Friday, 17 June 2016

B-Day Minus 6. All At Sea With The Fed.

Baltic Dry Index. 598 -06       Brent Crude 47.75

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

Brexit odds checker.

Brexit Quote of the Day.
“Dodgy Dave Cameron: He was the future once.”

With apologies to Dodgy Dave Cameron.

Whatever the outcome of the British referendum on leaving the wealth and jobs destroying EUSSR, and campaigning was halted yesterday due to the murder of a Remain campaigning M.P., the world economy continues to get weaker with each passing month. The world’s leading central bank, America’s Federal Reserve seems to be rudderless and just drifting along. Whether Britain stays or leaves the EUSSR, is likely to have negligible impact on what follows next in the global economy. If America is already entering a new recession, or if China’s deflation triggers the much feared hard landing, the European Union is headed for breakup.
"If the EU cannot resolve a small problem the size of Greece, what is the point of Europe?"

Romano Prodi, former President of the European Commission, former Italy Prime Minister.

The World Economy Looks a Bit Like It's the 1930s

Now, like then, a financial crisis has left deep scars

June 16, 2016 — 5:01 PM BST
To understand today’s global economy, look back 80 years.

 Just like in the 1930s, growth is being constrained by companies unwilling to spend, falling inflation expectations and governments backing away from fiscal stimulus. 

The trigger for the current malaise was the financial crisis that left a hangover of debt and deleveraging amid tighter banking regulations that are exacerbating deflationary pressures. It’s similar to the kind of shock that preceded the 1930s slump, according to an analysis by Morgan Stanley economists led by Hong Kong-based Chetan Ahya.

"We think that the current macroeconomic environment has a number of significant similarities with the 1930s, and the experiences then are particularly relevant for today," they wrote. "The critical similarity between the 1930s and the 2008 cycle is that the financial shock and the relatively high levels of indebtedness changed the risk attitudes of the private sector and triggered them to repair their balance sheets."

 Like then, the end result could be a prolonged weak period and subdued inflation expectations, with a risk that those price expectations are un-anchored.  The danger is that central banks move too quickly to raise interest rates or governments cut back on spending, triggering an even deeper slowdown.

 "In 1936-37, the premature and sharp pace of tightening of policies led to a double-dip in the U.S. economy, resulting in a relapse into recession and deflation in 1938," the analysts wrote. "Similarly, in the current cycle, as growth recovered, policy-makers proceeded to tighten fiscal policy, which has contributed to a slowdown in growth in recent quarters."

---- The World Bank earlier this month cut its outlook for global growth as business spending sags in advanced economies including the U.S., while commodity exporters in emerging markets struggle to adjust to low prices.

World gross domestic product will grow by 2.4 percent this year, a pace that’s unchanged from 2015 and down from the 2.9 percent estimated in January.

---- At the same time, finance chiefs from the world’s top economies promised in February that their governments would do more to boost demand. Since then, though, it has been central banks who have continued to stoke growth with easing by monetary authorities from Australia to Europe.

 To avoid a new downward spiral, governments will need to step up, according to the Morgan Stanley analysts.

Fed Crying Wolf Risks Losing Investor Faith in Policy Rate Path

June 16, 2016 — 5:17 AM BST Updated on June 16, 2016 — 1:30 PM BST
It’s the Fed that cried wolf.
After U.S. central bank officials including Chair Janet Yellen signaled for weeks that they expected to raise interest rates in coming months, backing previous forecasts that called for two increases this year, the Federal Reserve on Wednesday lowered its borrowing-cost trajectory. The revisions came even as projections for U.S. economic growth and inflation were left little changed.

For investors who had already discounted the Fed’s prior projections, the changes are another blow to their faith in the central bank’s ability to communicate the path of rates. So far this year, traders have predicted a slower pace of hikes, with Treasuries rallying and Fed fund futures signaling just a 37 percent chance of one increase to interest rates in 2016.

“It seems as though the Fed is a bit lost and trying to find their way,” said Robert Pavlik, who helps oversee $9.1 billion as chief market strategist at Boston Private Wealth. “They seem almost as confused as the rest of the market in terms of their projections and guidance. They’re in a leadership role, and if you associate that with credibility, it’s definitely being called into question.”

----“The market is increasingly skeptical of what the Fed says,” said Ward McCarthy, the chief financial economist at Jefferies Group LLC. “The last couple weeks the Fed was pushing that they’d be raising rates in the months ahead, and then they go and lower their projections drastically.”

Officials including San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart said last month that two or three rate increases were possible this year. Minutes from the Fed’s April meeting, released May 18, showed most officials said a June move would be warranted if economic data indicated stronger growth and inflation, causing futures traders to boost wagers on a hike this year. In a May 27 speech at Harvard University, Yellen said an increase would likely be appropriate “in the coming months.”

Abolish The FOMC, Bring Back The Green Eyeshades

by David Stockman • 
The approximate hour Janet Yellen spent wandering in circles and spewing double talk during her presser yesterday was time well spent. When the painful ordeal of her semi-coherent babbling was finally over, she had essentially proved that the Fed is attempting an impossible task.

And better still, that the FOMC should be abolished.

The alternative is real simple. It’s called price discovery on the free market; it’s the essence of capitalism.
After all, the hot shot traders who operate in the canyons of Wall Street could readily balance the market for overnight funds. They would do so by varying the discount rate.

That is, they would push the rate upwards when funds were short, thereby calling-in liquidity from other markets and discouraging demand, especially from carry trade speculators. By contrast, when surplus funds got piled too high, they would push the discount rate downward, thereby discouraging supply and inciting demand.

Under such a free market regime, the discount rate might well be highly mobile, moving from 1% to 10% and back to 1%, for example, as markets cleared in response to changing short-term balances. So what?

Likewise, the world is full of long-term savers like pension funds, insurance companies, bond funds and direct household investors on the supply side, and a long parade of sovereign, corporate and household borrowers on the demand side.

Through an endless process of auction, arbitrage and allocation, the yield curve would find its proper shape and levels. And like in the case of a free market in money, the yield curve of the debt market would undulate, twist, turn and otherwise morph in response to changing factors with respect to supply of savings and demands for debt.

It goes without saying that under such a regime, savers would be rewarded with high rates when demands for business investment, household borrowings and government debt issuance were large. At the same time, financial punters, business speculators, household high-livers and deficit-spending politicians alike would find their enthusiasm severely dented by high and rising yields when the supply of savings was short.

What would be the harm, it must be asked, in letting economic agents in their tens of millions bid for savings in order to find the right price of debt capital at any given time as opposed to concentrating the task on 12 people who, as Janet Yellen admitted yesterday, can’t possibly figure it out, anyway?

----For all the false jawing about Walter Bagehot’s rules for stopping a financial crisis, a mobilized discount rate, not a hyperactive FOMC running around with hair afire and monetary fire hoses spraying randomly, is actually what he had in mind.

To wit, Bagehot actually said that during a crisis central banks should supply funds freely at a penalty spread over a market rate of interest secured by sound collateral.

You don’t need macroeconomic modelers with PhDs in econo-algebra to do that. You need accountants who can drill deep into balance sheets and examine the collateral; and then clerks who can query the market rate of interest, add say 300-400 basis points of penalty spread, and hit the send bottom to eligible banks which have posted approved collateral.

Indeed, this was the sum and substance of the Fed’s original design by Carter Glass, the great financial statesman who authored it. That’s why he had 12 Reserve Banks domiciled in the different economic regions of the country and an essentially honorific but powerless board in Washington DC.

Foreign selling of U.S. Treasuries in April was most since 1978: data

Wed Jun 15, 2016 8:57pm EDT
Foreign investors sold a record amount of U.S. Treasury bonds and notes for the month of April, according to U.S. Treasury Department data on Wednesday, as investors priced in a few more rate increases by the Federal Reserve this year.
Foreigners sold $74.6 billion in U.S. Treasury debt in the month, after purchases of $23.6 billion in March. April's outflow was the largest since the U.S. Treasury Department started recording Treasury debt transactions in January 1978.
Private offshore investors sold $59.1 billion in U.S. government bonds, while foreign official institutions, which include central banks, sold $12.3 billion.
U.S. economic data in April included a decent non-farm payrolls report for March, along with strong manufacturing as measured by the Institute for Supply Management. That prompted investors to sell Treasuries in April, as did an upswing in risk appetite, with buoyant global stocks and rebounding oil prices.
---- China remained the largest foreign holder of U.S. government debt, although its holdings in April declined to $1.2443 trillion, from $1.245 trillion in March. U.S. Treasury holdings of the world's second largest economy declined for a second straight month.
Japan, the No. 2 foreign U.S. Treasury debt holder, posted higher U.S. government debt holdings of $1.143 trillion from $1.137 trillion in March. Japan raised its U.S. Treasury holdings for a fourth straight month.
The report also showed for a second consecutive month U.S. Treasury holdings of Saudi Arabia and other oil-producing countries. Saudi Arabia has the largest Treasury holdings among the Gulf oil exporters with $113.0 billion, down from $116.8 billion the previous month.
We close for the day with Brexit. Today an assessment of where the Remainiac surrender campaign went wrong in Europe. But can they repeat the Scottish Independence referendum campaign result and turn it all around in the final week? Even if that happens, what a way to run the dying EUSSR. The next global recession is likely to see it all break up. But with campaigning suspended due to the murder of a Remain Member of Parliament yesterday, it’s anyone’s guess how that will affect the outcome if at all.

How Europe Pushed Britain Toward the Door

June 16, 2016 1:30 AM EDT
So Britain might actually do it. With a week to go before the referendum on June 23, recent polls say the campaign to quit the European Union is ahead. The government and its allies in the Stay campaign are alarmed.

Why is this happening?

The excellence of the Leave campaign certainly isn't the reason. Advocates of Brexit made a weak case, unable to say what leaving the EU would mean for the country's future trade arrangements or which parts of EU law would be re-adopted and which discarded. It wasn't because these issues can't be debated in advance -- they can -- but because Leave advocates are divided among themselves on what leaving the EU ought to mean.

But while the Leave campaign was bad, the Stay campaign was worse. Prime Minister David Cameron and his allies were more competent than the other side in technical terms -- maybe to a fault. They bombarded voters with study after detailed study predicting dire results for the economy if the U.K. quits. But voters remember the earlier expert consensus that Britain should ditch sterling and join the euro system, and they see how that would have worked out.

The dismal record of expert insight on Britain and Europe created a credibility problem, and the endless repetitions and recyclings of Cameron's "Project Fear" were never going to solve it.

Failing to get traction, the Stay campaign then made things worse by trending toward hysteria. All signs suggest that life outside the European Union is possible; Switzerland isn't mired, so far as one can see, in perpetual poverty. Yet the emphasis on the Britain's bleak future without the blessings of the European Commission went on.

A television audience recently laughed at Cameron when an interviewer asked him, "Which will come first, prime minister, World War Three or the Brexit recession?" Donald Tusk, president of the European Council, went one better recently, declaring that "Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety."

Project Fear was a potentially fatal mistake. The positive case for a British future in Europe needed to be made as well. But spare a thought for Cameron: Europe's other leaders left him little choice in this.

----Europe's other leaders could and should have helped him. They should have recognized him as an ally -- and in doing so would have strengthened the European project. Certainly, to judge by Tusk's comments, they recognize their interest in keeping Britain in. And they surely understand that Europe as a whole needs to change -- that anti-EU sentiment is on the rise in many other countries.

Yet they sent Cameron away from his vaunted renegotiation with too little. And the tone of their response was even more damaging than the lack of substance. The message came through loud and clear: It isn't Britain's place to tell Europe how to change.

Polls can be wrong. There are still enough undecided voters to give Cameron the win he's staked his career on, so long as they split disproportionately in his favor. They probably will, because undecideds usually play it safe. The betting markets, unlike the polls, still expect a vote to stay, though less confidently than before. Nonetheless, it's finally dawning on people that Brexit could happen.

Brexit Campaign Suspended for Second Day After Lawmaker Murder

June 17, 2016 — 12:01 AM BST
Both sides of the acrimonious debate over whether the U.K. should quit the European Union suspended campaigning for a second day on Friday after the murder of Labour lawmaker Jo Cox, a strong advocate for voting to stay in next week’s referendum.

"Vote Leave" and "Britain Stronger in Europe," the main campaign groups, put their activities on hold. Events planned on Friday by the U.K. Independence Party, Economists for Brexit and Labour Leave were also canceled. That follows scrapped speeches on Thursday by Prime Minister David Cameron, Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Carney.

Cox, 41, was shot dead in the town of Birstall, northern England, in the early afternoon on Thursday. She was a fervent advocate of Britain remaining in Europe, as well as a champion of the poor and of Syrian refugees. And while the debate over U.K. membership in the 28-nation bloc has been ongoing, it has grown especially rancorous in the past two weeks with politicians in Cameron’s divided Conservative Party turning against each other.

Clarke Rothwell, an eyewitness to Cox’s killing, said he had seen a man shoot and then stab her. “The words I heard him say was ‘Britain First’ or ‘Put Britain First’,” Rothwell said in a BBC television interview. “He shouted it at least twice.”

Dee Collins, West Yorkshire Police’s temporary chief constable, said in a televised news conference that police were “not in a position to discuss any motive.” She said a 52-year-old man had been arrested and police weren’t looking for anyone else after recovering a number of weapons. The BBC said the man had been named locally as Tommy Mair.

---- Cameron, who was due to address a rally in favor of EU membership in Gibraltar, canceled his address. The International Monetary Fund said it was delaying a planned release of reports on the implications of the U.K. leaving the EU, while the polling company BMG said it would delay a referendum poll due to be published on Friday by 24 hours. The suspension of campaigning lifted the pound which fell in recent weeks as polls tightened.

“We all know what to do, but we don’t know how to get re-elected once we have done it.”

Jean-Claude Juncker. Failed Luxembourg Prime Minister and ex-president of the Euro Group of Finance Ministers. Confessed liar. EC President.

At the Comex silver depositories Thursday final figures were: Registered 23.52 Moz, Eligible 126.63 Moz, Total 150.05 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, Brexit and the global dimension.

American pollster Frank Luntz probes the Brits for their beliefs

June 10, 2016
The polls you’re reading on Brexit—the United Kingdom’s June 23 referendum on whether it should exit the European Union—aren’t telling you the whole story.

While the commentators focus on the horse race, there’s something deeper and longer-lasting happening across the U.K. Brits have become canaries in the coal mine, offering Europe, America and the developed world a glimpse of what is coming in our elections.

The Brexit question represents the political conflict rapidly spreading across the globe: Do hardworking, taxpaying citizens fundamentally trust or reject half a century of globalization, integration and innovation? Have the promises of the political and economic elite helped improve their daily lives? Or is it time for a rethinking and redrawing of our political and economic systems from the ground up?

That’s why the majority of British voters’ heads may be with Remain, but their hearts are with Leave—and those hearts are winning out in these final days before the vote.

Public sentiment on the ground is evenly divided. In a nationwide survey my firm completed June 8, Leave had 49% of the vote, Remain 47%, and only a handful of voters (4%) remain truly, totally undecided. Anybody who tells you today that they can predict the final outcome is either fooling or fibbing. It is truly too close to call. That, in itself, is an incredible story—given the range and resources available to the ‘Remain’ campaign. If David Cameron’s ulcers were giving him trouble before the Scots referendum, just imagine how many Zantacs he ploughs through today.

The underlying currents are moving in Leave’s favor—and they are doing so worldwide. Having conducted extensive polling and focus groups in the U.S., U.K. and across Europe, it is clear that more and more people have come to reject traditional theory and party orthodoxy, wreaking havoc on the politicians and political structures standing in its way. In Britain, the choice is between whether we want to “put ourselves first,” or “continue contributing to the global community.” In America, the fundamental question for the upcoming election is similar, and just as significant: whether to seek changes at the margins, or blow it all up and start over—in the name of “Making America Great Again.”

Consider also the recent elections in Austria, where the far-right “Freedom Party” came within 1% of capturing the presidency. Or the current polling in France that has national-conservative candidate Marine Le Pen tied or ahead. People may not be taking to the streets, but they are using the electoral process to have their (increasingly extreme) voices heard.

But unlike in America, the underlying issue in the upcoming Brexit vote isn’t clouded by candidates or even political parties. That’s why the outcome of the referendum is so important not just across the English Channel but also across the Atlantic Ocean. This is a pure vote, up or down, on the question of being nation-first or a global participant.

For a majority of the British population, life today is just about getting through the day. They accept that Remain makes sense on a macro level; they get that the Big Guys (multi-national corporations, governments at all levels, political parties, even the media) benefit from The System—and the majority hopes that those benefits will one day trickle down to them. They recognize that abandoning the E.U. requires a level of risk-taking that may not turn out well for the British economy overall. But an increasing number of Brits believe the consequences to the economy are more than outweighed by the feeling (if not the reality) that they are taking control of their country and their destiny once again. After decades of feeling betrayed by the very same people and institutions that are now telling them to support the status quo—to Remain—the public appears ready to take matters into their own hands and demand radical change.

Yet on an individual, personal level, their hopes and dreams are anything but radical. It’s really about simple survival. In our polling, Britons are most worried about:

Brexit The Animated Movie.

Brexit Quote of the week.

We hold these truths to be self evident: that all men are created equal; that these are life, liberty, and the pursuit of happiness outside of the EUSSR.”

With grateful thanks to the writers of the US Declaration of Independence.

Solar  & Related Update.

With events happening fast in the development of solar power and graphene, I’ve added this 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?

North Star Solar to deliver solar plus storage to up to 22,000 homes

By David Pratt  15 June 2016, 15:05 Updated: 15 June 2016, 17:12
A huge solar plus storage project is set for the town of Stanley in County Durham, where up to 22,000 homes will have a combination of PV panels, battery storage units and LED lighting installed at no cost to residents.

The project will be delivered by North Star Solar after Joan Nicholson, chair of Stanley Town Council, came forward to take up the company’s offer on behalf of local residents. It will see the package of solutions delivered to the benefit of up to 35,000 local residents, with these costs paid pack over a 23 year period through the savings made on energy bills.

The project is still at the early stages, with the council preparing to hold a series of community meetings to find out how many of the 22,000 homes being offered the package want it. If all homes in the area are positive about the offer, North Star Solar estimates the project will cost around £140 million to deliver – an average of £6,363 per home.

Following an initial survey of homes in the area, the average solar PV system to be rolled out as part of the project will be 3kWp, potentially adding 66MW of residential solar. North Star Solar plans to use a mixture of panels from Trina and Jinko, who, according to North Star’s managing director Peter Sermol, have been selected due to their strength within the market.

“We went through all the balance sheets of the tier one manufacturers and liked these two because of their products and also because they’ve got the strongest balance sheets. If there’s a 25-year performance guarantee and the company is no longer there it’s worth less,” he told Solar Power Portal.

The project also marks the start of a new partnership with Sonnen, which will supply the project’s battery storage units. North Star Solar has previously worked with Swiss manufacturer Leclanché, including on a 40 home initiative across London boroughs, but will use the German firm’s modular batteries which can be increased in capacity in 2kWh stages.

Sermol said: “We haven’t installed Sonnen before but we’re very happy with their technology and the battery chemistry.”

The principle contractor for the scheme will be Solgain UK, a renewable energy solution provider based in Liverpool. Sermol said the company will train groups of local engineers to install the systems alongside its own team.

While unable to reveal the source of the finance being used for the project, Sermol claimed that the experience of the team behind North Star will be make securing these funds a simple task.

“The background of Stuart Dodd [also managing director] and myself is finance. Stuart used to be at Goldmans for ten years and then did internet banking for Nomura globally. My background is pretty much financial services all the way through so we’re very familiar with the Square Mile so getting the institutional funding and construction finance is not a problem for us,” Sermol explained.

While Sermol was able to estimate when the project will be completed, the project is certainly set to go ahead, with suppliers, local delivery teams and finance already prepared to deliver a project for the people of Stanley.

The cost of energy was found to be a major issue for the area after a survey conducted on around 31,000 local residents found an appetite for measures to reduce energy bills.

North Star Solar is targeting an initial saving of 20% for Stanley households from the solar panels and LED lighting, with additional savings resulting from the battery storage systems moving demand away from peak prices.

The monthly Coppock Indicators finished May

DJIA: 17787  -20 Up NASDAQ:  4946 +04 Down. SP500: 2097 -18 Up.

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