Monday. Uncertainty persists ahead of the Federal Open Market Committee meeting this week.

These comments echo previous remarks Gross has made regarding the high-yield market being less liquid than some assume. "It's the start of something, not necessarily something bigger," Gross, portfolio manager at the Janus Global Unconstrained Bond Fund, told CNBC's "Power Lunch" on Monday.

Yet while Gross said it's hard to know the overall impact of the new trend, he acknowledged that there is tension in the market.

The increased anxiety about high-yield liquidity is making it tough for investors — as many may want to get out they may find an unappealing price spread between the bid and the ask, Gross explained. The bid and the ask, which typically differ half a point, may differ up to a point and a half today, he noted.

Despite some suggestions that the high yield tensions are temporary, Gross said, it is now a "changed world" for the market's liquidity.

"Up until this point over the past several years, it's been the central banks that have provided liquidity," Gross noted. "And the market is beginning to sense that that liquidity provision perhaps will be drawn back a little bit."

Meanwhile the commodity depression deepens. Led by oil, gas and coal, dealt a long term commercial existential blow on Sunday by the Paris treaty, unenforceable or not. The commodity depression is starting to impact the wider global economy. If everyone actually lives up to Paris, our world is going to change greatly in the 35 years leading up to 2050. Tomorrow will not be like today which was like yesterday. But will anyone actually live up to Paris 2015?

Never Mind $35, The World's Cheapest Oil Is Already Close to $20

December 14, 2015 — 2:11 PM GMT
As oil crashes through $35 a barrel in New York, some producers are already living with the reality of much lower prices.
A mix of Mexican crudes is already valued at less than $28, an 11-year low, according to data compiled by Bloomberg. Iraq is offering its heaviest variety of oil to buyers in Asia for about $25. In western Canada, some producers are selling for less than $22 a barrel.
“More than one-third of the global oil production is not economical at these prices,” Ehsan Ul-Haq, senior consultant at KBC Advanced Technologies Plc, said by e-mail. “Canadian oil producers could have difficulty in covering their operational costs.”
Oil has slumped to levels last seen in the global financial crisis in 2009 amid a global supply glut. While the prices of benchmarks West Texas Intermediate and Brent hover in the $30s, they represent a category of crude -- light and low in sulfur -- that is more highly valued because it’s easier to refine. Some producers of thicker, blacker and more sulfurous varieties have suffered heavier losses and are already living in the $20s.
A blend of Mexican crude has plunged 73 percent in 18 months to $27.74 on Dec. 11, its lowest level since 2004, according to data compiled by Bloomberg. Venezuela is experiencing similar lows. Western Canada Select, which is heavy and sulfurous, has slumped 75 percent to $21.82, the least in seven years. Other varieties including Ecuador’s Oriente, Saudi Arabia’s Arab Heavy and Iraq’s Basrah Heavy were selling below $30, the data show.
----“Most places in the world, a lot of the producers they don’t really get the Brent price, and they don’t get the WTI price,” Torbjoern Kjus, an analyst at DNB ASA in Oslo, said by phone. “It’s really a dramatic situation that really cannot continue for a very long time for many producers.”

Mexico’s government insulated itself from the oil slump after it managed to hedge 212 million barrels of planned exports for 2016, using options contracts to secure an average price of $49 a barrel. The nation’s 2015 oil hedge provided it with a bonus of $6.3 billion.

Not all oil producing nations are as well protected. OPEC member Venezuela’s national budget for next year assumes a price of $40 when its own crude is trading just above $30. The nation’s dollar reserves have fallen by 32 percent this year to $14.6 billion

OPEC History Shows It Can Deal Even Bigger Blows to Oil Price

December 14, 2015 — 3:28 PM GMT Updated on December 15, 2015 — 1:00 AM GMT
Oil’s slump of more than 10 percent in New York since OPEC met on Dec. 4 has struck fear into any remaining crude bulls. The last time the group rattled the market like this -- after its November 2014 meeting -- the pain was much deeper.

The message the Organization of Petroleum Exporting Countries delivered this month -- that it will keep pumping until rival producers scatter -- is really just a repeat of the stance taken last November. After that gathering, crude prices plunged 40 percent in seven weeks of losses as the market realized the global surplus would remain. A similar performance this time around would take prices down to the mid-$20s.

Big Oil, Make Way for Big Solar. The Winners and Losers in Paris

December 14, 2015 — 12:00 AM GMT Updated on December 14, 2015 — 6:31 AM GMT
Saving the world isn’t going to be cheap. If you sell oil, coal or old-fashioned cars, that threatens disaster.
For makers of stuff like solar panels, high-tech home insulation, and efficient lighting, it’s a potential miracle.

That’s the bottom line from this weekend’s climate deal in Paris, which commits 195 countries to reducing pollution in order to head off dangerous climate change.

Global governments and companies are counting the costs and benefits from the agreement, which calls for wholesale transformations of energy, transportation, and dozens of other lines of business. Fossil-fuel producers and countries that depend on them face massive, costly disruption. Players in up-and-coming industries like renewable power and energy efficiency are looking at an unprecedented opportunity.

“As a major oil and gas company, we are clearly at stake in these discussions," Patrick Pouyanne, the chief executive officer of French oil giant Total SA, said in Paris. But "an optimist sees in every difficulty an opportunity. I’m definitely an optimist; I have to be."

The Paris pact, which also calls for a review of ever-tightening pledges every five years, is the most significant global climate agreement ever, outstripping the 1997 Kyoto Accord in its scope and ambition. 
Along with Barack Obama, Vladimir Putin, Xi Jinping and dozens of other top political leaders, the summit that produced it attracted hundreds of large companies eager to influence or understand negotiations that could deeply affect their future business models.

The deal will likely accelerate investments in technologies like renewable energy and electric vehicles -- especially if more countries join the European Union and parts of North America in imposing a price or tax on carbon. The United Nations estimates upward of $1 trillion a year in spending is required to de-carbonize the global economy and prevent temperature rises scientists say could flood coastal cities, disrupt agriculture, and destroy ecosystems.

Germany to set out climate action plan by mid-2016

Mon Dec 14, 2015 9:22am EST
Germany will lay out a climate action plan for 2050 by the middle of next year and is talking to industry groups and trade unions about ways to end coal-fired power generation, its Environment Minister said on Monday.

Global leaders clinched a breakthrough deal in Paris on Saturday to transform the world's fossil fuel-driven economy within decades in a bid to arrest global warming.

While Germany's green energy campaign has earned it the reputation of a leader in environmental policy, critics say it needs to set a timetable to scrap coal power if it is to meet its own ambitious long-term climate targets.

"It is completely clear that we need to exit fossil energy sources by the middle of the century," Environment Minister Barbara Hendricks said, adding Germany needed to find a way to cushion the social impact in some regions.

The German government is due to decide on a climate action plan for 2050 by the summer of 2016 and will give more concrete details on a coal exit then, Hendricks told a news conference.

Europe's largest and most dynamic economy generated more than a quarter of its electricity from renewable sources - such as wind and solar power - last year.

But at the same time the phase-out of nuclear power has increased its reliance on brown coal, the dirtiest of all energy sources, which is cheaper than low-emission gas-powered plants.

The coal sector accounted for around 44 percent of electricity generated in Germany in 2014.

Nor is the commodities depression limited to energy. The central bankster’s gigantic error of the 90s and naughties, set off malinvestment bubbles galore.  It will take a few years to re-balance commerce, assuming the Fedster’s don’t trigger a stock and bond wreck tomorrow,

Cotton Is Piling Up at Warehouses Around the World

December 13, 2015 — 9:00 PM GMT Updated on December 14, 2015 — 6:17 AM GMT
There’s enough cotton sitting in global warehouses to make more than 127 billion T-shirts, or 17 for each person on the planet. That’s bad news for investors betting prices will rise.
World inventories at the end of this season will be the second-largest ever, just slightly less than last year’s record, according to a U.S Department of Agriculture forecast last week. That’s a signal that supplies will remain ample even after the agency cut its outlook for production. Hedge funds raised their bullish cotton bets to the highest in more than a year, only to face the first weekly price drop since early November.
While threats to the American crop helped make the fiber this year’s best-performing commodity, the gains may not last much longer as demand slows. China, the world’s largest user, is curbing cotton imports by more than 30 percent, helping to shrink global trade for a fourth straight year, the International Cotton Advisory Committee estimates.
“As is the case with most commodities, at the moment, there’s no particular shortage of cotton,” said Fiona Boal, London-based director of commodity research at Fulcrum Asset Management, which oversees $3.7 billion. “To get excited about the cotton market, we will need to see either a weather event or something else that really changes the Northern Hemisphere producers’ mind about growing cotton. Otherwise, it’s hard to see prices move substantially higher.”
Money managers boosted the net-long position in cotton futures and options by 26 percent to 60,357 contracts in the week ended Dec. 8, according to U.S. Commodity Futures Trading Commission data released three days later. That’s the highest since May 2014. Prices in New York slid 1.5 percent last week to 63.71 cents a pound.
Cotton is one of only two gainers this year among the 22 components of the Bloomberg Commodity Index, which is trading near a 16-year low. But the fiber’s rally is starting to dissipate. Prices are now up 5.7 percent in 2015, paring advances of as much as 13 percent.
Harvesting in the U.S., the world’s biggest exporter, was hampered by heavy rains this year, and output is expected to fall in China and India. That still wasn’t enough to make much of a dent in global stockpiles, which are forecast by the USDA to dip just 6.8 percent from last year’s all-time high. The inventories will also be more than 35 percent higher than the 10-year average.
There are signs that production will rebound. The USDA forecast that plantings will climb 13 percent to 9.5 million acres next year, a report showed Friday.

“The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market.”

“But it [the boom] could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.”

Ludwig von Mises.

At the Comex silver depositories Monday final figures were: Registered 40.44 Moz, Eligible 117.99 Moz, Total 159.42 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
In China, it’s the same old Ponzi story, but did the local government guarantee it?

The China metal exchange at center of investment scandal

Sun Dec 13, 2015 9:01pm EST
The plain four-storey Fanya exchange building in this southern Chinese city is teeming with investigators trying to understand how an obscure metal trading business turned into one of China's most audacious investment schemes.
Tucked behind an upmarket shopping mall, the Fanya Exchange was founded in 2011 with the aim of giving China greater global control over the supply and price of 14 strategic and rare metals. It also offered an investment product promising annual returns as high as 13.68 percent and the flexibility to deposit and withdraw money at will.
It almost seemed too good to be true. And it was.
In July, hundreds of citizens gathered outside the exchange building in Kunming, demanding to know what had happened to more than 40 billion yuan ($6.6 billion) they had invested in a Fanya-backed product known as "Rijinbao" or "Daily Golden Jewel". Five months later, they are still waiting for answers.
Government investigators and independent auditors are trying to get to grips with yet another wealth management product (WMP) gone awry in China, one that the government itself had promoted.
Fears are rising about the underlying risks to China's financial system from the $2.6 trillion WMP industry and the challenges it pose to Chinese regulators. Many of these products are being sold on a plethora of privately run exchanges, which have come under increasing scrutiny from the state securities regulator, who is worried illegal behavior was putting billions of yuan at risk.
The scandal also highlights the political and social risks for the ruling Communist Party as China's growing class of retail investors, with limited investment opportunities, become outraged over the disappearance of their life-savings into schemes they thought the government had endorsed as safe.
----As the Fanya scandal unfolded, a group of investors tracked down the chairman of the exchange, Shan Jiuliang, and hustled him off to a police station. Other groups of investors have descended on government bodies in Beijing and Shanghai to stage protests.
---- Investors said the "Rijinbao" scheme was advertised on state television and the Fanya exchange described itself as government-backed and regulated. However, analysts say Chinese investors often assume banks and the government will cover any losses, so they fail to read the small print. Fanya guaranteed the product, which was based on rising metal prices and interest earned on financial deals.
The Fanya Metals Exchange was launched shortly after China, the world's dominant producer of rare earths, imposed quotas on production and exports in a bid to support prices and attract downstream consumers to China.
Fanya was keen to provide a supporting role, saying it wanted to raise the value of the whole minor metals industrial chain. It stockpiled and traded 14 metals, rapidly becoming the biggest minor metals market in the world. These metals are minor because they are a byproduct of extracting other major metals, such as zinc or copper.
---- Its most traded metal - indium – more than doubled between 2012 and 2015 to $1,200 per kg. Prices kept rising from the end of 2014 even as global prices headed into a rapid decline.
The price difference kept traders outside of China wary of using the exchange. Now they are worried about what will happen to the accumulated stock of metals on the exchange.

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?

Match-heads boost photovoltaic efficiency

Date: December 11, 2015

Source: Department of Energy, Office of Science

Summary: Crystal growth on a nano/microscale level produces “match-head”-like, three-dimensional structures that enhance light absorption and photovoltaic efficiency. This is the first large structure grown on a nanowire tip and it creates a completely new architecture for harnessing energy.
Crystal growth on a nano/microscale level results in the formation of "match-head"-like, three-dimensional structures that enhance light absorption and photovoltaic efficiency.
Match-head semiconductor nanowires focus incident light for greater overall efficiency. The match heads are naturally formed during the wire-growth process, which can be applied to various materials and structures for photonic and optoelectronic devices. This is the first large structure grown on a nanowire tip and it creates a completely new architecture for harnessing energy.
Enhanced light absorption and efficient, photogenerated carrier collection are essential characteristics of highly efficient solar cells. Nanowires with embedded radial junctions are promising building blocks for highly efficient photovoltaics because of their ability to achieve these two characteristics. The new technology in this highlight provides a novel method for enhancing optical absorption and photovoltaic efficiency with crystal growth. Controlled silicon crystal growth on the tops of silicon wires creates a match-head structure. The match head acts as a light concentrator.
Light absorptance was increased by 36% and photovoltaic efficiency was increased by 20%. Because the match-head crystal is naturally grown and minimizes surface energy, this technique is applicable for a wide range of materials and device architectures to boost performance. The ability to control the shape of the nanostructure is essential for manufacturing next-generation semiconductor devices, such as photodetectors and light emitters.

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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