Friday, 22 July 2016

G-20 Pushing On A String

Baltic Dry Index. 726 -10      Brent Crude 46.18

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.
Under a Presidential government, a nation has, except at the electing moment, no influence; it has not the ballot-box before it; its virtue is gone, and it must wait till its instant of despotism again returns.
Walter Bagehot
This weekend the G-20 finance monsters, err ministers, are getting together once again, this time in China, to yet again try to fix what ails the global economy. Yet again they will miserably fail, for none in the meeting have the slightest idea of the real problem, i.e. the unintended consequences of the Great Nixonian Error of fiat money, communist money, and all the malinvestment, unrepayable debt, and global corruption it spawns.
All at the meeting are card carrying Keynesians, totally besotted with funding the global casinos with free cash, driving interest rates into negative territory, and funding the world’s greatest ever Ponzi scheme, aka China, now in the process of undergoing a slow motion train wreck. At the mutual admiration society, all are fully committed members of Albert Einstein’s insane asylum, fully committed to doing the same thing, pushing on a string over and over again and expecting a different result! 
“under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth... The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation”

Alan Greenspan

Asian Stocks Drop as BOJ Rejecting Helicopter Money Supports Yen

July 22, 2016 — 12:28 AM BST Updated on July 22, 2016 — 4:35 AM BST
Asian stocks pulled back from an eight-month high and the yen held gains as prospects for central bank stimulus cooled in Japan. Malaysia’s ringgit fell toward this month’s low, while the yuan strengthened.

The MSCI Asia Pacific Index declined after U.S. shares retreated from a record amid a mixed batch of U.S. corporate earnings. Japan’s Topix index dropped from a six-week high after central bank Governor Haruhiko Kuroda’s opposition to so-called helicopter money became clear. Malaysia’s ringgit slipped for a fifth day as corruption probes into a state investment fund remained in the spotlight and oil traded below $45 a barrel. The yuan rose for a fourth day before Group of 20 finance chiefs meet for weekend talks in China.

Equity markets had been on a roll, gaining more than $4.5 trillion in three weeks on speculation authorities in Asia and Europe will add stimulus to stoke inflation and growth, while positive surprises in U.S. corporate results also supported the rally. The gains drove global stock valuations to a one-year high, leaving the securities vulnerable to any disappointments on the policy and earnings fronts. Kuroda, in a BBC Radio interview recorded on June 17 and aired on Thursday, said there was no possibility of introducing helicopter money, which would involve the BOJ’s direct financing of government spending.

Kuroda’s “comments will disappoint investors who had been selling the yen in
anticipation of the Bank of Japan announcing helicopter money at its meeting
next week,” said Jasper Lawler, a London-based analyst at CMC Markets Plc. “After the failure of its current quantitative easing program to boost inflation, helicopter money is one of the few remaining tools in the Bank of Japan’s arsenal,” he said, noting that Kuroda may have changed his opinion since he made the remarks on June 17.

Japan's CPI seen falling again in June, more headaches for BOJ

Fri Jul 22, 2016 1:22am EDT
Japan's consumer prices were expected to fall in June for the fourth straight month, a Reuters poll found, keeping alive market expectations the central bank will expand an already massive stimulus program to hit its 2 percent price goal.

Separate data next week is also expected to show exports slumped in June from a year earlier, a sign the economy is suffering from the hit from a strong yen and global uncertainties after Britain's vote to leave the European Union.

The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, was expected to have fallen 0.4 percent in June from a year earlier, the poll of 21 economists found. This follows a 0.4 percent annual fall in May.

"Oil prices are lower than last year and there is a strong downward pressure on energy prices," said Takeshi Minami, chief economist at Norinchukin Research Institute.

The internal affairs ministry will announce the CPI data at 8:30 a.m. on July 29 (2330 GMT July 28), the day the BOJ meets for a closely-watched policy meeting.

Weak consumer prices add to headaches for the BOJ, which has pledged to raise inflation through heavy buying of government debt from the bond market and its controversial adoption of negative interest rates in January.

Sources have told Reuters the central bank may offer a slightly bleaker view on prices from its current assessment that the underlying trend inflation is "improving steadily" though this would not immediately trigger monetary easing if bank board members believed they could stick to their forecast that inflation would accelerate ahead.

In another blow to the BOJ, Japan's government cut its forecasts for consumer prices earlier this month, saying it expected prices to rise 1.4 percent for fiscal 2017, well below the 2 percent target the BOJ says will be met during the fiscal year ending in March 2018.Trade balance data, due on July 25, is expected to show exports fell 11.6 percent in June from a year earlier, the poll found, as a strong yen triggered by Britain's vote to leave the European Union weighed on Japanese companies' overseas profits.

In China meeting, G20 has chance to soothe post-Brexit jitters

Wed Jul 20, 2016 6:43am EDT
Finance heads from the world's leading economies will confront fresh fears about protectionism when they meet in China this weekend, with Brexit fallout and dwindling policy options to boost global growth expected to dominate talks.
The Group of 20 finance ministers and central bankers meeting will put the spotlight on Britain's new Chancellor of the Exchequer, Philip Hammond, who makes his international debut at the gathering and will need to answer questions about how London will manage its exit from Europe.
Also overhanging the G20 meeting in the southwestern city of Chengdu will be Donald Trump's U.S. Presidential campaign in which protectionist themes are expected to be central, after his official nomination as the 2016 Republican candidate this week.
"(On Brexit), the focus will be on what message G20 can deliver to ease concerns," said an Asian financial official involved in G20-related issues. "We still need to remain vigilant."
The International Monetary Fund this week cut its forecast for global growth, specifically on Britain's vote to leave the European Union.
A South Korean finance ministry official said "expanded downside risks to global economic growth" post-Brexit would feature in the Chengdu talks.
"With everything aside, talk about strengthening cooperation regarding monetary, fiscal and macro policy to recover global growth will be essential," said the official.
Noting the growing public backlash against trade and globalization, a senior U.S Treasury official said the G20 needed to focus on ensuring the benefits of global trade and cooperation were shared broadly among their citizens.
"We also need to do a better of job of explaining why this cooperation is important to the lives or our citizens in terms of jobs, economic growth and stability," the Treasury official said.

Euro Traders Tell Draghi That ECB’s Policy Is Going Nowhere Fast

July 22, 2016 — 12:00 AM BST
Euro traders are sending Mario Draghi a clear message: Monetary policy is reaching a dead end.

Just look at how the world’s most-traded currency pair has done this year. Its 200-day moving average has been stuck around $1.10, and it has registered the smallest move of any of the major currencies. All the while, Draghi and the European Central Bank delved deeper into negative interest rates and more aggressive bond-buying -- policies that might typically debase the euro.

Even after ECB President Draghi stressed Thursday "readiness, willingness, ability" to add more stimulus in coming months, the euro barely budged. The diminishing impact of monetary stimulus has left the currency open to other drivers, such as trade flows and geopolitics. The euro zone’s trade flows have thwarted euro bears who rebuilt positions in the past two months, as a record current-account surplus provides underlying support for the single currency.

There’s “some fatigue in terms of what central banks can do to control currencies at this point and yes, in terms of what else the ECB may bring to the table," said Chris Chapman, a London-based trader at Manulife Asset Management (Europe) Ltd. "The sizable current-account surplus is also a factor in helping support the euro versus where most people would expect it to be lower."

The euro’s resilience against the dollar puts some hedge funds’ and other large speculators’ bets at risk. Short positions on the currency outnumbered bullish wagers by 87,660 contracts last week, after heading close to net-bullish positioning in May, according to U.S. Commodity Futures Trading Commission data.
ECB officials, and central bankers from industrialized nations worldwide have admitted monetary easing has its limits in reviving growth and inflation. By contrast, when the ECB first slashed its deposit rate below zero in June 2014, it triggered about a 20 percent slump in the euro during the next nine months.

Since then, the 19-nation euro has stayed more or less in the $1.10 range, even though the monetary authority started buying the region’s bonds last year and subsequently expanded the program to include corporate securities. It closed Thursday at $1.1026.

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F. A. von Hayek
At the Comex silver depositories Thursday final figures were: Registered 28.37 Moz, Eligible 126.65 Moz, Total 155.02 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
What is wrong with this? What could possibly go wrong? Draghi’s you have a friend in me!!!

Inside Draghi’s Corporate Bond Frenzy—–$10 Billion/ Month, 440 Different Issues, Heavy BBB and BB Risk

by ZeroHedge • July 20, 2016
Yesterday for the first time, the various central banks of the Eurosystem disclosed which bonds the ECB had bought under its CSPP program. Specifically, we broke down the purchases of the Bundesbank, which revealed some of the most prominent public company debt issuers in Europe. However, we were curious to get a more detailed look at what Mario Draghi’s trading desk was spending their time BWICing all day. For that we went to the undisputed master when it comes to tracking what the ECB does in the bond realm (because the ECB is not buying equities just yet), BofA’s Barnaby Martin.

Here is the big picture as revealed in his report today titled “CSPP: Buying Frenzy” – “in just over a month of the Corporate Sector Purchase Programme, the ECB have bought 458 bonds, with virtually no stone left unturned.With the monthly run-rate of buying hovering around the €8.5bn mark, our conclusion for CSPP is, bluntly, that it is too big, too powerful and ultimately too bullish for spreads.”
But the best part was Martin’s answer to the key question: “So what did they buy?” His answer: “In short, almost everything.”

But we don’t think this should be particularly surprising – the weekly CSPP buying numbers continue to suggest a monthly run rate for corporate purchases of between €8bn-€9bn (with the buying pace picking up over the last week). Yet, we think this is too big an amount for a market devoid of supply and thus we continue to believe that CSPP is a very bullish technical for non-financial spreads.

What caught our attention on the ECB’s shopping list?
  • They bought “topical” credits such as VW, Glencore and EdF.
  • They bought “high-yield” credits such as Telecom Italia and Lufthansa.
  • They bought “foreign” credits such Bunge and Schlumberger (US), Nestle and ABB (Swiss).
  • They bought long-dated bonds (2036s), but they also bought plenty of short-dated bonds. In fact, 35% of the bonds that they bought are negative yielding.
  • The Central Bank of Italy seems to be the most “active” central bank thus far, purchasing 43% of their eligible universe (55 out of 127 bonds).
  • The Banque de France seems to be relatively “lagging” at the moment, purchasing just 29% of their eligible universe (115 out of 399 bonds). In addition, the BdF has shied away from buying issuers such as Alstom and Legrand.
  • The ECB has been involved in primary – buying recent supply from Bunge, Repsol, ASML, Iberdrola, Tennet, Total and Air Liquide.
Ironically, the most popular name seems to be Deutsche Bahn where 12 bonds from the issuer have been purchased. And yet, Deutsche Bahn bonds have some of the most negative yields in the Euro IG market (DBHNGR 18s yield -25bp).

They bought (almost) everything!

Since June 8th the ECB has bought 440 corporate bonds, which is around 35% of our estimated universe. By issuer, we find that the ECB has bought bonds from 158 different corporates.
The most popular bonds appear to be Deutsche Bahn (12 bonds bought), Telefonica (11 bonds bought), BMW (10 bonds bought), Daimler (9 bonds bought), ENI (9 bonds bought), Orange (9 bonds bought), Air Liquide (8 bonds bought), Engie (8 bonds bought), Iberdrola (8 bonds bought), Total (7 bonds bought) and Enel (7 bonds bought).
  • ---- The ECB seems to be lagging a bit in its buying of French credits, with only 115 bonds bought so far. This compares to 122 German bonds bought. Yet our previous work suggested that the ECB would weight CSPP purchases 30% towards French names and just 25% towards German ones.
  • Likewise the ECB seems to be a little bit ahead in its buying of Swiss credits, and behind in its buying of US credits.
  • The chart also suggests that the Bundesbank and the Banque de France are buying smaller clips, on average, than the central banks of Italy and Spain.
---- For those eager to frontrun the ECB, Table 1 shows some of the high profile issuers that are yet to appear on the ECB’s shopping list. Note that some of these are French, which ties in with the analysis in chart 4 that French credits have been under-purchased so far.

---- Finally, here is why – as we hinted last week – corporate yields are set to go even lower, perhaps even dipping below their respectively sovereigns: simply, because the ECB is completely price and yield indescriminate, and it will prioritize volume and liquidity (over price and yield). As a result, we would bet lots of money that in the coming months, Deutsche Bahn will end up trading “through” the matched-maturity Bund, as corporations end up being “safer” than governments, and all thanks to the ECB’s trading desk, first profiled here.

A permanent Governor of the Bank of England [your central bank here] would be one of the greatest men in England. He would be a little 'monarch' in the City; he would be far greater than the 'Lord Mayor.' He would be the personal embodiment of the Bank of England; he would be constantly clothed with an almost indefinite prestige. Everybody in business would bow down before him and try to stand well with him, for he might in a panic be able to save almost anyone he liked, and to ruin almost anyone he liked. A day might come when his favour might mean prosperity, and his distrust might mean ruin.
Walter Bagehot. Lombard Street. 1873.

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?

Fast-charging everlasting battery power from graphene

July 19, 2016 by Han Lin
Swinburne University researchers have invented a new, flexible energy-storage technology that could soon replace the batteries in our cars, phones and more.

Han Lin's new super battery (actually, a supercapacitor) can store as much energy per kilogram as a lithium battery, but charges in minutes, or even seconds, and uses carbon instead of expensive lithium.

The majority of batteries used in Australia are lead-acid batteries. These have three main disadvantages: they can take hours to charge, they have a limited lifespan for charging and discharging, and they're bad for the environment, therefore requiring special, expensive disposal processes.

Han's supercapacitor charges extremely fast, can be charged and discharged millions of time, and is environmentally friendly.

Previously, a major problem with supercapacitors has been their low capacity to store energy. But Han has overcome this problem by using sheets of a form of carbon known as graphene, which has a very large surface area available to store energy.

Large scale production of the graphene that would be needed to produce these supercapacitors was once unachievable, but using a 3-D printer, Han is able to produce graphene at a low cost.

And because the technology is extremely flexible and thin (as thin as ordinary printing paper) the new super batteries could be potentially be built into clothing, or worn as a watch strap, to achieve a wearable power supply.

Another weekend, and we have entered the silly season, this year delayed by the terrible events in Nice and Turkey. Still ever willing to have the LIR do its part, and with the Republican Party convention just past, below the old master at his best. Have a great weekend everyone. Enjoy.

The monthly Coppock Indicators finished June

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

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