Monday, 25 January 2016

China – This Time It’s Different.

Baltic Dry Index. 354 -01        Brent Crude 32.58

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

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.

John Mauldin is one of the most respected economic writers and commentators around, so when he issues a warning of change happening in China, and not for the better, I take notice.  If China sneezes all the world will catch a cold. The China Beige Book, reports Mr. Mauldin, says that China started sneezing in Q4 15. Next month the Chinese lunar New Year celebrations will slow the Chinese economy some more. Right now, East Asia is reeling from a polar vortex dropping temperatures to their lowest in decades, not good for the local economy. 2016s rocky start looks set to continue.

China’s Year of the Monkees
By John Mauldin | Jan 24, 2016
----To whom can we turn for reliable data? My go-to source is Leland Miller and company at the China Beige Book. Full disclosure: I have been a long-time advisor to CBB, and they have been very generous in sharing their time and information. What makes them different is that they have rather large teams collecting on-the-ground reports from local observers and companies all over China and compiling the information they collect into a massive quarterly review. If I remember right, they amass over 2,000 different data points each quarter, which makes their work as useful as the Fed’s Beige Book, which is similarly sourced from all over the country. I’m not aware of anything else like it. China Beige Book consistently flags important changes months before anyone else does.

Dealing with a Different China

China Beige Book’s fourth-quarter report revealed a rude interruption to the positive “stable deceleration” trend. Their observers in cities all over that vast country reported weakness in every sector of the economy. Capital expenditures dropped sharply; there were signs of price deflation and labor market weakness; and both manufacturing and service activity slowed markedly.

That last point deserves some comment. China experts everywhere tell us the country is transitioning from manufacturing for export to supplying consumer-driven services. So if both manufacturing and service activity are slowing, is that transition still happening?

The answer might be “yes” if manufacturing were decelerating faster than services. For this purpose, relative growth is what counts. Unfortunately, manufacturing is slowing while service activity is not picking up all the slack. That’s not the combination we want to see.

Something else China Beige Book noticed last quarter: both business and consumer loan volume did not grow in response to lower interest rates. That’s an important change, and probably not a good one. It means monetary stimulus from Beijing can’t save the day this time. Leland thinks fiscal stimulus isn’t likely to help, either. Like other governments and their central banks, China is running out of economic ammunition.

One quarter doesn’t constitute a trend. Possibly some transitory factors depressed the Chinese economy the last few months, and it will soon resume its “stable deceleration” course. It is hard to imagine what those factors might have been, though. The data is so uniformly negative that it sure looks like something big must have changed.

Fifty dead and thousands stranded as cold snap hits East Asia

48 minutes ago
A cold snap sweeping across East Asia has led to more than 50 deaths in Taiwan and stranded at least 60,000 tourists in South Korea.

Taiwanese media reported a rash of deaths from hypothermia and cardiac disease following a sudden drop in temperature over the weekend.

Meanwhile heavy snow forced the closure of the airport on the Korean holiday island of Jeju, cancelling flights.

The cold spell has also hit Hong Kong, southern China and Japan.

Unusually low temperatures

Many of those who died in Taiwan were elderly people living in northern regions such as Taipei, Kaohsiung and Taoyuan. The north saw an unusually low temperature of 4C (39F) on Sunday.

Authorities have warned people, especially senior citizens, to keep warm and stay out of the cold.

In South Korea, more than 500 domestic and international flights have been cancelled in Jeju as the island, known for balmy weather and beaches, saw -6C weather. The airport is due to reopen on Monday night.

Thousands of tourists were left stranded over the weekend. Yonhap news agency reported that local officials were scrambling to find transport and accommodation.

In Hong Kong, residents shivered in 3C, the lowest temperature there in nearly 60 years.

Parts of Guangzhou and Shenzhen in southern China have also seen the rare appearance of snow, while the southern Japanese island of Okinawa has seen sleet for the first time ever, report Chinese and Japanese media.

Snow storms have hit large parts of Japan as well, with more than 600 domestic flights cancelled across the country on Sunday and Monday, reported NHK news.

At least five people have died from the snow so far and more than 100 have been injured in Japan.

China renews orange alert for cold wave

Source: Xinhua | 2016-01-24 21:43:50 | Editor: Tian Shaohui
BEIJING, Jan. 24 (Xinhua) -- China's national observatory on Sunday evening renewed its orange alert for a cold wave as most parts of the country experienced the coldest weather in decades in the weekend.

China has a four-tier warning system for severe weather, with red being the most serious, followed by orange, yellow and blue.

From Sunday night to Monday night, temperatures in parts of south China will drop 3 to 6 degrees Celsius while the lowest temperatures in the lower reaches of the Yangtze River could reach minus 10 degrees Celsius, according to the National Meteorological Center (NMC).

Temperatures dropped 8 to 16 degrees Celsius from Thursday to Sunday in parts of northwest China, north China and the area between the Yellow River and Huaihe River, said the NMC.

Temperatures in central and eastern China were 6 to 8 degrees Celsius lower than the average historical level, the NMC added.

The southern city of Guangzhou saw rare sleet, the first in 60 years, in its downtown area, the provincial meteorological station announced on Sunday.

Zhejiang Province also recorded a historical low temperature of minus 20 degrees Celsius in mountain areas on Sunday. Temperatures dropped by as much as 15 degrees Celsius in the province.

In Hangzhou, capital of Zhejiang Province, civilian rescue groups participated in the emergency response. About 140 members of a group called the "Goat Team" have helped remove snow and defrost city streets.

The worst cold snap in years led to at least four deaths as it swept across central and southern China on Sunday.

----The cold coincided with the beginning of a 40-day travel rush for the Spring Festival, which falls on Feb. 8 this year. Highway sections in northeastern and southeastern Yunnan Province, where snow and sleet have made travel impossible, have been closed.

Airport authorities and airlines are struggling to divert about 11,229 passengers who have been stranded at the Kunming airport since Saturday.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Ludwig von Mises.

At the Comex silver depositories Friday final figures were: Registered 36.15 Moz, Eligible 119.21 Moz, Total 155.36 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today an excellent analysis of Mad Mario’s words last week, that along with an oil short squeeze, all too soon to end as Iran resumes shipping extra crude oil to the market, that goosed stock markets higher on Friday. Euros anyone?
In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.
J. K. Galbraith

A Rumination On The Monetary Lunacy Of Mario Draghi

by Pater Tenebrarum • January 22, 2016

As Reuters informs us, on the heels of Mr. Draghi’s somewhat “disappointing” attempt to assassinate the euro on occasion of the previous ECB meeting, the chief European printing press supervisor and certified monetary crank has decided to assure everyone of his ultra-dovish stance again on Thursday, by announcing that even more monetary insanity must be expected soon:

Fading growth and inflation prospects will force the European Central Bank to review its policy stance in March, President Mario Draghi said on Thursday, a strong signal that more easing could be coming within months.”
Still not enough inflation! Euro area M1, a close approximation of the true money supply. Currently this aggregate is growing at roughly 14% p.a. This is the actual rate of inflation. Rising consumer prices are merely one possible consequence of inflation, and not necessarily the most pernicious one. Moreover, consumer price inflation can often appear on the scene with a very long lag (many years) – click to enlarge.
 Here are a few more excerpts from the Reuters article:
 “Downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks,” Draghi told a news conference. “We are not surrendering in front of these global factors.”
Dismissing concern that the ECB’s policy arsenal is all but empty, Draghi said: “We have the power and willingness and determination to act. There are no limits to how far we are willing to deploy our (monetary) instruments.”
(emphasis added)
Two things are worth noting regarding the sentence highlighted above: first of all, it is absolutely true that people who assert that central banks “have run out of bullets” are all wet. How can one possibly “run out” of something one can create from thin air at a keystroke?
Secondly, it shows that Draghi and the merry pranksters at the ECB Council are not only well aware that there are no theoretical and practical limits to their monetary depredations, but they seem fully prepared to “go the whole hog”.
Naturally, it once again remains unexplained just how the printing of additional money with the explicit goal of making life more expensive for consumers (while creating price distortions across the economy) is supposed to increase prosperity. Just reflect on the sheer absurdity of this notion for a moment.
One of the perverse outcomes of the ECB’s policies: Yields on Germany’s 2-year notes have decline to a negative 0.45% – lenders to the government are thus guaranteed to lose money. It is as if the arrow of time had been inverted or suspended – superficially it appears as tough the categories “sooner” and “later” no longer mean anything. An economy receiving such extremely distorted interest rate signals is bound to be hollowed out on a structural level. Eventually this will lead to another big bust.
These bureaucrats believe that the economy can be magically improved by creating additional money units ex nihilo, which is an eerie reminder of the French revolutionary assembly’s adventures in monetary debauchment in the late 18th century, an exercise that managed to drive France into a state of utter economic ruin.
The revolutionaries created and destroyed two currencies in a row within just a few years. As transcripts of their debates show, initially they had a few doubts as to the wisdom of this course. However, once they had embarked on it, they found it impossible to extricate themselves from the policy. In the end they went down the road to economic hell in ever greater strides. Mindless propaganda and State terror soon replaced reasoned debate.
If all else fails, immortality can always be assured by spectacular error.

J. K. Galbraith.

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?

Huge Hydropower Plant to Harness Seawater and Solar Power in South America’s Driest Desert

Cole Mellino | January 22, 2016 3:54 pm
Lodged between the Andes Mountains and the Pacific Ocean is the Atacama Desert in Chile—the driest non-polar desert in the world.

It certainly isn’t a location where you’d expect to find a hydropower plant, but Valhalla, a Chilean company, plans to build Espejo de Tarapaca (Tarapaca Mirror), a 300-megawatt solar and hydropower plant

During the day, the plant will use solar power to move seawater up a tunnel to the top of a mountain, where the water will be stored in a natural reservoir, explained FastCoExist. At night, the water will be released back down, generating power as it falls. This way, the plant can generate power day and night. Pumped storage hydropower plants are not a new concept, but utilizing solar power to pump the water is.

“You need to be able to provide power when it’s needed, so it’s readily available and dispatchable,” Francisco Torrealba, co-founder of Valhalla, told FastCoExist. “If on a particular day you don’t have wind and can’t provide energy at a peak time, that would be a huge crisis. That’s why our concept becomes relevant.

The Chilean coast is an ideal location for this type of project. “Chile has the best conditions in the world for solar plants—roughly 15 percent better than Arizona,” Torrealba said. “It’s really stunning. But Chile also has the best conditions in the world for pump storage running with seawater. That means we can produce flat, steady power at a very reasonable price.”

The company won’t have to construct dams, either. “We found these natural depressions that we believe were very ancient lakes, but obviously there is nothing there now, it is a desert, that will allow us to store water,” the company’s co-founder and chief executive Juan Andres Camus told Reuters.

And it’s currently cost-competitive with coal. “In Chile, we don’t have any subsidies for renewables, so we need to be able to compete straight with coal generation,” Torrealba explained. “It’s a very Darwinian world—you need to be able to play against coal. Our cost structure is at the price of coal right now.”

Valhalla is set to begin construction on the plant in the second half of 2016. They’re still in the process of securing funding for the venture, but they estimate they will be supplying electricity to utilities by 2020. They believe the Chilean coastline has the potential to supply power for all of South America

The monthly Coppock Indicators finished December

DJIA: +18 Down. NASDAQ: +110 Down. SP500: +36 Down. 

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