Friday, 19 February 2016


Baltic Dry Index. 313 +06        Brent Crude 34.08

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

Experience, however, shows that neither a state nor a bank ever have had the unrestricted power of issuing paper money without abusing that power; in all states, therefore, the issue of paper money ought to be under some check and control; and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes either in gold coin or bullion.

David Ricardo.

Though it’s not quite a done deal, nothing in the EUSSR ever gets quite decided or fixed, this morning it’s looking better than ever that John Bull is headed for the exit of the EUSSR lunatic asylum. More on GB salvation tomorrow, after the final results of the Great Pow Wow in Brussels are known.

We open with a little sanity returning in the rest of the world. Hype and hopium wears off quite fast in our new bear market. Each fix is less and less effective requiring more hopium.

“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”

“Adam Smith” aka George Goodman.

Asian shares slip from three-week high as oil rally reverses

Thu Feb 18, 2016 10:15pm EST
Asian shares slipped from near three-week highs on Friday as a rally in oil prices reversed and investors remained cautious about the outlook for the global economy.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 percent, but gains in previous sessions left it up 4 percent for the week.

Japan's Nikkei .N225 dropped 2.2 percent as the yen firmed, but remained on track for a weekly gain of 5.9 percent.

"This week is the first sign of change I have seen in 2016," Evan Lucas, market strategist at trading services provider IG, wrote in a note.

But "most fund managers are nearing their maximum levels of cash under their respective mandates. This capital needs to be deployed to confirm the change is on."

MSCI's emerging market index .MSCIEF hit a six-week high overnight on hopes that oil prices were stabilizing, but the positive sentiment didn't flow through to U.S. shares.

The S&P 500 .SPX shed 0.5 percent, dragged down by lackluster earnings from Wal-Mart Stores (WMT.N).

Oil prices reversed earlier gains on Thursday following a rise in U.S. stockpiles but look set to post their first rise in three weeks after the battered market took heart from a tentative deal by major producers to freeze output at January's highs.

Global leaders must act now as fresh downturn looms, warns OECD

OECD urges collective action to fight threat of low-growth trap

Global leaders must take "urgent" action to stop the world becoming stuck in a low-growth trap, according to the Organisation for Economic Co-operation and Development.

The OECD slashed its growth forecasts across the board on Thursday as it urged policymakers to deploy a "full set of tools" to prevent another slowdown.

Higher investment, loose monetary policy and structural reforms would all be needed to boost the recovery and ward off the financial stability risks "plaguing" the economy, it said.

The OECD slashed its growth forecasts for all major economies apart from China, which the think-tank said was also facing challenges.

Global growth this year is expected to match expansion of 3pc in 2015, which was the slowest pace in five years. This is down from a forecast of 3.3pc just three months ago.

Growth in 2017 is now projected to be 3.3pc, from 3.6pc in November.

S&P could downgrade more CoCo bonds

The ratings agency downgraded Deutsche Bank's risky bonds

More banks could see their contingent convertible (CoCo) bonds downgraded, Standard and Poor's has warned, a week after Deutsche Bank's bonds were targeted by the credit ratings agency.

The price of the risky bonds has crashed by as much as 25pc in recent weeks as a wave of fear swept the market, with investors panicking that Deutsche Bank could struggle to pay the interest coupon on the bonds.

The bank insisted that it has plenty of liquidity available to service its debts and bought back almost €5bn (£3.9bn) of senior bonds to illustrate the point. Since then Deutsche Bank's CoCos have shown some signs of rebounding.

Standard and Poor's said it is analysing more of the bonds across the market, and could choose to downgrade them, too.

"Our ratings are under constant survellience. [The Deutsche downgrade is] not the end of the story, there are quite a few points yet that need to be clarified with additional disclosure from the banks," said S&P's Alexandre Birry.

"We will have to reflect all this new information as it comes to light and see if in some cases there could be a case to widen notching. The risks around coupon deferral seems to be clearer to markets in the current environment. We will continuously try to reflect this new information."

CoCos, classed as AT1 securities, are bonds that are designed to prop up banks if they get into financial trouble, and to make sure that investors contribute to supporting lenders.

The biggest risk is that banks' capital buffers fall below a set level - typically 7pc of assets - this will convert the bonds either into shares or wiping them out altogether.

Opinion: Longtime bull turned bear says S&P 500 could tumble 34.1%

Published: Feb 18, 2016 5:12 a.m. ET
If you were encouraged by stocks’ big rally that began last Friday and had catapulted the Dow Jones Industrial Average almost 800 points by Wednesday’s close, one longtime market bull has some cautionary words for you: Don’t be.

Jim Stack, president of Stack Financial Management and InvesTech Research, has been bullish since early 2009, sticking with stocks in the face of investors’ doubt and disbelief.

But he’s gotten more cautious over the past year, gradually lightening clients’ and subscribers’ recommended equity exposures. Now, the other shoe has dropped.

Last Friday, in his long-running InvesTech newsletter, he wrote: “Judging by the depth, duration, and broadening sector contribution to the ‘distribution’ in leadership, we must conclude that Wall Street is currently in a bear market.” “Distribution” is Wall Street-speak for “selling.”

“If it looks like one, walks like one, growls like one, then, yeah, we better assume there is one,” he told me in an interview Monday.

And it may be just the beginning, so stocks could fall more and the pain could last longer than many are ready for. The bear’s depth and duration will depend on whether the U.S. economy slips into recession.

Right now, Stack doesn’t see that happening, but several classic signs of a bear already are here:

• Daily volatility has spiked. “This is a war between the bulls and the bears ... and so far the bulls are losing.”
• Margin debt peaked last spring and has been falling ever since. “Past peaks in margin debt have coincided with, or led, peaks in the stock market.”
• Many stocks already are in bear markets. Over 60% of the stocks in the S&P 500 Index are down 20% or more from their highs, and so are the small-cap Russell 2000 Index and Dow Jones Transportation Average. Bear markets in the Russell and Dow Transports haven’t preceded bear markets in the broader indexes “only three times in the past 35 years.”

Oil prices fall on oversupply concerns after US crude stocks hit record

Fri Feb 19, 2016 12:12am EST
Oil futures fell in Asian trade on Friday as a record build in U.S. crude stocks stoked concerns about global oversupply, outweighing moves by oil producers including Saudi Arabia and Russia to cap oil output.

U.S. crude inventories rose by 2.1 million barrels last week, to a peak of 504.1 million barrels, the third week of record highs in the past month, data from the U.S. government's Energy Information Administration (EIA) showed on Thursday.

That came as Iraq's oil minister Adel Abdul Mahdi said on Thursday that talks would continue between OPEC and non-OPEC members to find ways to restore "normal" oil prices following a meeting on Wednesday.

"The market is expecting continuing inventory builds," said Tony Nunan, oil risk manager at Japan's Mitsubishi Corp in Tokyo.

"Key to any deal (to cap production) is Iran. But Iran has been clear, saying it wants to get back to its pre-sanctions (production) level," Nunan added.

"Everything is pointing to the end of this year (before there is an agreement) when Iran gets to 4 million barrels per day. By that time the pain will be so great everybody will come to the table (to agree output caps)," Nunan said.

The Stressed-Out Oil Industry Faces an Existential Crisis

February 18, 2016 — 11:00 PM GMT Updated on February 19, 2016 — 4:00 AM GMT
The Saudis may go public, OPEC’s in disarray, the U.S. is suddenly a global exporter, and shale drillers are seeking lifelines from investors as banks abandon them.

Welcome to oil’s new world order, full of stresses, strains and fractures. For leaders gathering in Houston next week at the IHS CERAWeek conference -- often dubbed the Davos of the energy industry -- a key question is: what will break first? Will it be the balance sheets of big U.S. shale companies? The treasuries of Venezuela and Nigeria? The resolve of Saudi Arabia, whose recent deal with Russia to freeze output levels offered the first hint of a rethink?

After watching prices crash through floor after floor in the worst slump for a generation, the industry is eager for answers. Insiders say it’s not too hard to visualize what markets might look like after the storm -- say five years down the line, when today’s cost-cutting creates a supply vacuum that will push up prices. But it’s what happens in the meantime that’s got them scratching their heads.

“This is a weird thing for a market analyst to say because it’s usually the opposite case, but I have more conviction in my five-year outlook than my one-year outlook,” said Mike Wittner, head of oil market research for Societe Generale SA. “Maybe I’m letting my head get turned upside down by the last couple months.”

Seeking clarity at closed-door sessions, cocktail hours and water-coolers in Houston will be some of the industry’s biggest players, from Saudi Petroleum Minister Ali al-Naimi to Royal Dutch Shell Plc Chief Executive Officer Ben Van Beurden.

In a less volatile year, the long-term viability of fossil fuels might have been high on their agenda after December’s breakthrough climate deal in Paris. But within the industry, that debate has “fallen into the abyss of $27 oil,” said Deborah Gordon, director of the Carnegie Endowment for International Peace’s energy and climate program.

---- The one thing the stress on companies hasn’t done is destroy production. Engineers have found ways to lower costs and boost output at oil wells, allowing cash-starved drillers to keep enough rigs active so that output is still within 5 percent of last year’s high.

Meanwhile, on the international scene, the Saudi-Russian accord announced Tuesday, to which Venezuela and Qatar have also signed up, would cap production at January’s levels -- a record high in Russia’s case, and not far off for the Saudis. Iran isn’t a party to the plan, and its imminent return to world markets could add to the glut. Historically the No. 2 OPEC producer, the Islamic Republic is preparing to ramp up exports after sanctions were lifted last month.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. Deficit spending is simply a scheme for the “hidden” confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.

Alan Greenspan. Gold bug. Failed fallen former guru. Gold sellout.

At the Comex silver depositories Thursday final figures were: Registered 28.91 Moz, Eligible 128.20 Moz, Total 157.11 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
We close for the week with more on the new European death spiral. Is it possible to have permanent negative interest rates? Won’t that just convert bank accounts in to gold and silver and other tangible holdings? Poland looks to alchemy to turn Swiss Franc mortgages in to Zloty ones. Desperate times need desperate measures and this is about as desperate as they come.
If all else fails, immortality can always be assured by spectacular error.

J. K. Galbraith.

Top Nordic Fund Asks What If Negative Rates Are Permanent

February 17, 2016 — 11:01 PM GMT Updated on February 18, 2016 — 9:08 AM GMT
The top performing Nordic stock fund is concerned there may soon be no way out.
After returning 46 percent last year, Oeyvind Fjell, who manages the 5 billion-krone ($600 million) Storebrand ASA Delphi Nordic fund, is becoming increasingly concerned that investors will lose faith in the central banks.
“What happens the day when you have negative rates and growth still doesn’t pick up?” he said in an interview in Oslo Monday. “What happens when the market says that the central banks are worthless? They have done everything but it doesn’t work. I’m a bit afraid that negative rates become the new normal.”
With global stock markets last week entering a bear market for the first time in five years, Fjell is clearly not the only one asking these fundamental questions. Central banks across the world are going all out to revive growth and inflation, with policy makers from Tokyo to Frankfurt cutting rates below zero.

Poland at Odds Over Franc-Loans Fix Belka Calls `Pure Evil'

February 17, 2016 — 2:35 PM GMT Updated on February 17, 2016 — 4:39 PM GMT
Top Polish officials sent mixed signals on Wednesday over how the government wants to defuse the challenge of $42 billion in foreign currency loans after a proposal to convert them into zloty was dismissed by the central bank governor as “pure evil.”

The Finance Ministry denied that it’s working on amending a draft law put forward by the president just hours after Development Minister Mateusz Morawiecki said the proposal was going to be changed, and that any solution should be voluntary. The current plan, if implemented, risks dragging the country into legal disputes with foreign investors, Morawiecki warned. There is no argument between the ministers about Swiss franc-loan legislation, said Marta Lau, Morawiecki’s spokeswoman.

“I hope some common-sense solution will prevail on Swiss francs,” Morawiecki said in Warsaw. “I believe that in several months we’ll get out of a political and emotional stage and move into an analytical one.”

The controversy highlights how the issue of mostly Swiss franc-denominated mortgages has become a point of contention for the ruling party as it seeks to deliver on election promises without damaging banks and the broader economy. President Andrzej Duda’s plan to make lenders accept repayment on such loans in zloty at a fixed exchange rate has received a scathing assessment from central bank Governor Marek Belka, who said it could cost 44 billion zloty ($11 billion) and push 70 percent of the financial industry into the red.
Poland is following other eastern European countries that moved to convert mortgages denominated in foreign currencies after they proliferated prior to the 2008 financial crisis. While allowing many borrowers to take advantage of lower interest payments, the loans exposed them to currency swings.
Morawiecki said he favors resolving the issue on a voluntary basis because any other approach was risky for banks and could weaken the zloty or lead to interest-rate increases. While saying that he isn’t planning to present his own plan, the minister said Duda won’t “push” the legislation in its current form either.
The statement comes a day after Morawiecki unveiled plans to harness 1 trillion zloty for investment in manufacturing and innovation to help the nation catch up with richer European Union neighbors. While money for the multi-year program is set to come mostly from EU transfers, it also lists savings of domestic companies and excess liquidity at banks and loans as potential sources of funding.
Poland’s financial industry has already been enduring a special tax on assets, which will siphon off about a third of banks’ annual profit, and help the government raise money for its flagship program of child benefits.

Paper money eventually returns to its intrinsic value: zero


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?

The oil industry has invented an ironic new use for solar power

There’s a huge project taking shape in the deserts of Oman. It will extract crude oil from the ground by pumping vast quantities of steam into it. To produce the steam, water will be brought to a boil using as much as a gigawatt of energy. The source of that energy: the sun.
Using solar power to get fossil fuels out of the ground will strike some as ironic—especially since, if that method weren’t available, the high cost of extracting the oil might lead to more pressure to use cleaner energy sources, such as solar, instead.
But GlassPoint, the American company behind the new technology, says that the project and others like it will help fossil-fuel drillers limit carbon emissions. The process of “enhanced oil recovery,” where steam is used to loosen thick oil and make it easier to pump, usually involves burning natural gas to heat water. GlassPoint says its technology can cut that gas consumption, and the consequent carbon emissions, by up to 80%.

Work began in November 2015 on the Oman project, called Miraah, which will eventually be one of the largest solar thermal plants in the world (a smaller pilot scheme has been in place there since 2012).

Large, thin, curved mirrors are used to concentrate the sun’s rays onto tubes containing water. The mirrors—enclosed in greenhouses (see top image) to protect them from dust and other harsh conditions—move to track the sun’s progress through the sky. The company has already deployed its technology at an oilfield in its native state, California.

Funding comes from Petroleum Development Oman, the largest oil producer in the sultanate. GlassPoint also has investment from Royal Dutch Shell and Total, as well as venture capital. The region is increasingly capitalizing on its reliable sunshine and large open spaces to produce power from the sun—though up to now it’s usually been in order to generate electricity, not more oil.

Another weekend and a warm and wet one expected here. A warm and wet one expected for HMG’s Prime Minister Chamberlain on his humiliating return from Brussels too. Have a great weekend everyone and don’t forget to check in for the weekend Brexit update.

An empty taxi pulled up at number 10 Downing Street and Cameron got out.

With apologies to Churchill and Atlee.

The monthly Coppock Indicators finished January

DJIA: -06 Down. NASDAQ: +75 Down. SP500: -02 Down.  Both the DJIA and the S&P 500 have now turned negative.

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