Thursday, 5 May 2016

Past the 2016 Peak?

Baltic Dry Index. 652 -30       Brent Crude 45.33

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

Brexit odds checker.

Brexit Quote of the Day.
Cameron, suppose you were an idiot; and suppose you were a member of the Commons; but I repeat myself.

With apologies to Mark Twain.

Up first, what would President Trump bring? Debt, and a lot of it, says the Chief Investment Officer of DoubleLine Capital. Yet another reason to stay long fully paid up, physical gold and silver.

"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

Jeff Gundlach Says Prepare for Debt-Fueled Trump Presidency

May 4, 2016 — 9:08 PM BST
Jeffrey Gundlach, chief investment officer of DoubleLine Capital, told attendees at the Sohn Investment Conference to prepare for a Donald Trump presidency.

“What’s going to happen is you’re going to get a Reagan response with Donald Trump," Gundlach told the New York crowd. “He promises a wall, he promises to bring jobs back, and he promises a lot of infrastructure spending. Let’s face it: Trump is extremely comfortable with debt."

Trump became the presumptive Republican nominee on Tuesday when Senator Ted Cruz dropped out of the race. The money manager predicted that if Trump wins the White House, the ratio of public debt to gross domestic product will rise.

Gundlach’s $59 billion DoubleLine Total Return Bond Fund has returned about 2 percent in 2016, compared with a 3.5 percent gain by the Barclays U.S. Aggregate Bond Index, the main benchmark for the broader bond market. The fund beat 98 percent of peers over the past five years, according to data compiled by Bloomberg.

Gundlach also recommended shorting utilities stocks and buying mortgage real-estate investment trusts, both through exchange-traded funds. With one turn of leverage, the trade should rise by 35 percent, he said.

Last month Gundlach told investors that it would be a good time to buy mortgage-backed securities and sell corporate bonds because the latter could be affected by elevated risk of defaults in high-yield debt. Junk has rallied with Treasury bonds because Federal Reserve Chair Janet Yellen seems to have scaled back expectations for multiple interest rate hikes this year.

Trumped! Why It Happened And What Comes Next, Part 1

by David Stockman • 
First there were seventeen. At length, there was one.

Donald Trump’s wildly improbable capture of the GOP nomination, therefore, is the most significant upheaval in American politics since Ronald Reagan. And the proximate cause is essentially the same. Like back then, an era of drastic bipartisan mis-governance has finally generated an electoral impulse to sweep out the stables.

Accordingly, the Donald’s patented phrase that “we aren’t winning anymore” is striking a deep nerve on main street. But that is not on account of giant trade deficits or a faltering foreign policy and failed military adventures per se.

Indeed, it has very little to do with any patriotic impulse with respect to America’s collective polity, and everything to do with voter perceptions that they personally are not winning economically anymore, either.

What is winning is Washington, Wall Street and the bicoastal elites. The latter prosper off finance, the LA branch of entertainment (movies and TV), the SF/technology branch of entertainment (social media) and the great rackets of the Imperial City—including the military/industrial/surveillance complex, the health and education cartels, the plaintiffs bar, the tax loophole farmers and the endless lesser K-Street racketeers.

Consequently, most of America’s vast flyover zone has been left behind. Thus, the bottom 90% of families have no more real net worth than they had 30 years ago. By contrast, the real net worth of the top 9% stands at 150% its 1985 level, and the very top 1% is at 300% of its level three decades ago.

Moreover, the wealth round trip of the bottom 90% depicted in the chart below was hardly real in the first place. Main Street net worth temporarily soared owing to Greenspan’s 15-year housing bubble which culminated in the great financial crisis. What is left is mainly the mortgage debt.

In Asian news, more sign of a growing slowdown. Q1 16 might have been 2016’s high spot.

Hong Kong PMI hits 8-month low

Published: May 4, 2016 10:55 p.m. ET
HONG KONG--The Nikkei Hong Kong Purchasing Managers Index fell to an eight-month low of 45.3 in April from 45.5 in March, suggesting a further deterioration in Hong Kong's private sector amid China's economic slowdown, Markit Group Ltd. said Thursday.

The April PMI was dragged down partly by fewer new orders and new business from China, Markit said. A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below that points to a contraction.

The Hong Kong PMI has been in contraction for 14 months, while the latest rate of deterioration marked the fastest since August 2015, Markit added.

Markit economist Annabel Fiddes said the latest Hong Kong PMI was partly driven by a faster decline in total new business. "As a result, companies made further cuts to production schedules and employment, and companies lowered their charges at a marked pace in order to attract new business," she said.

"The weak start to the second quarter indicates that the sector continues to struggle in the face of poor economic conditions and reduced client demand, particularly across mainland China," she added.

China services index reflects slowing growth

Published: May 4, 2016 10:44 p.m. ET
BEIJING--China's service activity grew at a slower pace in April, a private gauge showed Thursday, adding to the uncertainty over the direction of the world's second-largest economy.

The Caixin China services purchasing managers' index dropped to 51.8 in April from 52.2 in March, Caixin Media Co. and research firm Markit said, indicating a slowdown in the nation's service sector.

A reading above 50 indicates a month-to-month expansion while a result below that points to a contraction.
"Expansion in the services sector helped offset some of the impact caused by flagging manufacturing. Overall, however, the economy still faces relatively strong downward pressure. The government needs to keep implementing moderate stimulus to prevent a hard landing of the economy," said He Fan, chief economist at Caixin Insight Group.

Though the service PMI was lower than a month earlier, the employment and new order subindexes picked up in April.

China's service sector has been one of the few bright spots in the economy, helping to offset a sharp slowdown in traditional industries battling idle capacity and weakening demand. In 2015, services accounted for 50.4% of China's gross domestic economy, up from 48.1% in 2014.

China's official nonmanufacturing PMI, a competing gauge, fell to 53.5 in April from 53.8 in March, according to data released on Sunday.

In energy news, low prices have a silver lining for some, but not all.

The Unloved Business That's Saved Big Oil From Low Energy Prices

May 5, 2016 — 12:01 AM BST
Big Oil is suddenly Big Chemical.

For years, the business of turning gas and oil into the chemicals used to make everything from plastic bags to paint has been a mostly unloved corner of the world’s largest oil companies. Now, it’s shining, cushioning companies from Exxon Mobil Corp. to Royal Dutch Shell Plc from the worst energy price slump in a decade.

“Chemicals are coming back onto the radar screen,” Simon Henry, chief financial officer at Shell, Europe’s largest oil company, said on Wednesday.

In good times, when high oil and gas prices deliver billions of dollars in profits, the chemical business is largely a footnote in the profit and loss account. Today, with most major oil companies losing money in their production and exploration units, petrochemicals have become one of the biggest -- if not the biggest -- sources of income.

The petrochemical business is getting a lift from the very same factor weighing down the production and exploration units: low oil and gas prices. Effectively, cheap energy translates into cheap raw materials and higher margins.

“Petrochemical has been doing very well, actually,” Total SA CFO Patrick de la Chevardiere said last week.

Take Exxon Mobil. In the first quarter, the chemicals business accounted for nearly 75 percent of the $1.8 billion the company reported in profit. Between January and March, it made $1.36 billion producing chemicals such as ethylene and propylene. During the same period, it lost $76 million pumping oil and gas.

Oil Price Risks Force Maersk to Plan Deeper Cost Cuts, CEO Says

May 4, 2016 — 12:15 PM BST
A.P. Moeller-Maersk A/S is adapting its cost base to prepare for the risk of lower crude prices as the world keeps producing more petroleum than it can consume, according to the chief executive officer of the Danish shipping and oil conglomerate.
Oil has risen about 60 percent from a 2016 low. But the risk that prices will again fall is forcing Maersk’s oil unit to explore bigger cost cuts than previously planned, said group CEO Nils Smedegaard Andersen.
“The price will obviously be driven by the balance between supply and demand and there will be oversupply for many months still,” he said by phone from Copenhagen. “It definitely can’t be ruled out that the oil price will fall again.”
Brent crude has rebounded as lower U.S. output removes some excess supply from the market. One barrel traded at about $45 on Wednesday, compared with a low of $28 in the middle of January.

“I have previously said the oil price was too low, but it’s very plausible that the balance between supply and demand will continue to be unfavorable,” Andersen said.

Maersk Oil, which has its main operations in the North Sea and Qatar, raised its full-year forecast and now sees the unit breaking even, compared with a forecast for a 2016 loss in February. The unit can now break even with oil at $40 to $45. It previously said oil needed to trade at about $45 to $55 in order to avoid a loss.

The division cut costs by 21 percent in the first quarter, a higher rate than the 20 percent it targets for end-2016 when comparing with 2014 levels. That means cuts will probably end up deeper than initially planned, the CEO said. Those measures helped Maersk deliver a bigger profit than analysts expected, driving its shares up as much as 6.7 percent on Wednesday.

“We’re happy we’ve reached the goal we set,” Andersen said. “We will definitely work on cutting costs even further.”

Maersk Oil reported a net operating loss after tax of $29 million in the first quarter, compared with a profit by the same measure of $208 million a year earlier. The loss was smaller than the $58 million predicted in a survey by Ritzau.

“We don’t outright expect that the oil price will fall, but we want to make sure we have a solid oil business even at an oil price in the $40 to $50 range,” Andersen said.

We close for the day with an update on the wild fire in Alberta’s tar sands. Oil production is now starting to be affected, although that is of little consequence to the unfolding personal drama affecting almost 90,000 people fleeing the fire. In a way, a 21st century  version of the 1906 San Francisco great fire, though hopefully with much less destruction.

Raging Canadian wildfire disrupts oil-sands operations

Published: May 4, 2016 4:48 p.m. ET

Blaze shuts one mining operation as other camps take in evacuees

CALGARY, Alberta — Raging forest fires in Canada’s oil-rich province of Alberta forced the evacuation of nearly 90,000 people, devastating the remote town at the hub of the country’s oil-sands industry and threatening to further burden a sector already plagued by low energy prices.

Some 88,000 people evacuated from Fort McMurray, 270 miles north of Alberta’s capital Edmonton, to shelters hundreds of miles north and south of the town, said Darby Allen, the town’s regional fire chief, at a news briefing Wednesday.

“We had a devastating day yesterday and we’re preparing for a bad day today,’ he said, choking back tears. He said there were no known casualties or injuries.

The uncontrolled blaze shut down one major oil-sands mining operation on Wednesday and forced another to curtail production. Other operators have evacuated nonessential personnel to make room for thousands of evacuees who fled the disaster and sought refuge in camps designed to house temporary workers.

The oil-sands facilities aren’t directly threatened by the uncontrolled forest fires, but mandatory evacuations of workers have brought some operations to a halt.
Royal Dutch Shell PLC’s RDS.A, -2.47%   Canadian unit halted its oil-sands mining operations, which produce about 250,000 barrels a day, to speed evacuations of people who fled to the site, which is about 60 miles north of the fires. A spokesman didn’t provide an estimate for how long the shutdown is expected to last.
Canada’s total oil sands production is around 2 million barrels a day, much of which is exported to the U.S.

At the Comex silver depositories Wednesday final figures were: Registered 28.58 Moz, Eligible 123.47 Moz, Total 152.05 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
No crooks today. Today, Asia’s developing rice problem.

As Asia's rice crop shrivels, food security fears resurface

Sun May 1, 2016 7:04pm EDT
Nearly a decade after a spike in global food prices sent shockwaves around the world, Asia's top rice producers are suffering from a blistering drought that threatens to cut output and boost prices of a staple for half the world's population.World rice production is expected to decline for the first time this year since 2010, as failing rains linked to an El Nino weather pattern cut crop yields in Asia's rice bowl.
A heat wave is sweeping top rice exporter India, while the No.2 supplier Thailand is facing a second year of drought. Swathes of farmland in Vietnam, the third-biggest supplier, are also parched as irrigation fed by the Mekong river runs dry.
The three account for more than 60 percent of the global rice trade of about 43 million tonnes.
"As of now we haven't seen a large price reaction to hot and dry weather because we have had such significant surplus stocks in India and Thailand. But that can't last forever," said James Fell, an economist at the International Grains Council (IGC).
Rice inventories in the three top exporters are set to fall by about a third at the end of 2016 to 19 million tonnes, the biggest year-on-year drop since 2003, according to Reuters calculations based on U.S. Department of Agriculture data.
Any big supply disruption can be extremely sensitive. In 2008, lower Asian rice output due to an El Nino prompted India to ban exports, sending global prices sky-rocketing and causing food riots in Haiti and panic measures in big importers such as the Philippines.
Manila at the time scrambled to crack down on hoarding, ordered troops to supervise subsidized rice sales and asked fast food chains to serve half-portions, as well as urging Vietnam and others to sell the country more rice.
The world has suffered a series of food crises over the past decade involving a range of grains due to adverse weather.
In the case of rice, benchmark Thai prices hit a record around $1,000 a tonne in 2008. Price spikes like this typically also boost demand for other grains such as wheat, widely used for noodles in Asia, and soybeans and corn used for food or feed.
While currently far below 2008 highs, rice earlier this month hit $389.50, the strongest since July and up 13 percent from an eight-year low of $344 in September.
Bruce Tolentino of the Philippines-based International Rice Research Institute is concerned about Asia's vulnerability.
"In general prices are still stable right now. They're inching up though, and what will drive things over the edge will be a major calamity in one of the major producing countries."
Although India's rice output in 2015 was largely stable, extremely hot temperatures are threatening a second crop in eastern regions.
Traders see further price gains by June as India's next big crop is not due until September and Thailand's main crop by year end.
The IGC sees a 2016 world harvest of 473 million tonnes, down from 479 million tonnes in 2015 and the first decline in six years.

Indian State Bans Daytime Cooking Amid Deadly Heatwave, Severe Drought

May 2 2016 12:00 AM EDT
The Indian state of Bihar this week took the unprecedented step of forbidding any cooking between 9 a.m. and 6 p.m., after fires swept through shantytowns and thatched-roof houses in villages and killed dozens.
While India remains in the midst of a heatwave that has killed more than 300 people, another 80 people have died in accidental fires made worse by the extreme drought that is also gripping the country.  
---- Much of India is reeling under a scorching heat wave and severe drought conditions that have decimated crops, killed livestock and left at least 330 million Indians without enough water for their daily needs.
Rivers, lakes and dams have dried up in parts of the western states of Maharashtra and Gujarat, and overall officials say that groundwater reservoirs are at just 22 percent capacity.
In some areas, the situation is so bad the government has sent tankers of water for emergency relief. Monsoon rains are still weeks away, expected to start only in June.
At least 300 people have died of heat-related illness this month, including 110 in the state of Orissa, 137 in Telangana and another 45 in Andhra Pradesh where temperatures since the start of April have been hovering around 44 degrees Celsius (111 Fahrenheit).

That's about 4-5 degrees Celsius (8-10 degrees Fahrenheit) hotter than normal for April, according to state meteorological official Y.K. Reddy. He predicted the situation would only get worse in May, traditionally the hottest month in India.

Extreme Heat Sears Southeast Asia With All-Time Records; Worst Heat Wave in Thailand in 65 Years

Apr 28 2016 04:00 PM EDT
Southeast Asia has been roasting in an extended heat wave through much of April with temperatures reaching unprecedented levels, allowing at least three countries to set new all-time national heat records and several others to come very close.
In Thailand, the heat wave is considered the worst since reliable records have been kept in that country.
"As of now we can say we've broken the record for the highest temperatures over the longest duration in 65 years — and the season isn't over yet," Surapong Sarapa, head of the Thai Meteorological Department's weather forecast division, told the Associated Press. Thailand began keeping national weather records after 1950.

On April 28, Mae Hong Son recorded the hottest temperature on record in Thailand topping out at 112.3 degrees Fahrenheit (44.6 degrees Celcius), according to Christopher Burt, a weather historian with The previous record was held by Uttaradit which reached 112.1 degrees Fahrenheit (44.5 degrees Celcius) on April 27, 1960.

Burt added that at least 50 towns and cities in Thailand had recorded all-time record highs for their respective locations as of April 19.

---- Several countries surrounding Thailand have also dealt with the searing temperatures.
Cambodia and Laos set new all-time record highs for any day of the year during April, Burt reported. In addition, Malaysia, Singapore, and Vietnam have all come very close to setting new national heat records.
The new all-time record high for Cambodia was set on April 15 when the mercury soared to 108.7 degrees Fahrenheit (42.6 degrees Celcius) in Preah Vihea, beating the previous record set just two days early in Bantey Ampil.

"Gold bears the confidence of the world's millions, who value it far above the promises of politicians, far above the unbacked paper issued by governments as money substitutes. It has been that way through all recorded history. There is no reason to believe it will lose the confidence of people in the future."

Oakley R. Bramble

Brexit Quote of the week.

Dodgy Dave Cameron: leader of the nattering nabobs of Brexit negativism.

With apologies to Spiro Agnew

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?

Harvard Scientist, Longtime Solar Skeptic, Now Sees the Light

May 4, 2016 — 5:01 AM BST
David Keith, a Harvard University scientist, has long doubted solar energy’s potential to compete on cost with conventional power sources. Now he sees the light.

“I was wrong,” largely because the fundamentals of solar power have changed, Keith, a professor of applied physics and public policy, wrote in a recent essay. “One can now build systems in the world’s sunny locations and get very cheap power.”

His reversal reflects the steep declines in producing electricity from sunlight. Even without government subsidies, power from large solar farms in some regions is now significantly below $40 a megawatt-hour and is on pace to drop below $20 by 2020, Keith wrote. That would be the cheapest power on the planet.

It’s a significant shift from his earlier stance, that high costs would relegate solar power to being “green bling for the wealthy.”
Lower prices, however, don’t solve the issue that solar panels stop generating power when the sun goes down. And the technology may not make sense in regions like New England, northern Europe and coastal China. Yet in places where sunshine is plentiful, solar has the potential to reshape power markets, Keith said.
“Obviously the market was created by subsidies,” Keith said in an interview Tuesday. “But the subsidy-created market really did drive this supply chain innovation.”

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F. A. von Hayek

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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