Wednesday, 2 March 2016

Stocks v Commodities.

Baltic Dry Index. 332 +03        Brent Crude 36.64

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

Brexit odds checker.

Brexit Quote of the Day.
“Cameron: The kind of politician who would cut down a redwood tree and then mount the stump to make a speech for conservation.”

With apologies to Adlai Stevenson
With much of mainstream media focused on America and the Super Tuesday primaries this morning, and with our global stock markets back on risk on hopium again, today we take another look at the deepening commodities depression. Either stocks or commodities are wrong about the global economy. My guess is that it is the stock markets that are wrong. But first the good news case in stocks.

Asian stocks soar to two-month highs on solid data; oil up

Tue Mar 1, 2016 10:27pm EST
Asian shares rallied to two-month highs on Wednesday as overnight gains in oil prices and a swath of positive economic data from Australia to the United States calmed fears of a global economic slowdown.

Stock markets across the region were in the black, led by Japan and Hong Kong, with announcements from China this week of a cut in bank reserve requirements and structural reforms helping underpin sentiment.

The Nikkei .N225 was up 4 percent and Hong Kong's Hang Seng Index .HSI by 2.6 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 2 percent to its highest levels since Jan. 7, and building on gains in the previous session.

"While we remain cautious on the outlook, we don't think the global economy is going to tip into a recession," said Geoff Lewis, Hong Kong-based senior strategist at Manulife Asset Management. "Much of the bad news is already priced into markets offering investors areas of opportunity."

The Institute for Supply Management's (ISM) index of U.S. factory activity, a closely-watched measure of the American manufacturing sector, rose more than expected last month. It also edged up for two months in a row, appearing to have snapped its almost continuous decline since late 2014.

U.S construction spending rose to the highest level since October 2007 while solid GDP data from Australia and Canada helped.
Meanwhile in commodities news, there’s still no light at the end of the tunnel. But maybe it’s not a tunnel at all, maybe it’s a mine.

Glencore Posts Biggest Profit Drop Since IPO on Metals Slump

March 1, 2016 — 7:02 AM GMT Updated on March 1, 2016 — 8:02 AM GMT
By a lot of measures, 2015 was the worst year for Glencore Plc since the mining and trading giant became a public company.
Net income excluding some items plunged 69 percent to $1.34 billion during the year as prices for metals and oil collapsed, the Baar, Switzerland-based company said in a statement Tuesday. While that beat the $1.17-billion estimate from analysts, the firm suffered an adjusted loss in its mining division and plans to sell as much as $5 billion in assets.
Glencore executives struck an upbeat note on a call with reporters after the results, with Chief Executive Officer Ivan Glasenberg saying commodity prices have bottomed and sales into China are “pretty good.” While the company’s priority remains reducing its $25.9 billion debt load, a return to dividends is possible next year, Chief Financial Officer Steve Kalmin said.
The stock slipped 1.7 percent to 131.05 pence as of 8 a.m. in London.
Profits from the world’s biggest mining companies are evaporating as prices for copper, nickel, zinc and iron ore plunge because of gluts and slowing demand from China, the biggest customer. To weather the commodities collapse, Glencore is trying to save money and plans to reduce debt to as low as $17 billion by scrapping its dividend, cutting costs and selling assets and new shares.
----Adjusted earnings before interest and tax from the trading division was $2.46 billion, compared with the company’s forecast of $2.5 billion and $2.79 billion in the previous year. Earnings from the mining unit swung to a loss of $292 million from a profit $3.9 billion in 2014
----BHP Billiton Ltd., Rio Tinto Group and Vale SA have all reported plunging profits and cut dividends this year, at the same time painting a gloomy picture for a near-term recovery in metals, with most still in oversupply. A measure of six metals traded in London tumbled 24 percent last year, the most since the global financial crisis of 2008. Oil plummeted 30 percent after dropping 46 percent a year before.

The commodities slump means Glencore now generates most of its cash from trading as its mines and smelters around the globe struggle for profitability.

Moody's: Asian steel producers will report lower earnings and high leverage in 2016

Hong Kong, February 29, 2016 -- Moody's Investors Service says that steel producers in Asia will see their overall earnings in 2016 fall to levels even lower than the weak results reported in 2015 because production volumes and spreads will contract further, against the backdrop of oversupply and the resulting low prices.

"Debt leverage for rated Asian steel producers in 2016 will remain high in 2016, after increasing significantly in 2015," says Jiming Zou, a Moody's Vice President and Senior Analyst. "Nevertheless, the levels in 2016 will likely fall year-over-year due to corporate austerity measures."

Zou points out that such expectations for the steel sector led to Moody's taking negative rating actions on most steel companies in recent weeks.

"As demand for steel in China declines further — against the backdrop of slower Chinese economic growth — the country's steel producers will continue to export their giant stockpiles of steel, pressuring prices in Asia," adds Zou. "Anti-dumping measures and safeguard duties will slow Chinese export growth, but overall volumes will remain high."

Zou explains that China accounts for half of all steel production globally, and three-quarters of such production in Asia. It is also a giant steel consumer. Consequently, Chinese steel supply and demand dynamics show significant effects beyond the country's borders.

Moody's analysis is contained in its just-released report titled "Steel Producers — Asia: Supply Glut and Low Prices Will Reduce Earnings and Keep Leverage High in 2016," and is authored by Zou.

Moody's report says that in 2015, China's apparent steel consumption declined 5% year on year, while net exports grew 25.5%. Moody's expects that steel demand in China will fall another 5% in 2016 and exports will rise by a single-digit percentage.

Moody's says that large steel producers can improve their business scale and market share by acquiring small or inefficient steel producers that become unviable due to the challenging market conditions.

However, in terms of the Chinese market in particular, despite the government's efforts to consolidate the domestic steel industry, there is significant uncertainty over the pace of the capacity reduction and rebalancing of supply and demand in the country.

On specific steel markets, Moody's report says that Chinese producers will underperform those in other parts of Asia, because of the massive supply situation in China.

As for Korean and Japanese steel companies, they are better positioned to weather adverse market conditions because of their focus on premium products, although earnings will stay below their historical levels.

For major Indian steel mills, the ramp-up of new steel-production capacity, resumption of captive iron ore production and the government's introduction of minimum import prices will help the sector mitigate earnings pressure during 2016.

Oil prices fall on huge build in U.S. crude stocks

Wed Mar 2, 2016 12:17am EST
Oil prices fell on Wednesday in the wake of industry data that showed a huge build in U.S. crude stockpiles that were already at a record high.

Early losses were trimmed, however, as the market discounted the data in line with recent sentiment that has seen crude prices push higher in the last fortnight since hitting 12-year lows under $30 a barrel between late January and mid-February.

London Brent crude for May delivery was down 12 cents at $36.69 a barrel by 0436 GMT, after settling up 24 cents on Tuesday. The contract touched an intraday peak of $37.25 on Tuesday, the highest since Jan. 5 and up 37.5 percent from a 12-year low hit in late January.

NYMEX crude for April delivery was down 40 cents at $34 a barrel, after settling up 65 cents on Tuesday on the back of a firmer close on Wall Street. U.S. crude hit a one-month high on Tuesday.

U.S. crude inventories rose by 9.9 million barrels last week, data from the American Petroleum Institute showed after Tuesday's settlement. That was well above a 3.6-million barrel increase expected by analysts in a Reuters poll.

The surprise jump initially pushed U.S. crude down as much as 60 cents on worries that official data from Energy Information Administration (EIA) due later in the day would show a large build similar to the industry numbers.

"Inventories are already at a historical high and with it continuing to inch upwards, the market has been taking a nonchalant behavior towards increasing inventories," Daniel Ang at Phillip Futures said in a note.

Global oil prices appear to have bottomed out and are expected to rise through this year as investment cuts help to reduce a supply glut, a senior analyst at the International Energy Agency said on Tuesday.

The Rise and Fall of Commodities Hedge Fund King Willem Kooyker

March 1, 2016 — 5:01 AM GMT Updated on March 1, 2016 — 11:02 AM GMT
Thirty miles west of Wall Street, in an anonymous office park set among rolling hills and shady streets, lurks a giant of the commodities world.
Behind the bland facade in Berkeley Heights, New Jersey, lies the headquarters of Willem Kooyker, one of the most powerful and enigmatic traders in the game.
For half a century, Kooyker has quietly ridden the ups and downs of oil, copper, cocoa and more, first in his native Holland and later at Commodities Corp., the legendary trading-company-cum-think-tank that served as a training ground for market wizards Paul Tudor Jones, Louis Bacon and Bruce Kovner.
Only now, at 73, Kooyker is struggling to contain the damage from a commodities collapse that even he never saw coming.
Before the worst hit -- $20-a-barrel oil no longer sounds so crazy -- Kooyker’s hedge-fund firm was already hemorrhaging billions in assets, people close to his operation say. With returns at Blenheim Capital Management LLC’s flagship fund down for four out of the past five years, some investors are heading for the exits.
The numbers tell the story. At its height in 2011, Blenheim was the world’s largest commodities-focused hedge fund, with $9.1 billion in assets, people familiar with the firm say. Today, its assets have fallen nearly 85 percent to $1.5 billion.

What went wrong? The short answer is that Kooyker didn’t think things would get this bad. He and his colleagues underestimated the economic troubles in China and never thought commodities prices would fall so far, so fast, the people said, speaking on the condition they not be named to avoid jeopardizing business relationships.

It’s a remarkable turnabout for Kooyker, whose tenure atop Commodities Corp. in the 1980s set the stage for two wildly lucrative decades at Blenheim. In 1999, for instance, as oil sank below $10 a barrel, Kooyker bet that commodities would bounce back -- and his hedge fund soared nearly 109 percent. Billions of investor dollars poured in.

Few outsiders had any idea what Kooyker was up to. Most still don’t. He’s long operated under the radar, arguing that any publicity, good or bad, only hurts investment returns.

 “They are the most secretive I have ever met," Christoph Eibl, chief executive officer of the $800 million commodity investor Tiberius Asset Management AG, said of Blenheim.

Kooyker and others at Blenheim declined to comment on the fund’s recent performance, assets under management or trading strategy.

The question now is how Kooyker can recover from a rout that has shaken investors, corporations and entire economies. Already, Blenheim investors like the $21 billion New Zealand public pension fund have pulled money out, according to annual reports from the Kiwi fund and interviews with people familiar with the matter.

Copper Sags as China Stimulus Move Fails to Stem Demand Concern

February 29, 2016 — 11:42 AM GMT Updated on February 29, 2016 — 7:24 PM GMT
Copper had a fourth decline in five sessions on speculation that China’s efforts to stimulate its economy will fail to rekindle demand growth in the world’s biggest metals consumer.
China’s central bank cut the reserve ratio amid plunging stock prices and a weakening currency. Global equities headed for a fourth monthly decline amid mounting concerns about slowing world growth. Copper has lost more than 20 percent in the past year.
“People have been burned buying based on the fact that China has been easing” monetary policy, James Cordier, the founder of in Tampa, Florida, said in a telephone interview. “That kind of monetary policy hasn’t done anything for their industrial growth.”
----The required reserve ratio for the banks will drop by 0.5 percentage point effective March 1, the People’s Bank of China said on its website Monday. The move marks a return to more traditional easing after the central bank indicated in recent weeks it would spur growth by guiding interbank markets lower and injecting liquidity through open-market operations.
We close for the day with China. Even in China, two million layoffs a year for three years, is a big economic drag.

Exclusive: China to lay off five to six million workers, earmarks at least $23 billion

Tue Mar 1, 2016 | 6:14 AM EST
BEIJING (Reuters) - China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing's boldest retrenchment program in almost two decades.
China's leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years.
The overall figure is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by "zombie" state firms.
The term refers to companies that have shut down some of their operations but keep staff on their rolls since local governments are worried about the social and economic impact of bankruptcies and unemployment.
Shutting down "zombie firms" has been identified as one of the government's priorities this year, with China's Premier Li Keqiang promising in December that they would soon "go under the knife"..
The government plans to lay off five million workers in industries suffering from a supply glut, one source with ties to the leadership said.
A second source with leadership ties put the number of layoffs at six million. Both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest.
The ministry of industry did not immediately respond when asked for comment on the reports.
The hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40 percent of the country's industrial output and nearly half of its bank lending.

Juncker: The Ten Commandments. Cameron was a great believer in some of them.
With apologies to Joe Orton and Loot.
At the Comex silver depositories Tuesday final figures were: Registered 24.79 Moz, Eligible 127.99 Moz, Total 152.78 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, why the bubbly, hopium stock markets might be making a major error yet again.

The G-20s Big Fat Zero——Now Comes The Bubble’s Demise!

by David Stockman • February 29, 2016

The tens of millions of taxpayer money wasted at the G-20’s Shanghai soirée had a silver lining. The assembled masters of world finance came up with a big fat zero on the coordinated global stimulus front.
So doing, they essentially admitted that their money printing central banks are out of dry powder (“…but monetary policy alone cannot lead to balanced growth”) and that they are divided and confused on the fiscal front.
---- To be sure, the G-20 statement attempted some whistling past the graveyard, suggesting that financial markets have over-reacted and there is no need for an April 2009 style global stimulus.  Or as clueless Jack Lew  insisted,” don’t expect a crisis response in a non-crisis environment.”
The final communique echoed this head-in-the-sand posture:
“the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy”, the communique said.
Let’s see. The global trade data for 2016 reported to date is an absolute disaster. China’s exports were down 11% worldwide and by far greater amounts to key boom-time partners like Brazil, where shipments sank by 60% in January over prior year. Likewise, Japan’s exports were off by 13% at the start of the year, and in February South Korea was down by more than 20% on a Y/Y basis.
What the assembled financial apparatchiks didn’t say is that even as the global economy slides southward, they are confronted with barriers to new policy rescues on nearly every front, meaning that the scam which has kept the casinos afloat and the bullish speculators in clover since March 2009 is in its final days.
Just consider what is coming down the pike during the balance of 2016. First and foremost, the Red Suzerains of Beijing have reached a state of blatant desperation and impotence as the worlds’ most fantastic credit bubble shatters. No sooner than the last G-20 honcho left town than they let the yuan resume its downward crawl. At the same time, they lowered the so called RRR (required reserve ratio) to 17.0%—–so as to purportedly release another $300 billion in loanable funds within the banking system.
Right. That’s exactly the thing to encourage further capital flight and weakening of the yuan, even as the move to encourage still more bank lending is essentially designed to bring coals to Newcastle.
For crying out loud. They have spent months talking about the need to rein-in credit growth and reported only a few days ago that January experienced a record eruption of new credit extensions. Bank lending to business was up 73% over prior year and total new social financing amounted to $500 billion in a single month.

As we pointed out a few days ago, that amounts to a $6 trillion annualized run rate of new debt on a wobbling $11 trillion economy that already had $30 trillion of unsupportable debt when the books closed on 2015.

In short, China is heading straight for a crash landing. And the evidence was unfolding right under the noses of the G-20 pettifoggers who pointedly agreed not to stumble into a race to the currency bottom and to take Beijing’s word at face value:

 Jeroen Dijsselbloem, chairman of euro zone finance ministers, said G20 members had agreed to inform each other in advance about policy decisions that could lead to devaluations of their currencies.

G20 host China used the meeting to try to allay concerns about the world’s second-biggest economy, and Beijing’s ability to manage it, that have grown since a market rout and a surprise devaluation last August.

“Monetary policy will probably have to be kept appropriately loose, even though people have realized that its role cannot replace fiscal policy,” said China’s Finance Minister Lou Jiwei.

Chinese policymakers reiterated pledges not to devalue the yuan CNY=CFXS again, and Premier Li Keqiang told the G20 opening session on Friday there was no basis for continued depreciation of the yuan.
C’mon. And the fact that this risible pledge lasted less than 24 hours is only the half of it.
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.

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?

Physicist discovers new 2-D material that could upstage graphene

Date: February 29, 2016

Source: University of Kentucky

Summary: Physicists have discovered a new material that could advance digital technology and open a new frontier in 2-D materials beyond graphene. Truly flat and extremely stable, the material is made up of light, inexpensive and earth abundant elements.
A new one atom-thick flat material that could upstage the wonder material graphene and advance digital technology has been discovered by a physicist at the University of Kentucky working in collaboration with scientists from Daimler in Germany and the Institute for Electronic Structure and Laser (IESL) in Greece.
Reported in Physical Review B, Rapid Communication, the new material is made up of silicon, boron and nitrogen -- all light, inexpensive and earth abundant elements -- and is extremely stable, a property many other graphene alternatives lack.
"We used simulations to see if the bonds would break or disintegrate -- it didn't happen," said Madhu Menon, a physicist in the UK Center for Computational Sciences. "We heated the material up to 1,000 degree Celsius and it still didn't break."
Using state-of-the-art theoretical computations, Menon and his collaborators Ernst Richter from Daimler and a former UK Department of Physics and Astronomy post-doctoral research associate, and Antonis Andriotis from IESL, have demonstrated that by combining the three elements, it is possible to obtain a one atom-thick, truly 2D material with properties that can be fine-tuned to suit various applications beyond what is possible with graphene.
While graphene is touted as being the world's strongest material with many unique properties, it has one downside: it isn't a semiconductor and therefore disappoints in the digital technology industry. Subsequent search for new 2D semiconducting materials led researchers to a new class of three-layer materials called transition-metal dichalcogenides (TMDCs). TMDCs are mostly semiconductors and can be made into digital processors with greater efficiency than anything possible with silicon. However, these are much bulkier than graphene and made of materials that are not necessarily earth abundant and inexpensive.
Searching for a better option that is light, earth abundant, inexpensive and a semiconductor, the team led by Menon studied different combinations of elements from the first and second row of the Periodic Table.
Although there are many ways to combine silicon, boron and nitrogen to form planar structures, only one specific arrangement of these elements resulted in a stable structure. The atoms in the new structure are arranged in a hexagonal pattern as in graphene, but that is where the similarity ends.
The three elements forming the new material all have different sizes; the bonds connecting the atoms are also different. As a result, the sides of the hexagons formed by these atoms are unequal, unlike in graphene. The new material is metallic, but can be made semiconducting easily by attaching other elements on top of the silicon atoms.
The presence of silicon also offers the exciting possibility of seamless integration with the current silicon-based technology, allowing the industry to slowly move away from silicon instead of eliminating it completely, all at once.

The monthly Coppock Indicators finished February

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

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