Wednesday 1 June 2016

What’s Wrong With This?



Baltic Dry Index. 612 +06       Brent Crude 49.50

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

Brexit odds checker.
http://www.oddschecker.com/politics/british-politics/eu-referendum/referendum-on-eu-membership-result

Brexit Quote of the Day.
“If you just set out to be liked Dave, you will be prepared to compromise on anything at anytime, and would achieve nothing.”
With apologies to Margaret Thatcher.

For an extra treat all this week, scroll down to the end to watch “the modern Mozart,” a 10 year old child prodigy from Vilnius, play Albinoni.

Today another look at what’s going on and wrong in China’s slowing economy. And these are the official figures! Stay long fully paid up physical gold and silver against the day the “next Lehman” hits. Join those in the know, who already seem to be ever so quietly accumulating gold against the day that China unravels, Japan blows up, the EUSSR disintegrates, inflation arrives and the Fedster’s are forced to raise interest rates destroying US stock and bond markets, resulting in another 2008-2009 but on steroids.
Below, What’s wrong with this?

Chart shows China’s debt bubble bigger than subprime bubble

Published: May 31, 2016 12:29 p.m. ET

‘Unproductive’ debt up sharply since 2009: Deutsche Bank

Here’s yet another sign that China’s economy may be teetering on the brink of a massive debt crisis.

Unproductive debt in China—that is, debt that’s used to drive up asset prices—swelled in 2015, eclipsing the level seen in the U.S. in the run-up to the Great Financial Crisis, said Torsten Slok, chief international economist at Deutsche Bank, in a note to clients published Tuesday.

Slok’s findings are illustrated in the chart below, where he compares the level of credit growth required in the U.S. and China to generate 1 percentage point of gross domestic product growth. (He notes that the red bar for 2015 also grew, suggesting more credit growth is now required in the U.S. to produce one percentage point of GDP growth).

Chinese officials are partly responsible for the expansion of credit last year, analysts say, as the People’s Bank of China lessened requirements regarding the collateral lenders put up to borrow funds from the central bank, among other stimulus measures. The move was meant to spur economic growth, the pace of which slowed last year, stoking fears that it could precipitate a sharp global downturn.

The world’s second-largest economy saw growth slow to 6.8% in 2015—missing the government’s target for 7% growth by a hair. In the first quarter of 2016, the country’s economy grew at an annual rate of 6.7%, its slowest pace since 2009. It’s important to note, however, that many economists believe Chinese data overstates the strength of its economy.

Over the past year, Chinese stocks, and more recently commodities like iron ore and steel rebar traded in China, have seen a series of dizzying rallies and frightening crashes as investors, emboldened by easy credit engage in speculation.

“The problem is that the banking sector in China has been pushing out new lending aggressively, but with slowing economic growth many loans have not gone to create more factories and jobs but to financial assets that have been leveraged to boost returns,” Slok said.

China factory activity expands again in May but at tepid pace - official PMI

Tue May 31, 2016 11:35pm EDT
Activity in China's manufacturing sector unexpectedly expanded for the third straight month in May but growth remained weak as orders softened, suggesting the world's second-largest economy is still struggling to regain traction.

The official Purchasing Managers' Index (PMI) was unchanged from April at 50.1 last month, barely above the 50-mark that separates expansion in activity from contraction on a monthly basis.

Analysts polled by Reuters had expected it to dip to 50.0.

The output sub-index rose to 52.3, compared with 52.2 in April, indicating production remains solid despite efforts by the government to curb overcapacity that is plaguing sectors such as steel and coal.

But total new orders expanded at a slower pace, while growth in export orders stalled.

And manufacturers continued to shed jobs, albeit not as rapidly as in April. The employment sub-index was 48.2, compared to 47.8 in the previous month and the slowest pace in 12 months.

Prices of raw materials continued to rise but at a slower pace (55.3) as a speculative bubble deflated. Prices for several steel products fell over 20 percent in May.

A record credit binge in the first quarter boosted investment and industrial output in March, fanning hopes that the economy was picking up, but Chinese banks sharply cut back new lending in April and the growth of M2 money supply slowed.

Weaker April economic data and hints of a shift in the government's aggressive stimulus programme have also raised concerns over whether the March bounce is sustainable.
More.

China’s official manufacturing PMI remains unchanged

Published: May 31, 2016 11:44 p.m. ET
BEIJING — An official measure of China’s manufacturing sector held steady in May while a private gauge edged down slightly, as aggressive monetary stimulus in the first quarter cushioned the downdraft in the world’s second-largest economy.

The National Bureau of Statistics said Wednesday that China’s official purchasing managers’ index for manufacturing remained at 50.1 last month, the same level as in April and the third consecutive month the index kept above 50, the line separating expansion from contraction. The May PMI beat a median forecast of 49.9 by 11 economists polled by The Wall Street Journal.

The competing private Caixin manufacturing PMI edged down to 49.2 in May from 49.4 in April, the 15th straight month that index has remained in contractionary territory, Caixin Media Co. and research firm Markit said Wednesday. Caixin’s index better reflects the outlook for smaller private manufacturers while the official PMI gives more weight to larger state-owned companies, economists say.

China’s official nonmanufacturing PMI, also released Wednesday, fell to 53.1 from 53.5 in April.

----“Growth has stabilized and policy will remain accommodative,” said Standard Chartered Bank Ltd. economist Ding Shuang. “So 6.5% is still a very serious target for the government. What people should be worried about is the cost of maintaining that growth.”

One cost in particular, economists said, is rising debt as Beijing expands credit faster than the rate of growth to bolster economic stability. Banks lent a record 4.67 trillion yuan ($709 billion) in the first quarter, exceeding the amount released at the depth of the global financial crisis even as growth decelerated in the first quarter to 6.7%, its slowest pace since 2009.

“There are a lot of zombie companies and zombie loans,” said JPMorgan Chase & Co. economist Zhu Haibin, referring to loss-making entities that are kept afloat. “If they don’t write that debt off, they stay on the balance sheet.”

China’s total debt, led by corporate liability, has increased to 260% of gross domestic product in 2015 from 160% in 2007, economists estimate. Interest on China’s mounting corporate debt will take up around 60% of industrial profits for Chinese companies this year, according to estimates by investment bank North Square Blue Oak.
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China factory slowdown worsens in May, hopes for quick recovery fade - Caixin PMI

Tue May 31, 2016 10:03pm EDT
Activity at China's factories shrank for a 15th straight month in May as new orders fell, a private survey showed on Wednesday, as hope fades for a quick recovery in the country's vast manufacturing sector.
The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) fell to 49.2 last month, below market expectations of 49.3 and April's reading of 49.4.

While modest, May's decline marked a reversal after two months of relative improvement, which had sparked hopes that the economy was stabilising. The index has now been below the 50-point neutral level which separates expansion in activity from contraction since March 2015.

Faced with shrinking orders from at home and abroad, manufacturers continued to cut payrolls at a rate similar to February's multi-year record and reduced their purchases of raw materials and other goods used in production.

Total new orders declined in May for the first time in three months as a slide in export orders accelerated. The new export order index fell to 47.7 in May from 48.6 in April.
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Gold repatriation may indicate it’s being trusted as “real” money again

May 31, 2016
It has been a long time practice for countries to store their gold with a small group of central banks, most notably in New York, London and Paris. But there now seems to be a growing sense of unease with this, a growing tendency not to trust the foreign custodians. And it may also indicate that the metal is being remonetized: that is, being restored as money or legal tender.

Edmund Moy, former Director of the United States Mint (Fort Knox), said this on June 13, 2014: “Finally, more countries are repatriating their gold. For them, an audit is not enough. They would like their gold back. Azerbaijan, Ecuador, Iran, Libya, Mexico, Romania and Venezuela is a short list of countries that have requests into their custodians to transfer some or all their gold back to their countries.” (Venezuela has most recently been selling its gold to keep the country afloat.)

In the aftermath of the financial meltdown in 2008 central banks again realized the importance of gold as an anchor in the monetary system. European central banks stopped selling gold, Asian and South-American central banks increased official purchases, and central banks from all continents began to worry if storing gold abroad was wise when the global financial crisis evolved.

There are rumors that U.S. has sold a portion of this gold to underpin the U.S. dollar hegemony in recent decades.

Is gold remonetizing?  From London I would suggest yes, although for the present, only de facto; de jure probably comes later, after the next great financial crisis hits, probably ending the Great Nixonian Error/Experiment with fiat money.

(“Richard Nixon’s August 1971 decision to suspend the convertibility of dollars into gold was one of the most important chapters in modern economic history. Nixon’s move, which was precipitated by rising U.S. balance of payments deficits, ended the system of fixed exchange rates that had been established at the Bretton Woods conference of 1944 and ushered in a regime of floating rates.” Source: The Bancroft Library, University of California, Berkeley.)

A major change is underway in the international gold market and has been for quite some time.  In November 2014, the Dutch central bank announced that they had secretly repatriated to their Amsterdam vaults some 122.50 tonnes of their gold from New York City vaults. Post 2007-2009, gold is back in fashion for reserves again, with a preference for holding it close to home.

Gold is consistently leaving the west and heading east, to Russia, India, Singapore and China among others. With India and China that’s a one way trip for bullion, since both countries ban the export of gold bullion. China rates gold as a “strategic” metal. India, being India, means a good deal of smuggling takes place, both into and out of the country depending on the Indian price and the international price and government policy.  In the first four months of 2016, Russia alone added 15.50 tonnes a month to its gold reserves, equivalent to an annual rate of 186 tonnes-a-year.  The World Gold Council rates China as holding some 1,797.50 tonnes of gold bullion as of May 9, 2016. Most outside followers of gold think that China holds closer to 4,000 tonnes of gold.

But this month China’s ICBC Standard Bank (formed last year after Industrial and Commercial Bank of China Ltd took a controlling stake in Standard Bank Plc’s global markets section) bought Barclays London bullion vault, which can hold up to 2,000 tonnes of gold or other precious metals. ICBC Standard expects the purchase of the vault and related contracts to be completed in July. My guess is that at some point ahead, the Shanghai Gold Exchange, formed in 2014, will allow gold stored in London to be exempt from China’s strategic metal designation.

Since April 19, 2016, the Shanghai Gold Exchange has joined the London Bullion Market Association in twice a day fixing the international price of gold. In Shanghai, gold trades in one kilo bars of 99.99 purity, and more significantly, trades in renminbi per gram. In London it trades in 400 ounce bars fixed in U.S. dollars twice daily. Essentially the world now has two competing financial centres using auctions to set the price of gold bullion twice a day.

Is this significant to the international market in gold bullion? Well my guess is that as China moves this century to become the largest consumer and hoarder of gold, China intends Shanghai to replace London as the primary centre setting the price of physical gold. Ever so quietly, so as not to set off a speculative gold rush, many of the world’s nations are now hedging via gold against the next financial crisis, probably triggered when the world next tips into recession. It was against this back drop that I read with great interest Eugene Gerden’s informative article of Russia’s stepped up gold mining plans (click here).
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We close in the wealth and jobs destroying EUSSR.  What’s wrong with this? Too much Italian Chianti and hopium perhaps.

Italy Bank Non-Performing Loans at Turning Point, Visco Says

May 31, 2016 — 9:42 AM BST Updated on May 31, 2016 — 11:30 AM BST
Italy’s economic recovery is helping banks reduce non-performing loans that are a legacy of the country’s "long and deep recession," said Bank of Italy Governor Ignazio Visco, a member of the European Central Bank’s governing council.

"We have now reached a turning point,” Visco said in the text of a speech delivered on Tuesday at the central bank’s annual meeting in Rome. The moderate economic recovery under way since last year is being reflected in a significant decline in the flow of non-performing loans.”

Authorities are racing to shore up a financial system burdened by more than 360 billion euros ($400 billion) of troubled loans, equal to about a quarter of Italy’s gross domestic product. Prime Minister Matteo Renzi has been pushing a package of reforms to modernize Italy and spur growth since he took office in February 2014. He has pressed cooperative lenders to become joint-stock companies, encouraging mergers to help reduce duplication and boost profitability.

---- Italian banks profits have been squeezed by the recession, low interest rates and bad loans, Visco said. Lenders need to further reduce branches, cut operating costs and improve efficiency. He called for further consolidation in the industry to create economies of scale and scope.

The non-performing loans market will "receive a boost from the investments of Atlante," Visco said, referring to the state-orchestrated bank-rescue fund. But he warned the reduction in bad loans will be gradual, given the large volume of bad assets and low earning capacity among banks.

"Even with relatively modest resources for the moment, Atlante can demonstrate that buying bad debts at higher prices than those now offered by specialized investors can in fact produce attractive returns," the bank governor said.
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“The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.”
John Kenneth Galbraith.
At the Comex silver depositories Tuesday final figures were: Registered 29.69 Moz, Eligible 124.21 Moz, Total 153.90 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, more from the socialist workers, tropical paradise of Venezuela.

“The problem with socialism is that you eventually run out of other people's money.”

Margaret Thatcher.

In Venezuela the stage is set for a chaotic exit

The drama of Maduro’s presidency is set to end in tragedy, writes Daniel Lansberg-Rodriguez
May 29, 2016 by: Daniel Lansberg-Rodriguez

Oh, that men should put an enemy in their mouths to steal away their brains. Nicolás Maduro’s stint as president of Venezuela has had Shakespearean overtones from the start.

Ascending to power in 2013 he claimed to have conferred with the ghost of Hugo Chávez, insisting the cancer that killed his predecessor — whom he calls “father” — was a case of CIA murder most foul.

Our revolutionary Hamlet is now a tropical Macbeth. Reviled by his subjects and increasingly isolated, he paces the presidential stage declaiming defiant soliloquies against offstage enemies.

While he plays dramatically for time, Venezuela is collapsing. The International Monetary Fund predicts an 8 per cent economic contraction for 2016; the inflation rate is the fastest in the world; electricity and running water are luxuries. Food and medicine are scarce. Anaemic oil prices and a heavy debt load leave scant foreign exchange for the import sector. Mr Maduro is loath to reverse unsustainable fiscal and monetary policies he inherited from his mentor or to accept help from outside. It grows harder to tell if he is merely clinging to power at any cost or actively scuttling his country.

Having declared a state of emergency, Mr Maduro has been visiting island neighbours this week. Ostensibly seeking to raise cash, he will also be hoping to shore up friendly votes in case the Organization of American States tries to take action against his repression at home. While abroad he would do well to monitor property prices: given the billions of petrodollars that have disappeared during his time in office, and the worsening conditions suffered by his people, a Venezuelan retirement may not be an option.

The trip shows how isolated the revolutionary heir to Chávez has become. With the suspension of Dilma Rousseff from the Brazilian presidency, Mr Maduro has lost his last powerful regional ally. Gone are the days when every leading South American country bar Colombia was leftwing and populist.

That Mr Maduro, like Ms Rousseff, will not finish his six-year term looks incontrovertible. A regional propensity for economic boom-bust cycles and popular uprisings means most Latin constitutions include escape valves that function as de facto votes of no confidence. Venezuela is no exception and the opposition has begun a recall procedure, gathering many times the required number of signatures.

Yet, in contrast with Brazil, Venezuela’s institutions lack the independence and the incentives for such constitutional processes to work their course. In a manner reminiscent of a reality show, the constitution dictates that should the president hold on until January 10 next year he can in effect appoint his successor rather than holding snap elections he would surely lose.

Since an opposition government would investigate and prosecute the corruption of the revolutionary era, Chavismo bureaucrats and judges are working in lockstep to stymie the process until that date — as much to protect their own impunity as Mr Maduro.

If they are successful, the party might be able to buy itself a two-year stay of execution by sacrificing the figurehead. Yet in walking a fine line — provoking sufficient destabilisation to justify delays in the recall procedure but not enough to provoke the masses or the military into outright overthrow — the regime is playing a dangerous game. A majority of Venezuelans want Mr Maduro to leave office and popular unrest shows no sign of abating. The stage is set for unprecedented social upheaval.
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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?

Ultra-low power graphene-based transistor could enable 100 GHz clock speeds

Michael Irving May 24, 2016
For years, the two-dimensional material, graphene, has shown promise in making electronics smaller and more efficient. Now scientists have designed a graphene-based transistor that works with ultra-low power consumption and which could ultimately be used to increase the clock speed of processors up to a staggering 100 GHz.

Traditional transistors allow electrons, triggered by a power source, to jump through an energy barrier to change the current on the other side. They work fine, but we can't really get them to be much more energy efficient than they currently are.

Enter tunnel transistors. Operating on less power than standard transistors, these allow electrons to pass through the energy barrier by quantum-tunneling - effectively, they "teleport" through the energy barrier. The problem with these so far is that the current coming through to the other side is too small to be practical.

Now, scientists at the Moscow Institute of Physics and Technology (MIPT) have found a way to use graphene to increase the tunneling current. Graphene is essentially a two-dimensional construct, made up of a sheet of carbon only one atom thick, and at that size it has some unusual electronic properties.

The researchers have used modeling to examine bilayer graphene – two layers of graphene bonded together – and discovered something strange about its energy band, or the range of energies that its electrons can have. Bilayer graphene's energy band resembles the shape of a "Mexican hat," instead of the parabolic shape that most semiconductors produce.

The significance of this is that the density of electrons around the edge of the hat shape tends to infinity (known as a van Hove singularity), and when a small voltage is applied to the transistor gate, a huge number of those electrons will begin to tunnel at once, resulting in a sharp change in current on the other side of the energy barrier. The end result is the same as a standard transistor, but it requires a much smaller voltage.

"This means that the transistor requires less energy for switching," says Dmitry Svintsov, one of the authors of the paper. "Chips will require less energy, less heat will be generated, less powerful cooling systems will be needed, and clock speeds can be increased without the worry that the excess heat will destroy the chip."

Bilayer graphene transistors can also skip the complex step of "chemical doping," which is necessary in the production of traditional transistors to extend the energy band of semiconductors. In this case, the same result is reached through "electrical doping," a side effect of the same process that runs the transistor.

The researchers explain that the edges of the "Mexican hat," where all the important things are happening, were previously hard to measure, but by using better quality substrates (the materials which the bilayer graphene samples were built on top of), they were able to make it clearer and experimentally confirm the van Hove singularity for the first time.

The bottom line is, with an operating voltage range of 150 mV, compared to 500 mV in silicon transistors, bilayer graphene could be an efficient first step towards drastically increased computing power.

"At a lower power, electronic components heat up less," said Svintsov. "That means that they are able to operate at a higher clock speed – not one gigahertz, but ten for example, or even one hundred."

Finally, something too good not to share. A child prodigy from Vilnius, Lithuania. The modern Mozart. Almost worth staying in the EUSSR, if he can be persuaded to play London occasionally. The performance starts about 1.20. Almost worth staying, but only almost.

The monthly Coppock Indicators finished May

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

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