Thursday, 21 July 2016

ECB Dilemma Day.

Baltic Dry Index. 736 -10      Brent Crude 47.38

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

“If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.

John Maynard Keynes.

Eight years on from the start of the Great Recession and our collective central banksters are clueless as to how to bring its consequences to an end, and to get back to a sustainable growing Main Street economy, and away from rigged financial asset bubble economies, fuelled by QE, ZIRP and now the absolutely insane Negative Interest Rate Policy, NIRP. Today, the ECB is expected once again to do nothing, and then ramble on in the press conference afterwards about jam tomorrow, while forward risks might require more of the same for longer, or even enhanced more of the same. Someone at the press conference remind fallen former super Mario, of Einstein’s definition of insanity.

Economists themselves call NIRP, unconventional, unorthodox, unprecedented, and temporary. What President George H. W. Bush once referred to as “voodoo economics”  25 years ago, has now become voodoo economics on speed and hopium. Long term NIRP represents the assured mass destruction of the private pensions industry, the insurance industry, annuities, and most destructive of all, the ability of corporations and individuals to make long term forward planning for future growth, or for individuals financial security in their retirement. NIRP is a Financial Weapon of Mass Destruction to what little is left of capitalism in the age of unstable, rigged fiat currencies, now operating in an age of beggar-thy-neighbour currency war.

"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

Bonds will tell you all you need to know about banks

Published: July 21, 2016 12:01 a.m. ET
Smart traders believe that the bond market has a better record at forecasting the economy than economists themselves. When stocks and bonds give off mixed signals, they usually turn to the bond market for the right call.

Right now, with central banks around the world holding short-term interest rates at coma-inducing low levels and longer-bond yields in decline, the message is not great. It is ironic because the central-bank plan is to wake up their economies. The bond market thinks they are failing.

More germane to the corporate-banking sector is the difference between short- and long-term rates as those long-term levels continue to sink. While low long-term rates may attract business to finance expansion and other business activities, banks find increasingly difficult to make any money making those loans.

Indeed, several big U.S. banks just reported weaker quarterly profits and put the blame squarely on the low-interest-rate environment. One look at the chart of any benchmark government-yield chart suggests that is not going to change any time soon.

Making it worse, there is little to no room to lower short-term rates to steepen the yield curve and give banks some breathing room. Should any central bank, specifically the U.S. Federal Reserve, actually raise rates, the curve would flatten even more.

---- There is yet one more development in the bond market that suggests it has a weaker outlook than the economic bulls would like to believe. Yields on nearly one-third of all issued government debt are negative according to Citibank. People took notice when the benchmark 10-year bund in Germany recently dipped below 0%. And the entire yield curve in Switzerland — all the way out to the 50-year maturity — is now negative.

This is unprecedented, and it speaks to the market’s view that it is better to pay to own government debt than risk it anywhere else. This has happened at the same time the U.S.’s S&P 500 SPX, +0.43%  broke out to the upside from its multi-year trading range.

The Financial System is Breaking Down at an Unimaginable Pace

by Simon Black • 
Now it’s $13 trillion.

That’s the total amount of government bonds in the world that have negative yields, according to calculations published last week by Bank of America Merrill Lynch.

Given that there were almost zero negative-yielding bonds just two years ago, the rise to $13 trillion is incredible.

In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion.

A year later in February 2016 it had nearly doubled to $7 trillion.

Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago.

Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan).

Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments.
And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm.

We’ll probably see $15 trillion, then $20 trillion, worth of negative-yielding subprime government debt within the next few months.

So this trend will continue to grow for now, until, just like in 2008, the bubble bursts in cataclysmic fashion.

It took several years for the first subprime bubble to pop. This one may take even longer. But even still, we can already see the consequences today.

A few months ago I told you about the remarkable $3.4 trillion funding gap in the US pension system.
Remember, we’re not talking about Social Security– that has its own $40+ trillion shortfall.

I’m talking about private companies’ retirement pensions, or public service worker pensions at the city and state level.

(By the way, this is NOT strictly a US phenomenon. Europe suffers its own $2 trillion pension shortfall.)

There’s zero mathematical probability that these pensions will be able to meet their obligations.

---- 25-years ago, government bonds often yielded more than 8%.

So unsurprisingly, the average return for pension funds over the last 25-years has been around 8% according to the National Association of State Retirement Administrators.

But that’s no longer the case.

With such a huge portion of the bond market now with negative yields, it’s virtually impossible for pension funds to keep their promises.

Even Warren Buffett has written that “[pension] funding is woefully inadequate,” and, “In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.”
Bottom line: anyone who is ever considering retirement must heavily discount the future promises of unfunded pensions and Social Security.

The younger you are, the less likely you are to receive benefits they’ve promised.

Draghi May Flag Action Ahead as ECB Meets Under Brexit’s Shadow

July 21, 2016 — 5:01 AM BST
Mario Draghi may have longed, just once, to have a quiet monetary-policy meeting before the summer break. Never mind.

Britain’s vote four weeks ago to leave the European Union will loom large when the European Central Bank president addresses reporters in Frankfurt on Thursday, after a meeting of the Governing Council. While action isn’t seen as likely straight away, he might signal more stimulus to be deployed when fresh economic forecasts are available at the next decision in September.

Draghi has predicted that euro-area growth will slow as a result of Brexit, suggesting a response is needed. Yet a major concern is how much further he can go with a stimulus package that already includes a 1.7 trillion-euro ($1.9 trillion) asset-buying program increasingly constrained by ultra-low debt yields.

“The U.K.’s vote to leave the EU can mean a lot for the ECB,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. “A deterioration of the economic outlook could warrant more easing at some point but, more immediately, the decline in bond yields makes the current purchasing targets impossible to achieve.”

After the Bank of England kept policy unchanged last week and signaled a willingness to act in August, investors are betting the ECB will also wait. Market measures point to an interest-rate cut after the summer. That would mean the Governing Council keeps the main refinancing rate unchanged at zero and the deposit rate at minus 0.4 percent on Thursday. The decision will be announced at 1:45 p.m Frankfurt time and Draghi will hold his press conference 45 minutes later.

Economists surveyed by Bloomberg see the asset-purchase program staying at 80 billion euros a month for now, with the greatest chance of extra stimulus coming at the Sept. 8 meeting. They predict an extension of quantitative easing beyond March 2017 as the instrument of choice.

---- Finally, a word of warning for central bankers tempted to surprise markets with shock easing: It can backfire. According to a study published by Goldman Sachs Group Inc. this week, unexpected easing by the ECB prompts other economists to revise their growth outlook down rather than up.

Taking the unexpected easing as a signal that the central bank, with its superior access to information, sees further risks ahead, analysts have become particularly responsive to surprises since the 2008 financial crisis. The Goldman study by Jonathon Hazell and Lasse Holboell Nielsen found that every 10 basis points of unexpected interest-rate cuts prompted private-sector economists to slash their growth forecast by an average of 25 basis points.

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers’, who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.

John Maynard Keynes.

At the Comex silver depositories Wednesday final figures were: Registered 28.36 Moz, Eligible 125.93 Moz, Total 154.29 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.  
Today, they wouldn’t do that would they?  Singapore, Switzerland, Luxembourg and the United States are all now on the trail of Malaysia’s prime minister, Najib Razak. In 2016, where’s that old Greek guy with his lamp?

‘Wolf of Wall Street’ Sued as U.S. Seeks 1MDB-Tied Assets

July 20, 2016 — 1:02 PM BST Updated on July 20, 2016 — 1:23 PM BST
The U.S. Justice Department is seeking to seize assets including real estate, art and proceeds from the "Wolf of Wall Street" movie that it says were illegally acquired through money diverted from the embattled Malaysian development fund known as 1MDB.
Funds diverted from 1MDB were used for the personal benefit of multiple individuals including public officials and their relatives and associates to purchase luxury real estate in the U.S., pay gambling expenses at Las Vegas casinos and acquire more than $200 million in artwork, the Justice Department said in a court filing Wednesday in federal court in California.
"1MDB maintained no interest in these assets and saw no returns on these investments," the government said.
The Malaysia fund is at the center of several international investigations into alleged corruption and money laundering by public officials. Prosecutors in at least four countries -- Singapore, Switzerland, Luxembourg and the United States -- are looking into money flows from the investment vehicle, which was established for national development.
Among the questions asked by some international authorities is whether politically connected individuals in Kuala Lumpur may have benefited financially from the fund, whose advisory board was headed by Malaysia’s prime minister, Najib Razak. Both 1MDB and the prime minister have denied wrongdoing.
A spokesman for 1MDB didn’t immediately respond to a request seeking comment sent by email.

Malaysia Controversy

Global investigators believe more than $1 billion entered Malaysian Prime Minister Najib Razak's personal bank accounts, much of it from state investment fund 1MDB. The scandal has caused a political crisis in an important U.S. ally in Asia and threatens to upend years of one-party rule in the country. Mr. Najib denied wrongdoing or taking money for personal gain. The 1MDB fund denies wrongdoing and says it's cooperating with probes.


"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

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?

Energy veterans back disruptive solar power battery group Moixa

Surge of interest in systems that store power from panels and sell it to the grid
July 17, 2016 by: Pilita Clark, Environment Correspondent

Sam Laidlaw, the former Centrica boss, has invested in a British home battery company with two other veteran UK energy executives in a sign of surging interest in disruptive solar power storage.

Mr Laidlaw has backed Moixa Technology, a small London-based company that makes briefcase-sized battery systems that can store electricity from solar panels and sell it to the grid.

Separately, Ian Marchant, former chief executive of SSE, another big six energy company, and Brian Count, previously CEO of Innogy, have also invested in Moixa, the Financial Times has learnt.

The trio are among the most high-profile UK backers of energy storage, a technology that threatens to disrupt the big, centralised electricity systems the three men once helped to run.

Dozens of companies are racing to find affordable ways to store intermittent solar and wind power but the effort has been hampered by the relatively high cost of batteries.

With average lithium-ion cell prices now about a third of what they were in 2010, energy investors are eyeing opportunities closely.

The US dominates the energy storage industry today, with Japan a distant second. Germany is by far the largest market in Europe, followed by the UK.

But interest in the sector is growing fast and at least 24 battery storage projects are operating or under construction in the UK, according to Eunomia, a research group.

Simon Daniel, chief executive and co-founder of Moixa, said his company had been helped by a renewable energy boom that has led rooftop solar panel systems to sprout on an estimated 800,000 UK homes since 2010.

The company has installed only about 500 systems so far but is aiming for 1m units by 2020. “Having some big six CEOs who understand the sector is quite helpful,” Mr Daniel said.

Moixa systems cost from £2,200 each and are designed to be part of an interconnected “virtual power company” that can sell electricity to National Grid. That means customers can offset the cost of the systems while also saving money by using more solar power generated from their roofs.

Mr Marchant said such technologies could be part of a dramatic shift in the energy landscape.

“I think the move from large, grid-connected power stations to the combination of small-scale residential solar and storage is the energy equivalent of the switch … from big mainframe computers to WiFi and iPads,” he said.

Mr Count, who headed Innogy before it was bought by Germany’s RWE energy group, said cost-effective electricity storage “has always been the holy grail” and Moixa’s systems could “make a real difference”.

The monthly Coppock Indicators finished June

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

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