Wednesday, 20 July 2016

So You Really Want To Bailout An Italian Bank.

Baltic Dry Index. 746 -02      Brent Crude 46.79

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

So you want to rescue an insolvent Italian bank? Go and lie down until the feeling passes.

With apologies to Adam Smith, aka George J. W. Goodman.

The crisis in Italian banking just won’t go away and keeps getting bigger. Italy is the EU’s too big to fail or bail, poster child. Yesterday the EU’s top court ruled in favour of Germany’s position. A bail-in of bondholders and large depositors comes before a bailout by taxpayers, even in Italy, it ruled.

But this being the EUSSR, and with many of the bank bondholders  Italian voters who chased yield in the belief that the state had their backs covered, will Italy just break the rules rather than hammer Italy’s voters? Prime Minister Renzi needs them to vote for reform, in his constitutional reform referendum later in the year. But the longer a banking rescue gets delayed, the larger the needed bailout, and the more likely one of the banks to blow up before rescue.

What would Silvio Berlusconi do?  And what will the EC do to Italy if Renzi just ignores the ruling and goes for a still iffy Italian taxpayer bailout? Italy’s economy isn’t really up to the job of bailing out its banks, or Italy would have already done it. But how long is a short piece of string? How long has Italy really got?

"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

EU Stance in Italian Bank Bail-In Talks Boosted by Court Ruling

July 19, 2016 — 8:18 AM BST Updated on July 19, 2016 — 11:22 AM BST
The European Union’s top court backed EU guidelines designed to prevent taxpayers from footing the bill for bailing out stricken lenders, strengthening the hand of Brussels regulators as Italy fights to shield some bondholders caught up in the nation’s banking crisis.

Tuesday’s decision is a show of support for the European Commission, which updated its crisis rules for banks in 2013 as part of a shift from taxpayer-funded bailouts to bail-in, the practice of imposing losses on investors before public money can flow.

“Burden-sharing by shareholders and subordinated creditors as a prerequisite for the authorization, by the commission, of state aid to a bank with a shortfall is not contrary to EU law,” according to the EU Court of Justice. The Luxembourg-based court’s decision is binding and can’t be appealed.

The “banking communication” sets out rules for when burden-sharing should be applied to shareholders and subordinated creditors, and when it can be avoided. The court said that “burden-sharing measures can be understood as being designed to prevent recourse to state aid merely as a tool to overcome the financial difficulties of the banks concerned.”
Bail-in has been much discussed in recent weeks as the Italian government tries to find a way to recapitalize some of the country’s banks, including Banca Monte dei Paschi di Siena SpA. It’s a thorny issue for Prime Minister Matteo Renzi because many subordinated bondholders are ordinary families who bought the securities looking for a better rate of return. With a referendum to overhaul the political system expected in October, Renzi is looking for a solution that saves banks and spares voters.
Italian banks dropped after the ruling with Banca Monte dei Paschi declining as much as 7.1 percent. UniCredit SpA slipped 3.2 percent at 11:30 a.m. in Milan, while Intesa Sanpaolo SpA decreased 2.5 percent.  
The European Commission, which checks whether state aid violates EU rules, said the ruling “confirms the commission’s current case practice and application of EU state aid rules to the banking sector.”
“Burden-sharing and bail-in rules protect the taxpayers and public budgets and maintain the level playing field in the EU,” said Ricardo Cardoso, a commission spokesman. “It makes sure that those who also stood to benefit from their investments, i.e. the bank’s owners and creditors, bear the losses if they materialize -- public support comes as a last resort.”

Next just how hard it is to rescue an Italian bank even after a bailout.

These Sicilian Mortgages Show How Difficult It Is to Rescue Italian Banks

Getting money from non-performing loans in Italy is no easy task.

July 19, 2016 — 7:13 AM BS
Down the cobbled streets of Palermo, past baroque churches and gothic palaces, a lesson is lurking for Italy's government as it hatches a plan to save the country's banks.

Sicily’s biggest city is the focal point of a 2007 securitization of non-performing loans, or NPLs, that shows just how long it can take to resolve soured loans in the country. The deal, known as Island Refinancing, should also act as a warning for investors of the dangers of buying similar securities as Italian banks gear up to sell more of them.

The Island bonds are backed by two portfolios of NPLs originated by a Sicilian bank that's now a subsidiary of UniCredit SpA. Just under half of the loans originated in the 1990s and they include residential mortgages as well as loans financing hotels and industrial buildings.

Unlike other asset-backed securities where interest and principal are paid through cash flows from mortgage or auto credit borrowers, investors in NPL securitizations depend on getting money back from soured loans — typically through the courts.

And that's where the problem lies. A court may auction the loan collateral and use the proceeds to pay the bonds, but that is a slow process.

Italy is almost as well known these days for its sluggish and cumbersome insolvency procedures as it is for the Leaning Tower of Pisa or the AC Milan soccer club. Italian bankruptcy proceedings last an average of 7.8 years, compared to an average of just over two years for the rest of Europe.

----Still, the thus-far glacial pace of cash collections from NPLs has resulted in multiple credit ratings downgrades for the Island Refinancing deal, which will expire in 2025.  
The most senior-ranking notes in the securitization — asset-backed bonds are divided into slices of differing risk and returns — were downgraded from an initial AAA grade to AA before being redeemed last year. The notes next in line to be paid were originally ranked A by Fitch Ratings and have since been downgraded to BB.
Fitch last cut its ratings on the notes a year ago when it said the rate of collections had worsened and there was such uncertainty around when funds tied up in Italian courts would be released that it couldn't assume the full amount would be available to pay off the bonds at maturity in 2025. 
Last week the ratings company affirmed its previous ratings and said it expects slow collections will result in the default of the 60 million-euro ($66.4 million) class C notes and the write-down of the 32 million-euro class D notes with zero recovery forecast.
----Island is not the only troubled Italian NPL transaction — meet Venus Finance.
The deal is a 2006 securitization of two portfolios of soured loans originated by Intesa Sanpaolo SpA with collateral spread across the country. Like the Island deal, it struggled with timely cash collections and the notes were downgraded multiple times.
Fitch warned last year that with so little cash coming in it was unlikely further principal repayments would be made before the bonds' maturity date in 2019. As if that wasn't bad enough for noteholders, the deal is being unwound and the collateral backing the securitization is being sold after an event of default of the underlying loans occurred when the so-called servicer agreements expired in December — they should have been extended to match the 2019 maturity.
As a result the senior-ranking class A notes in the Venus deal will suffer a significant write-down, while classes B to E will be written off entirely, Fitch said.

In other European news, Brexit re-awakened John Bull’s long suppressed interest in owning gold again. If the world ever adopts Milton Friedman's  “helicopter money,” see Crooks Corner, we ain’t seen nothing yet.  

After Brexit, ordinary Britons warm to gold as safe haven

Tue Jul 19, 2016 10:01pm EDT
When Britain voted to leave the European Union, the thoughts of Yorkshire teacher Grace Hall immediately turned to her family's bottom line.

Three days later, as UK stocks and sterling plummeted, she put those thoughts into action and deposited part of her life savings -- 25,000 pounds -- into gold.

"My husband and I are both worried about bank failures and our cash getting swallowed up," she said. "I'm also worried about our kids' jobs and their future."

Hall was not alone. Dealers are seeing an unprecedented amount of interest in gold, much of it from first-time buyers, to take advantage of its role as a safe haven in times of stress or unexpected "black swan" events like Brexit.

"The speed at which people are purchasing gold is unprecedented," said Joshua Saul, CEO of The Pure Gold Company, where Hall bought and keeps her Britannia coins.

"We are seeing people convert as much as 40 to 50 percent of their net worth into physical gold, (compared to) 5 to 10 percent in the past," he said.

Government-owned bar and coin producer, the Royal Mint, saw a 7-fold increase in sales of 100-gram bars, around half the size of a credit card and costing around $4,400, in the two weeks following the June 23 vote.

Around 4 million pounds ($5.5 million) of gold and silver were traded online on the platform of London-based on the June 25-26 weekend, seven times the average weekend of the previous 12 months.

The number of first-time UK buyers on the site rose by around 170 percent in June and the first week of July, compared to the previous 12-month daily average, it said.

We close for the day with China. The China bubble is now truly unsustainable. I think we all know what comes next just not the triggering event.

Chinese Cities’ Expansion Plans Could House 3.4 Billion People

July 15, 2016 — 2:38 PM BST
New areas planned by China’s small cities could accommodate 3.4 billion people by 2030 -- or almost half the world’s current population -- a target that even Chinese state media calls problematic.

A report by the National Development & Reform Commission, China’s central planning agency, found that small- and medium-sized cities were planning more than 3,500 new areas that could accommodate more than twice the country’s current population of 1.4 billion. The entire world has a population of 7.4 billion, according to U.S. Census estimates.

The findings were detailed in an analysis by the official Xinhua News Agency, which criticized the planned new areas as unworkable: "Who’s going to live in them? That’s a problem," the piece said.
The expansion comes amid urbanization calls by President Xi Jinping and Premier Li Keqiang as China prepares for another 100 million people to move from the countryside to urban metropolises by the end of the decade. People tend favor bigger markets with more opportunities and fewer than 1-in-10 migrant workers moved to small cities last year, according to an NDRC report published in April.
Even without the new areas, China already has more housing than it needs and "ghost cities" have proliferated. China has been building more than 10 million new units annually for the past five years, outstripping an estimated of demand of less than 8 million, according to an analysis by Bloomberg Intelligence Economists Tom Orlik and Fielding Chen.

"Until government administrators can so identify the interests of government with those of the people and refrain from defrauding the masses through the device of currency depreciation for the sake of remaining in office, the wiser ones will prefer to keep as much of their wealth in the most stable and marketable forms possible - forms which only the precious metals provide."

Elgin Groseclose
At the Comex silver depositories Tuesday final figures were: Registered 28.36 Moz, Eligible 125.51 Moz, Total 153.87 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
We are living in very dangerous times for our money. Since August 1971, all money everywhere has been unbacked fiat money, communist money, irredeemable into anything else but yet more dangerous fiat money. After 45 years on fiat money, our intensely interrelated world now finds itself on the brink of a new financial crisis, which some are proposing to address by turning to helicopter money to save the system.

But first, an over view of where we have arrived and why talk of “unconventional policies” are increasingly entering main stream media.

“Thus, central banks lost political independence because of the over-active role thrust upon their monetary tools to try to revive economies after the 2008 crises.  Conventional economics disempowered politicians, saddled their taxpayers with bailouts, debts, austerity and fuelled the rise of right wing calls for return to the gold standard, scapegoating immigrants.  The new populists called for “QE for People” not bankers.  Protests were grounded in understanding how money is created and credit distributed.  Fairness was demanded as inequality of incomes and wealth grew.  Bloated financial sectors, bankers, speculators and central banks were targeted, also in movies and TV shows.  Britain’s former financial regulator Adair Turner, argued for returning money-issuance to governments.  Others in Europe, the Planck Foundation and the World Future Council (WFC) called for “Green QE” to finance the global transition to low-carbon, renewable resource based economies.”

Negative interest rates in Europe and Japan decimate savers’ nest eggs and bank profits.  Central bankers and financiers now discuss “helicopter money”, their last hope for stimulating stagnating aggregate demand – by putting purchasing power into the pockets of the 99% who will spend it, unlike the 1% (who tend to save and invest).  This is why financial media report daily on the helicopter money option.  The other option re-surfacing is for basic incomes for all – thanks to Milton Friedman’s negative income tax.  Time for helicopter money? Certainly for Qualitative Easing!

Hazel Henderson is President of Ethical Markets Media (USA and Brazil), publisher of the Green Transition Scoreboard®.  She has authored many books, including Building a Win-Win World; is a Fellow of the World Academy of Art and Science and Britain’s Royal Society of Arts; and co-produced the Ethical Markets TV special, “The Money Fix”, on PBS stations.

Next the definition by Investopedia, of what is usually agreed as the definition of “helicopter money.”

Also known as helicopter money, a helicopter drop is a hypothetical, unconventional tool of monetary policy that involves printing large sums of money and distributing it to the public in order to stimulate the economy. Helicopter drop is largely a metaphor for unconventional measures to jumpstart the economy during deflationary periods.
Although others before Milton Friedman had discussed the concept of helicopter money as a means of stimulating and attempting a rescue of a failing monetary system, it was Milton’s use of the term “helicopter money,” that really brought that concept into the mainstream limelight.

But if our world is contemplating a giant expansion of easily created fiat money, all tangible assets in fixed supply, with real intrinsic value, will inflate in value relative to what is in effect a devaluation of fiat money. Fully paid up physical gold, in bullion or coin form, represents by far for most, the easiest and cheapest form of insurance available against helicopter money. Far easier for most than buying old masters, landed estates, investment diamonds, vintage cars or trains, bubble priced stocks, or negative interest rate bonds.

For the record, most mining stocks, especially gold mining stocks, are far from bubble territory, having been out of favour for many months and are actually of real interest, as our global money policies get ever more dangerous and deeper into what President Bush Senior, called “voodoo economics.”
News that the Reserve Bank of Australia has studied the experience of counterparts in conducting unorthodox monetary stimulus has put a new focus on potential options for the RBA, in the unlikely event of having to take such steps. RBA Assistant Governor Christopher Kent said in an interview with Bloomberg that the central bank favors a multi-pronged stimulus -- using various unconventional policies simultaneously -- rather than one in isolation.

While the RBA still has room for traditional interest-rate cuts, with its benchmark at 1.75 percent, markets see a better-than-even chance of another reduction next month and some economists forecast a 1 percent rate as early as the second quarter of 2017. Deputy Governor Philip Lowe -- who will take the RBA’s helm in September -- indicated in 2012 that lowering the rate on its own would lose effectiveness as it approaches 1 percent.
For more on the RBA’s thinking on unconventional monetary policy, click here.

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."

Antony C. Sutton

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?

Graphene photodetectors—thinking outside the 2-D box

July 19, 2016
In a recent work published in Nature Communications, a research group led by ICREA Professor at ICFO Frank Koppens demonstrates a novel way to detect low-energy photons using vertical heterostructures made by stacking graphene and other 2D semiconducting materials. By studying the photo response of these atomically thin sandwiches, the researchers have shown that it is possible to generate a current by heating electrons in graphene with infrared light and extracting the hottest electrons over a vertical energy barrier.

This ingenious mechanism, called the photo-thermionic effect, takes advantage of certain unique optical properties of graphene such as its broadband absorption, ultrafast response and gate tunability. Moreover, owing to their vertical geometry, devices relying on this effect make use of the entire surface of graphene and can be potentially scaled up and integrated with flexible or rigid platforms.

More generally, this study reveals once again the amazing properties of these man-made heterostructures. According to Prof. Frank Koppens, "This is just the tip of the iceberg. These 2D sandwiches still have a lot to reveal." ICFO researcher Mathieu Massicotte, first author of this study, emphasizes the new possibilities opened up by these new materials: "Everyone knows it is possible to detect light with graphene using in-plane geometries, but what about the out-of-plane direction? To answer, you need to think outside the 2D box!"

The results obtained from this study have shown that heterostructures made of 2D materials and graphene can be used to detect low-energy photons which could lead to new, fast and efficient optoelectronic applications, such as high-speed integrated communication systems and infrared energy harvesting. In addition, it demonstrates the compatibility of 2D materials with the digital chips currently utilized in cameras, paving the way for low cost infrared spectrometers and imaging systems.

The monthly Coppock Indicators finished June

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

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