Thursday, 7 July 2016

The Bullion Orient Express.

Baltic Dry Index. 694 +02       Brent Crude 49.04

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

“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”

“Adam Smith” aka George Goodman.

Last call for the bullion train. All aboard. The gold and silver bullion Orient Express is leaving the G-6 station.

European bank shares slapped to all-time lows by Brexit, interest-rate anxieties

Published: July 6, 2016 12:55 p.m. ET

U.S., U.K. interest rates may be heading lower

Several European bank shares hit all-time lows Wednesday, driven down sharply by investors worried about super-low interest rates and the outlook for the regional economy as the U.K. moves toward leaving the European Union.

Among the region’s big lenders, shares of Switzerland’s Credit Suisse Group AG CSGN, -1.73% CS, +0.49%  closed at their lowest on record, losing 1.7% to end at €9.91 ($10.97), according to FactSet data. The shares on Wednesday traded below 10 Swiss francs for the first time ever.

Stock in German lenders Deutsche Bank AG DBK, -3.73% DB, -3.21% and Commerzbank AG CBK, -2.62%  also logged their lowest finishes on record. Deutsche Bank shares slumped 5.6% to €11.54 and Commerzbank gave up 3.6% to end at €5.38.

For European banks, “the outlook is so dingy for them. They hate low interest rates and the global growth jitters that have come out after the Brexit vote have meant that the outlook for interest rates is much lower for longer,” said Augustin Eden, research analyst at Accendo Markets.

“We’ve already got negative rates in the eurozone and in Japan. And it doesn’t look like the U.S. rate is going to go up anytime soon now because of Brexit worries,” he said. Brexit refers to the pending exit of the U.K. from the EU following the U.K.’s June 23 referendum.

Negative rates have been raising concerns about a squeeze on net interest margins for banks and, subsequently, their profitability.

The declines among the banking heavyweights hurt European equity benchmarks, with Germany’s DAX 30 DAX, -1.67%  closing down by 1.7% and Switzerland’s SMI SMI, -0.55%  shedding 0.6%.

The Stoxx Europe 600 Banks Index FX7, -2.58%  dropped 2.6% on Wednesday.

British banks: In London trade, shares of Lloyds Banking Group PLC LLOY, -6.80% LYG, -6.93%  skidded 6.8% lower and Royal Bank of Scotland Group PLC RBS, -6.06% RBS, -5.39%  lost 6.1%. Barclays PLC BARC, -3.09% BCS, -1.80%  fell 3.1%.

Bank shares were sliding even after the Bank of England on Tuesday decreased capital requirements for U.K. banks, a move that should allow them to lend an extra £150 billion ($194 billion) to British businesses and households. The aim is to help cushion the economy, whose outlook appears “challenging,” as Brexit looms, said Bank of England Governor Mark Carney on Tuesday.

“But don’t forget there’s talk about cutting interest rates so you’re giving with one hand, taking with the other,” said Eden. “And if people don’t want to borrow because they’re too scared or too worried or are deciding to sit on their hands, what can you do?”

Carney recently alluded to the possibility that the U.K.’s benchmark interest rate will be cut from its record low 0.5%. The BOE will meet next Thursday.

Meanwhile, investors are pricing in a small chance of an interest-rate cut by the U.S. Federal Reserve when it meets later this month, according to the CME Fed Watch Tool.

Italy declines: Only nine of the 48 constituents that make up the Stoxx Europe 600 Banks Index rose Wednesday. Among them, Italy’s Banca Monte dei Paschi di Siena SpA BMPS, +6.07%   picked up 7.1% to close at 0.282 euros (31 U.S. cents).

That rise came as Italian securities regulator Consob banned short selling of the bank’s shares through Wednesday. Shares of Italy’s third-largest lender this week were driven to all-time lows as the European Central Bank pushes the company to reduce the amount of bad loans on its books.

This year, BMPS shares have lost 77%.

Banks in Italy have been saddled with €360 billion in nonperforming loans, or unpaid debts, according to Italy’s central bank. That represents 18.1% of total loans to consumers.

“There’s a sense that banks have not really cleaned up their own house, despite having ECB oversight,” said Chris Beauchamp, senior market analyst at IG. “You’ve had a kicking-the-can approach to eurozone banks, hoping ... that at some point ... the economy will turn around and none of that has come through,” he said.
And “the situation is likely to get worse,” with the prospect of slower economic growth in Britain hurting the eurozone economy, Beauchamp said.

In that case, “we can expect further deterioration in [banks] loan books, more bad provisions, lower interest rates, which will hit profit margins. The downward spiral looks set to continue and I’m not sure quite where it ends.”

Italy May Spur Systemic Bank Crisis, SocGen Chair Says

July 6, 2016 — 9:05 AM BST Updated on July 6, 2016 — 3:06 PM BST
Italy’s banking crisis could spread to the rest of Europe, and rules limiting state aid to lenders should be reconsidered to prevent greater upheaval, Societe Generale SA Chairman Lorenzo Bini Smaghi said.
“The whole banking market is under pressure,” the former European Central Bank executive board member said in an interview with Bloomberg Television on Wednesday. “We adopted rules on public money; these rules must be assessed in a market that has a potential crisis to decide whether some suspension needs to be applied.”
With Italian banks weighed down by about 360 billion euros ($389 billion) in soured loans, the government has been sounding out regulators on ways to shore up lenders amid a renewed selloff in the wake of the British vote to leave the European Union. The government would invoke an EU rule allowing temporary state aid if regulatory stress tests uncover a shortfall at Banca Monte dei Paschi di Siena SpA, a person with knowledge of the discussions said Tuesday.
European banking stocks resumed their descent as policy makers disagreed and sometimes issued contradictory statements about what may come next. Deutsche Bank AG, Germany’s largest lender, slid 6.1 percent to its lowest level since at least 1989. Societe Generale, France’s second-biggest bank, which Bini Smaghi has chaired for just over a year, fell 1.8 percent as of 2 p.m. in Paris.
The Bloomberg Europe 500 Banks and Financial Services Index fell 2.3 percent to its lowest since November 2011, in the midst of the the European debt crisis.
Italian Finance Undersecretary Pier Paolo Baretta said in an interview on RAI radio Wednesday morning that a “technical solution” on Monte Paschi could be hours away, before issuing a statement an hour later that said “no intervention is expected in the next few hours.”
German Finance Minister Wolfgang Schaeuble, speaking at a news conference in Berlin hours later, said his Italian counterpart Pier Carlo Padoan told him that Italy intends to stick to the banking-union rules.

Brexit Trauma Stalks EU as Leaders Brace for More Shocks to Come

July 6, 2016 — 11:01 PM BST
Throughout the Cold War, Bratislava stood on the front line of the ideological divide between east and west. Now the Slovak capital situated a stone’s throw from the Austrian border is again at the crux of European history.

European Union leaders will gather in the city straddling the Danube River in September, after a summer of “political reflection,” to hammer out a way forward for the bloc in the shock of the post-Brexit world.

Soon to be shorn of the bloc’s second-largest economy and buffeted by a rising tide of anti-EU sentiment from Paris to Warsaw, the 27 national leaders will meet knowing that Britain’s vote to leave forces them to weigh change to win back citizens’ support. They just can’t agree on what that should look like.

“The dividing lines have been between different actors on different issues -- north and south on financial and economic issues, east and west on asylum and migration,” Sandro Gozi, undersecretary for European affairs in Italian Prime Minister Matteo Renzi’s government, said in a phone interview. “The last thing we need is new dividing lines.”

From German insistence on fiscal rigidity and the legacy of austerity, to economic sanctions on Russia, relations with Turkey and the biggest refugee crisis since World War II, Europe’s political fault lines run deep and tension has been building for years. Rival camps and further flashpoints on the horizon mean the struggle to reset the European Union could get messy.

The outcome is not just academic. It affects a market of 500 million people with an economy of some $15 trillion, including the U.K. With elections next year in the Netherlands, France and then Germany, economies together representing more than half the euro-zone output, leaders don’t have the luxury of time on their side.

Markets are also showing signs of unease. While the European Central Bank’s unlimited bond purchases are keeping a lid on spreads for now, bank shares have plunged amid concerns about the EU’s ability to contain a new crisis emanating from Italy. The Bloomberg Europe 500 Banks and Financial Services Index fell to the lowest since the depths of the region’s debt crisis in 2011 and the cost for European banks to fund in dollars through the foreign-exchange swaps market rose to the highest since 2012.

It’s “a highly volatile macro environment,” David Folkerts-Landau, chief economist at Deutsche Bank AG, said in a Bloomberg Television interview on Wednesday. “All you need is one additional shock -- and we’ve got three or four lined up: French elections, the Italian senate referendum -- and you could have a very serious situation on your hands.”

---- “Populists no longer just want to change Europe, they want the end of it,” Hollande said after last week’s EU summit in Brussels, David Cameron’s last. Voter alienation will “continue inexorably” unless member states “build a program or an initiative that’s strong enough to protect them, give them more prosperity and more hope to the youth.”

The Great Incredible Gold Subsidy

Posted on July 6, 2016
Every individual is a potential gold buyer, although he may not need the gold. It may be added to the store of personal wealth, and passed from generation to generation as an object of family wealth. There is no other economic good as marketable as gold.” Hans F. Sennholz (Austrian School economist and editor of the 1975 book, Gold is Money).
I was amused by this week’s headline on Bloomberg, “The 500 Tons of Gold That Show Global Rise in Investor Angst.” According to that article, global gold holdings have risen by:
“more than 500 metric tons since bottoming in January in a signal of investors’ rising concern about slowing growth, a Federal Reserve that’s probably on hold and the ructions caused by Britain’s vote to quit the European Union.”
Gold in exchange traded funds rose 6.6 tonnes on Friday to 1,959.1 tonnes, up from 1,458.1 tonnes on January 5th, 2016. Again according to Bloomberg:
Bullion prices climbed to the highest level in more than two years in June as investors absorbed the implications of the U.K. result, adding to a rally that’s been driven by the Fed’s hesitation in raising borrowing costs and the spread of negative rates in Europe and Japan.”
Well, I suppose after an hysterical, four month-long “Project Fear” campaign mounted by British Prime Minister David Cameron and the Remain side in the United Kingdom referendum on European Union membership — a campaign aided and abetted by leaders from all around the planet — the majority vote for Brexit would likely generate some nervousness, and even more investor “angst”. Still, the gold Exchange-Traded Funds have some way still to go to regain their peak in 2012 of 2,632.5 tonnes.
But all of this misses the point.
In 1971, President Nixon was forced to abandon the dollar’s convertibility link to gold at the then official price of $42 per troy ounce. In theory, all the west’s currencies had a fixed link to the dollar with the greenback being convertible into gold for the west’s central banks at the official rate. A two-tiered gold market had existed since 1968, with an official rate used by the central banks and a free market rate used by everyone else. Needless to say, the free market price went higher than the official price.
By agreement, central banks were not allowed to buy gold in the free market, though by late 1974 they could sell their gold reserves there if they wished. Few wished to sell gold at all, although some chronically mismanaged countries like Italy raised loans against their gold holdings, in Italy’s case from the then West Germany. In the event of an actual physical gold transfer between debtor and creditor, the International Monetary Fund insisted the transfer take place using the official lower price. It was, and has been since 1971, a recipe for today’s fiat money disaster.
At a stroke, and without consultation, the dollar and all the lesser currencies, became “fiat” currencies, exactly the same as with the communist currencies. The last systemic link to order, i.e. gold, was lost, and disorder took its place, lately in spades. Politicians and central bankers everywhere became profligate money spenders and money issuers. The free lunch had arrived, deficits didn’t matter anymore.
Of course it was a Great Big Error and money supply ballooned everywhere, and has never stopped ballooning since. Instead of devaluing the dollar against gold in 1971 and keeping discipline, the world took off like a rocket on forever-devaluing fiat currency.
Now comes the really interesting bit, how gold has reached getting a subsidy of $67,000/oz by some measure, $47,600/oz by another measure, and $3,982/oz by the narrowest measure (the one I have chosen). I’ve opted to use the USA’s figures, but the global fiat money problem is obviously much larger.
In August 1971 when America went off the gold link, M1 money supply (narrow money) according to the Federal Reserve was $226.5 billion, the currency component part of M1 was $51.3 billion. America held gold reserves totalling $262 million ounces. Each ounce of gold covered $195.80. At the official price of $42, each ounce had a deficit of $153.80.
Fast forward through wars, bubbles and busts to June 20, 2016. The M1 currency component has ballooned to $1.3839 trillion. The gold position, we are told, is still 262 million ounces, though it has never been audited since the 1950s (and then only partially). Each ounce of gold now covers an impressive $5,282. With the gold price itself suppressed to $1,300/oz this means that, when the whole system crashes, each ounce of gold is carrying a subsidy of $3,982. Not too shabby considering the state of the world.
But by other monetary measures it gets even better. Though the Fed dropped M3, their widest monetary measure, back in 2006, privately-assembled M3 measures are available for use. At the end of December 2015, M3 was estimated at about $18 trillion. Each ounce of gold now covered  $68,702; deduct the present price of the metal and each ounce is carrying a gold subsidy of an incredible $67,402.
The central bankers seem to think that this state of affairs can go on forever, growing like Topsy to the sky. I think the whole system blows up long before then, releasing the gold subsidy — an interesting long term investment, I think. Gold flows from west to Asia’s east in anticipation that the subsidy will one day get released.
To finish, a couple of other apposite quotations:
“It was a confusion of ideas between him and one of the lions he was hunting in Kenya that had caused A. B. Spottsworth to make the obituary column. He thought the lion was dead, and the lion thought it wasn’t.” P. G. Wodehouse.
 “If we went back on the gold standard and we adhered to the actual structure of the gold standard as it existed prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the United States, and that was a golden period of the gold standard. I’m known as a gold bug and everyone laughs at me, but why do central banks own gold now?” Alan Greenspan. June 28, 2016.
And in SE Asian war news, things could get very hot, very fast. China is now conditioning the world’s diplomats and US military against starting WW3.

Chinese diplomat issues harsh warning before South China Sea verdict

Published: July 6, 2016 11:37 p.m. ET

‘Accidents could happen’ if ruling implemented, retired official warns

As tensions build ahead of an international tribunal’s ruling on Beijing’s claims over the South China Sea, a veteran Chinese foreign-policy maker sent a stern warning about putting the verdict into action.

Dai Bingguo, a retired official who spent nearly two decades at the center of China’s foreign-policy apparatus, urged the U.S. in a speech this week to scale back its “heavy-handed intervention” in the disputed waters and accused Washington of sowing discord and provoking Beijing.

“The temperature of the South China Sea is now high enough,” Dai told a gathering of Chinese and U.S. think tank officials in Washington on Tuesday. “If such momentum went unchecked, accidents could happen and the South China Sea might sink into chaos and so might the entirety of Asia.”

Dai’s comments came a week before an arbitration tribunal in The Hague is due to issue its ruling on a lawsuit filed by the Philippines in 2013 to challenge Beijing’s claims in the South China Sea.

Dai’s comments came a week before an arbitration tribunal in The Hague is due to issue its ruling on a lawsuit filed by the Philippines in 2013 to challenge Beijing’s claims in the South China Sea.

The ruling is widely expected to go against China, whose claims in the disputed waters overlap with those of Malaysia, Brunei, Taiwan, Vietnam and the Philippines.

“I hear The arbitration ruling will come out soon, and so be it. There’s no big deal, for it amounts to nothing more than a piece of waste paper,” said Dai, according to a transcript of the speech. “No one and no country should implement the award in any form, much less to force China into implementation,” he said. “And the Philippines must be dissuaded from making any further provocation. Otherwise, China would not sit idle.”
"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
At the Comex silver depositories Wednesday final figures were: Registered 25.05 Moz, Eligible 127.70 Moz, Total 152.75 Moz.  Comex was closed on Monday.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, signs that Red China’s crack up boom has gone terminal.

Red Parasites—–WMP Explosion Sucking Up Money Faster Than Beijing Can Print It

by Business Insider • July 5, 2016
China’s shadow banking system will soon begin to suck money out of the country’s economy at a mind-bending rate, according to analysts at HSBC.

This news couldn’t be coming at a worse time. The global economy is on tenterhooks after the the UK decided to leave the European Union in mid-June. That issue prompted China to devalue its currency, the yuan, by the most since August. Generally when that happens, cash starts to flow out of the country.

The problem with China’s shadow banking system right now is that there are a few things going on — like falling interest rates — that could make it a source of capital flight while also siphoning off much-needed cash flowing through the economy into a dark, black hole, like a parasite. A big, fat money tick.


But first, let’s clarify what we mean by shadow banking. In general, China’s shadow banking system is made up of wealth management products, or WMPs, carried off balance sheet.

These are debt or debt-like instruments that pay out higher interest rates to investors. This is important because over the last year and half, as the Chinese economy has slowed down, the People’s Bank of China has lowered interest rates in order to keep cash flowing through the economy, as can be seen in this chart from HSBC.

This is what makes WMPs so attractive, even though they’re riskier than normal financial instruments. China is a developing market, and investment options are limited. The stock market became something of a no-go after it crashed last summer and again in February.

As such, the growth of WMPs has exploded as Chinese investors have looked for places to park cash.
In a note to clients on Thursday, HSBC estimated that the WMP market is 24% larger than China’s domestic stock market, the A-share market.

From HSBC:

“If Wealth Management Products (WMPs) continue to expand at their current rate, in two years’ time as much as a third of the retail funding activities in China’s banking system will take place off balance sheet. That will make it even harder for regulators to estimate risk in the banking sector and to monitor linkages between the country’s shadow banking activities, capital markets and the real economy.”

Even before rates started falling, WMPs were a problem for the Chinese government. They’re opaque, and as Deutsche Bank pointed out in a recent note, they allow money to be siphoned off to unproductive projects — China’s infamous roads to nowhere and empty cities.

The parasite

The WMP problem is now so huge that it’s starting to suck up cash lying around in the Chinese economy like a horde of locusts. Economists use “M2” to describe the part of an economy’s money supply that includes cash, checking deposits, and what is known as “near money” — extremely liquid assets like savings deposits, money market mutual funds, and other time deposits.

HSBC points out that M2 growth has settled in around 12% to 15% a year over the last few years. It was 20% while the economy was growing faster. WMPs, HSBC analysts estimate, are growing much faster than that.

“What that means, quite simply, is that money is flowing into WMPs faster than the pace at which it is being created, implying that liquidity is being sucked in from the real economy,” the analysts wrote. “In our opinion, the sustainability of such a situation is questionable, and this is potentially one of the key factors that could trigger a systemic risk event down the road.”
"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

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?

Integrated trio of 2-D nanomaterials unlocks graphene electronics applications

Voltage-controlled oscillator developed at UC Riverside could be used in thousands of applications from computers to wearable technologies

Date: July 5, 2016

Source: University of California - Riverside

Summary: A new article describes the development of the first useful device that exploits the potential of charge-density waves to modulate an electrical current through a 2-D material. The new technology could become an ultralow power alternative to conventional silicon-based devices, which are used in thousands of applications from computers to clocks to radios.
Graphene has emerged as one of the most promising two-dimensional crystals, but the future of electronics may include two other nanomaterials, according to a new study by researchers at the University of California, Riverside and the University of Georgia.
In research published Monday (July 4) in the journal Nature Nanotechnology, the researchers described the integration of three very different two-dimensional (2D) materials to yield a simple, compact, and fast voltage-controlled oscillator (VCO) device. A VCO is an electronic oscillator whose oscillation frequency is controlled by a voltage input.
Titled "An integrated Tantalum Sulfide--Boron Nitride--Graphene Oscillator: A Charge-Density-Wave Device Operating at Room Temperature," the paper describes the development of the first useful device that exploits the potential of charge-density waves to modulate an electrical current through a 2D material. The new technology could become an ultralow power alternative to conventional silicon-based devices, which are used in thousands of applications from computers to clocks to radios. The thin, flexible nature of the device would make it ideal for use in wearable technologies.
Graphene, a single layer of carbon atoms that exhibits exceptional electrical and thermal conductivities, shows promise as a successor to silicon-based transistors. However, its application has been limited by its inability to function as a semiconductor, which is critical for the 'on-off' switching operations performed by electronic components.
To overcome this shortfall, the researchers turned to another 2D nanomaterial, Tantalum Sulfide (TaS2). They showed that voltage-induced changes in the atomic structure of the '1T prototype' of TaS2 enable it to function as an electrical switch at room temperature--a requirement for practical applications.
"There are many charge-density wave materials that have interesting electrical switching properties. However, most of them reveal these properties at very low temperature only. The particular polytype of TaS2 that we used can have abrupt changes in resistance above room temperature. That made a crucial difference," said Alexander Balandin, UC presidential chair professor of electrical and computer engineering in UCR's Bourns College of Engineering, who led the research team.
To protect the TaS2 from environmental damage, the researchers coated it with another 2D material, hexagonal boron nitrate, to prevent oxidation. By pairing the boron nitride-capped TaS2 with graphene, the team constructed a three-layer VCO that could pave the way for post-silicon electronics. In the proposed design, graphene functions as an integrated tunable load resistor, which enables precise voltage control of the current and VCO frequency. The prototype UCR devices operated at MHz frequency used in radios, and the extremely fast physical processes that define the device functionality allow for the operation frequency to increase all the way to THz.
Balandin said the integrated system is the first example of a functional voltage-controlled oscillator device comprising 2D materials that operates at room temperature.
"It is difficult to compete with silicon, which has been used and improved for the past 50 years. However, we believe our device shows a unique integration of three very different 2D materials, which utilizes the intrinsic properties of each of these materials. The device can potentially become a low-power alternative to conventional silicon technologies in many different applications," Balandin said.
The electronic function of graphene envisioned in the proposed 2D device overcomes the problem associated with the absence of the energy band gap, which so far prevented graphene's use as the transistor channel material. The extremely high thermal conductivity of graphene comes as an additional benefit in the device structure, by facilitating heat removal. The unique heat conduction properties of graphene were experimentally discovered and theoretically explained in 2008 by Balandin's group at UCR. The Materials Research Society recognized this groundbreaking achievement by awarding Balandin the MRS Medal in 2013.
The Balandin group also demonstrated the first integrated graphene heat spreaders for high-power transistors and light-emitting diodes. "In those applications, graphene was used exclusively as heat conducting material. Its thermal conductivity was the main property. In the present device, we utilize both electrical and thermal conductivity of graphene," Balandin added.

"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

The monthly Coppock Indicators finished June

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

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