Thursday, 18 February 2016

Hype v Reality.

Baltic Dry Index. 307 +06        Brent Crude 35.11

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

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.

Currently hype is winning out over reality once again, no doubt steered and nudged along by the talking chair’s New York City team of riggers and fix-its. But for how long? Each passing day brings news of a deepening slowdown in the global economy.


Stocks Rally With Oil as Risk Assets Rebound; Treasuries Retreat

February 16, 2016 — 11:21 PM GMT Updated on February 17, 2016 — 9:41 PM GMT
Stocks rallied as investors piled back into riskier assets, sending emerging-market currencies and equities higher after a retreat in the yuan triggered losses in Asia. U.S. crude oil rose back above $30 a barrel.

The Standard & Poor’s 500 Index climbed a third day, its longest rising streak this year, to extend its rebound from a 22-month low reached Feb. 11. Some of this year’s most beaten-down stock sectors, including technology, energy and banks, led the recovery amid speculation the slump that sent global equities into a bear market last week. Developing-nation currencies and shares also gained as oil prices extended their rally in afternoon trading. Treasuries declined for a third day, their longest slump since December.

Gains in global stocks are coming back virtually as fast as the losses that sent the S&P 500 to its worst start to any year, with almost half of 2016’s decline made up in four days. The rally is occurring amid oil’s rebound from an almost 13-year low touched last week, evidence the Federal Reserve is anxious about the impact of market turmoil on the U.S. economy and better-than-expected manufacturing data. Iran backing an oil output freeze proposed by Russia and Saudi Arabia, without saying whether it would join the curb, fueled crude’s gains Wednesday. A weaker central bank fixing hit China’s yuan.

“The recent pullback in valuations has made risk assets and equities more attractive than they were coming into the end of the year,” said Stephen Wood, who helps manage $237 billion as chief market strategist for North America at Russell Investments in New York.


Worst Earnings Letdown Since Crisis Add to Europe Stock Woes

February 17, 2016 — 12:00 AM GMT Updated on February 17, 2016 — 9:36 AM GMT
Europe’s earnings season is only half-way through, but so far even stable profit generators are showing signs of capitulation.
Banks, industrial companies and even health-care companies are surprising the market with the widest earnings misses since even before the financial crisis. Analysts are dialing back their 2015 outlooks -- they see zero income growth for Stoxx Europe 600 Index members on average, down from an estimate of more than 4 percent three months ago.
This echoes what has been the frustration of stock investors for most of the past five years: unlike in the U.S., Europe’s profits just aren’t growing. Analyst downgrades have outnumbered upgrades almost every week since 2011, according to a Citigroup Inc. index tracking such changes. And traders are losing faith in the global economic recovery, dumping growth-dependent shares for defensive stocks deemed more immune.
“The market only wants profit upgrades, and even a defensive sector like health care is coming up short this season,” said Manish Kabra, a European equity strategist at Bank of America Corp. in London. “When does it all end? When do we finally get structural growth stories beyond the currency effect? We need to see something more fundamental.”
Last year was supposed to be a sweet spot for European companies -- the euro weakened, the domestic economy improved, and demand from U.S. and Asian consumers was poised to be strong. But a China-led collapse in oil and commodity prices over the summer was the first hiccup for earnings. Now, it’s all about banks struggling to remain profitable in a world of negative interest rates. The Stoxx 600 has fallen 11 percent this year.

---- Only 20 percent of respondents in a Bank of America fund-manager survey see better profit growth in Europe in the next year, and the majority say analysts’ estimates are still too high. The Stoxx 600 trades at about 14 times projected earnings, down from a record valuation of more than 17 times last April.

Another Reason to Worry About Banks

14 Feb 16, 2016 7:00 AM EST
For investors seeking reasons to worry about banks, here's another: They’ve lent a lot of money in currencies that borrowers will have a hard time paying back.
The phenomenon illustrates how capital flows work in a financially integrated world -- and how they can contribute to booms and busts. As the U.S. Federal Reserve and the European Central Bank held interest rates extremely low to support their own economies, they pushed banks to seek higher returns elsewhere, and also made borrowing in their currencies very attractive all around the world. The result was that the total amount of dollar and euro lending to non-bank borrowers outside the U.S. and the euro area grew 57 percent during the past six years -- to $12.7 trillion, according to the Bank for International Settlements. Here's how that looks:
Such rapid credit growth is a classic precursor of financial crises, and the foreign-exchange element adds a nasty twist. The Fed's plans to increase interest rates, together with growing concerns about emerging markets, have caused the value of the dollar to rise sharply against a range of currencies. The euro has gained against some currencies, too. So for borrowers in countries such as Brazil and Turkey, whose currencies have weakened, the cost of paying back all that debt has shot up. Here's a breakdown by country, estimating how much the local-currency value of dollar and euro debt to banks (including that of financial institutions, companies and governments) has grown as a share of gross domestic product during the past two years, due to exchange-rate changes alone:

The result tends to be what we've seen happening in global markets. Concerns about defaults cause investors to flee -- a response that, by pushing exchange rates down further and halting the flow of credit, makes those defaults ever more likely. The question then becomes whether lenders -- those same banks whose share prices have gyrated in recent days -- have enough equity capital to absorb the losses. If not, the financial distress can spread quickly, as the world learned in 2008.

Iran's Cool Embrace of Oil Pact Raises Supply Freeze Doubts

February 17, 2016 — 3:44 PM GMT Updated on February 18, 2016 — 5:30 AM GMT
Iran’s qualified backing of an accord led by Saudi Arabia and Russia to cap output sowed doubts that the agreement can succeed in tempering a record global surplus.

After talks with fellow OPEC members Qatar, Iraq and Venezuela in Tehran on Wednesday, Iranian Oil Minister Bijan Namdar Zanganeh expressed support for the output freeze without committing to restrain the nation’s own production, according to a report from oil ministry news service Shana. The country has signaled it plans to increase exports this year following the removal of international sanctions last month.

----Yet a mere freeze in production, rather than cuts, is unlikely to change anything, especially without Iran’s participation, analysts said.

“Nothing significant is happening from these talks,” said Jeff Currie, head of commodities research at Goldman Sachs in New York. “If they can jawbone the market modestly higher, then they have every incentive to do that. But if they cut production, they shoot themselves in the foot, by creating a self-defeating rally that would ultimately erode their market share.”

Full implementation of the production freeze remains unclear because Saudi Arabia and Russia said their commitment in Doha depended on other producers joining in. The energy ministries of Russia, Qatar, Saudi Arabia and Venezuela didn’t immediately respond to requests for comment.

Iran, which was the second-biggest producer in OPEC before sanctions were intensified in 2012, is seeking to boost output by 1 million barrels a day and regain market share. The nation should increase production by 500,000 barrels a day by March 20, the end of the Iranian calendar year, Shana reported on Wednesday, citing Roknoddin Javadi, managing director of National Iranian Oil Co.

China COSCO Shipping says merger key to riding out downturn

Thu Feb 18, 2016 12:36am EST
The shipping industry is experiencing its worst downturn since the 2008 financial crisis, making mergers key to riding out this tough period, the chairman of China Cosco Shipping Corporation (COSCOCS) said on Thursday.

Xu Lirong was speaking to reporters on the sidelines of an event to launch COSCOCS, which was formed by a government-driven merger of former domestic rivals China Ocean Shipping (Group) Company [COSCO.UL] and China Shipping Group [CNSHI.UL] that has created one of the world's largest shipowners.

Maritime consultancy Drewry forecasts that the global container shipping industry will make a combined loss of $5 billion this year due to factors including lackluster freight rates and cargo volumes, ship lay-ups and higher operating costs.

"The Baltic Dry Index has been hitting historical lows every day. This is the most difficult period that we are experiencing since the financial crisis," Xu said, referring to the index .BADI that tracks rates for ships carrying dry bulk commodities.

Here’s why speculation that China is mass-selling U.S. Treasurys could be true

Published: Feb 17, 2016 4:38 p.m. ET
Speculation that China has been mass-selling U.S. Treasurys to boost its foreign-exchange reserves grew again Wednesday, after a report showed that Belgium’s Treasury holdings — viewed as a proxy for China’s holdings — declined sharply.

Analysts had been hypothesizing that China might be liquidating large amounts of U.S. government debt, after Beijing announced last week that the country’s foreign-exchange reserves fell in January to their lowest level in more than three years, after tumbling in December by the largest amount on record.

The release of the Treasury International Capital data late Tuesday, which contain all the flows of money into and out of the U.S for purchases and sales of U.S. securities, offered new “evidence of big Chinese selling,” said Thomas Simons an economist at Jefferies, in emailed comments.

According to the holdings data, China retained the top spot in December as the largest holder of Treasurys, with $1.246 trillion, down $18.4 billion from November. Japan maintained its position as the second-biggest holder of Treasurys, with $1.123 trillion, down $22.4 billion from the previous month.

But Belgian holdings also fell sharply, down by $21.9 billion.

---- The small European country had ranked as the third-largest holder of Treasurys as recently as February 2015, but holdings have fallen by $202 billion since then and Belgium is not even in the top 10 anymore.

The Banking Turmoil Spreads—-Massive Banking Crisis Brewing In Singapore

by Contributor • 
The three biggest banks are losing capital.

A crisis of staggering proportions is looming in China, and tiny Singapore will be caught right in the middle of the storm once the disaster finally erupts.

Speaking at the annual Barron’s roundtable, Swiss billionaire investor Felix Zulauf warned that Singapore’s largest banks are at risk of massive capital outflows if the Chinese economy experiences a hard landing, which he expects will happen this year.

“We are in a down cycle that will end with crisis and calamity. China in today’s cycle is what US housing was during the financial crisis in 2008,” Zulauf warned.

Zulauf warned that capital outflows in China will continue, prompting regulators to devalue the yuan by as much as 15% to 20% within the year. When this happens, Asian economies which are heavily dependent on China—particularly Singapore—will suffer because Chinese corporates will cut their imports even more, while indebted Chinese companies will be placed at greater risk of default.

And in the most misleading headline of the day, it all depends on what “improve” means, to misquote President Clinton.

China producer prices improve in January

BEIJING, Feb. 18 (Xinhua) -- China's producer prices continued to drop in January but the contraction eased notably, signaling less deflationary pressure, official data showed on Thursday.

The producer price index (PPI), which measures wholesale inflation, dropped 5.3 percent year on year in January, according to the National Bureau of Statistics (NBS).

It marked the 47th straight month of decline. But the contraction eased in comparison with that of previous months. From August to December, the monthly reading stayed unchanged at 5.9 percent.

On a month-on-month basis, January's PPI inflation fell 0.5 percent, 0.1 percentage points less than December's reading.

NBS statistician Yu Qiumei attributed improving producer prices mainly to the low comparison base last January.

In January, price drops in ferrous metal smelting, oil refining and processing, chemical raw materials and chemical products contributed more than half of the general producer price decline, Yu said.

Tom Orlik, chief Asia economist at Bloomberg, said commodity prices remain extremely low, but on a year-on-year basis they had not dropped quite as much in January as they had at the end of 2015. That explains the bulk of the slight firming in factory gate prices, he said.

"More resilient manufacturing prices, which fell 4.9 percent in January compared with the decrease of 5.4 percent in December, are a tentatively positive sign," Orlik said.

The PPI data came along with the release of the consumer price inflation index, which rose 1.8 percent in January.

"In economics, hope and faith coexist with great scientific pretension."

J. K. Galbraith.

At the Comex silver depositories Wednesday 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.
Not the usual crooks and scoundrels today. Today the killer crooks and scoundrels in Uncle Scam’s NSA.

The NSA’s SKYNET program may be killing thousands of innocent people

"Ridiculously optimistic" machine learning algorithm is "completely bullshit," says expert.

by Christian Grothoff & J.M. Porup - Feb 16, 2016 8:35am GMT
In 2014, the former director of both the CIA and NSA proclaimed that "we kill people based on metadata." Now, a new examination of previously published Snowden documents suggests that many of those people may have been innocent.

Last year, The Intercept published documents detailing the NSA's SKYNET programme. According to the documents, SKYNET engages in mass surveillance of Pakistan's mobile phone network, and then uses a machine learning algorithm on the cellular network metadata of 55 million people to try and rate each person's likelihood of being a terrorist.

Patrick Ball—a data scientist and the director of research at the Human Rights Data Analysis Group—who has previously given expert testimony before war crimes tribunals, described the NSA's methods as "ridiculously optimistic" and "completely bullshit." A flaw in how the NSA trains SKYNET's machine learning algorithm to analyse cellular metadata, Ball told Ars, makes the results scientifically unsound.

Somewhere between 2,500 and 4,000 people have been killed by drone strikes in Pakistan since 2004, and most of them were classified by the US government as "extremists," the Bureau of Investigative Journalism reported. Based on the classification date of "20070108" on one of the SKYNET slide decks (which themselves appear to date from 2011 and 2012), the machine learning program may have been in development as early as 2007.

In the years that have followed, thousands of innocent people in Pakistan may have been mislabelled as terrorists by that "scientifically unsound" algorithm, possibly resulting in their untimely demise.

The siren song of big data

SKYNET works like a typical modern Big Data business application. The program collects metadata and stores it on NSA cloud servers, extracts relevant information, and then applies machine learning to identify leads for a targeted campaign. Except instead of trying to sell the targets something, this campaign, given the overall business focus of the US government in Pakistan, likely involves another branch of the US government—the CIA or military—that executes their "Find-Fix-Finish" strategy using Predator drones and on-the-ground death squads.

In addition to processing logged cellular phone call data (so-called "DNR" or Dialled Number Recognition data, such as time, duration, who called whom, etc.), SKYNET also collects user location, allowing for the creation of detailed travel profiles. Turning off a mobile phone gets flagged as an attempt to evade mass surveillance. Users who swap SIM cards, naively believing this will prevent tracking, also get flagged (the ESN/MEID/IMEI burned into the handset makes the phone trackable across multiple SIM cards).

Even handset swapping gets detected and flagged, the slides boast. Such detection, we can only speculate (since the slides do not go into detail on this point), is probably based on the fact that other metadata, such as user location in the real world and social network, remain unchanged.

Given the complete set of metadata, SKYNET pieces together people's typical daily routines—who travels together, have shared contacts, stay overnight with friends, visit other countries, or move permanently. Overall, the slides indicate, the NSA machine learning algorithm uses more than 80 different properties to rate people on their terroristiness.

The program, the slides tell us, is based on the assumption that the behaviour of terrorists differs significantly from that of ordinary citizens with respect to some of these properties. However, as The Intercept's exposé last year made clear, the highest rated target according to this machine learning program was Ahmad Zaidan, Al-Jazeera's long-time bureau chief in Islamabad.

As The Intercept reported, Zaidan frequently travels to regions with known terrorist activity in order to interview insurgents and report the news. But rather than questioning the machine learning that produced such a bizarre result, the NSA engineers behind the algorithm instead trumpeted Zaidan as an example of a SKYNET success in their in-house presentation, including a slide that labelled Zaidan as a "MEMBER OF AL-QA'IDA."

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?

Graphene becomes superconductive: Electrons with 'no mass' flow with 'no resistance'

Date: February 16, 2016

Source: Tohoku University

Summary: Graphene is a single-atomic carbon sheet with a hexagonal honeycomb network. Electrons in graphene take a special electronic state called Dirac-cone where they behave as if they have no mass. This allows them to flow at very high speed, giving graphene a very high level of electrical conductivity.
This is significant because electrons with no mass flowing with no resistance in graphene could lead to the realization of an ultimately high-speed nano electronic device.
The collaborative team of Tohoku University and the University of Tokyo has developed a method to grow high-quality graphene on a silicon carbide (SiC) crystal by controlling the number of graphene sheets. The team fabricated bilayer graphene with this method and then inserted calcium (Ca) atoms between the two graphene layers like a sandwich.
They measured the electrical conductivity with the micro four-point probe method and found that the electrical resistivity rapidly drops at around 4 K (-269 °C), indicative of an emergence of superconductivity.
The team also found that neither genuine bilayer graphene nor lithium-intercalated bilayer graphene shows superconductivity, indicating that the superconductivity is driven by the electron transfer from Ca atoms to graphene sheets.
The success in fabricating superconducting graphene is expected to greatly impact both the basic and applied researches of graphene.
It is currently not clear what phenomenon takes place when the Dirac electrons with no mass become superconductive with no resistance. But based on the latest study results, further experimental and theoretical investigations would help to unravel the properties of superconducting graphene.
The superconducting transition temperature (Tc) observed in this study on Ca-intercalated bilayer graphene is still low (4 K). This prompts further studies into ways to increase Tc, for example, by replacing Ca with other metals and alloys, or changing the number of graphene sheets.
From the application point of view, the latest results pave the way for the further development of ultrahigh-speed superconducting nano devices such as a quantum computing device, which utilizes superconducting graphene in its integrated circuit.

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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