Thursday, 14 January 2016

Depression.



Baltic Dry Index. 394 -08        Brent Crude 30.15

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

Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.

Warren Buffett

The Baltic Dry (shipping) Index and oil died yesterday, along with the US stock market. What comes next is a rolling tsunami of bankruptcies across the oil patch, the banks that lent to the frackers, and the hedgies that funded their deeply flawed business model. But it gets much worse. As they go bust or at best deeply cut back, all the supply services and equipment companies also retrench. The gambling business model that died in the crash of 1987, reprieved by “Bubbles “ Greenspan, and the great Chinese Ponzi Scheme, succumbs to its own Great Excess.

Eventually low oil prices, of course, regenerate the next boom, But not before the first depression since the 1930s ravages the Greenspan, Bernanke, Yellen, China Ponzi bubble. Stay long fully paid up physical gold and silver held outside of the financial system. John Bull and Uncle Scam have form when it comes to Corzining precious metals. We have run out of road in the Great Nixonian Error of fiat money, communist money. We are about to reach step one in the return to sound money, metallic money, and a return to capitalism, away from central bank fuelled crony casino faux capitalism. But don’t expect a Formula One fast track back to regeneration. What comes first is more like a NASCAR pile up.

Only when the tide goes out do you discover who's been swimming naked.

Warren Buffett

Asian Stock Rout Deepens as Oil, China Woes Crush Risk Appetite

January 13, 2016 — 11:13 PM GMT Updated on January 14, 2016 — 5:51 AM GMT
Asian equities resumed their New Year tumble, falling to a three-year low, as the cheapest oil in more than a decade and anxiety over an economic slowdown in China unsettled investors fueled demand for the safest assets.

Japanese stocks sank to the lowest since September after a selloff in the U.S. rekindled the global equity rout that has dominated trading this year. Shares in Shanghai fluctuated after falling to lows set during August’s market turmoil. Treasuries advanced and Japan’s 10-year bond yield fell to a record as investors sought safer assets. The yen resumed a rally that’s made it the best performer in foreign-exchange markets this year. Indonesia’s stocks and currency fell after at least four people were killed in explosions and gunfire in central Jakarta.
What seemed like a budding global stock rebound was quashed in the U.S., where a selloff in consumer and technology shares shaved more than 360 points off the Dow Jones Industrial Average and saw small-cap equities enter a bear market. Traders have been whipsawed in 2016, with equities around the world off to their worst ever start to a year as oil plummets to levels last seen more than a decade ago and China struggles to maintain control over its markets, fueling concern an economic slowdown will spread. More
http://www.bloomberg.com/news/articles/2016-01-13/asian-stock-futures-signal-return-to-rout-as-crude-languishes

Alberta’s heavy crude plunges to record low

The Globe and Mail Published Monday, Jan. 11, 2016 6:30PM EST
Last updated Tuesday, Jan. 12, 2016 11:07AM EST

Alberta’s heavy crude is plumbing new depths as the oil market gets off to a brutal start in 2016. Western Canada Select, the main oil sands benchmark, dropped $2.05 (U.S.) on Monday to $16.61 a barrel, its lowest close on record. The price of WCS has plummeted 30 per cent this year and nearly 80 per cent from a year ago.

The Possibility of $20 Oil Doesn't Sound So Crazy Anymore

January 12, 2016 — 8:54 PM GMT Updated on January 13, 2016 — 7:04 AM GMT
The world mostly ignored Ed Morse 11 months ago when the head of commodities research at Citigroup said oil could drop as low as $20.
It’s paying attention now that crude has tipped below $30.
Crude futures in the U.S. sank into the $20s for the first time in more than 12 years on Tuesday, hours after BP Plc said it would slash an additional 4,000 jobs, Petroleo Brasileiro SA cut its spending plan and Petroliam Nasional Bhd. warned that it faces several tough years. Morse, who wrote in a Feb. 9 research note that oil could fall "perhaps as low as the $20 range for a while," said in Calgary Tuesday that the world is now confronting $20 oil.
“The $20 number is something you have to talk about,” Morse said. “When you’ve seen a $10 price slide and WTI is trading just slightly above $30, the likelihood is fairly great. Clearly oil markets cannot maintain a price at below the $30 level for very long. The question is how much longer.”
---- Low prices could cause problems for U.S. oil companies with covenants that specify certain debt-to-earnings ratios or interest coverage, and will make it even harder for them to obtain financing to continue operating, said Mark Sadeghian, a senior director for the energy and commodities group at Fitch Ratings Ltd.
The Bloomberg Commodities Index fell to the lowest level since at least 1991 as demand from slowing emerging-market economies fails to keep pace with a flood of supply from investments made during the price boom of a half-decade ago.
Malaysia stands to lose 300 million ringgit ($68 million) for every $1-a-barrel decline in crude, according to government estimates. ConocoPhillips is losing $1.79 billion in net income each quarter for every $10 drop in prices, according to analysts at Barclays Plc.
Petrobras, as Brazil’s state-controlled oil producer is known, cut its five-year business plan to $98.4 billion, the latest adjustment to the original $130 billion announced last year.
The U.S. Energy Information Administration reduced its forecast for WTI prices for 2016 by 24 percent to $38.54 a barrel. In its monthly Short-Term Energy Outlook, the agency said the oil market would come back into balance in 2017.
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Oil could crash to $10 a barrel, warn investment bank bears

Petrol prices could fall back to levels last seen in 2009 as major banks say there is no bottom in sight for the world's lopsided market

Oil prices have crashed to below $30-a-barrel amid warnings the rout could reach as low as $10 and bring down petrol prices to levels last seen in 2009.

Standard Chartered became the latest major bank to downgrade its oil outlook to $10, joining the likes of Goldman Sachs, RBS and Morgan Stanley in making ultra-bearish calls as prices have collapsed by 15pc this year.

Brent crude has now slipped to a fresh 12-year low of $30.41 a barrel, while West Texas Intermediate - the US benchmark - is trading at $29.93 - a level last seen in December 2013. Analysts warned the oil market remains fundmentally out of balance as record over-supply and stagnant demand weighs on traders.
Standard Chartered said there was no bottom in sight until "money managers in the market conceded that matters had gone too far".
"Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the dollar and equity markets," said Standard Chartered.
Oil last slumped to $10 during the height of the Asian financial crisis in 1998. A $10 world would lead to petrol prices falling back to 86p-per-litre, said Simon Williams at RAC.
----Calling the bottom of the market was "akin to catching a falling knife" in today's febrile environment, said Michael Hewson at CMC.
"When the clamour for lower prices becomes a stampede, warning signs and alarm bells tend to start going off, which suggests that a more prudent approach might be advisable," he said.
The warnings came as Opec - the cartel that controls a third of the world's supply - said it would not cede to requests from some of its members to hold an emergency meeting.
Opec meets twice a year, but its latest gathering in December ended in a fractious stalemate over production targets, as Saudi Arabia and Iran struggle for dominance of the world's market share.
With the next regular meeting scheduled for June, Nigeria's oil minister said at least two members had called for an extraordinary gathering to address the price rout. But hopes were quickly dashed after the United Arab Emirates dismissed the prospect.
Energy minister Suhail bin Mohammed al-Mazroui said Opec's decision to maintain production and crowd out rivals was still bearing dividend, hinting that it would take another 18 months for prices to start picking up.
More

Goldman plans to cut up to 10% of fixed-income traders, salespeople

Published: Jan 13, 2016 6:25 p.m. ET
Goldman Sachs Group Inc. is planning to cut up to 10% of its fixed-income traders and salespeople later this quarter, a steeper-than-usual pruning of the firm’s least-productive employees, according to people familiar with the matter.

Goldman GS, -4.06%  annually sheds about 5% of its total workforce in March, often to make room for new hires.

This year, though, the firm is preparing for steeper cuts within its debt, currencies and commodities division, a business whose prospects have dimmed with the implementation of a spate of new regulations on bank risk-taking and capital, the people said.
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Gundlach Paints Bearish Outlook for 2016 Investing, Economy

January 12, 2016 — 9:31 PM GMT Updated on January 13, 2016 — 12:55 AM GMT
One of the market’s biggest bears says there’s more bad news ahead.
Falling commodity prices are signs of China’s weakening economy, which will lead to more destabilizing devaluations of the yuan, Jeffrey Gundlach said Tuesday during a market outlook webcast. Moves by the Federal Reserve to raise interest rates are fighting non-existent inflation and hurting gross domestic product growth, he said, adding that stocks are going to follow high-yield bonds down and low oil prices may lead to political instability.
“This is a capital-preservation market, not a money-making environment,” said Gundlach, co-founder of Los Angeles-based DoubleLine Capital. For economic growth, “2016 is not looking all that great, potentially.”
Gundlach, whose $52.3 billion DoubleLine Total Return Bond Fund beat 94 percent of its Bloomberg peers last year, has been sounding warnings for months, saying the economy is too shaky for interest rate increases. Global growth might slow to 1.9 percent this year with U.S. manufacturing already in a recession, he said on Tuesday’s call, putting the odds of a recession at about 50 percent if the services sector falls more.
Stock markets are likely to keep struggling early in 2016 before a “buying opportunity” arises later in the year, Gundlach said. High-yield bonds also probably will fall more in the first part of this year as redemptions increase at hedge funds that used leverage to invest in them, according to Gundlach.
“We could be looking at a really ugly situation during the first quarter of 2016,” he said. “It’s particularly more likely to happen if the Fed keeps banging this drum of raising interest rates against falling inflation.”
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Notorious 'uber bear' Albert Edwards warns world is headed for another 2008 crash

Societe Generale analyst warns that US stocks will lose nearly 75pc of their value

Notorious “uber bear” Albert Edwards has warned of “global deflation and recession” in his latest notes to clients, predicting that US stocks could lose more three-quarters of their value.
The Societe Generale analyst believes that the coming market “carnage is an indirect result of the failure of the [US] Fed’s quantitative easing”. He argued that investors would “reap the whirlwind” of central bank attempts to support their respective economies with looser monetary policy.
Mr Edwards has made a name for himself as an outspoken bear, frequently forecasting that the global economy and stock markets are in for a terrible time. In his latest missive he declared that recent anguish over the Chinese economy should have come as no surprise to money managers.

“The impossible trilogy of maintaining an independent domestic monetary policy and a semi-fixed exchange rate while loosening capital account restrictions is hitting home,” he said. Chinese companies have prepared themselves for a further fall in the yuan, Mr Edwards claimed, putting the country in “a better position to transmit a massive deflationary shock”.

Western manufacturing “will choke under this imported deflationary tourniquet”, he continued. “When an economy is hurtling towards recession it is almost always the manufacturing sector that takes the less volatile services sector by the hand and leads it into a recessionary underworld.”
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In China news, don’t question those surprising export figures. In fact, don’t question anything at all, if you know what’s good for you.

China detains Swedish man as Beijing cracks down on human rights lawyers

Updated 0333 GMT (1133 HKT) January 13, 2016
Hong Kong (CNN)A Swedish human rights activist has been detained in China amid an ongoing crackdown on lawyers and NGOs.

According to colleagues, Peter Jesper Dahlin was detained "on suspicion of endangering state security" on January 4.

"A Swedish citizen in his mid-30s has been detained in China," a spokesman for the Swedish Embassy in Beijing told CNN, adding that consular staff were currently investigating the matter.

Dahlin worked for the Chinese Urgent Action Group, which "undertakes rapid response assistance for rights defenders in need" and provides legal aid and training across China, according to its website.

The Chinese Ministry of Foreign Affairs did not respond to a request for comment.

Dahlin's detention comes as activists say Chinese authorities are ramping up their campaign against legal aid and human rights workers.

This week, five Chinese human rights lawyers were charged after being held in secret for six months, supporters said.

Zhou Shifeng, founder of a Beijing law firm that has been at the heart of the ongoing crackdown, is accused of "state subversion," colleague Liu Xiaoyuan said on his verified Weibo social media account Tuesday.

The charge carries a potential maximum sentence of life in prison.

Four other lawyers were charged with "incitement to state subversion," which carries a maximum sentence of 15 years, according to notices posted on social media by supporters.

The crackdown, which has been ongoing since at least July last year, has seen dozens of lawyers, activists and their relatives taken into custody or questioned by police in cities across China.

In December, outspoken human rights lawyer Pu Zhiqiang went on trial in Beijing, accused of "picking quarrels" and "inciting ethnic hatred" based on seven Weibo posts between July 2011 and May 2014.

"Lawyers and civil society leaders such as Mr. Pu should not be subject to continuing repression, but should be allowed to contribute to the building of a prosperous and stable China," the U.S. Embassy in Beijing said in a statement at the time.
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Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.

Warren Buffett

At the Comex silver depositories Wednesday final figures were: Registered 35.76 Moz, Eligible 124.25 Moz, Total 160.01 Moz.  Suddenly someone is draining the silver pool.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, does history repeat?
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.

Why Junk Rhymes With Subprimes

by Michael Pento • January 12, 2016

On December 16th 2008, in what Ben Bernanke averred took a tremendous amount of “moral courage”, the Federal Reserve officially arrived at its Zero Interest Rate Policy. ZIRP was a huge win for borrowers because it drove down the carrying cost of debt to historic lows. Unfortunately, savers didn’t fare as well.
Those frantic savers were forced to reach for yield far out along the risk curve. And an obliging Wall Street issued over $1 trillion in new junk bonds at the lowest spreads to Treasuries in the 35 year history of the junk debt market. To put this in perspective, the entire high yield market had previously hit its frothy peak of $1.2 trillion in the bubbly days of 2007, in October of last year junk bond debt alone hit $1.7 trillion, adding to the total $2.6 trillion high yield debt market.
Through these newly issued Junk-bonds investors generously financed America’s shale boom that is now going bust. Junk debt also provided the lowest-grade borrowers cushy terms such as covenant-lite offerings and PIK (Payment-in-Kind toggle), which allows issuers to pay some of the interest due by borrowing new debt. And also financed lavish dividend payments for those debt holders.
But now the Fed’s mission is to prove to Wall St. and Main St. that nearly eight years’ worth of ZIRP has succeeded in saving the economy. Therefore, it has finally embarked on its path to interest rate normalization. However, on the way down this road to normalization the junk debt market has started to discount increased borrowing costs and a U.S. recession, which is the bane for high-yield debt.
The carnage has just begun. Lucidus Capital Partners—an investment manager specializing in corporate credit–recently announced it was liquidating its entire portfolio and returning $900 million to clients next month. Third Avenue rattled markets when it announced December 9th that it’s liquidating a $788.5 million corporate debt mutual fund and delaying distribution of investor cash to avoid even bigger losses. And Stone Lion Capital Partners has also halted cash redemptions for its investors.
But as usual the Wall Street cheerleaders quickly provided a myriad of excuses for these individual failures and eagerly offered reasons why this isn’t systemic. They claim Third Avenue focused on ultra-high risk illiquid assets that didn’t belong on a mutual fund platform. And that Lucidus had one large investor who wanted his money back. Or, that outside of energy these junk bond funds are rock solid. However, within the Third Avenue Focused Credit Fund 78% of the top ten holdings were not energy related at all.
This is eerily reminiscent of similar assurances given at the onset of the sub-prime fund failures back in 2008. As the Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund brought down the legendary investment bank that bears its name, most pundits were confident that these particular funds represented isolated cases. Those same Wall Street apologist were busy pontificating that the failure of Bear Stearns was due to a mismanagement issue and not part of a larger problem in the mortgage market; and certainly had nothing to do with a systemic problem in financial institutions or the global economy.
Likewise, this time around the issue is not limited to just a small subsection of high-yield junk. Remember those CLO’s (collateralized loan obligations) that almost brought down the entire economy in 2008? They are back and are now being issued at a record pace. Yield hungry institutional mangers and retail investors have been lured into these debt securities that are collateralized by loan pools consisting of highly illiquid bank loans.
To make matters worse, leveraged bank loans outstanding, which have been the engine of the recent financial engineering of M&A and stock buybacks, amounts to nearly $900 billion, up 80% from the post crisis bottom.
More

“It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."

J. K. Galbraith. The Great Crash: 1929.

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?

Mideast Desert Sands Could Store Solar Energy

// Patrick J. Kiger
We’re used to thinking of the Middle East as an oil-rich region. But it’s quietly becoming a center for solar power as well, thanks in large part to the United Arab Emirates, which has invested billions of dollars in developing renewable energy technologies.

Already that investment is bearing fruit. Researchers at the UAE’s Masdar Institute have demonstrated that desert sand from that country could be used to store energy at temperatures of more than 1,800 degrees Fahrenheit (1,000 degrees Celsius) in concentrated solar power facilities, or CSP.

CSP plants utilize arrays of mirrors to focus the sun’s energy to a central storage tower. As needed, the energy then is used to heat water into steam and turn turbines to generate electricity.

Using local sand as a thermal energy storage (TES) material, rather than the synthetic oil or salts currently used, might provide a big boost to solar energy because it would reduce costs.

As a Masdar press release explains, the researchers in the Sandstock project analyzed the sand with X-ray fluorescence (XRF) and X-ray diffraction (XRD) techniques, which reveal the dominance of quartz and carbonate materials. They found that the sand’s chemical composition indicated that not only could it be used to store concentrated sunlight, but that it even could be used to absorb it directly.

 “The availability of this material in desert environments such as the UAE allows for significant cost reductions in novel CSP plants, which may use it both as TES material and solar absorber,” Masdar researcher Nicolas Calvet said in the press release. “The success of the Sandstock project reflects that usability and practical benefits of the UAE desert sand.”

In 2012, the World Bank projected that the Middle East and North Africa, another area that’s a promising location for solar installations, had the potential to generate enough solar energy to meet 50 to 70 percent of the world’s electricity demand.

The monthly Coppock Indicators finished December

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

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