Tuesday, 30 August 2016

China’s Impending Bust.

Baltic Dry Index. 720 Friday        Brent Crude 49.38

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

“Orthodoxy means not thinking–not needing to think. Orthodoxy is unconsciousness.”

George Orwell. 1984.

Has China’s Great Wobble already turned into the start of a bust? Recent developments in the copper markets suggest that if it hasn’t happened already, a great restructuring of China’s electric vehicle manufacturing sector, put it on the cards for 2017.

Below, things go from bad to worse in the world’s second largest economy, though still the world’s leading Ponzi economy. Officially China’s GDP will grow by 6.7 percent in 2016. Your guess is as good as mine at what the reality is, but  the growing turmoil in the global copper market from China dumping copper suggests its economy is growing at nothing like 6.7 percent.

Adding to the Asian gloom this morning, Hanjin Shipping Co., South Korea’s largest container shipping line is rumoured to be about to file for court protection.  Not that any of this will disturb our central bank levitated stock markets. That is, until one day, for no apparent reason, it does.

Opinion: Global growth depends upon successful Chinese makeover

Published: Aug 29, 2016 10:19 p.m. ET

Hard landing in China would push world economy into recession, Stephen Roach says

NEW HAVEN, Conn. (Project Syndicate) — Despite all the hand-wringing over the vaunted China slowdown, the Chinese economy remains the single largest contributor to world economic growth. For a global economy limping along at stall speed — and most likely unable to withstand a significant shock without toppling into renewed recession — that contribution is all the more important.

A few numbers bear this out. If Chinese gross domestic product growth reaches 6.7% in 2016 — in line with the government’s official target and only slightly above the International Monetary Fund’s latest prediction (6.6%) — China would account for 1.2 percentage points of world GDP growth. With the IMF currently expecting only 3.1% global growth this year, China would contribute nearly 39% of the total.

That share dwarfs the contribution of other major economies. For example, while the United States is widely praised for a solid recovery, its GDP is expected to grow by just 2.2% in 2016 — enough to contribute just 0.3 percentage points to overall world GDP growth, or only about one-fourth of the contribution made by China.

A sclerotic European economy is expected to add a mere 0.2 percentage points to world growth, and Japan not even 0.1 percentage point. China’s contribution to global growth is, in fact, 50% larger than the combined 0.8-percentage-point contribution likely to be made by all of the so-called advanced economies.

Moreover, no developing economy comes close to China’s contribution to global growth. India’s GDP is expected to grow by 7.4% this year, or 0.8 percentage points faster than China. But the Chinese economy accounts for fully 18% of world output (measured on a purchasing-power-parity basis) — more than double India’s 7.6% share. That means India’s contribution to global GDP growth is likely to be just 0.6 percentage points this year — only half the 1.2-percentage-point boost expected from China.

More broadly, China is expected to account for fully 73% of total growth of the so-called BRICS grouping of large developing economies.

Chile's Codelco in 'fragile' situation as it makes loss

World no. 1 copper miner Codelco produced more copper in the first half of 2016 than a year ago, but made a financial loss, and the chief executive said on Friday that the company position was "extremely fragile."

The Chilean state-owned firm produced 843,000  tonnes of copper in the first half, up 1.4 percent, and made a pretax loss of $97 million, it reported Friday. Even though direct cash costs fell 9 percent to $1.275 per pound of copper compared to a year ago, the copperprice is down over 20 percent, continuing a slide sparked by cooling demand in top buyer China.

That has complicated the scenario enormously for Codelco, which gives all its profits back to the state and relies on capitalization and some debt issuance to fund its operations.

"We are playing on the edge," Chief Executive Nelson Pizarro said at a press conference following the release of results. Earlier this week he raised eyebrows in Chile after he said at a mining forum that "there is no money, not one damn peso."

In order to maintain output at its tapped-out mines, Codelco has been betting on multi-billion dollar expansion projects, but the economic scenario has forced it to scale back some of those plans.

Two of those projects - to take century-old Chuquicamata underground and build a new crushing plant at Andina - were progressing according to plan, said Pizarro on Friday.
But another plan, to expand Radomiro Tomic, was being redesigned, as it was not as profitable as the other projects, he added.


It's not unusual for LME copper stocks to trend higher during the dog-days of northern hemisphere summer as manufacturing activity drops a gear.

And, conforming with that pattern, warranting of metal has taken place at a wide variety of LME good delivery points, including Hull in Britain, Bilbao in Spain and several U.S. locations.

But the real stand-out has been the accelerated flows at Singapore, which has received almost 95,000 tonnes since the start of June, and South Korea, which has taken in 103,000 tonnes.

Both countries have also featured prominently in China's export profile over the same period of time.

Customs data shows exports of 89,000 tonnes to Singapore and 76,000 tonnes to South Korea since March, when China's exports first started accelerating. Between them Singapore and South Korea have accounted for almost 60 percent of all outbound flows.

The correspondence between Chinese exports and LME arrivals isn't perfect (see the chart above) but the broad picture is one of metal leaving China and turning up in the most easily shippable LME locations.

The question is whether this metal is being pushed or pulled.

----So if China is pushing out surplus copper, or at least exerting a lesser magnetic pull than that offered by LME warehousers, what does it say about the health or otherwise of Chinese demand?

Not as much as you might think. China's apparent consumption, a back-of-the-envelope calculation factoring in production, imports and visible stocks movements, jumped by 11 percent in the first half of this year.

Not even the most exuberant bull would argue that real consumption growth was anywhere near that level. The spectrum of estimates is a wide one but the middle ground would be around three percent. The implication is that there has been significant stocks build, possibly on the mainland, possibly in bonded warehouses and most probably a combination of the two.

China, in other words, is full of copper. And getting fuller, because the other dimension to this mass stocks relocation is China's own production of refined metal, up almost 10 percent in July and up by around eight percent over the year to date.

Red Ponzi Ticking—-China And The Dark Side Of The Global Bubble, Part 3

by David Stockman • August 26, 2016
----A Potemkin Economy Buried In Cement
No wonder the Red Ponzi consumed more cement during three years (2011-2013) than did the US during the entire twentieth century. Enabled by an endless flow of credit from its state controlled banking apparatus and its shadow banking affiliates, China went berserk building factories, warehouses, ports, office towers, malls, apartments, roads, airports, train stations, high speed railways, stadiums, monumental public buildings and much more.
If you want an analogy, the 6.6 gigatons of cement consumed by China during 2011-2013 was the equivalent of 14.5 trillion pounds. By comparison, the Hoover dam used about 1.8 billion pounds of cement.
So in 3 years China consumed enough cement to build the Hoover dam 8,000 times over—-160 of them for every state in the union!
Having spent recent time in China,  we can well and truly say that the Middle Kingdom is back. But its leitmotif is the very opposite to the splendor of the Forbidden City.
The Middle Kingdom has been reborn in towers of preformed concrete. They rise in their tens of thousands in every direction on the horizon. They are connected with ribbons of highways which are scalloped and molded to wind through the endless forest of concrete verticals. Some of them are occupied. A lot, not.
----Today’s Pudong district does look spectacular—–presumably a 21st century rendition of the glory of the Qing, the Ming, the Soong, the Tang and the Han—all rolled into one.
But to conclude that would be to be deceived. The apparent prosperity is not that of a sustainable economic miracle; it’s the front street of the greatest Potemkin village in world history.
The heart of the matter is that output measured by Keynesian GDP accounting—-especially China’s blatantly massaged variety— isn’t sustainable wealth if it is not rooted in real savings, efficient capital allocation and future productivity growth. Nor does construction and investment which does not earn back its cost of capital over time contribute to the accumulation of real wealth.
Needless to say, China’s construction and “investment” binge manifestly does not meet these criteria in the slightest. It was funded with credit manufactured by state controlled banks and their shadow affiliates, not real savings.
It was driven by state initiated growth plans and GDP targets. These were cascaded from the top down to the province, county and local government levels—–an economic process which is the opposite of entrepreneurial at-risk assessments of future market based demand and profits.
China’s own GDP statistics are the smoking gun. During the last 15 years fixed asset investment—–in private business, state companies, households and the “public sector” combined—–has averaged 50% of GDP. That’s per se crazy.
Even in the heyday of its 1960s and 1970s boom, Japan’s fixed asset investment never reached more than 30% of GDP. Moreover, even that was not sustained year in and year out (they had three recessions), and Japan had at least a semblance of market pricing and capital allocation—unlike China’s virtual command and control economy.
A Credit Driven Madhouse
The reason that Wall Street analysts and fellow-traveling Keynesian economists miss the latter point entirely is because China’s state-driven economy works through credit allocation rather than by tonnage toting commissars.
The gosplan is implemented by the banking system and, increasingly, through China’s mushrooming and metastasizing shadow banking sector. The latter amounts to trillions of credit potted in entities which have sprung up to evade the belated growth controls that the regulators have imposed on the formal banking system.
For example, Beijing tried to cool down the residential real estate boom by requiring 30% down payments on first mortgages and by virtually eliminating mortgage finance on second homes and investment properties. So between 2013 and the present more than 2,500 on-line peer-to-peer lending outfits (P2P) materialized—-mostly funded or sponsored by the banking system—– and these entities have advanced more than $2 trillion of new credit.
That’s right. A new $2 trillion credit channel erected virtually overnight.
The overwhelming share went into meeting “downpayments” and other real estate speculations. On the one hand, that reignited the real estate bubble——especially in the Tier I cities were prices have risen by 20% to 60% during the last year.
At the same time, this P2P credit eruption in the shadow banking system has encouraged the construction of even more excess housing stock in an economy that already has upwards of 65 million empty units.
In short, China has become a credit-driven economic madhouse. The 50% of GDP attributable to fixed asset investment actually constitutes the most spectacular spree of malinvestment and waste in recorded history. It is the footprint of a future depression, not evidence of sustainable growth and prosperity.

95% of China's Electric Vehicle Startups Face Wipeout

Bloomberg News August 28, 2016 — 11:00 PM BST
China’s electric-vehicle industry, with 200-plus companies backed by a raft of billionaires, verges on a massive shakeout as the government imposes stricter technology standards on fledgling manufacturers and considers limiting their number to only 10.

Any curbs would be aimed at weeding out the weak, said a senior executive with the state-backed auto manufacturers’ association, and they may push as many as 90 percent of EV startups toward extinction, a government-linked newspaper said. So far, only two ventures have obtained approval to build cars, based on a review of National Development and Reform Commission documents. Three others say they plan to apply for permits.

Jack Ma, Terry Gou, Li Ka-shing and Jia Yueting are among the investors who’ve poured at least $2 billion into building alternative-energy vehicles as China tries to combat the smog choking its cities. Generous subsidies helped cultivate a gold-rush mentality, prompting concerns the industry is plagued by too many companies lacking the technical know-how to make electric or hybrid cars that measure up to those from Tesla Motors Inc. or General Motors Co.

“There are too many entrants in the sector, and some of them are just speculators,” said Yin Chengliang, a professor at Shanghai Jiao Tong University’s Institute of Automotive Engineering. “The government has to raise the threshold. It’s bad to see irrational investments in projects with low technology levels.”

The potential cap on EV startups comes as the world’s biggest auto industry grapples with overcapacity and high inventories. Carmakers are seeing pressure on their profit margins with the spread of cheap models, while stringent fuel-economy and emissions targets are set to raise costs.

China surpassed the U.S. last year to become the world’s biggest market for new-energy vehicles -- comprising electric vehicles, plug-in hybrids and fuel-cell cars. Domestic automakers sold 331,092 units in 2015, according to the China Association of Automobile Manufacturers.

The government’s sales target is 3 million units a year by 2025 -- a 10-fold increase -- and it’s offering subsidies that can total 60 percent of an electric-car’s sticker price. There currently are about 4,000 new-energy vehicle, or NEV, models in development.

“It’s true we’re emphasizing support to develop new-energy vehicles, but should we allow everyone to go ahead?” said Dong Yang, executive vice chairman of the manufacturers’ association.

The Ministry of Industry and Information Technology is considering restricting the number of startup EV makers to a maximum of 10, said Dong, who meets regularly with its officials. That count won’t include traditional carmakers such as SAIC Motor Corp. and BYD Co. that are developing NEVs.

The MIIT didn’t respond to a faxed request for comment.

“You are a slow learner, reader."
"How can I help it? How can I help but see what is in front of my eyes? Two and two are four."
"Sometimes, reader. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder.

Ebenezer Squid, With apologies to George Orwell 1984.
At the Comex silver depositories Monday final figures were: Registered 26.07 Moz, Eligible 135.28 Moz, Total 161.35 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, why the EUSSR was always destined to fail. With Germany’s export bubble to China now meeting its pin, continental Europe’s paymaster is about to get very tight with its cash.

The secret history of the EU, written on an Italian prison island, reveals why the project is doomed 

Christopher Booker27 August 2016 • 3:00pm
As we know, the great dream that has been shaping the political integration of Europe for 60 years is today facing what is called an “existential crisis” – one so profound as to call into question its continued existence.

The seemingly insoluble problems the European Union has brought upon itself crowd in from all directions: the slow-motion catastrophe of the euro, the unending flood of refugees; the deadly plague of terrorism; the approaching energy crunch. And now, amid that growing resentment right across Europe of all the EU stands for, it is also faced with the vote of one of its largest members to leave it altogether.

As a measure of just how desperately the EU has lost its way, it is worth taking a closer look at the symbolism of the venue chosen for last week’s meeting of the leaders of Germany, France and Italy, to discuss what they can do next about it all.
We were coyly told that the little island of Ventotene off Naples was where, in 1941, a prisoner of Mussolini’s had written the visionary manifesto that looked forward to building, after the war, a “United States of Europe”. What somehow got omitted was that Altiero Spinelli was a Communist (the Today programme merely described him on air as a “Fascist prisoner”, although, lest this be misunderstood, that was edited out of their online report).
We were not told that Spinelli’s Ventotene Manifesto proposed that his future government of Europe should be quietly assembled by its supporters over many years; and that only when all its pieces were in place would those supporters summon a convention to draw up a “Constitution for Europe”, which would finally reveal to the European people just what they had been up to.
What we were also not told – and this is seemingly one of the best-kept secrets of the whole story – is that many years later, when Spinelli was elected as a Communist MEP in 1979, he became the second most influential person, after Jean Monnet, in shaping “Europe” as we know it today.

At a time when the integration process had stalled, it was he – as I and my co-author, Richard North, were first able to explain in our book The Great Deception – who persuaded the European Parliament to vote for a “Draft Treaty on European Union”.

And it was this, taken up by Jacques Delors, which led directly to the next two major treaties, the Single European Act and Maastricht, transforming the European Community into the European Union, complete with its own currency, foreign policy and much else besides.

It was an astonishing achievement, which is why one of the largest office blocks in Brussels, the headquarters of the European Parliament, is called the Altiero Spinelli Building. But if you stop any of the hundreds who work there, you will scarcely find one who could tell you why it bears his name.
The point is that, exactly as envisioned in their different ways by Spinelli and Monnet, the “project” has only ever had one real agenda in all it has done: to promote a supranational government for Europe, based on eliminating national self-interest: what Monnet called “national egoism”. There could only ever be one direction of travel: ever more integration; whatever the question, the answer is always “more Europe”.
In the end, their great dream simply over-reached itself, as we see in every one of those crises piling in on it today. And how telling it was that, when Angela Merkel, François Hollande and Matteo Renzi met off Ventotene, all they could come up with, their wish to “relaunch the European ideals of unity and peace, freedom and dreams”, was just those same familiar old dead mantras.

"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."

Hans F. Sennholz

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 under pressure

Date: August 25, 2016

Source: University of Manchester

Summary: Small balloons made from one-atom-thick material graphene can withstand enormous pressures, much higher than those at the bottom of the deepest ocean, scientists at the University of Manchester report.
This is due to graphene's incredible strength -- 200 times stronger than steel.
The graphene balloons routinely form when placing graphene on flat substrates and are usually considered a nuisance and therefore ignored. The Manchester researchers, led by Professor Irina Grigorieva, took a closer look at the nano-bubbles and revealed their fascinating properties.
These bubbles could be created intentionally to make tiny pressure machines capable of withstanding enormous pressures. This could be a significant step towards rapidly detecting how molecules react under extreme pressure.
Writing in Nature Communications, the scientists found that the shape and dimensions of the nano-bubbles provide straightforward information about both graphene's elastic strength and its interaction with the underlying substrate.
The researchers found such balloons can also be created with other two-dimensional crystals such as single layers of molybdenum disulfide (MoS2) or boron nitride.
They were able to directly measure the pressure exerted by graphene on a material trapped inside the balloons, or vice versa.
To do this, the team indented bubbles made by graphene, monolayer MoS2 and monolayer boron nitride using a tip of an atomic force microscope and measured the force that was necessary to make a dent of a certain size.
These measurements revealed that graphene enclosing bubbles of a micron size creates pressures as high as 200 megapascals, or 2,000 atmospheres. Even higher pressures are expected for smaller bubbles.
Ekaterina Khestanova, a PhD student who carried out the experiments, said: "Such pressures are enough to modify the properties of a material trapped inside the bubbles and, for example, can force crystallization of a liquid well above its normal freezing temperature'.
Sir Andre Geim, a co-author of the paper, added: "Those balloons are ubiquitous. One can now start thinking about creating them intentionally to change enclosed materials or study the properties of atomically thin membranes under high strain and pressure."

"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

Kenneth J. Gerbino

The monthly Coppock Indicators finished July

DJIA: 18432  +03 Up NASDAQ:  5162 +10 Up. SP500: 2173 +01 Up.

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