Wednesday, 27 July 2016

Banking Week.

Baltic Dry Index. 696 -13     Brent Crude 44.82

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

Never believe anything in politics until it has been officially denied.
Count Otto von Bismarck.
Despite fears, Italian finance minister Pier Carlo Padoan sought to diffuse the situation at the G20 meeting in China saying the country does not have a problem with its economy.
“All the countries should relax: there is no Italian banking problem,” he told AFP.
Well that’s all right then, Italy’s insolvent banking crisis doesn’t exist. The fairy godmother travelled across northern Italy scattering her pixie dust, and Italian finance minister Pier Carlo Padoan, woke up to find that over 360 billion euros in non-performing Italian bank loans were suddenly performing again. For confirmation, Goldman Sachs, the firm of international Muppet advisors that got Greece into the position it’s in today, in a note to analysts on Monday as reported by the Financial Times said

Goldman: Italy’s bank saga – not such a big deal

From Goldman’s lips to God’s ears. They wouldn’t talk up their book would they, as they struggle to do God’s work?

Billions in bad debts in Italian banking sector lead to fears over fresh European economic crisis

July 26, 201612:51pm
EUROPE could be plunged into a new economic crisis later this week amid fears about the health of the Italian banking system.
On Friday, the European Banking Authority will release the results of comprehensive stress tests from 51 banks across Europe covering 70 per cent of the sector.
The tests will focus on the use of capital guidance to cover potential shortfalls and many fear disastrous results for Italian lenders including the world’s oldest bank, Banca Monte Paschi which is also the country’s third biggest lender.
The results have been the subject of discussion at a meeting of G20 Finance bosses in China over the weekend. Investors and political leaders fear that nearly $530 billion worth of bad debts held by Italian banks could trigger a new financial crisis in the eurozone already struggling with a Greek bailout and the unknown implications of the second biggest economy leaving after Brexit.
Italian banks are reported to have around 360 billion euros (A$528 billion) in non-performing loans. That restricts economic growth as it reduces the amount banks are able to lend and can be disastrous if companies find their debts called in or access to funds cut off.
Last week, European Central Bank boss Mario Draghi said European banks were slightly better than they were before but still needed to address the problem of “weak profitability”.
He said non-performing loans posed a “significant problem for the future ability and the capacity the banks have of lending”.
The warning comes amid new rules in Europe designed to protect taxpayers from costly bailouts which means investors wear the burden of bailouts first.
Earlier this month the IMF warned Italy will not return to pre-crisis growth levels until the mid 2020s. At present, the country has the second highest debt level in Europe after Greece.
Despite fears, Italian finance minister Pier Carlo Padoan sought to diffuse the situation at the G20 meeting in China saying the country does not have a problem with its economy.
“All the countries should relax: there is no Italian banking problem,” he told AFP.

In other bad European banking news, Germany’s Commerzbank raised yet another red flag yesterday. Not to worry though, it’s also probably not such a big deal.

Commerzbank's Capital Shocker

By Lionel Laurent Jul 26, 2016 12:37 PM GST
Germany's Commerzbank has a muddled message for the market. Its loss-absorbing capital base is being eroded by a multitude of factors beyond its control, yet it's still setting aside a large pot of cash to pay out to loyal investors.

That could be interpreted as a show of strength by a bank that only recently resumed dividends after a painful crisis turnaround. Commerzbank's surprise pre-announcement said second-quarter net profit was in line with expectations, at 209 million euros ($230 million). But the real shocker was the drop in its core capital ratio to 11.5 percent from 12 percent at the end of March, caused by "non-operating" valuation and methodology effects. Investors understandably took fright and pushed the shares down as much as 7 percent.

The capital question does seem to clash with the bank's business-as-usual stance on dividends. Germany's second-biggest bank set aside 5 cents per share in the second quarter, or about 63 million euros in total, just as it did in the first. That looks at odds with the new balance-sheet pressures hitting the industry.

Its capital base has been weakened by increased operational risk (a measure of potential losses from either inadequate internal processes or external events). Higher pension liabilities, caused by falling returns, are another problem. Neither is a simple or one-off factor that the bank can control. Add in the squeeze from higher credit spreads on the bank's Italian sovereign debt holdings and it's clear that future capital strength is far from stable. 

This doesn't bode well for other European lenders, most notably Deutsche Bank, which reports on Wednesday.

In US news, Trump surged, Caterpillar slumped as the global economy continues to weaken.

Trump edges ahead of Clinton in U.S. presidential race: Reuters/Ipsos poll

Tue Jul 26, 2016 5:15pm EDT
Republican presidential nominee Donald Trump posted a two-point lead over his Democratic rival Hillary Clinton, according to a Reuters/Ipsos opinion poll released on Tuesday, the first time he has been ahead since early May.

Trump's gains came as he accepted his party's nomination to the Nov. 8 ballot at the four-day Republican National Convention in Cleveland last week, and as Clinton's nomination in Philadelphia this week was marred by party divisions and the resignation of a top party official.

Caterpillar posts lower second-quarter earnings, lowers 2016 outlook

Tue Jul 26, 2016 8:20am EDT
Caterpillar Inc (CAT.N) on Tuesday reported a lower quarterly net profit and lowered its full-year sales forecast as a weakened global economy combined with persistent political uncertainty to keep sales of new machinery sluggish.

The company, the world's largest construction and mining equipment maker, lowered its full-year 2016 sales outlook to a range of $40 billion to $40.5 billion, from $40 billion to $42 billion.

Caterpillar expects earnings of $2.75 per share, or $3.55 excluding restructuring costs, from $3.00, or $3.70 excluding restructuring costs.

At the same time Caterpillar raised estimated expenses for restructuring during full-year 2016 to $700 million, from $550 million.

"Despite a solid second quarter, we're cautious as we enter the second half of the year," Chief Executive Officer Doug Oberhelman said in a statement.

Caterpillar reported second-quarter profit of $550 million, or 93 cents per share, down from a revised $802 million, or $1.31, a year earlier.
We close out the day with a gold update. New gold discoveries peaked in 2007, a gold production decline is now on the way.

‘Impending gold production cliff’ may deliver a jolt to prices

Published: July 26, 2016 2:18 p.m. ET
Gold discoveries peaked in 2007 and production will soon follow, strengthening the value of the yellow metal and possibly fueling a boom in mergers and acquisitions in the gold-mining sector, according to Sprott Asset Management.

Discoveries of gold has collapses since then, “despite exploration budgets increasing by 250% from 2009 to 2012,” Sprott’s gold team said in a recent note.

They offered this image as an illustration of the “impending gold production cliff”

Companies have only recently begun considering increases in exploration budgets on the back of the increased gold prices, but there’s a “lead time to transition a discovery to production,” it said. That is a key reason why “production is forecasted to decline over the next number of years.”

Gold futures GCQ6, -0.12%  settled at $1,320.80 an ounce on Tuesday. They’re up over 24% year to date, after posting hefty declines over the last three years.

It would take an average of 10 to 12 years between a drill hole discovery and the “first gold pour,” the Sprott gold team said.

The gold team said that 2015 may end up being the peak global production year for gold, at about 95 million ounces, with output in 2024 expected to fall to 78 million ounces. On an annualized basis, the decline would be about 2.2% a year, it said.

It is likely that there will be a “significant wave of M&A within the gold industry” because ‘”companies need to replace both reserve and production ounces.”

"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence."

Charles De Gaulle
At the Comex silver depositories Tuesday final figures were: Registered 29.29 Moz, Eligible 125.87 Moz, Total 155.16 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
While or central banks continue fuelling their stock market bubbles via QE, ZIRP and NIRP, reality is getting closer with each passing week.

Hong Kong On The Edge—–Debt And Property bubble fixing to Burst

by Business Insider • July 25, 2016
Hong Kong’s economy can’t hold on for much longer.

For one thing, the territory is in the midst of two large bubbles. One is a credit bubble, similar to the one in China. Since 2008, the ratio of private nonfinancial credit to GDP has surged to 281% in Hong Kong.

The other is Hong Kong’s infamous property bubble. Since 2008, property prices have risen 105%. Prices peaked in August of last year, and have been declining since — a correction of 14% that has put the property market in “free fall” and contributed to a growth slowdown — but remain higher than they were in 1997, when the last bubble burst.

And according to a new research report from Nomura, which referred to Hong Kong as Asia’s imminent “flashpoint,” the territory is currently stuck “between a rock and a hard place.” The rock, in this case, is inevitable US rate hikes, and the hard place is China’s ebbing economy.

On the one hand, China’s huge growth slowdown is greatly affecting Hong Kong’s own growth, as the territory’s economy is tightly linked to the mainland. The territory is almost certainly on the path to a recession, even as interest rates remain at or near zero.

And on the other side of the world, rate hikes from the US Federal Reserve would likely lead to a spike in Hong Kong’s interest rates as well, because Hong Kong’s currency is pegged to the dollar. Increased capital outflows would also lead to higher rates. According to the Nomura note, higher interest rates might be able to deflate the bubbles because people would take out fewer loans and mortgages — but it would risk exacerbating the already-frightening growth slowdown.

It’s a lose-lose situation.

"The gold standard sooner or later will return with the force and inevitability of natural law, for it is the money of freedom and honesty."

Hans F. Sennholz

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?

Perovskite Solar Cell: Key To A Brighter Solar Future?

07/22/2016 06:12 pm 18:12:50 | Updated 2 days ago 
Conventional solar cells today are made of silicon with power conversion efficiencies that have been stagnating in the low-20% range for about 15 years. This might strike you as bizarre, since glancing at data from the National Renewable Energy Laboratory (NREL) reveals theoretical efficiencies that approach 50%.

So why are we still using what might appear to be dinosaur technology when it comes to relying on low-efficiency silicon solar cells? As usual, a gap is present between application (in the context of the real world) and theory (think idealistic sterile laboratory conditions). For instance, Sharp Corporation announced in April 2013 they had achieved the world’s highest solar cell conversion efficiency (44.4%) with their concentrator triple-junction compound solar cell.

These high-efficiency solar cells are made with proprietary technology that utilizes three photo-absorption layers made of several elements - including indium gallium arsenide, indium and gallium. A lens-based concentrator system focuses sunlight on the cells to generate power.

A 44.4% seems like a huge improvement over the typical silicon cells used in the market today but one solar cell measures a mere 0.165 cm2. That’s where the majority of the problem lies: keeping the efficiency of a solar power cell while increasing its surface area is an engineering project of epic problems. According to the former Chair of the UK Office for Renewable Energy, Bernie Bulkin, scaling Copper Indium Gallium Selenide (CIGS) solar cells to a usable size, for instance, would cost just about a billion dollars.

---- Furthermore, perovskite solar cells can be manufactured at much l0wer costs. In fact, Dr. Henry Snaith of Oxford’s University and co-founder of Oxford Photovoltaics, predicted in 2012 that using perovskites would eventually cut the cost of solar energy by three quarters. This would threaten the commercial advantage that fossil fuels have had over the power supply market for decades.

Another complication of silicon photovoltaic cells is that they are heavy and rigid; they work most effectively when positioned flat in large, heavy panels as seen on large-scale installations such as rooftops and solar farms. These heavyset panels contribute to the high costs of assembling silicon photovoltaic arrays and modules.

By mixing up batches of liquid solutions, manufacturers can deposit light-weight thin films of perovskites on any type of shape and without the use of an electrode arc furnace. This eliminates high production costs on top of the production of toxic greenhouse gases.

---- In April 2016, a new breakthrough was made by the Hong Kong Polytechnic University: the world’s highest power conversion efficiency of 25.5% was reached with the development of perovskite-silicon solar cells.

Led by Professor Charles Chee Surya and Clarea Au Endowed Professor in Energy of the Department of Electronic and Information Engineering, the research’s goals have been focused on developing innovative ways to improve the conversion efficiency of solar energy. This could lower utility costs of $0.5 per watt - the average cost of electricity generated by silicon solar cells - to $0.35 per watt.

The Hong Kong Polytechnic University’s research was able to achieve this high-efficiency with new innovative ways - including the assembling of a perovskite layer made of molybdenum trioxide, gold and molybdenum trioxide, each designed with an optimized thickness. The transparency of these materials optimize the passage of light through the perovskite triple layer in order to be absorbed into the silicon part at the bottom of the solar cell. The silicon portion of the photovoltaic cell was designed by silicon efficiency expert Professor Shen Hui of Sun Yat-sen University and Shun De SYSU Institute for Solar Energy.

---- Co-founder of Oxford Photovoltaics Dr. Henry Snaith announced in March 2015 that perovskite solar technology would be on the market by 2017.
Oxford Photovoltaics has large dreams when it comes to perovskites. Their plans include taking advantage of the material’s transparency and coating office buildings with perovskite solar cells. According to estimates, this architectural idea, not unlike Polysar’s plans to turn buildings into power plants, would allow a 35-story building in London to generate about 60% of the electricity that it uses.

The monthly Coppock Indicators finished June

DJIA: 17930  -14 Up NASDAQ:  4843 -08 Down. SP500: 2099 -10 Up.

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