When Will China Devalue?

Baltic Dry Index. 337 - 08        Brent Crude 32.60
LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

The government announced last night it was lowering the exchange rate so the Pound is now worth $2.40, down from $2.80, a cut of just over 14%.

The decision came after weeks of increasingly feverish speculation and a day in which the Bank of England spent £200m trying to shore up the pound from its gold and dollar reserves.

BBC 19 November 1967

“It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued."

Prime Minister Harold Wilson.

We open with China, where the central bank is attempting to stem capital flight ahead of a widely expected Yuan devaluation later in the year, (officially denied,) attempting to stimulate a rapidly slowing economy, and adding in cash ahead of the coming lunar New Year winter holiday festival. Too little to late comes to mind. Will China use the coming holiday to get the devaluation over?

A week is a long time in politics.

Prime Minister Harold Wilson

China’s central bank makes massive cash infusion

Published: Jan 27, 2016 10:37 p.m. ET

590-billion yuan injection is most in 3 years, intended to improve liquidity

SHANGHAI — China’s central bank is putting the largest amount of cash into the financial system in nearly three years, using a weekly market operation to pre-empt a holiday-induced funding squeeze and offset rapid capital outflows.

The People’s Bank of China offered 340 billion yuan ($51.89 billion) of short-term loans, known as reverse repurchase agreements, to commercial banks in a routine money market operation Thursday.

The central bank provided 440 billion yuan via similar tools Tuesday, the first leg of its twice-a-week liquidity-management exercises.

Given the maturity of 190 billion yuan of previously issued loans, the PBOC’s net cash injection this week totals 590 billion yuan, the biggest of its kind since early February 2013, when it reached 662 billion yuan.

The move follows an aggressive pump-priming exercise by the PBOC last week, when the central bank offered more than 1.5 trillion yuan in gross short- and medium-term lending to banks.

The eye-popping liquidity injection is partly intended to satisfy typically surging demand for cash ahead of the Lunar New Year holiday that starts Feb. 7.

It also constitutes an effort to stem accelerating capital flight as investors become more nervous about the health of China’s economy, and as the country’s main stock market has lost nearly 23% since the start of this year.

http://www.marketwatch.com/story/chinas-central-bank-makes-massive-cash-infusion-2016-01-27?dist=tcountdown

Elsewhere in Asia it was more of the same slowdown. Consumers all around the world seem to be tapped out, even before a negative wealth affect kicks in from the worst start to global stock markets since the 1930s.

Japan retail sales slip in December

Published: Jan 27, 2016 7:11 p.m. ET

TOKYO--Japanese retail sales fell 1.1% in December from a year earlier, reflecting the impact of lower fuel prices and showing some weakness in household demand in the world's third-largest economy.

It was the second consecutive monthly fall after a 1.1% decline in November, according to figures released Thursday by the Ministry of Economy, Trade and Industry.

Other recent consumer spending data has painted a bleak picture. Overall household spending fell a 2.9% on year in November, according to data released last month.

The government said that retail sales were mostly flat but there was weakness in some sectors. Retail sales of fuel were down 16.3% on year. Car sales fell 2.1% on year.

On month, retail sales fell 0.2% after seasonal adjustment. Sales at large-scale retailers were flat on year, after adjustment for the change in the number of stores.

http://www.marketwatch.com/story/japan-retail-sales-slip-in-december-2016-01-27?dist=tcountdown

In America, despite the falling stock market, the Fed signalled the next rate hike could still come as soon as March. The Fed knows that stocks are still over priced and is opting to support stocks from lower values, it seems. I suspect much lower values given a continuing global commodity depression, a Chinese malinvestment bubble bursting, and a coming Yuan devaluation ahead. But I also doubt that the Fedster’s will get to hike their key interest rate in March.

Stocks fall as Fed acknowledges worry, but keeps rate hike on table

Published: Jan 27, 2016 4:21 p.m. ET

U.S. stocks fell Wednesday after the Federal Reserve left the door open to a March rate increase despite acknowledging that “economic growth slowed” since its last meeting in December.

“Inflation is expected to remain low in the near term,” the Fed said in new, more cautious language, that some saw as a suggestion the central bank won’t be quick to raise interest rates again. But others saw the Fed refusing to rule out a move as early as March after paying lip service to increased global market turmoil and reiterating that it saw downside pressure on inflation as unlikely to last.

Read the text of the Federal Reserve decision to leave interest rates unchanged.

“The makers of monetary policy were not as dovish as the markets would have liked to see, although the committee did include that they are monitoring global economic and financial developments, said Steven Ricchiuto, chief economist at Mizuho Securities, in emailed comments. “However they also maintained the notion that the things keeping inflation from returning to their 2% target are transitory.”

“The result is an equity market that has little to be optimistic over,” he said.
More
http://www.marketwatch.com/story/us-stocks-set-to-open-lower-as-investors-wait-for-fed-rate-call-2016-01-27?dist=tcountdown

Feldstein says Fed should let the market fall and keep hiking rates

Published: Jan 27, 2016 9:37 a.m. ET

WASHINGTON (MarketWatch) — Martin Feldstein, a prominent Harvard economist once on many people’s short-list to lead the Federal Reserve, has a simple message for the U.S. central bank: ignore the stock market.

In an interview with MarketWatch, Feldstein said stocks are overvalued. Any signal from the U.S. central bank that it may pause from its plans to continue raising interest rates would only create the impression that there is a “Fed put” on the market. A put is an option that protects an investor from losses.

In the interview, Feldstein, now 76 and the president emeritus of the National Bureau of Economic Research, sees a risk of higher inflation going forward. He said growing talk of a recession in the U.S. is misguided.

MarketWatch: In a column in the Wall Street Journal in August, you said this about Fed policy: “It is time to escape the unprecedented monetary policy that for a while stimulated demand – but then distorted prices and brought about the current corrections.” Can you unpack that? What is going on?
More
http://www.marketwatch.com/story/feldstein-says-fed-should-let-the-market-fall-and-keep-hiking-rates-2016-01-27?dist=tcountdown

In dying, wealth destroying, EUSSR news, add Italy to Spain and Portugal on death watch.

Italy's Banking Woes Seen Dogging Renzi After Bad-Loan Deal

January 27, 2016 — 7:30 PM GMT

Italy’s banking woes are set to plague Prime Minister Matteo Renzi for months to come after a long-sought deal with the European Union on bad debts disappointed investors.

The agreement struck with the EU allowing banks to offload soured loans after buying a government guarantee won’t clean up the financial system and revitalize lending as fast as some in the markets had hoped. Banking shares dropped on the plan, which stops well short of the cleanups organized in Spain and Ireland following the financial crisis.

“The uncertainty in the Italian banking system will persist,” said Emanuele Vizzini, who manages 3.5 billion euros ($3.8 billion) as chief investment officer at Investitori Sgr in Milan. “The deal may help banks to offload part of their bad debt, but for sure doesn’t solve the problem, in particular for the weakest banks, which may need recapitalization.”

The ills of the banking sector dogging Renzi not only threaten his reputation for managing the euro-region’s third-biggest economy, they also jeopardize bank lending and a potential boost to a fledgling recovery after a record-long recession. A rout last week drove shares of Banca Monte dei Paschi di Siena SpA and Banco Popolare SC down more than 20 percent on concern over their bad loans and capital levels in the absence of a bad-bank agreement.

‘Less Dramatic’

After a five-hour session late into Tuesday night which capped months of talks, Finance Minister Pier Carlo Padoan and EU Competition Commissioner Margrethe Vestager reached a deal on the mechanism to help banks dispose of their troubled debt.

Banks will be able to bundle their bad loans into securities for sale, while purchasing a state guarantee for the least-risky portion to make the debt more appealing to investors, the Italian Treasury said Wednesday. Addressing lawmakers in Rome, Padoan said a government guarantee under the plan won’t have any impact on public debt or the deficit.

“The agreement is a lot less dramatic than some people were expecting,” said John Raymond, an analyst at CreditSights Ltd. in London. “It will no doubt facilitate securitizations over time, but it’s not a ‘big bang’ solution that puts the banks’ asset-quality problems behind them.”

The arrangement may induce banks to dispose of their higher-quality troubled loans, while keeping the lowest-quality bad debt, said Gianluca Ziglio, a strategist at Sunrise Brokers LLP in London. The sale is likely to force them to recognize losses because the loans will probably be sold at lower prices than the value recorded in banks’ accounts.

It will take time to get the program up and running, delaying the benefits to the banks and the economy. “It could take a year to get somewhere on bad loans, and various moving parts could make it go sour," said Wolfango Piccoli, co-president of Teneo Intelligence in London. 

More
http://www.bloomberg.com/news/articles/2016-01-27/italy-s-banking-woes-seen-dogging-renzi-after-bad-loan-deal

Finally.

Oil's Drop Makes It Cheaper to Fill Up in Houston Than Abu Dhabi

January 27, 2016 — 10:57 AM GMT

Drivers in the U.S. oil hub of Houston can fill their tanks for less than the cost in Abu Dhabi and Dubai for the first time since 2008 as falling crude prices push Middle East exporters to cut government fuel subsidies.

The price of the cheapest grade in the United Arab Emirates, of which Abu Dhabi is the capital, is 1.51 dirhams per liter ($1.55 a gallon) for January, according to the country’s Ministry of Energy. That compares with $1.32 a gallon for the lowest regular fuel in Houston, data compiled by GasBuddy.com show. Houston drivers haven’t paid less on average than Abu Dhabi pump prices since 2008, according to the data. Dubai is the second-largest emirate in the U.A.E. which has the same fuel prices nationwide.

Benchmark Brent crude prices have dropped 16 percent this year after declining in each of the past three years. That’s cutting pump prices for drivers across the U.S., while having the opposite effect in Persian Gulf countries, which supply about a fifth of the world’s oil. Saudi Arabia, the U.A.E., Qatar, Oman and Bahrain have reduced or eliminated fuel subsidies over the past six months.

The U.A.E. pumped 2.94 million barrels a day last month, according to data compiled by Bloomberg. Texas produced 3.5 million barrels a day in October, according to the latest available data from the U.S. Energy Information Administration.

http://www.bloomberg.com/news/articles/2016-01-27/oil-s-drop-makes-it-cheaper-to-fill-up-in-houston-than-abu-dhabi

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise. The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."

Hans F. Sennholz

At the Comex silver depositories Wednesday final figures were: Registered 36.13 Moz, Eligible 120.74 Moz, Total 156.87 Moz. 

Crooks and Scoundrels Corner

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

Today, “the Donald” takes on Brussels. If he doesn’t win POTUS perhaps he might like to head up the UK Independence Party (UKIP.)

Donald Trump Brands Brussels a ‘Hellhole,’ Alienating More of Europe

January 27, 2016 — 1:08 PM GMT

First he upset the French, then he angered the British, now Donald Trump is facing ridicule from the heart of the European Union after referring to Brussels as a “hellhole.”

The remark made during an interview with Fox News triggered a wave of ironic Twitter postings on Wednesday, with many Brussels residents using the #hellhole hashtag alongside beautiful views of the Belgian capital’s ancient streets and parks, or of its renowned cuisine and artisan beer.

“You go to Brussels. I was in Brussels a long time ago -- 20 years ago -- so beautiful, everything’s so beautiful. It’s like living in a hellhole right now,” Trump said in the interview. The Republican presidential candidate, who has pledged to build a wall along the U.S. border with Mexico to prevent illegal entry and demanded a ban on Muslims coming into the U.S., also bemoaned the lack of assimilation in European cities.

One Twitter user mocked the comments by appearing to doctor the Wikipedia entry for Dante’s “Inferno” so that it read that the Fourth Circle of Hell, after limbo, lust and gluttony, was in fact Brussels.

To be sure, Trump has form on slamming Europe’s immigration policies. In October, he criticized German Chancellor Angela Merkel’s open-door commitment on CBS’s “Face the Nation.”

“Frankly, look, Europe’s going to have to handle it,” he said. “But they’re going to have riots in Germany. What’s happening in Germany, I always thought Merkel was, like, this great leader. What she’s done in Germany is insane. It’s insane.”

Trump’s comments came after it emerged that several people connected with the terrorist attacks on Paris in November lived in the Belgian capital. Authorities placed Brussels on virtual lockdown for a few days later that month, closing schools, suspending the public-transport network and ordering bars to shut as police warned of an imminent attack.

More

http://www.bloomberg.com/news/articles/2016-01-27/trump-hellhole-attack-on-belgium-elicits-patriotic-reaction

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

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?

Graphene ‘foam’ to unlock new applications in collaborative R&D venture

By Helen Knight 26th January 2016 11:57 am

Manchester and Abu Dhabi Universities are to collaborate on a graphene-containing 3D foam which could enhance the matertial’s properties in sensors, electrical components and other devices

The use of graphene in batteries, composites, micro-sensors and ion-exchange membranes will all be investigated as part of a new collaborative research program.

The program, which will bring together researchers at Manchester University and the Masdar Institute of Science and Technology in Abu Dhabi, will focus on three projects covering the use of graphene and two dimensional materials in a range of applications.

In one of the projects, researchers from both organisations will develop low-cost ink-jet printing techniques for building micro-sensors designed to operate in the challenging environments found in high temperature energy and military applications.

Meanwhile, a separate team will investigate the benefits of using graphene-based ion exchange membranes in water desalination.

Finally, researchers will attempt to develop low-density graphene nanocomposite foams for use in batteries and supercapacitors, and to stiffen composite materials.

The advantage of using a 2D material like graphene in battery electrodes, for example, is that it has a very high surface area, and yet is only one atom thick, according to Prof Brian Derby at Manchester University, who is a member of the research team.

“But in order for the material to be useful, the atom-thick layers have to be packaged in a 3D object,” he said.

So the researchers are attempting to build foams out of graphene, he said. “We’re trying to develop ways of packaging these materials so that they assemble in space, but hold their surface area as much as possible.”

The team also hopes to develop composites in which very fine flakes of graphene are dispersed within a polymer matrix. This should allow for the efficient transfer of stress from the polymer to the graphene flakes, creating a stronger, but still workable composite, said Derby.

https://www.theengineer.co.uk/graphene-foam-to-unlock-new-applications-in-collaborative-rd-venture/ 

The monthly Coppock Indicators finished December

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