Wednesday, 17 February 2016

The Great Disconnect Returns.

Baltic Dry Index. 301  +06        Brent Crude 32.53

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

Things are seldom what they seem,
Skim milk masquerades as cream;
Highlows pass as patent leathers;
Jackdaws strut in peacock's feathers.

The global economy 2016. With apologies.

With a G-20 meeting coming up on the 20th in China, this morning we take a look at Asia’s two economic powerhouses. What’s not to dislike in both. Japan’s taken leave of its senses, and is deep into dangerous Alice in Wonderland economic folly. China’s non-performing bank loans have never been higher officially, although no one believes the official figures are remotely accurate, especially the Communist Party apparatchiks running the big red Ponzi machine in Beijing. But will any of this be on the agenda in Shanghai?  In America, the great disconnect is back on again, but for how long?

Negative rates send investors through the looking glass

YOICHI NAGAI, Nikkei senior staff writer February 16, 2016 7:30 pm JST
TOKYO -- Ever since the Bank of Japan made its historic decision to send interest rates below zero, there has been a certain "through the looking glass" feel to the markets, where the typical rules seem to have been tipped upside down.
     The rate decision, made during the central bank's policy-setting meeting on Jan. 29, was aimed at breathing new life into the moribund economy. But the market response has hardly been auspicious, with the Nikkei Stock Average plunging.
     On Tuesday, the BOJ adopted an interest rate of minus 0.1% for a certain portion of the current account deposits held by commercial banks at the central bank.
   Conventional wisdom has it that borrowers must pay interest to lenders. But with negative interest rates, it is essentially the opposite.
    The Japanese market turmoil shows that many corporate executives, investors and other market participants were wrong-footed by the BOJ's sudden shift into terra incognita.
    A board member at a major manufacturer is wringing his hands over the rate move. He attributed his concerns to, among other things, an anticipated increase in the company's "projected benefit obligations" -- an estimate of the present value of employee pensions.
     Also, economists are finding it difficult to make forecasts.
"We can't calculate the effect [of negative interest rates] on the Japanese economy based on conventional forecasting models, which don't assume negative interest rates," said Tomoya Kondo, senior economist at the Daiwa Institute of Research.
     Negative interest rates may offer a glimmer of hope for the economy, but they also ratchet up uncertainty, which markets hate above all else.

China commercial bank bad loans reach 10-year high in December

Mon Feb 15, 2016 6:30am EST
Feb 15 China's non-performing loans reached a 10-year high of 1.27 trillion yuan ($195.63 billion) at the end of 2015, the country's banking regulator reported, as the world's second-biggest economy continues to struggle with mounting debts.
The average commercial bank NPL ratio rose to 1.67 percent at the end of December from 1.59 percent three months earlier, the China Banking Regulatory Commission said in a statement on Monday.
NPLs increased by 88.1 billion yuan over the last three months of the year, to 1.27 trillion yuan, the highest since the second quarter of 2006.
Special mention loans, referring to debts that could potentially turn sour, rose to 2.89 trillion yuan, the regulator said, an increase of 80 billion yuan from the end of September, underscoring how mounting debts have weighed on Chinese lenders in the face of slowing economic growth.
Bank profits, which have been squeezed by consecutive interest rate cuts and the ongoing liberalization of rates, increased by 2.43 percent in 2015 to 1.59 trillion yuan.
Provision coverage ratio declined by 9.62 percentage points to 181.18 percent, while the loan-provision ratio amounted to 3.03 percent, basically flat from the previous quarter, the regulator said.

This has been the worst quarter for company earnings reports since 2009

Published: Feb 16, 2016 4:25 p.m. ET
The fourth-quarter earnings season, currently wrapping up, is shaping up as the worst quarter for earnings growth since the financial crisis, Bank of America analysts said Tuesday.

With 87% of companies in the S&P 500 SPX, +1.65% having reported results for the last three months of 2015, overall earnings per share are slated to show a drop of 4% from a year earlier, making it the worst quarter for growth since the third quarter of 2009, according to the B. of A. report.

Even though analysts had lowered their expectations for fourth-quarter earnings amid tumbling oil prices, a strong dollar and fears about a slowing Chinese economy, the “positive surprise” — the percentage by which results exceeded expectations — was the lowest in over four years.

Per-share earnings have now fallen for three straight quarters. As the following chart shows, total per-share earnings beat expectations by the smallest amount since the second quarter of 2011, when it missed expectations.

----Tumbling oil prices once again delivered a big hit to commodity-exposed earnings this quarter, with energy-sector earnings plunging nearly 80% on a year-over-year basis, materials-sector earnings skidding 17% and industrial-sector earnings falling 5%.

At the same time, company executives were unusually pessimistic about business prospects, as over 80% of the companies issued negative guidance for future earnings.

U.S. stocks close at session highs despite drop in oil prices

Published: Feb 16, 2016 4:23 p.m. ET
U.S. stocks rallied to close at intraday highs Tuesday, providing a rare day of the recent trend of trading in lockstep with oil prices.

The S&P 500 SPX, +1.65% finished up 30.80 points, or 1.7%, at 1,895.58, led by gains in the consumer discretionary and industrial sectors.

The Dow Jones Industrial Average DJIA, +1.39%  closed 222.57 points higher, or 1.2%, at 16,196.41, led by Boeing Co. BA, +3.65% and Caterpillar Inc. CAT, +3.26%

The Nasdaq Composite Index COMP, +2.27% rallied 98.44 points, or 2.3%, to close at 4,435.96, buoyed by gains in the tech sector. Shares of Groupon Inc. GRPN, +41.18%  staged a big rally, lifting shares of Yahoo Inc. YHOO, +8.28%  and Alibaba Inc. BABA, +8.87%  after Alibaba disclosed a big stake in the online deals company.

Crude had traded higher earlier on hopes that major oil producers would agree to freeze output, which had pushed stocks to their opening highs. Key indexes were initially boosted by hopes that major oil producers would agree on cutting oil production at a meeting in Doha, Qatar. But the production freeze didn’t go as far as an outright output cut. In response oil futures CLH6, +0.62%  retreated from their premeeting highs of $31.53 to settle down 1.4% at $29.04 a barrel.

In the commodity depression, the depression just keeps getting deeper.

Anglo Hastens Retreat From Coal, Iron Ore as Losses Double

February 16, 2016 — 7:12 AM GMT Updated on February 16, 2016 — 10:06 AM GMT
Anglo American Plc is speeding up plans to pull out of coal and iron ore after losses bled into a fourth year and the company became first major London-based miner to be rated junk.

Losses doubled to $5.62 billion in 2015 as commodity prices plunged, pressuring Anglo’s balance sheet already weighed down by $12.9 billion in debt. The miner is trying to engineer a turnaround by moving away from bulk commodities to focus on materials with better demand, such as diamonds, platinum and copper.
Anglo wants to raise $4 billion from selling mines and reduce net debt to less than $10 billion this year.

“We’re certainly under pressure. We’ve got too much debt,” Chief Executive Officer Mark Cutifani said in an interview on Bloomberg Television. “It’s a matter of stripping us back to the core, rebuilding the base and making sure that we are fit to go forward.”

Anglo, with mines around the world producing everything from diamonds to iron ore and nickel, lost three-quarters of its market value last year as metal prices sank to a six-year low. Its credit rating was cut to junk yesterday by Moody’s Investors Service, which said the company will have a harder time paying down debt given the ongoing slide in raw materials.

---- To preserve cash, Anglo has already promised to reduce the number of mines it owns, cut staffing and stop paying a dividend. The announcements today show the company is accelerating debt-reduction plans and taking a harder look at businesses that are losing money. 
“Can, when and at what value will Anglo achieve the asset sales?” analysts at Goldman Sachs Group Inc. said in a note to investors today. Its goal is “ambitious in our view, particularly given the limited time to sell, recent sale prices achieved and the downturn in commodity prices.”

Iron Ore Rally Seen Unraveling as Demand `Doesn't Look Great'

February 16, 2016 — 12:35 AM GMT Updated on February 16, 2016 — 5:24 AM GMT
A rally in iron ore that’s lifted prices to the highest level since November is poised to unravel as China’s steel demand weakens and miners press on with efforts to cut costs, according to Sucden Financial Ltd.
“We do not view this rally as sustainable over the longer term,” analyst Kash Kamal said in an e-mailed response to questions. “Demand for steel has dropped sharply and with the domestic industry battling with overcapacity and oversupply, the long-term outlook for iron ore demand doesn’t look great.”
Iron ore has dropped the past three years as surging low-cost supply coincided with weakening demand for steel in China as the economy slows, spurring a global glut. On Monday, the raw material rallied, joining advances in nickel and copper, after People’s Bank of China Governor Zhou Xiaochuan reassured investors concerned about further weakness in the yuan, buoying global stocks as China returned from a week-long break.
“Bearish fundamentals will continue to weigh on the long-term outlook,” Kamal said, noting elevated stockpiles at ports in China. “Miners will push forward with cost-cutting programs.”
Inventories at Chinese ports climbed to 95.5 million tons on Feb. 14 compared with 92.85 million tons on Feb. 4, the last working day before the week-long Lunar New Year break, according to Shanghai Steelhome Information Technology Co. That’s the highest level since May.

Saudi-Russia oil deal is full of holes

By Kevin Allison February 16, 2016
The Saudi-Russia oil deal is full of holes. The crude producers have agreed to freeze production at January levels. But both Russia and the OPEC kingpin are already pumping nearly flat out. And Iran, which wants to raise output after years of sanctions, may not agree.

The pact announced on Feb. 16 – such as it is – reflects intense financial pressure as major oil producers grapple with a 70 percent slide in the price of a barrel of crude since mid-2014. Weaker crude producers like Venezuela, which also joined the deal along with gas producer Qatar, had been clamoring for a production cut.

A production freeze is considerably less ambitious, given the amount of crude already flowing. Saudi Arabia pumped a little over 10.2 million barrels per day last month, down slightly from a record of 10.6 million barrels per day in June. Russia’s oil output, meanwhile, has been hitting new post-Soviet highs. It’s also contingent on countries that were not even present at the deal talks joining in.

Iran is the big question mark. The Gulf producer’s output is still 1 million barrels per day lower than it was before it was hit by international sanctions over its nuclear program. It seems unlikely that the country would sign up for arbitrary limits on output just as it’s starting to return to international markets.

The fact that Russia and Saudi Arabia were able to agree to anything is a sign of some progress of course – and probably explains why the Brent crude price rallied an initial 6 percent before giving back its gains in the hours following the announcement. Saudi Oil Minister Ali al-Naimi told reporters the output freeze was the “beginning of a process.” At best, it may create a diplomatic opening for a more ambitious deal later.

Black sheep dwell in every fold;
All that glitters is not gold;
Storks turn out to be but logs;
Bulls are but inflated frogs.

The global economy 2016. With apologies.

At the Comex silver depositories Tuesday final figures were: Registered 28.91 Moz, Eligible 128.45 Moz, Total 157.36 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, getting ready for the Chinese chaired upcoming G-20 meeting. What will China allow and what will China block?
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Friedrich Hayek

Capital controls seen on agenda to curb fund outflows

February 13, 2016 6:59 am JST
TOKYO -- Capital controls and other measures to help stabilize financial markets will be discussed at the Group of 20 meeting in Shanghai late this month amid growing concern over the direction of the global economy.
     G-20 officials agree that the recent chaos in the world's financial markets is rooted in capital flight from emerging countries. The flow of funds out of those nations, which have been experiencing economic slowdowns, has lowered the value of their currencies.
     Finance ministers and central bank chiefs from the G-20 countries are expected to discuss this outflow of funds. They likely will explore the idea of curbing transfers of foreign currencies out of emerging countries, as well as restricting investment in foreign bonds by residents of those countries.
     The meeting is expected to let top G-20 officials decide whether such measures should be enacted. If they agree to proceed, concrete proposals will be discussed later at working-level meetings.
     Some emerging countries attending the G-20 meeting support the idea of capital controls. European nations are unlikely to object, since more stable emerging economies will benefit them. But the U.S. may oppose capital controls based on free market principles.
     China will be on the minds of finance ministers and central bankers when they discuss regulations in emerging nations. The country has recently seen a rapid outflow of funds due to its economic slowdown and U.S. interest rate hike. The People's Bank of China has been propping up the yuan through market interventions, resulting in a 20% decrease in the country's foreign currency reserves since June 2014. But the currency is still experiencing wild swings.
     Yet the G-20 may not get to talk about China's problems. China will chair the meeting, and Beijing may be unwilling to discuss matters concerning its domestic policy at such a high-profile event held inside its own country.

“The more the state "plans" the more difficult planning becomes for the individual.”

Friedrich Hayek

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?

New semiconducting material could lead to much faster electronics

Date: February 15, 2016

Source: University of Utah

Summary: Engineers have discovered a new kind of 2-D semiconducting material for electronics that opens the door for much speedier computers and smartphones that also consume a lot less power.
University of Utah engineers have discovered a new kind of 2D semiconducting material for electronics that opens the door for much speedier computers and smartphones that also consume a lot less power.
The semiconductor, made of the elements tin and oxygen, or tin monoxide (SnO), is a layer of 2D material only one atom thick, allowing electrical charges to move through it much faster than conventional 3D materials such as silicon. This material could be used in transistors, the lifeblood of all electronic devices such as computer processors and graphics processors in desktop computers and mobile devices. The material was discovered by a team led by University of Utah materials science and engineering associate professor Ashutosh Tiwari. A paper describing the research was published online Monday, Feb. 15, 2016 in the journal, Advanced Electronic Materials. The paper, which also will be the cover story on the printed version of the journal, was co-authored by University of Utah materials science and engineering doctoral students K. J. Saji and Kun Tian, and Michael Snure of the Wright-Patterson Air Force Research Lab near Dayton, Ohio.
Transistors and other components used in electronic devices are currently made of 3D materials such as silicon and consist of multiple layers on a glass substrate. But the downside to 3D materials is that electrons bounce around inside the layers in all directions.
The benefit of 2D materials, which is an exciting new research field that has opened up only about five years ago, is that the material is made of one layer the thickness of just one or two atoms. Consequently, the electrons "can only move in one layer so it's much faster," says Tiwari
While researchers in this field have recently discovered new types of 2D material such as graphene, molybdenun disulfide and borophene, they have been materials that only allow the movement of N-type, or negative, electrons. In order to create an electronic device, however, you need semiconductor material that allows the movement of both negative electrons and positive charges known as "holes." The tin monoxide material discovered by Tiwari and his team is the first stable P-type 2D semiconductor material ever in existence.
"Now we have everything -- we have P-type 2D semiconductors and N-type 2D semiconductors," he says. "Now things will move forward much more quickly."
---- Transistors made with Tiwari's semiconducting material could lead to computers and smartphones that are more than 100 times faster than regular devices. And because the electrons move through one layer instead of bouncing around in a 3D material, there will be less friction, meaning the processors will not get as hot as normal computer chips. They also will require much less power to run, a boon for mobile electronics that have to run on battery power.

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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