Friday, 29 July 2016

Start Up The Helicopters.

Baltic Dry Index. 665 -14     Brent Crude 42.58

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

"The leaders of the French Revolution excited the poor against the rich; this made the rich poor, but it never made the poor rich."

Fisher Ames, 1758-1808.

In a move that was all but forced on the Bank of Japan by Prime Minister Abe’s actions earlier in the week, the BOJ announced yet more stimulus buying to try to boost the Japanese economy. This time round they will practically double the amount of exchange-traded-funds they will buy, leaving their asset-buying target unchanged. The move was under whelming, suggesting that the BOJ didn’t like Abe’s coercion, and that the BOJ has about reached its limit in using unorthodox policies. In the now rapidly aging population economy of Japan, nothing seems to work anymore, let alone as intended by the BOJ.

Bank of Japan OKs more stimulus, keeps rate steady

Published: July 29, 2016 12:21 a.m. ET
TOKYO — The Bank of Japan announced an extra dose of monetary stimulus Friday, joining fresh efforts by Prime Minister Shinzo Abe to reboot the economy.

The central bank said it would buy ¥6 trillion worth of exchange-traded funds annually, up from ¥3.3 trillion previously, in an attempt to stoke inflation and growth by pumping money into the economy. It said it would leave its asset-purchase target at ¥80 trillion a year.

The monetary policy board voted approved the expansion of ETF purchases by a vote of 7-2.

The BOJ’s choices risk disappointing investors who expected more-aggressive action to counter faltering inflation and a stronger currency. Pressure on the BOJ to expand its stimulus had been rising for months, and speculation in recent weeks about what it might do went as far as “helicopter money,” a radical policy involving direct underwriting of government spending.

The central bank left unchanged its purchases of Japanese government bonds, which comprise the bulk of its asset buying, underscoring concerns about whether the program would be sustainable if JGB buying were expanded. It already owns more than a third of all outstanding JGBs, with its balance sheet ballooning to 85% of gross domestic product as of May.

The BOJ also left a key interest rate on bank reserves unchanged at minus 0.1%. It dropped the rate into negative territory in February to drive yields lower and spur lending and investment, but the move delivered limited results while provoking a backlash from banks and the Japanese public.

Many economists, though, had already concluded that the BOJ had reached its policy limits, and had little or no ammunition left to fire. This view is likely to gain currency after the BOJ decided not to expand its JGB purchases or drive the reserve rate lower. BOJ Gov. Haruhiko Kuroda has vowed again and again to do “whatever it takes” to reach 2% inflation. But inflation is nowhere near that level — and in recent months has been moving in the opposite direction.

Up next, did “Helicopter Ben” and the BOJ’s Kuroda, just discuss helicopter money? The market and the media suggest that they did. Of course this being 2016, any “helicopter drops” will likely be made from cheaper to fly drones. Coming first though, perpetual bonds, 50 year zero bonds, central banks charging interest of excess reserves rather than paying interest. The world’s funny money, on the Great Nixonian Error of fiat money, communist money, is about to move from funny to weird.

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise. The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."

Hans F. Sennholz

The point of no return for quantitative easing is getting closer

Published: July 28, 2016 8:23 a.m. ET

Did Ben Bernanke and Haruhiko Kuroda discuss helicopter money?

On Nov. 21, 2002, Federal Reserve Board Governor Ben Bernanke gave his infamous "helicopter" speech titled, "Deflation: Making Sure "It" Doesn't Happen Here," before the National Economics Club in Washington, D.C. The speech raised eyebrows. The most notable part has been quoted often:

"What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

In that speech, Bernanke referred in passing to economist Milton Friedman's phrase "helicopter drop" about excessive money creation. Now, as a former Fed chairman, Bernanke surely regrets the parts of this speech that gave him the nickname "Helicopter Ben," but it resurfaced as he met with Bank of Japan Chairman Haruhiko Kuroda earlier this month in Tokyo. This informal meeting was seen as a sign that Japanese authorities were considering even more extreme monetarist measures, and the yen dropped while the Nikkei 225 benchmark index jumped.

----Given that the Japanese have run a QE program since 2013 that is three times more aggressive than the Fed's QE program (relative to the size of GDP), and officials have still not gotten the results they were looking for is rather telling. Sure, the yen originally weakened from 80 all the way to 125 (last year) and the Nikkei surged, but why has the currency been strengthening so much of late? (See my May 31, 2013
MarketWatch article, "Repercussions from the yen surge.")

Etsuro Honda, one of the most trusted advisers to Japan's prime minister, noted that Bernanke at an earlier meeting in April, had mentioned the option of "perpetual bonds." Under this scenario the government would issue non-marketable perpetual bonds with no maturity date and the Bank of Japan would buy them. This is practically helicopter money, as it is direct monetization of government debt by the central bank. While the details of the latest meeting are still not known, the currency markets certainly acted like they heard the sound of helicopters landing in Tokyo.

Monetizing Japanese government debt, as the government simply cannot manage to repay it, is where this all seems to be moving.

Meanwhile back in Europe, it’s stress test day for Italy’s banks. Extend and pretend runs out of road.

Households on the Hook for Italy’s Next Bailout

July 28, 2016 — 12:01 AM BST Updated on July 28, 2016 — 8:56 AM BST
Vincenzo Imperatore wants you to know he was just following orders: Selling risky bonds to customers seeking safe retirement nest eggs was only part of the job. When financial markets shut during the financial crisis, depositors were Italian banks’ most reliable source of funding.

“I was getting five, six calls a day from my bosses pushing me to sell them,” says Imperatore, who helped sell products to retail customers for six years at UniCredit SpA in the Naples region and has written two tell-all books about his experiences. “I was instructing the local salesmen to do the same.”

The households that helped prop up the nation’s banks during the crisis are again on the front line of efforts to bolster Italy’s tottering financial system. The subordinated debt they hold may be first to take losses in a government-orchestrated recapitalization now being negotiated in Rome and Brussels. It’s a popularity-destroying outcome Prime Minister Matteo Renzi is trying to avoid before a referendum later this year to overhaul the political system -- a vote he needs to win to stay in power.

While the stability of Italy’s banks has been a front-burner issue for policy makers since the first tremors of the global financial crisis, the result of stress tests on Friday could usher in the final stage of solving their predicament. Retail investors own almost half of the most vulnerable securities, a legacy of banks using their customers as a piggy bank for cheap funding.

Selling subordinated debt to depositors was “the way they recapitalized the banking system,” according to Jim Millstein, the U.S. Treasury official who led the restructuring of U.S. banks after the financial crisis, said in a Bloomberg TV interview. By imposing losses on bondholders “you’re inflicting damage on the people who would otherwise be spending money in your economy,” he said.

UniCredit, Italy’s largest lender, declined to comment on Imperatore’s recollection. The bank’s subordinated bonds available to retail investors trade close to par, indicating investors don’t expect to suffer losses, Bloomberg data show. The bank is considering raising as much as 5 billion euros ($5.5 billion) from shareholders and selling its entire stake in Poland’s Bank Pekao SA to raise capital, people familiar with the matter said on Wednesday.

At the zenith of the financial crisis, between July 2007 and June 2009, 80 percent of Italian banks’ bonds were sold to retail investors, according to regulator Consob. Through savers, banks funded themselves at a similar cost to the Italian government, whereas they gave professional money managers an extra percentage point in debt interest, the 2010 report found.

The channel of selling junior bonds to savers has virtually shut this year. So far in 2016, only one Italian bank, Mediobanca SpA, has sold subordinated debt with an initial investment designed to attract small-scale investors, data compiled by Bloomberg show -- selling 200 million euros of junior bonds with a minimum denomination of 1,000 euros. In the same period last year 10 banks sold 1.4 billion euros of notes with the same minimum subscription size, according to data compiled by Bloomberg.

Still, Italian savers held 31 billion euros of subordinated bank bonds as of October, more than double the 13 billion euros in the hands of foreign investors, according to the Bank of Italy. That translates to about 1,260 euros of the junior bank debt for every household in Italy. Banca Monte dei Paschi di Siena SpA, which has more than 27 billion euros of toxic loans on its books and needs to be recapitalized, has about 5 billion euros of junior debt.

"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Alan Greenspan
At the Comex silver depositories Thursday final figures were: Registered 29.29 Moz, Eligible 125.75 Moz, Total 155.04 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, what did Goldman know and when did they know it. How “God’s work” works in the Far East.
'Curiouser and curiouser!' cried the FBI (they were so much surprised, that for the moment they quite forgot how to speak good English)
With apologies to Alice.

Fund Lawyer Who Worked With Goldman Holds 1MDB Clues, U.S. Says

July 27, 2016 — 8:03 PM BST
She was the general counsel for Malaysia’s 1MDB investment fund. She was also 1MDB’s liaison to Goldman Sachs Group Inc., the global bank that helped it raise $6 billion.

After one of the big sales led by Goldman Sachs, $5 million of the cash raised for 1MDB traveled through shell companies and ended up in her Swiss bank account, the U.S. said in complaints filed last week.

The U.S. government refers to the official only as “1MDB Officer 3.” According to people familiar with the matter, she is Jasmine Loo Ai Swan -- a Malaysian who studied law in the U.K. and worked for a Malaysian developer and an oil firm before joining 1MDB.

The U.S. doesn’t accuse Loo or anyone else of crimes in its complaints, which instead seek to seize assets the government says were “unlawfully misappropriated” from the fund. Loo hasn’t responded to requests for comment placed over several months in Malaysia and at an apartment she owns in New York’s Flatiron district.

QuickTake Q&A: Malaysia’s 1MDB Fund Spawns Worldwide Probes

While the amount is modest compared with others in the sweeping multiyear scheme, the alleged $5 million transfer is notable. The recipient was not only a lawyer and the fund’s point person with Goldman Sachs, but is also the only person at 1MDB whom the Justice Department singled out as having received a payment.

That money transfer, the U.S. government says, was one of dozens of illicit payments in a scheme controlled by a Malaysian man that ultimately drained as much as $3.5 billion from the fund, formally known as 1Malaysia Development Berhad.

Unmentioned in the recent U.S. complaints is another transfer. About a year after Jasmine Loo left the fund, people familiar with the matter said in interviews, she sent a six-figure sum to an account of Goldman Sachs’s Tim Leissner, who was the lead banker on the 1MDB bond sales.

Leissner, who also isn’t accused of any crimes, resigned from Goldman after he was placed on administrative leave in January. Neither he nor his attorney have commented since then. The transfer from Loo was an investment in a start-up company that Leissner was backing with her, one of the people familiar with the matter has said.

Goldman Sachs isn’t accused of any wrongdoing. “We helped raise money for a sovereign wealth fund that was designed to invest in Malaysia,” Michael DuVally, a Goldman spokesman, said. “We had no visibility into whether some of those funds may have been subsequently diverted to other purposes.”

1MDB has said that it hasn’t benefited from transactions described by the U.S. and that it is cooperating with investigators. Malaysia’s government has said that it has no evidence that money was misappropriated and that it will cooperate with lawful investigations of its companies or citizens.

The interviews and U.S. court filings flesh out details of the working relationships between Leissner, Loo and others at the heart of the 1MDB affair -- those who took a direct hand in opening taps that put billions of dollars into 1MDB accounts. Where the money went from there is the subject of probes into alleged corruption and money laundering by officials in places including Singapore, Switzerland and Luxembourg.

Both Leissner and Loo, according to the documents and people, intersect at several points with Taek Jho Low, the man whom U.S. prosecutors characterize as the scheme’s controller. Known as Jho Low, the Malaysian directed funds from 1MDB to connected individuals and for his and his associates’ “personal gratification” -- buying art and real estate and paying for lavish parties and gambling, the U.S. says.

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?

Dirty to drinkable: Novel hybrid nanomaterials quickly transform water

Date: July 26, 2016

Source: Washington University in St. Louis

Summary: A team of engineers has found a way to use graphene oxide sheets to transform dirty water into drinking water, and it could be a global game-changer.
Graphene oxide has been hailed as a veritable wonder material; when incorporated into nanocellulose foam, the lab-created substance is light, strong and flexible, conducting heat and electricity quickly and efficiently.
Now, a team of engineers at Washington University in St. Louis has found a way to use graphene oxide sheets to transform dirty water into drinking water, and it could be a global game-changer.
"We hope that for countries where there is ample sunlight, such as India, you'll be able to take some dirty water, evaporate it using our material, and collect fresh water," said Srikanth Singamaneni, associate professor of mechanical engineering and materials science at the School of Engineering & Applied Science.
The new approach combines bacteria-produced cellulose and graphene oxide to form a bi-layered biofoam. A paper detailing the research is available online in Advanced Materials.
"The process is extremely simple," Singamaneni said. "The beauty is that the nanoscale cellulose fiber network produced by bacteria has excellent ability move the water from the bulk to the evaporative surface while minimizing the heat coming down, and the entire thing is produced in one shot.
"The design of the material is novel here," Singamaneni said. "You have a bi-layered structure with light-absorbing graphene oxide filled nanocellulose at the top and pristine nanocellulose at the bottom. When you suspend this entire thing on water, the water is actually able to reach the top surface where evaporation happens.
"Light radiates on top of it, and it converts into heat because of the graphene oxide -- but the heat dissipation to the bulk water underneath is minimized by the pristine nanocellulose layer. You don't want to waste the heat; you want to confine the heat to the top layer where the evaporation is actually happening."
The cellulose at the bottom of the bi-layered biofoam acts as a sponge, drawing water up to the graphene oxide where rapid evaporation occurs. The resulting fresh water can easily be collected from the top of the sheet.
The process in which the bi-layered biofoam is actually formed is also novel. In the same way an oyster makes a pearl, the bacteria forms layers of nanocellulose fibers in which the graphene oxide flakes get embedded.
"While we are culturing the bacteria for the cellulose, we added the graphene oxide flakes into the medium itself," said Qisheng Jiang, lead author of the paper and a graduate student in the Singamaneni lab.
"The graphene oxide becomes embedded as the bacteria produces the cellulose. At a certain point along the process, we stop, remove the medium with the graphene oxide and reintroduce fresh medium. That produces the next layer of our foam. The interface is very strong; mechanically, it is quite robust."
The new biofoam is also extremely light and inexpensive to make, making it a viable tool for water purification and desalination.
"Cellulose can be produced on a massive scale," Singamaneni said, "and graphene oxide is extremely cheap -- people can produce tons, truly tons, of it. Both materials going into this are highly scalable. So one can imagine making huge sheets of the biofoam."
"The properties of this foam material that we synthesized has characteristics that enhances solar energy harvesting. Thus, it is more effective in cleaning up water," said Pratim Biswas, the Lucy and Stanley Lopata Professor and chair of the Department of Energy, Environmental and Chemical Engineering.
"The synthesis process also allows addition of other nanostructured materials to the foam that will increase the rate of destruction of the bacteria and other contaminants, and make it safe to drink. We will also explore other applications for these novel structures."

Another weekend, and as the US political convention season comes to its bizarre end, the Brazil Olympics are about to take centre stage in Rio. The whole world wonders is Rio ready and up to the job of hosting a modern Olympics? In just one week we are about to find out. Have a great weekend everyone.

"Get a good night's sleep and don't bug anybody without asking me."

President Richard Nixon to John Mitchell his re-election campaign manager. Now everyone’s bugged routinely 24/7.

The monthly Coppock Indicators finished June

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

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