Monday, 30 May 2016

Out Of Ammo, Ideas, And Road.

Baltic Dry Index. 606 +05      Brent Crude 49.07

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

Brexit odds checker.

Brexit Quote of the Day.
“I wonder what Juncker is doing," thought Dodgy Dave. "I wish I were there to be doing it to the British people, too.”

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

Eight years on from Lehman, our central banksters are still operating on the Voodoo economics of ZIRP, QE, and NIRP. Far from a generating a booming, healthy, sustainable global economy, all it has produced is a massive Chinese malinvestment bubble, failing suicide economics in Japan, an increasingly dysfunctional jobs and wealth destroying European Union, plus an American economy that works well for the Wall Street gamblers in the financialised casinos, but one that has by-passed everyone else in the real economy, and done it by loading up the future with unrepayable debt.
After yet another meaningless G-7 photo-op just passed, Bloomberg’s noted Mohamed El-Erian ever so politely suggests that the central banks have run out of ammo, ideas, and road. While so far only Greece and Cyprus, have smashed into the barriers, to borrow a technical term from yesterday’s Monaco Grand Prix, all of the others are dangerously close. While the world could safely ignore the crash of Greece and Cyprus, a smash up of Spain, France, Italy, Germany, Japan or China will be different. If America smashes into the barriers, it will end the Great Nixonian Error of fiat money, communist money, as we have known it. Since 2008, the Great Nixonian Error has been living on borrowed time, drinking in the last chance saloon, and playing Russian roulette all at the same time. What could possibly go wrong?

Central Banks Can't Go It Alone Anymore

May 27, 2016 2:00 AM EDT By Mohamed A. El-Erian
Whether through signals from the Group of Seven meeting this week or in the outcome of the latest round of European negotiations on Greece, officials of advanced countries increasingly are acknowledging that the problems facing their economies require a new response to take over from the overlong use of narrow short-term tools.

This recognition has been too long in the making and, judging from the regrettable lack of credible and detailed action plans, still needs time to be translated into progress on the ground.

Before the G-7 meeting in Japan, several member countries indicated they understood that their individual and collective policy stances needed to evolve. Germany warned against continued over-reliance on central banks, simultaneously stressing the need for structural reforms. Canada and Japan urged a more aggressive and imaginative use of fiscal policy. And the U.S. warned Japan to resist the temptation to intervene to depreciate the yen.

----These notable developments reflect an important evolution in mindsets, which are shifting more decisively toward looking at structural and secular conditions, and away from an excessive emphasis on cyclical considerations. This shift is driven by three developments: recurring disappointing economic growth despite extraordinary monetary policy stimulus and, in the case of Greece, eye-popping bailout packages; concern that the benefits of unconventional central bank involvement are being offset by a mounting risk of collateral damage and unintended consequences; and recognition that the political context is becoming more complicated as anti-establishment movements gain momentum amid growing popular mistrust of “elites” both in government and the private sector.

Such thinking should, one would hope, lead to the implementation of pro-growth structural reforms, tax reform in conjunction with lessened fiscal austerity; debt relief for segments with crushing debt overhangs; and effective global policy coordination.

Nonetheless, the translation of greater collective awareness into credible actions remains frustratingly patchy.

----Meanwhile, it is unlikely that the G-7 will implement a much different policy stance once officials return to their national capitals. As a result, the crucial handoff from reassuring words to effective measures on the ground will once again fail to materialize.

Yet greater awareness is a critical ingredient of durable mindset adaptations and related course corrections, so there is hope that the advanced economies are getting closer to putting in action a much-needed comprehensive policy response. So if not this time, maybe next time. Still, time is not on their side.

By this measure, U.S. stocks are more expensive than ever

Published: May 27, 2016 12:50 p.m. ET

Median price-to-sales ratio of S&P 500 at 2.2

By one measure, U.S. stocks are even more expensive than they were during the tech bubble of 2000.
While price-to-earnings ratios, which can be manipulated by financial engineering, aren't at alarming levels, price-to-sales ratios indicate stocks are well beyond being merely fully priced, as the chart from Ned Davis Research below shows.

The price-to-sales ratio divides a company’s stock price by revenues. The price-to-earnings ratio divides the price by earnings.

The median price-to-sales ratio on S&P 500 SPX, +0.43% —or the P/S of the 250th stock on the index—is at 2.2, according to Ned Davis Research, above the 2007 and 2000 levels, when stocks were arguably in bubble territory.

The median P/S at those levels suggest that, unlike the bubble of 2000, when tech stocks led the price appreciation, the vast majority of large-cap stocks are now too expensive.

One of the reasons for a rise in the P/S ratios is declining revenue over the past three quarters as prices climbed to near record levels.

“On revenue basis, U.S. stocks are as expensive as they have ever been. But it’s not the only metric. They are expensive if you look at cyclically-adjusted or Shiller price-to-earnings ratios,” said Meb Faber, co-founder and chief investment officer at Cambria Investment Management.

Shiller PE, which is price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years, is at 26.2, its highest level since 2007. The Shiller PE reached that level in 2014 and has largely stayed there.

While valuation metrics are virtually useless when it comes to timing market tops and bottoms, they do tend to have pretty reliable predictive value when it comes to long-term returns.

China's Veiled Loans May Prove Lethal

Credit is a risky business, but loans that dare not speak their name? They are possibly even more dangerous, as China is about to find out.

As many as 15 publicly traded Chinese lenders, large and small, report roughly $500 billion of such debt between them, which they hold not as loans but as receivables from shadow banking products. While the traditional credit business of these banks is 16 times bigger, receivables have jumped sixfold in three years. Explosive growth of this type usually ends badly. It's hard to see why it'll be different for the People's Republic.

Before they can brace themselves -- or embrace the risk, if they think the rewards are worth it -- equity investors need to know where to look. Flitting from one explanatory note to another in dense annual reports isn't everybody's idea of a day well spent. But the effort may be worth it. For instance, page 184 of Agricultural Bank's 2015 annual report informs us that the bank has 557 billion yuan ($85 billion) worth of assets tied in "debt instruments classified as receivables." On page 245, we further learn that most of this is old hat, and the only fast-growing portion is an 18.7 billion yuan chunk helpfully titled as "Others."

A footnote adds that the category primarily consists of "unconsolidated structured entities managed by the group." Give up? Then you miss the big reveal that occurs 34 pages later:

The unconsolidated structured entities managed by the Group consist primarily of collective investment vehicles (“WMP Vehicles”) formed to issue and distribute wealth management products (“WMPs”), which are not subject to any guarantee by the Group of the principal invested or interest to be paid.

That's broadly how Chinese lenders disclose their cryptic linkages with shadow banks. The names keep changing, from "investment management products under trust scheme"  and "investment management products managed by securities companies" to "trust beneficiary rights" and "wealth management products."
The latter have swelled to the equivalent of 35 percent of GDP, and account for 3 trillion yuan of interbank holdings. The common thread to these products is that they're all exposed to corporate credit and designed to get around lenders' minimum capital requirements and maximum loan-to-deposit norms , with scant loss provisioning in case things go wrong.

There's plenty that could. The reported nonperforming loan ratio of 1.75 percent is a joke. CLSA says bad loans have already snowballed to 15 to 19 percent of the loan book; Autonomous Research partner Charlene Chu estimates the figure will reach 22 percent by the end of this year. A 20 percent loss on a $500 billion portfolio of loans masquerading as receivables would wipe out 58 percent of annual profit of the 15 banks under our scanner.

At the Comex silver depositories Friday final figures were: Registered 30.12 Moz, Eligible 123.52 Moz, Total 153.64 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Not the usual suspects today. Today, it’s those unloved, unlovable FX money changers. They’ve decided to clean up their act. No honest they have. They’ve said so, cross their heart and hope to die. Out is lying, starting false rumours, disclosing client orders, using back channels to rig markets near sensitive market times. In the new code of conduct, based loosely on the Prayer of St Francis, Luther’s Theses, and the Ten Commandments, Goldman’s “God’s work,” is to undergo  a reformation. Unlike all three, there’s no enforcement mechanism in the code, called hell and purgatory in the originals, and called fines and jail in the modern era.
So it’s all going to be a nicer, kinder, happier, FX bear pit in which to lose money now! I can’t wait! But how will they cope without months of ethics training? How will they deal with all that guilt, when they slip up? They’re only human, after all, deep down under that heartless rapacious, avaricious, larcenous, money-grubbing,  persona.

Don't lie, don't cheat, don't start rumors, says new FX code

Thu May 26, 2016 11:34am EDT
The first global code of conduct for currency trading has banned dealers from lying and starting false rumors as part of new guidelines aimed at rebuilding trust in a foreign exchange market plagued by scandals and accusations of manipulation.
The document, released on Thursday after evolving from a handful of regional codes used previously, focuses largely on the detail of how banks deal with clients' orders and what market participants can and cannot say to one another.
On those issues alone, it includes dozens of individual directives organized under 11 broader "principles" as well as an extended annex of specific examples of appropriate and inappropriate formulas for discussing market moves.
"The foreign exchange industry has suffered from a lack of trust," Reserve Bank of Australia Assistant Governor Guy Debelle, who chaired the panel of 21 central banks working on the document since last July, told reporters on a conference call. "The market needs to rebuild that trust."
The code is part of the industry's response to charges of market manipulation and misuse of confidential customer order information which saw seven of the world's top banks fined around $10 billion at the end of a huge global inquiry last year.
The second phase of the code will be completed in 12 months, Debelle said, and will cover further aspects of execution, trading and platforms, prime brokerage and governance, as well as risk management and compliance.
Thursday's FX guidelines, however, raised questions about enforcement and how the code will be policed.
"The code is not regulation. We are establishing principles," Debelle said in a question-and-answer session. "I think as adherence mechanisms are developed over the next year or so, we'll provide greater guidance."
The issue of high-speed electronic trading, which has changed the face of the industry in the past decade, also is left for later.
Sharing of confidential client order information via FX traders' electronic chat rooms with names such as "The Cartel" and "The Bandits' Club", particularly around the benchmark currency rates known as the 4 o'clock London fix, was central to the scandal.
But traders said the resulting fear of talking freely about the market has increased the risk of trading and discouraged some of the speculation which made the market able to swallow large orders easily without volatile moves in prices.
The code specifies, for example, that information contained in banks' research can only be shared after it is published, and client order information can only be shared "sensitively" and if there is a "valid reason" for doing so.
Perhaps the most nebulous area of communication surrounds "market color", which traders have said in the past led to banks and clients revealing details of particular orders which were moving currencies at a given time.
According to the FX Code, the seeking and sharing of market color is appropriate as long as it is "properly aggregated or anonymized and restricted to seeking information on market liquidity and sharing market views and opinions without disclosing specific trading positions or intention to trade."

Brexit The Animated Movie.

Brexit Quote of the week.

Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, tell any lie, to assure the survival and the success of the EUSSR.

Dodgy Dave Cameron, with apologies to J. F. Kennedy.

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?

Gibraltar's landmark wave power station opens for business

Chris Wood May 26, 2016
Gizmag was in Gibraltar today at the ribbon cutting event for Eco Wave Power's (EWP) innovative wave energy station, installed on the ammunition jetty in the tiny-yet-iconic British territory. The event itself was brief, but its significance could be huge, marking a big moment for both Gibraltar, and a company with promising green energy tech, and big plans.

We've been following the Israel-based company's progress for years. First tested back in 2012, in a tank at Ukraine's Institute for Hydromechanics in Kiev, the solution captures energy by harnessing the rise and fall of the waves. The motion is converted into fluid pressure, which then spins a generator to produce electricity.

It's been a long road since then, with the team ticking off numerous tests – including stress testing storm trials in the Black Sea, and the creation of a demo station in Jaffa Port, Israel – to evaluate and improve the technology. Today marks a major achievement for the company, inaugurating a landmark power station, installed on Gibraltar's World War II ammunition jetty. The system is Europe's first grid-connected wave energy plant.
To get to the jetty, we took a short drive down the east coast of the territory, before walking down a dimly-lit, lengthy passage that took us underneath the iconic, limestone mass of the Rock of Gibraltar. Stepping out into the golden sunshine some five minutes later, the first thing that struck us about the buoy system is that it fitted in surprisingly well with its picturesque surroundings.
That could well be one of the biggest advantages of EWP's solution here – the visual impact of the station is low, thanks in part to its use of the historic jetty, and the buoys themselves aren't unattractive. If future sites are similarly well placed, then protests from locals about the buoys "ruining the view" – a routine complaint about off shore wind farms – should be minimal.
The ribbon cutting event itself was brief, with Gibraltar's Prime Minister Fabian Picardo saying a few words about the significance of the occasion, before hitting the button that sent the buoys crashing down into the calm waters below.
Despite the slow bobbing motion of the floats during today's demo, EWP claims that the station efficiently gathers energy year round, from tranquil waters to less beach-friendly weather. It's only in the stormiest conditions that the system has to cease operations, being lifted back up from the waves to avoid damage.
Stepping back into the darkness of the tunnel, we took a look at the rest of the equipment that completes the green energy set up. Inside a shipping container to the side of the tunnel are the guts and brains of the station. A mass of hydraulic accumulators, pipes and generators – the entire system is controlled via a touch-screen interface.
According to EWP's on-site engineers, the station is designed to be largely automated, running with as little input as possible. Full manual control is available however, with the interface allowing engineers to complete required actions, such as raising the buoys out of the water. If you're not a big fan of touch controls, then you'll be happy to learn that there's also a big, reassuringly bright red "emergency stop" button on the opposite side of the enclosure.
Placing all equipment but the buoys themselves out and away from the water makes maintenance a breeze, and minimizes the chance of polluting the surrounding water should the equipment break down. For the buoys themselves, the company has employed anti-corrosion measures it claims will protect the metal for some 30 years before an overhaul is needed.
The power station is currently capable of producing 100 KW, but the team plans to increase the amount of energy being generated, up to a 5 MW target by 2020. At that point, the station will be producing an impressive 15 percent of the territory's energy needs.

The monthly Coppock Indicators finished April

DJIA: 17773.64-19 Down. NASDAQ:  4775.36 +11 Down. SP500: 2065.30 -21 Down. 

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