Monday, 28 March 2016

A New Recession?

Baltic Dry Index. 406 +05        Brent Crude 40.70

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

Brexit odds checker.

Brexit Quote of the Day.
“Oh, help!’ said Cameron. ‘I’d better go back.’ ‘Oh, bother!’ said Cameron. ‘I shall have to go on.’ ‘I can’t do either!’ said Cameron. ‘Oh, help and bother!”

David Cameron, with apologies to A.A. Milne, and Winnie-the-Pooh
With much of the world on vacation today, traditionally my blog gets its lowest viewing figure of the year today. Never mind. A little light reading anyway. Up first, Project Fear and Smear. With Brexit, we are told, GB is too small and insignificant to go it alone. At the same time, Project Fear and Smear says that if John Bull leaves the EUSSR, all hell will break out in the rEUSSR and globally. By the time June 23rd comes round Project Fear and Smear will be saying the sun will stop shining too.

Mapped: how the eurozone will suffer after a Brexit

Mehreen Khan25 March 2016 • 10:31am
The eurozone is set to suffer a substantial economic blow if Britain votes to leave the European Union, economists have warned. 
Up to 0.3pc of eurozone GDP will be wiped off the single currency's 19 economies in less than two years, Dutch bank ING calculates, noting that any prolonged political fallout from a Brexit could cause much "greater and longer lasting" damage to the bloc in the long-term. 
Ireland would see the biggest economic contraction in the event a Brexit, with cumulative growth down by as much as 1.1pc  at the end of 2017, following this summer's referendum, said ING. The adverse impact on Ireland is almost as much as that estimated for the UK economy which could shrink by 1.2pc until 2017.  
Malta, the Netherlands, Belgium and Luxembourg would also a suffer substantial hit from a British exit with growth lower by between 1pc and 0.7pc. 
Germany - the eurozone's largest economy - is in line to suffer a 0.5pc GDP contraction, with France at 0.4pc and Italy the least affected at -0.3pc. 
Falling exports, weaker investment and a shift in the direction of EU economic policy away from free market reforms, would all combine to create a sizeable adverse shock to the continent, said Peter Vanden Houte and Carsten Brzeski, economists at ING. 
In the short-term, a sharp depreciation in the pound - which could fall as low as €0.90 against the euro - would crimp eurozone exports to the UK, with small trading nations such as Ireland, Belgium and the Netherlands suffering the biggest losses to trade. 
Trade with Britain is responsible for creating around two million jobs across the eurozone, accounting for 1.5pc of all employment, said the Dutch bank.  
----ING's warning comes as Swiss asset-manager Unigestion said a Brexit would prove "more detrimental for the European Union and the eurozone than for the UK". 
Brexit would be “first actual step back in the European construction process that started in 1957", said the Geneva-based fund which manages £16.3bn in assets. 
“If there is one consequence investors should anticipate out of the Brexit situation, it would be renewed questioning of the viability of the European construction as it sits today", said Unigestion.

Elsewhere, it’s harder and harder to ignore what seems to be the next recession arriving. When the market accepts that a new recession is here, the bottom will fall out of the central bankster’s final bubble.

Behind U.S. GDP Data Is Reason for Recession Worry: Weak Profits

March 25, 2016 — 4:42 PM GMT
On the face of it, the latest government update on how the U.S. economy performed in the fourth quarter looked a bit more encouraging. Growth was revised to a 1.4 percent annualized pace from a previously estimated 1 percent, and the adjustment to gross domestic product was for a good reason -- consumer spending rose more than previously thought.
Yet beyond the headline number, there is a reason for some concern. Corporate profits plunged 11.5 percent in the fourth quarter from the year-ago period, the biggest drop since a 31 percent collapse at the end of 2008 during the height of the financial crisis. For 2015 as a whole, pretax earnings fell 3.1 percent, the most in seven years, according to the Commerce Department.
That’s “bad news,” said Nariman Behravesh, chief economist for IHS Inc. in Lexington, Massachusetts. History shows that when earnings fall, the economy often follows them downward into recession as profit-starved companies cut back on hiring and investment.
There are, however, some caveats to such a gloomy conclusion. Last quarter’s numbers were unusually depressed by a $20.8 billion penalty payment by BP Plc to settle claims over the 2010 oil spill in the Gulf of Mexico. Taking that into account, earnings fell about 7.6 percent, according to Bloomberg calculations. That’s still weak but not as bad as the 11.5 percent slump.
----Jesse Edgerton, an economist with JPMorgan Chase & Co. in New York, was less sanguine. Yes, the poor earnings outturn was due to energy companies struggling with lower oil prices and manufacturers hit by a strong dollar, he said.
"But it also likely reflects the beginnings of a profit-margin squeeze driven by tighter labor markets, rising wages and weak productivity," he added in an e-mail to clients. And that, he suggested, is something to fear.

It Took Only a Month for Funds to Grow Wary of a Copper Rally

March 27, 2016 — 9:00 PM BST Updated on March 28, 2016 — 5:15 AM BST
It’s been barely a month since investors first started betting on a copper rally, and they’re already on the retreat.

Money managers cut their wagers on price gains for a second week, pulling back just before futures capped the worst slump in a month. Tuesday’s attacks in Brussels sapped confidence in the global growth outlook, while a recovery for the dollar weighed on demand for commodities as alternative assets.

Copper has dropped about 20 percent in the past year. While Glencore Plc and Freeport-McMoRan Inc. have reduced production, traders are concerned that the industry’s cuts haven’t gone deep enough. More than 4.5 million metric tons of additional mine capacity is planned to come online by 2020, and most producers haven’t changed their plans to expand even in the face of lower prices, according to an analysis by Bloomberg Intelligence.

“We’ve had a little bit of a rally in copper, and that’s just linked to the changes in expectations as it relates to the dollar,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co. “We have not yet seen a turn in terms of global demand. We haven’t seen any kind of fundamental change in supply and demand characteristics of copper.”

At the Comex silver depositories Thursday final figures were: Registered 32.29 Moz, Eligible 123.55 Moz, Total 155.84 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
While in Europe, Deutsche Bank spars with Italy’s banks for the role of becoming “the next Lehman,” in America and obscure pharmaceutical company with some 30 billion of debt that looks about to go into default, seems to have trumped them, and no “the Donald” won’t be coming to the rescue. If Valeant Pharmaceuticals is in fact a “pharmaceutical Enron,” no one is coming to the rescue of a sophisticated scam. Thirty billion of debt will go poof, along with most of the shares. With 88% of the shares held by hedge funds, mutual funds and institutional investors, the collateral damage looks to be vast.

It’s No longer A Prediction—-The Crash Of Valeant Means The High Yield Collapse Is Here

by Contributor • March 25, 2016
---- Until last year, most folks had never heard of Valeant Pharmaceuticals (VRX).

That all changed when a Wall Street Journal report made the company a “poster child” for an outrageous new trend: companies buying the rights to existing drugs and treatments, then immediately jacking up their prices.

The report earned the company widespread criticism and even congressional inquiries, but it didn’t stop the stock from hitting an all-time high of $264 per share last August.

Unfortunately, Valeant’s problems were just starting…

Last fall, questions began to surface about the company’s accounting and business practices.

In simple terms, it appears the company may have tried to hide its relationship with a smaller, specialty pharmaceutical company in order to increase insurance company reimbursements.

All you really need to know is that these were serious allegations.

Several short-sellers published reports alleging outright fraud. One in particular went so far as to call the company a “pharmaceutical Enron.”

The news got even worse last month…

On February 23, Valeant finally admitted it might have to restate prior-year earnings after an internal review “raised questions about its accounting practices.”

The following week, the company officially announced it was under investigation by the Securities and Exchange Commission (“SEC”).

---- The company also said it would be unable to file its 2015 “Form 10-K” – an annual, audited report of financial performance required by the SEC – by that week’s deadline, and that it didn’t expect to be in a position to file it within the SEC’s 15-day extension period.

That brings us to this week… Shares of Valeant suffered an incredible crash, dropping about 60%.

You see, Tuesday – March 15 – marked the end of that extension period. And as predicted, Valeant has now officially missed the deadline to file its 10-K.

There is now a very real chance that Valeant could default on its $30 billion in debt… and set off the next phase of the global credit crisis Porter has been warning about for months.

Failure to meet this extension means Valeant is now in breach of its bond agreements, or “covenants.” Bondholders can now legally deliver a notice of default. According to the Wall Street Journal, the company now has until April 29 to file the report or it will officially default.

---- While we can’t know exactly what will happen if Valeant defaults on its $30 billion in debt, plenty of signs warn the “contagion” could be massive.

Let’s start with Valeant shares…

As we mentioned, the stock plunged about 60% this week. It has now fallen nearly 90% from its all-time high last August.

But you may be surprised to learn that despite clear warning signs for weeks that the company would likely miss this week’s deadline… Valeant was still one of the most widely held stocks on Wall Street.

Believe it or not, an incredible 88% of Valeant shares were held by hedge funds, mutual funds, and other institutional investors. There’s simply no telling what kind of ripple effects could be created if these holders are forced to raise cash and sell other positions to meet margin calls or investor redemptions.

----But it’s not just Valeant shares that are concerning…

Sprout Investors Say Valeant Overcharging for Female Libido Pill

March 25, 2016 — 3:13 PM GMT Updated on March 26, 2016 — 12:12 AM GMT
Investors in Sprout, the female libido pill maker bought by Valeant Pharmaceuticals International Inc. for $1 billion last year, said Valeant has failed to successfully commercialize the treatment by setting the price too high and neglecting to market it, putting the drugmaker at risk of violating the merger agreement.

The group, representing all Sprout shareholders at the time of the acquisition, sent Valeant a letter on March 14 requesting materials showing that the drugmaker can fulfill its obligations under the deal going forward. Among the documents, the investors are seeking evidence that Valeant plans to spend $200 million for marketing and research and development for 2016 and half of 2017, as part of the agreement. They also ask for assurance that Valeant will keep a sales force of 150 to distribute the drug, called Addyi, which has posted disappointing sales since its introduction five months ago.

“Valeant predatorily priced Addyi at $800 a month even though Sprout had established a price point of approximately $400 a month for the drug based on market research,” the investor group said in the letter. “As a result of this predatory pricing, insurance companies refused to cover the drug, which has led to the drug not being affordable for millions of women.”

Valeant has received the letter and will respond in due course, spokeswoman Laurie Little said in an e-mail. “While confidentiality obligations under the merger agreement prohibit us from commenting on specific contractual terms, Valeant intends to comply with all of its obligations under our agreement with the former shareholders of Sprout, including as they relate to marketing spend, number of sales reps, and post-marketing studies.”
Brexit Quote of the week.

Damn your principles! Stick to your party.

D. Cameron, with apologies to Benjamin Disraeli.

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?

Vast Internet Failure Simulator Created With U.K. Government

March 24, 2016 — 3:33 PM GMT
A U.K. startup has teamed up with the British government to create what it believes is the most complete simulation ever of how the Internet works, and plans to make the code available to researchers.
The model is intended to be used to find weak points in the Internet’s infrastructure and to simulate the effects of a large-scale network failures, U.K. company Improbable announced Thursday.
“This will enable businesses, institutions and even countries to become more resilient in an age of exponential vulnerability online,” Improbable said in a blog post.

A number of large-scale Internet disruptions have occurred with unpredictable and far-reaching consequences in recent years. In 2008, an Internet service provider in Pakistan accidentally cut off access to YouTube for a large portion the world by misconfiguring a single server. That same year, two critical underwater fiber-optic cables in the Mediterranean Sea were damaged, causing serious network outages for users in Egypt, India as well as parts of the Persian Gulf and Central Asia. In 2013, one of the largest distributed denial of service attacks in history targeted the non-profit company Spamhaus, making Internet access slow or impossible for millions of ordinary people in the process.

“A simulation like this could be used to investigate these kinds of failures and find the routes most likely to be affected,” Improbable said. “Perhaps there are a few key routes we could protect that would mitigate the effects of such failures.”

Improbable, which was founded in 2012 and is backed by $20 million in funding from Silicon Valley venture capital firm Andreessen Horowitz, makes software that enables computer developers to create vast virtual worlds with an almost infinite number of variables. Its customers include computer gaming companies, financial services firms, governments and academic researchers.

A U.K. government team -- Improbable declined to say which department or agency they represented -- used Improbable’s SpatialOS software to construct a one-to-one scale model of the Internet’s entire backbone infrastructure.

Improbable said it took two programmers three days to build the entire simulation.
The model includes all major nodes, known as Autonomous Systems (AS), owned by all the Internet Service Providers and major computing companies in the world. With over 60,000 AS networks and more than half a million different routes between them, managing all the possible ways of routing traffic has become an ever bigger problem for Internet Service Providers.
Improbable’s system is able to mimic the operation of every AS simultaneously and independently. Previously more in the realm of supercomputers, Improbable distributes the workload across a public cloud computing platform. “Doing this sort of simulation on a single server would be almost impossible, but using our operating system we were able to distribute this simulation over as many machines as we need to reach the full scale,” Improbable said.

The monthly Coppock Indicators finished February

DJIA: 16517 -23 Down. NASDAQ:  4558 +45 Down. SP500: 1932 -17 Down. 

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