Monday, 11 April 2016

Negative Interest Rates – A Warning.

Baltic Dry Index. 539 +22        Brent Crude 41.94

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

Brexit odds checker.
Brexit Quote of the Day.
“I'm not lost for I know where I am. But however, where I am may be lost.”

Dodgy Dave Cameron, with apologies to A.A. Milne, and Winnie-the-Pooh

With the Spring Meetings of the IMF and World Bank in Washington April 15-17, about to be held against a deteriorating global economic background, both groups were fast off the mark to get in their warnings of trouble ahead. Both have now painted the record for posterity, technically known in the Dismal Science, as covering their rears.
We open with the IMF and WB markers.
A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.

Walter Bagehot. Lombard Street. 1873

Negative rates could fuel fresh 'boom and bust', IMF warns

10 April 2016 • 8:00pm
Negative interest rates could fuel another dangerous “boom and bust” cycle if policymakers start to rely on them to boost growth, the International Monetary Fund has warned.

The IMF said a prolonged period of sub-zero rates could even spark a public backlash if banks started to charge savers to hold their cash.

Its financial stability chief said negative rates posed a “significant profitability challenge” for some commercial banks that could lead to “excessive risk taking”.

“As banks’ margins are squeezed, they may start lending to riskier borrowers to maintain their profit levels,” José Viñals wrote in a blog.

“Banks may also be encouraged to rely more on cheaper but volatile wholesale funding sources. Weak loans could become harder to detect, and vital corporate restructuring could be delayed.

“Negative interest rates may induce boom and bust cycles in asset prices.”

Negative deposit rates have been introduced by six central banks since 2012.

While the Fund said it “tentatively” supported the policy, its head of financial stability said “close monitoring and supervisory scrutiny” of the possible unintended consequences was warranted.

“Overall, [negative rates] help deliver additional monetary stimulus and easier financial conditions, which support demand and [stable inflation],” said the IMF.

“Still, there are limits on how far and for how long negative policy rates can go.” The IMF said households could start to question the policy if they had to pay fees on their savings.

“The public may feel that they are being 'taxed’ if and when deposit rates increasingly turn negative,” it said.
While the IMF noted that negative rates had helped to boost credit growth in the eurozone, it said many banks around the world were reluctant to slash retail deposit rates into negative territory.

----Persistently low or negative rates could also “undermine the viability of life insurers, pensions and savings vehicles” which would “force losses on life insurance policy holders”, the IMF warned.

IMF researchers noted that households, businesses and banks would start to hoard cash if they felt negative rates were the new normal.

'No end in sight' for global economic misery, warns World Bank

Szu Ping Chan9 April 2016 • 3:03pm
The global growth slowdown has no end in sight as policymakers drag their heels on reforms and a “robot revolution” threatens living standards, the World Bank’s chief economist has warned.
Ahead of the International Monetary Fund and World Bank Spring meetings this week, Kaukshik Basu said he expected the global economy to expand by just 2.5pc this year.
This is down from the World Bank’s forecast in January of 2.9pc and well below the 4pc growth seen just before the crisis.

However, he was more upbeat about Britain's prospects if it left the European Union, suggesting the country could thrive after a Brexit.
The chief economist indicated that Britain could be better off outside the EU if it forged new trade ties and cemented old ones.
Speaking in a personal capacity, Mr Basu said “short-term turbulence” could lead to “improved exports” in the long run.
“You would probably see a short-term fall in exports from the UK, a weakening in the pound, but that should then cause a pick-up in exports in the medium term,” he said.
Yet more sign of the commodity depression following China’s Great Malinvestment Bubble, itself merely the latest, if largest global bubble set off by the Great Nixonian Error of fiat money, August 15, 1971.

£2billion fiasco as huge recycling plant dumped: Hundreds of workers facing the sack as PFI facility is shut down leaving thousands of tons of waste destined for landfill 

A pair of UK's largest plants to close, leaving over 250 facing redundancy

Closure of the facilities in Lancashire described as ‘catastrophic' failures

Industry leaders warn other plants across the UK could suffer same fate

It was hailed as an environmentally friendly way of disposing of thousands of tons of household waste.
But only nine years after a £2 billion private finance initiative (PFI) contract was signed, two of Britain’s biggest recycling plants are set to close, leaving more than 250 workers facing redundancy.

Residents have been told that much of the rubbish they laboriously sort into separate containers for collection will now be dumped in landfill sites rather than being segregated and reused.

The closure of the facilities in Lancashire has been described as a ‘failure of catastrophic proportions’.

But industry leaders warn that other recycling plants across the UK could suffer the same fate or not be replaced at the end of their natural life because of financial pressures on local authorities.

When the 25-year PFI Lancashire deal was agreed in 2007, Global Renewables – the Australian-owned company behind the project – said it would treat 300,000 tons of domestic rubbish each year by extracting plastic, metal and glass, and turning garden waste into high-quality compost for land restoration and the planting of 2.5 million trees

The company claimed it would handle enough rubbish to fill Manchester United’s Old Trafford ground nearly 100 times over, and even consulted environmental pressure group Friends of the Earth during the planning stage.

But two years ago, Lancashire County Council was forced to cancel the PFI initiative and take control of the business because it was losing so much money.

The final blow came last week when it was confirmed the plant is to be mothballed this summer and turned into what one leading critic calls ‘the most expensive waste transfer station in Europe’.

Instead of material being treated on site, it will be taken by road to other locations for recycling or dumped in holes in the ground, contravening Government and EU rules aimed at reducing the quantity of rubbish that ends up as landfill.

----Local Tory councillor Michael Green said last night that the operation had damaged the environment by inflicting noise and foul smells on people living nearby. 

‘We were told when the plan was proposed that recycling was the way forward and this was the only show in town. We were assured the plant would be technologically advanced and people had nothing to worry about. But there has been a catalogue of errors and even prosecutions by the Environment Agency over pollution.

‘Until four years ago it was costing taxpayers £2million a week to keep the plant running. Now they are mothballing the operation and turning it into the most expensive waste transfer station in Europe. Some of the initial sorting will still be done there but a lot of the waste will be shipped out for processing elsewhere or sent to landfill

For years we have been encouraging residents to recycle. It is failure of catastrophic proportions.’

The initial agreement was intended to process the household waste of 1.4 million people.

Jacob Hayler, of the Environmental Services Association, said: ‘These are difficult times for the recycling industry because commodity prices have fallen dramatically. When local authorities entered into deals of this kind, there was no expectation the price of plastic, metals and paper might drop so far.

‘There is less of a case to invest in recycling so there could be more closures.’

We end for this wet Monday morning, in the oil patch. Whether we get  some sort of production cap later in the week or not, Bloomberg reports that Saudi Arabia, Kuwait and the UAE, are going all out to dominate next decade’s crude oil production. But before that, Sunni oil now seems to be trying to take down Shia oil in 2016. Synthetic double options seem to be the play in 2016. Elsewhere, Moody’s lowered the rating on big oil. US frackers are toast.

Saudi Oil Gambit Moves to Phase Two

By Julian Lee Apr 10, 2016 8:00 AM GST
There's an oil supply crunch looming and Saudi Arabia and its local allies are positioning themselves to take advantage.

In what would be the second phase of the kingdom's strategy to defend its market share against rival producers (most visibly U.S. shale), Gulf states are planning to raise output capacity to fill the hole left by the lack of investment in new projects elsewhere.

It may seem odd talking about an oil shortage when the world seems awash with the stuff and storage tanks are brimming, but listed oil companies are slashing spending for the second year running, leading the International Energy Agency's Neil Atkinson to warn of possible oil-security surprises in the “not too distant” future.

There are too few new projects being sanctioned by non-state oil companies to offset the inevitable decline in output from existing fields and to meet additional demand. This is expected to increase by 1.2 million barrels a day each year for the rest of the decade. New fields due to start producing this year and next are the result of investment decisions taken when oil was about $100 and expected to stay there.

The collapse in company spending is illustrated perfectly by the level of drilling activity. After all, if you don't drill, you can't get the oil out of the ground.
In March, the worldwide rig count hit its lowest level since September 1999

Baker Hughes updated its monthly international drilling statistics last week. Unsurprisingly, they showed another steep drop in rigs drilling for oil, a 12 percent decline between February and March. There were 1,551 rigs active last month in the countries covered by Baker Hughes, the least since September 1999 and down nearly 60 percent in little more than a year.

But one part of the world is bucking the trend and drilling furiously to add the capacity needed when demand once again exceeds supply. Three countries on the Arabian Peninsula -- Saudi Arabia, Kuwait and the United Arab Emirates -- are seeing near-record drilling rates.

All three saw drilling reach at least 20-year records in 2015 and activity remains close to that peak. An expansion at Saudi Arabia's Shaybah field should add 250,000 barrels a day as early as June, while the Khurais field could contribute another 300,000 barrels by the end of 2017. State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain a production capacity of more than 12 million barrels per day, 2 million barrels above its current rate.

For Kuwait and the U.A.E., the goals are even higher. Kuwait plans to raise production capacity by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from about 3 million.

Three Oil Majors Have Debt Ratings Cut by Moody's on Price Rout

April 8, 2016 — 10:34 PM BST Updated on April 9, 2016 — 12:11 AM BST
Three of the world’s largest energy companies had their credit ratings lowered by Moody’s Investors Service on the expectation that oil prices will stay low for longer and cause leverage concerns.
Chevron Corp. and Royal Dutch Shell Plc had their ratings reduced by one level, while Total SA’s was cut two steps, according to statements by the New York-based rating company on Friday. Chevron will generate negative cash flow amid rising debt for at least the next two years, while Shell will have elevated leverage following its acquisition of BG Group Plc, Moody’s said. Prices are expected to stay low through this year and next and continue to pressure Total’s operating cash flows and credit metrics, Moody’s said.
Oil companies big and small are having their credit ratings cut as the collapse in crude prices reduces cash flows and limits their ability to sustain debt payments. Prices in New York are down by more than 60 percent from a mid-2014 peak.
Chevron and Shell’s ratings were lowered to Aa2, the third-highest grade, from Aa1. Total’s rating was brought down to Aa3, from Aa1. BP Plc’s rating was confirmed at A2, as its credit metrics and business profile compare favorably with its major oil peers and the July 2015 settlement over the Macondo spill reduced legal uncertainties and gave clarity on its business, Moody’s said.
The good times too of high price almost always engender much fraud. All people are most credulous when they are most happy; and when much money has just been made, when some people are really making it, when most people think they are making it, there is a happy opportunity for ingenious mendacity. Almost everything will be believed for a little while, and long before discovery the worst and most adroit deceivers are geographically or legally beyond the reach of punishment.

Walter Bagehot. Lombard Street. 1873
At the Comex silver depositories Friday final figures were: Registered 32.45 Moz, Eligible 122.79 Moz, Total 155.24 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, the dump. The coming Chinese dump of just about everything that is.

Here It Comes—-China’s Monumental Dump Of Surplus Steel, Aluminum And Other Industrial Commodities

by Business Insider • April 8, 2016
The world is about to have a good old-fashioned glut on its hands, courtesy of China’s problematic economy.

And the world is already starting to feel the pain.

The problem is that China’s got too many companies producing things like coal and steel, and the state-owned enterprises (SOEs) doing this have racked up debt that’s now eating up their profits.

The government is trying to shift the whole economy from its dependence on manufacturing, and it has already said that millions of people in some of these industries are going to be laid off in the next few years.

But China can’t just shutter these companies overnight, because they still need to pay back the banks holding their debt and it would be an unmitigated disaster for employment.

So these products have to go somewhere, and that means they’re going to be exported to the world. There are a bunch of industries that need this treatment too.

China’s crude steel, aluminum, shipbuilding, chemicals, cement, refinery products, flat glass, and paper will all have to be unloaded on the world, whether the world needs them or not. (Mostly not.)

The steel industry already offers a good example of what might be in store because China has made the most progress in dealing with that industry’s problems.

Let’s put it this way: You know a problem is serious when China’s tightly controlled state media outlets are allowed to talk about it in blunt terms. Here’s Xinhua:

Sagging demand has already impacted China’s steel industry. The State Council, China’s Cabinet, announced earlier last month that crude steel production capacity will be slashed by 100 million tonnes to 150 million tonnes over the next five years.

The situation is so severe that the government predicts some 500,000 workers in the industry will be laid off.

In 2015, China produced about 804 million tonnes of crude steel, but only 664 million tonnes of steel products were consumed last year, according to the government-led agency China Metallurgical Planning and Research Institute.

This is the government getting the people ready for job losses and, in some cases, relocation. Former steelworkers are already being turned into security guards and cleaners. Otherwise, workers will be out of a job, collecting checks from federal authorities.

So problem acknowledged, right?

Yes, but it doesn’t mean anything’s going to happen soon (back to that needing to pay down the debt issue). China’s biggest steelmaker, Baosteel, is still planning to increase output by 20% in 2016.

And all of that supply is about to be unloaded onto a world that doesn’t really need it right now.

---- China has only just begun to unload its excess supply on the world, so this unloading process is only going to get worse. It’s only going to spread to more industries and impact more countries.
And it won’t stop until the world has sopped it all up.
Brexit Quote of the week.

Cameron: He knows nothing and thinks he knows everything. That points clearly to a political career.

With apologies to George Bernard Shaw

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?

Film breakthrough for flexible solar power and LED lighting

April 6, 2016 Updated 2 days ago
A roll-to-roll production technique, similar to the way newspapers are printed, could offer a future of cheap, flexible solar cells and LED lighting panels. The breakthrough, the result of three years of research, is now “ready to market”, according to the project participants.
The Treasores project was led by scientist Frank Nüesch from Empa, the Swiss federal laboratories for material science and technology, with the combined expertise of nine commercial companies and six research institutes in five countries.
Treasores (an acronym for Transparent Electrodes for Large Area Large Scale Production of Organic Optoelectronic Devices) began in November 2012 with the aim of developing technologies to reduce the production cost of organic electronic devices such as solar cells and LED lighting. The project was funded with 9 million euros ($10.2 million) from the European Commission and an additional 6 million euros ($6.8 million) from the project partners.
The research has yielded seven patent applications, papers in a dozen peer-reviewed journals and provided inputs to international standards organizations.
The project has developed and scaled-up production processes for several new transparent electrode and barrier materials for use in the next generation of flexible electronics.
Already under commercial production – or due for production this year – are electrodes-on-flexible substrates that use either carbon nanotubes, metal fibers or thin silver. The new electrodes have been tested with several types of optoelectronic devices using rolls of over 100 meters in length.
The roll of OLED light sources pictured, showing the project logo, was made using roll-to-roll techniques at Fraunhofer Institute for Organic Electronics, Electron Beam and Plasma Technology (Fraunhofer FEP) in Germany on a thin silver electrode developed within the project by the German firm Rowo Coating.
The electrodes on the new films are technically at least as good as those currently made from indium tin oxide (ITO) but will be cheaper to manufacture and will not require the importation of indium.
Fraunhofer FEP’s Tomasz Wanski said that the new electrodes create an OLED light source that is very homogenous over a large area, achieving an efficiency of 25 lumens per watt. This level of efficiency is as good as the much slower sheet-to-sheet production process for equivalent devices.
New test methods developed by the United Kingdom's National Physical Laboratory, in the course of the project, made sure that the electrodes would still work after being repeatedly bent – a test that may become standard in the field.
A further outcome of the project has been the development, testing and production scale-up of new approaches to transparent barrier foils (plastic layers that prevent oxygen and water vapor from reaching the sensitive organic electronic devices).
High performance low-cost barriers were produced by the Swiss company Amcor Flexibles Kreuzlingen and it is expected that the company will adopt this technology after further development. Such high performance barriers are essential to achieve the long device lifetimes that are necessary for commercial success.
U.K.-based solar power firm, Eight19, was one of the project’s technology partners. Michael Niggeman, Eight19’s chief technology officer, said: “The Treasores project was a success for Eight19 as it made a significant contribution to the reduction in manufacturing cost of Eight19’s plastic solar cells.
“This was achieved through the customized development and up-scaling of low-cost barriers and electrodes in the project consortium. It is an essential step towards the commercialization of Eight19’s organic photovoltaics based on technology developed and produced in Europe.”

The monthly Coppock Indicators finished March

DJIA: 17685.09 -18 Down. NASDAQ:  4869.85 +33 Down. SP500: 2059.74 -22 Down. 

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