Tuesday, 17 May 2016

The Sea Change.

Baltic Dry Index. 613 +13      Brent Crude 49.28

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

Brexit odds checker.

Brexit Quote of the Day.
‘Probably the battle of Waterloo was won on the playing-fields of Eton, but the opening battles of all subsequent wars have been lost there.’
George Orwell
Dodgy Dave upheld this tradition by losing the renegotiation war with Europe and leading the Remainiac surrender campaign to stay in the EUSSR.

Last Thursday we covered a possible change in the commodities market. We wrote,
Are commodities starting to signal the return of inflation ahead? I know that the commodity story of the last two years has been the China bust and with it the collapse of the last decade’s Commodities Supercycle. But this old dinosaur commodities trader thinks he’s starting to see a sea change. The tide might have just stopped going out and started returning again.”
Today more sign of that change underway. Brent crude is flirting with $50. In Southeast Asia, food production just can’t get a break. Something major seems underway in gold.
"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne 

Wall Street banks see a painful summer for stocks ahead

Published: May 16, 2016 7:34 p.m. ET
If you gathered a group of stock analysts in a room, odds are each analysts would have a different view on the market.

So when analysts from three big investment banks are on the same page, it might pay to listen.
Bank of America Merrill Lynch, Goldman Sachs and J.P. Morgan are all urging investors to rotate out of equities because they see a painful summer ahead.

“An increasing number of trends worry us as we head into summer,” said Savita Subramanian, an equity and quantitative strategist at Bank of America Merrill Lynch.

The fact that corporate buybacks are near an all-time high while the number of companies projected to post losses has also risen is a huge red flag for Subramanian.

Furthermore, an interest-rate hike during an earnings recession never ends well, she said.

“Since 1971, the Fed has begun tightening during a bona fide profits recession only three other times – 1976, 1983, and 1986; two out of those three instances saw stocks drop over the next twelve months. The S&P is just 1% off its Dec. 16 level when the Fed initially hiked,” said the strategist in a report.

An earnings recession, like an economic contraction, is two consecutive quarters of negative year-on-year profit growth. First-quarter earnings fell 7.1% from a year earlier, marking four consecutive quarters of declines, according to FactSet.

Billionaire Soros Cuts U.S. Stocks by 37%, Buys Gold Miner

May 16, 2016 — 10:24 PM BST Updated on May 16, 2016 — 11:19 PM BST
Billionaire George Soros cut his firm’s investments in U.S. stocks by more than a third in the first quarter and bought a $264 million stake in the world’s biggest bullion producer Barrick Gold Corp.

The value of Soros Fund Management’s publicly disclosed holdings dropped by 37 percent to $3.5 billion as of the end of the last quarter, according to a government filing Monday. Soros acquired 1.7 percent of Barrick, making it the firm’s biggest U.S.-listed holding. Soros also disclosed owning call options on 1.05 million shares in the SPDR Gold Trust, an exchange-traded fund that tracks the price of gold.

Soros, who built a $24 billion fortune through savvy wagers on markets, has warned of risks stemming from China’s economy, arguing its debt-fueled economy resembles the U.S. in 2007-08, before credit markets seized up and spurred a global recession. In January, the former hedge fund manager turned philanthropist said a hard landing in China was “practically unavoidable,” adding that such a slump would worsen global deflationary pressures, drag down stocks and boost U.S. government bonds.

Soros sold a stake in Level 3 Communications Inc. which was worth $173 million as of Dec. 31 and a holding in Dow Chemical Co. that was worth $161 million. The family office also divested its stakes in Endo International Plc and Delta Air Lines Inc.

Soros’s former chief strategist, billionaire investor Stan Druckenmiller, is also bullish on gold. Earlier this month he called gold his largest currency allocation as central bankers experiment with the “absurd notion of negative interest rates.”

Gold for immediate delivery jumped 16 percent in the first three months of the year, the biggest quarterly surge since 1986, according to Bloomberg generic pricing. Shares of Toronto-based Barrick have more than doubled this year as the miner accelerates cost-cutting efforts and reduces debt. Barrick is up 39 percent since March 31.

China to buy $90 billion gold vault in London

May 16, 2016: 3:08 PM ET

China is buying one of London's biggest gold vaults.

The Chinese state-owned ICBC Standard Bank (IDCBF), the world's biggest bank by assets, has agreed to buy Barclays precious metals storage business, including its state-of-the-art storage facility in London.

The deal will boost China's access to London's gold market, and expand the country's role in the gold business.

The vault is in a secret location in London, and can store 2,000 tonnes of gold and other precious metals. At current prices, up to $90 billion worth of gold could be stored inside.

Barclays (BCLYF) has previously announced a move away from the precious metal business. The bank opened the facility in 2012.

----London is the world's largest wholesale over-the-counter gold market by trading volume, with estimated $5 trillion worth of gold trades cleared there every year. The precious metal has been traded in London for over 300 years.

But China dominates in terms of actual physical gold trading. Gold imports to China have surged over 700% since 2010, and the country overtook India to become the world's biggest gold consumer in 2013.

China now consumes about 40% of the gold that comes out of the Earth's ground every year, according to Wells Fargo.

Oil extends gains, U.S. crude at six-month top on supply concerns

Mon May 16, 2016 11:28pm EDT
Oil futures rose for a second straight session on Tuesday, with U.S. crude hitting a six-month high, as the market focused on supply disruptions that prompted long-time bear Goldman Sachs to issue a bullish assessment on near-term prices.

Oil prices have rallied for most of the past two weeks due to a combination of Nigerian, Venezuelan and other outages, declining U.S. output and virtually frozen inflows of Canadian crude after fires in Alberta's oil sands region.

U.S. West Texas Intermediate (WTI) futures were up 50 cents at $48.22 a barrel at 0306 GMT. They hit $48.28 earlier in the session, the highest since November.

Brent crude futures were up 28 cents at $49.25 a barrel, near six-month highs of $49.47 reached on Monday.

"The increasing intensity in supply-side disruptions in the oil market should see prices well supported in the short term," ANZ said in a research note.

The disruptions triggered a U-turn in the outlook for the oil market from Goldman Sachs. The U.S. bank, which had long warned of global storage hitting capacity and of another oil price crash to as low as $20, now sees U.S. crude trading as high as $50 in the second half of 2016.

A further bullish note was sounded by the U.S. Energy Information Administration (EIA) when it said shale oil output is expected to drop in June for an eighth consecutive month.

Shale output is expected to fall by nearly 113,000 barrels per day (bpd) to 4.85 million bpd, as the nearly two-year slump in prices continues to undermine profitability at drillers, the EIA report released on Monday shows.

Oil sand work camps evacuated as Alberta wildfire moves north

Mon May 16, 2016 11:55pm EDT
A massive wildfire burning around the oil sands hub of Fort McMurray was growing and moving rapidly north late on Monday, forcing firefighters to shift their focus to protecting major oil sand facilities north of the city, officials said.

The sudden movement of the fire prompted the evacuation of some 4,000 people from work camps outside Fort McMurray, with all northbound traffic once again cut off at the city, the Regional Municipality of Wood Buffalo said.

Suncor Energy Inc and Syncrude Canada confirmed they had evacuated workers from the affected area. Their major facilities were under a precautionary notice with the fire still some 15 to 20 kms (10-12 miles) away, officials said.

A dozen work camps south of the major projects faced mandatory evacuation notices.

"The urgency we're looking at is with regards to the oil gas infrastructure," Scott Long, executive director of the Alberta Emergency Management Agency, told reporters in Edmonton, adding Fort McMurray itself appeared to be safe for now.

The entire population of Fort McMurray, about 90,000 people, was forced to flee nearly two weeks ago as the uncontrolled wildfire raged through some neighborhoods and destroyed about 15 percent of structures.

While much of Asia is battling a severe drought and record high temperatures ahead of this year’s monsoon season, Sri Lanka has been hit with record pre-monsoon rains, adding to the food production difficulties of Southeast Asia..

Sri Lanka battered by relentless rains, inclement weather ahead

May 15, 2016
Heavy Pre-Monsoon rains have been lashing several parts of Sri Lanka for the past few days. So much so that many areas in the country have been recording two digit rains for quite some time now. Usually, during the Pre-Monsoon season Sri Lanka does receive good showers owing to the weather systems developing in close proximity of the region.

In a span of 24 hours from 8:30 am on Saturday, Pottuvil recorded a whopping 145.6 mm of rain followed by Trincomalee where 90.2 mm rainfall was observed. Other areas to have received heavy rains include Batticaloa 67 mm, Hambantota 58.5 mm, Galle 46.3 mm, Ratnapura 35 mm, and Kandy 27.9 mm.

The cyclonic circulation which was over Bay of Bengal has intensified into a low pressure area yesterday. Now, the low has intensified into a well-marked low pressure area and will become a depression soon. While extremely heavy rains have already lashed several parts of Sri Lanka, more rains are expected over the country.

The residents living close to the coast have been advised to avoid going close to the water bodies as they are likely to become rough. Also, adequate measures should be taken in case of lightning activity and squally winds over the region.

We close for the day with China. China’s communist party finally learns from its past, sort of. The People’s Daily says no more error like the murderous Cultural Revolution, but it’s still sticking with socialism. Better late than never I suppose, though they might want to ask the Venezuelans how well socialism’s doing.

China must never repeat Cultural Revolution: People's Daily

Tue May 17, 2016 12:28am EDT
China must learn from the tumultuous, decade-long Cultural Revolution and never allow such an event to happen again, the ruling Communist Party's official People's Daily said on the movement's anniversary.

Monday marked the 50th anniversary of the start of the Cultural Revolution, but there were no official commemorations and no signs the party plans to loosen its tight grip over the historical narrative of one of its most damaging episodes.

"We must never forget to draw lessons from the 'Cultural Revolution'," the newspaper said in an opinion piece on Tuesday, in a rare public mention of the 1966-1976 period when Mao Zedong declared class war, plunging China into chaos and violence.

"We cannot and will not allow a repeat performance of an error like the 'Cultural Revolution'," it added.

During the Cultural Revolution, the economy stagnated, schools were closed, and some historians estimate that as many as 1.5 million people died and millions more were persecuted in the political upheaval.

Schools and official histories whitewash the movement and gloss over the violence, hewing closely to an official party verdict, five years after Mao's death ended the Cultural Revolution, that it had been a major and costly mistake.

The People's Daily said that 1981 assessment was "unshakably scientific and authoritative".

Though Mao remains a divisive figure, his image adorns China's banknotes and his embalmed body attracts hundreds, if not thousands, of visitors each day in Beijing.

He has also become a potent symbol for some leftists within the party who feel that three decades of market-based reform have gone too far, creating social inequalities such as a yawning gap between rich and poor and pervasive corruption.

The People's Daily said China has never been closer than it is today to, nor had more confidence in, reaching the goal of the "great rejuvenation of the Chinese people" and that China must "inseparably unite" around President Xi Jinping.

The Cultural Revolution must not be used by entities on the "right" or "left" to create interference, it said.

"(We) can neither take the rigid, closed, old road, nor the evil path of changing the flag," it said, a reference indicating that China will stick to socialism.
"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."

Hans F. Sennholz

At the Comex silver depositories Monday final figures were: Registered 30.28 Moz, Eligible 123.18 Moz, Total 153.46 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
The “next Lehman” is out there, and at 84 months long and counting, this “US recovery,” if it is a recovery, is reaching the point where historically, it should be past its peak. If oil really has bottomed, and if the Asian drought threatens the onset of food price inflation, the Fed may have little choice but to start normalising NIRP and ZIRP into a weakening economy. The bond market “Super Bubble,” ending would set off Mr Buffett’s Financial Weapons o Mass Destruction. 2007-2009 would likely be tame in comparison.
Below, an expert takes a look at what might happen next. If it happens before the Donald or Hillary reach power, Obama and Yellen take the fall. But if the election goes the Donald’s way, how much goodwill will the outgoing Obama administration have for the incoming Donald? And what might that mean for the US and global economy?

This is how the next financial crisis will spread around the world economy

Losses will be directed to insurance companies, pension funds and private investors – bailing them out may prove to be politically necessary
May 15, 2016
A new economic crisis, which I believe we are on the brink of experiencing, will have similarities, and differences, to 2008. The problem of crowded trades – where market participants all have the same basic positions and strategies, and identical risk models – will be familiar.

The effect of new regulations, ironically designed to minimise the risk of a new crash, and a reduction in trading liquidity will create new problems. Extra capital, while welcome, does not alter the level of risk, but merely who bears it.

To recapitalise banks, regulators have approved risky hybrid securities, such as contingent capital and bail-in bonds. In the event of a systemic crisis, losses will be transmitted to insurance companies, pension funds and private investors; bailing them out may be politically necessary or expedient.

With simpler solutions proving politically difficult, attempts to reduce the risk in the chains of derivative contracts have focused on Central Counter Parties (CCPs), a theoretically bankruptcy-proof guarantor of transactions and collateral. CCPs have added complexity, creating new instability; CCP risk management is unproven under conditions of stress.

The reliance on collateral is likely to prove troublesome under conditions of real stress. The emphasis shifts from the borrower or counterparty’s creditworthiness to the collateral creating different risks.
Government securities now are not risk free. It assumes liquid markets for the collateral, which must be realised in case of default.
Unexpected changes in the amount of collateral needed create liquidity risks. Collateral use also entails significant modelling, operational and legal risk.
Trading liquidity in markets has also diminished markedly since 2008. Traditionally, market makers act as shock absorbers in periods of stress allowing investors to readjust portfolios at a price. But consolidation – through bankruptcies, mergers or acquisition or withdrawal – has reduced the number of dealers.
---- The decline in liquidity is exacerbated by the changing structure of many markets. There is increased participation by high frequency traders (“HFT”), retail and private investors either directly or through funds. Paralleling the decline in the number of dealers, the number of major asset managers through whom these funds are deployed is small.
The combination of size, the nature of the underlying assets and the redemption feature may prove especially toxic. It is simply not possible to transform highly illiquid instruments, using financial engineering into liquid equivalents. This lack of liquidity is not reflected in pricing, with the premium for liquidity risk in most segments having fallen to 2007 levels of below.
As the following scenario outlines, these changes in market structure are likely help to create instability in any new crisis.
Satyajit Das is a former banker and the author of ‘A Banquet of Consequences: Have we consumed our own future?

Brexit The Animated Movie.

Brexit Quote of the week.
BBC "the propaganda arm of the EU."
Martin Durkin. Brexit Filmmaker.

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?

Researchers unleash graphene 'tiger' for more efficient optoelectronics

Date: May 13, 2016

Source: University of Washington

Summary: In traditional light-harvesting methods, energy from one photon only excites one electron or none depending on the absorber's energy gap. The remaining energy is lost as heat. But a new article describe one promising approach to coax photons into stimulating multiple electrons. Their method exploits some surprising quantum-level interactions to give one photon multiple potential electron partners.
In the quest to harvest light for electronics, the focal point is the moment when photons -- light particles -- encounter electrons, those negatively-charged subatomic particles that form the basis of our modern electronic lives. If conditions are right when electrons and photons meet, an exchange of energy can occur. 
Maximizing that transfer of energy is the key to making efficient light-captured energetics possible.
"This is the ideal, but finding high efficiency is very difficult," said University of Washington physics doctoral student Sanfeng Wu. "Researchers have been looking for materials that will let them do this -- one way is to make each absorbed photon transfer all of its energy to many electrons, instead of just one electron in traditional devices."
In traditional light-harvesting methods, energy from one photon only excites one electron or none depending on the absorber's energy gap, transferring just a small portion of light energy into electricity. The remaining energy is lost as heat. But in a paper released May 13 in Science Advances, Wu, UW associate professor Xiaodong Xu and colleagues at four other institutions describe one promising approach to coax photons into stimulating multiple electrons. Their method exploits some surprising quantum-level interactions to give one photon multiple potential electron partners. Wu and Xu, who has appointments in the UW's Department of Materials Science & Engineering and the Department of Physics, made this surprising discovery using graphene.
"Graphene is a substance with many exciting properties," said Wu, the paper's lead author. "For our purposes, it shows a very efficient interaction with light."
Graphene is a two-dimensional hexagonal lattice of carbon atoms bonded to one another, and electrons are able to move easily within graphene. The researchers took a single layer of graphene -- just one sheet of carbon atoms thick -- and sandwiched it between two thin layers of a material called boron-nitride.
----- Xu and Wu discovered that when the graphene layer's lattice is aligned with the layers of boron-nitride, a type of "superlattice" is created with properties allowing efficient optoelectronics that researchers had sought. These properties rely on quantum mechanics, the occasionally baffling rules that govern interactions between all known particles of matter. Wu and Xu detected unique quantum regions within the superlattice known as Van Hove singularities.
"These are regions of huge electron density of states, and they were not accessed in either the graphene or boron-nitride alone," said Wu. "We only created these high electron density regions in an accessible way when both layers were aligned together."
When Xu and Wu directed energetic photons toward the superlattice, they discovered that those Van Hove singularities were sites where one energized photon could transfer its energy to multiple electrons that are subsequently collected by electrodes -- not just one electron or none with the remaining energy lost as heat. By a conservative estimate, Xu and Wu report that within this superlattice one photon could "kick" as many as five electrons to flow as current.
With the discovery of collecting multiple electrons upon the absorption of one photon, researchers may be able to create highly efficient devices that could harvest light with a large energy profit. Future work would need to uncover how to organize the excited electrons into electrical current for optimizing the energy-converting efficiency and remove some of the more cumbersome properties of their superlattice, such as the need for a magnetic field. But they believe this efficient process between photons and electrons represents major progress.

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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