Thursday, 18 August 2016

Danger Unexploded Financial Nuclear Bombs.

Baltic Dry Index. 685  -02    Brent Crude 49.71

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

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

John Kenneth Galbraith.

Six hundred trillion dollars of unexploded derivatives gambling debts could go boom at any moment and the global counterparty clearinghouses that guarantee them when things go wrong, probably can’t. Welcome to the great unstable world of crony central bankster central planning, that came about after President Nixon arbitrarily put the world onto the Great Nixonian Error of fiat money, communist money, all the way back on August 15, 1971.
45 years on and there’s not enough wealth in the world to back up 600 trillion in derivatives gambling contracts. Since derivatives gambling contracts are a zero sum game, for every winner there’s a one to one loser, luckily the clearinghouses only need to come up with 300 trillion in the worst possible case. Phew! What a relief.
True they argue that a worst possible case can never happen, just like the Titanic, they are unsinkable. But what happens when the inevitable war breaks out between President Clinton and President Xi or President Putin. With NATO forces encamped in Narva Estonia, just 84 miles from St Petersburg,  Russia just like Israel in 1967, faced with an existential threat, Russia must strike first and unlike Israel in the six day war, probably with tactical nukes to negate NATO’s overwhelming strength advantage. 
Against China in the South China Sea, or over the Diaoyu Islands off Taiwan, with luck, a whole lot of luck, it just might stay non-nuclear, at least for the first few days. Nixon’s handing “Administration” of the Diaoyu Islands to Japan in 1971 despite the Cairo Declaration 1943, the Potsdam Declaration 1945 and the Treaty of San Francisco 1951 finalising the end of  WW2, America didn’t have sovereignty over the islands so couldn’t pass that on to Japan, is the other Great Nixonian Error that threatens to involve real nuclear bombs.
Below, what were the central banksters thinking when first they decided to play God.
If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too.
Lloyd Blankfein’s CEO Goldman Sachs, 2008 threat.

The banking sector isn't the scariest part of the financial system anymore

Aug. 16, 2016, 11:32 AM
The two global regulators who oversee the derivatives market are sounding the alarm on the industry responsible for clearing trillions of dollars of in deals, warning that it has a high concentration of risk and a low ability to manage it.

They published a report into the stability of 10 central derivatives counterparties and clearinghouses on Wednesday. The results are slightly terrifying.

Some central counterparties — we don't know who, they're not named in the report — have no guidebook to follow if they get into financial trouble. And regulators are worried. If these were banks, they would risk losing their banking licence.

Some context: a derivative is an agreement between two parties to pay each other money depending on the performance of some other underlying asset, such as gold or shares in Apple.

The total value of these contracts in the world is more than $600 trillion, according to the Bank for International Settlements.

Central counterparties and clearinghouses act as a third party in trillions of dollars worth of derivatives transactions, assuming the risks and sharing the losses if one of its members defaults. An example of a central counterparty in the UK would be LCH Clearnet, which is run by the London Stock Exchange.

Without a central counterparty, you could get a chain reaction of defaults. If bank A can't pay the money it owes on a losing derivative trade with bank B, that might stop bank B from paying the money it owes to bank C, and so on.

A central counterparty's job is to guarantee the trade, stepping in if one party can't pay the other and funding the trade itself from contributions from its members. This turns a chain of deals into a web, which can support itself even if the weakest link goes down.

It should make the system safer.

But here's the most damning sentence in Wednesday's report, which was carried out by CPMI and IOSCO, the two regulatory bodies that make global rules for markets (emphasis ours):

"Some CCPs have not yet put in place sufficient policies and procedures to ensure that they maintain the required level of financial resources on an ongoing basis, including adequate arrangements to ensure a prompt return to the target level of coverage in the event of a breach; and some do not include sufficient liquidity-specific scenarios in their liquidity stress tests

"Again, for such CCPs, these are serious issues of concern that should be addressed with the highest priority."

Even the International Swaps and Derivatives Association, the derivatives industry group, thinks this is a problem. "They are absolutely right to focus on this issue," ISDA said in an email.

"Several clearing houses have become systemically important as a result of global clearing mandates, and it’s vital this infrastructure is as secure as possible – which means establishing a credible and robust recovery and resolution framework," ISDA said.

Central counterparties are a good idea and it makes sense to use them.

The fall of Lehman Brothers in 2008 left a mess of bilateral derivatives deals. The data was so sparse that it often wasn't clear who had traded what derivative with who or who owed money to whom. Global regulators reacted with rules designed to force more trades through central counterparties. It worked, and they swelled in size.
The problem is that the policy to move trades onto central counterparties was implemented before the rules could be written to make sure institutions themselves were safe. That's like forcing more traffic down a road before you paint the road markings and put up the speed signs. The debate is still raging, eight years after the 2008 financial crisis, how to properly address this issue.
Central counterparties keep records of trades and help suck risk out of the banking system, but this only works if they themselves are well capitalised and have plans in place to deal with a sudden collapse of one or more of its members and get close to failure.
Otherwise, they're just unexploded nuclear bombs nestling deep in the financial system.
In other news, President Nixon’s other Great Error in East Asia might eventually lead to war between China and Japan, with Japan vowing to fight China to the last American. Stay long fully paid up gold and silver. A President Clinton, a card carrying member of the American War Party, would jump into any Chinese war in a heartbeat. Our 21st century world has become a very dangerous, wild west place.

Japanese Coast Guard Releases Video Showing Hundreds Of Chinese Ships Near Disputed Islands

Aug 17, 2016 8:48 AM
One week after Japan vocally complained to China over what it alleged was a fleet of 300 Chinese vessels spotted near the disputed territory of the Senkaku Islands in the East China Sea, with Vice Foreign Minister Shinsuke Sugiyama summoning and complaining to China’s Ambassador Cheng Yonghua that the incident had infringed on Japan’s sovereignty, the Japanese coast guard released a video showing hundreds of Chinese vessels sailing in the contentious territory. The aerial footage indicates the high level of tension in the area.
The video, which was shot from inside a low-flying patrol aircraft, has been released online by the Japanese Coast Guard, the Japan Times reported on Tuesday.  The footage shows 200 to 300 Chinese fishing boats accompanied by 28 Chinese patrol ships spotted in areas just outside Japanese territorial waters around the Senkakus, as well as Japanese patrol ships trying to prevent the Chinese ships from advancing into the disputed area.

Toward the end of the video, the 1,500-ton Japanese patrol ship Aguni, armed with 20mm cannon, approaches a Chinese Coast Guard vessel and a fishing boat. The Aguni then flashes a warning: “Your ship has intruded into the territorial waters of our country …  passage in Japanese waters is not allowed. Get out of this area immediately,” according to Japanese captions to the video cited by the newspaper.

As RT reports, the Japanese Coast Guard later claimed that seven out of 18 Chinese patrol vessels spotted around the Senkakus were equipped with what “looked like machine guns,” according to the Japan Times. “Actions by the Chinese side like this, which will escalate the situation, are not tolerable,” the Japanese Coast Guard said in a statement.

The Senkaku Islands are administered by Japan but are claimed by China. The incident added fuel to tensions between Tokyo and Beijing.

The heated dispute between Beijing and Tokyo over the national affiliation of the Senkaku/Diaoyu Islands dates back to 2012, when the Japanese government nationalized the islands' ownership. Beijing has never recognized the move, claiming Chinese authority over the islands. Chinese ships, mostly fishing boats, have frequently sailed in the disputed area since the islands came under Japanese-claimed authority.

In another notable escalation, over the weekend, the Japanese government announced it would develop land-to-sea missiles with a range of 300 kilometers (186 miles) to protect the nation’s isolated islands, including the Senkaku, the Yomiuri newspaper reported, without saying where it got the information. Costs for development will be part of the defense ministry’s budgetary request for the fiscal year ending March 2018, according to the Yomiuri. The government will aim for deployment around the year ending March 2024, it said.

China's nationalist Global Times paper immediately responded, saying :"Japan's decision to develop surface-to-sea missiles with a range of 300 kilometers to cover the disputed islands shows the country may be eyeing a shift to an offensive posture, analysts said.

"Japan is trying to use the missile system to lock down the Miyako Strait and prevent Chinese forces from entering the Western Pacific Ocean," Zhou Yongsheng, a professor at the Institute of International Relations of China Foreign Affairs University, told the Global Times.

Da Zhigang, director of the Institute of Northeast Asian studies at the Heilongjiang Academy of Social Sciences, said the 300-kilometer range missiles could target China's coastal areas. He said if the reported 300-kilometer range is true, it would mean Japan is ready for a hard fight. "The range is higher than that of Russia's S-300 surface-to-air missile system, and better than China's current surface-to-air missile system."

As a reminder, in the latest military development, yesterday China disclosed it had sent a military liaison to Syria where he announced China would provide Syria with military training and supplies, effectively siding with Russia in the ongoing Syrian conflict.

The Three Great Allies are fighting this war to restrain and punish the aggression of Japan. They covet no gain for themselves and have no thought of territorial expansion. It is their purpose that Japan shall be stripped of all the islands in the Pacific which she has seized or occupied since the beginning of the first World War in 1914, and that all the territories Japan has stolen from the Chinese, such as Manchuria, Formosa, and The Pescadores, shall be restored to the Republic of China. Japan will also be expelled from all other territories which she has taken by violence and greed. The aforesaid three great powers, mindful of the enslavement of the people of Korea, are determined that in due course Korea shall become free and independent.

that the "Japanese sovereignty shall be limited to the islands of Honshu, Hokkaido, Kyushu, Shikoku, and such minor islands as we determine," as had been announced in the Cairo Declaration in 1943

Neither the Republic of China (ROC) in Taiwan nor the People's Republic of China (PRC) in mainland China were invited because of the Chinese Civil War and the controversy over governmental legitimacy and therefore whom to invite. The lack of invitation to either or both of these parties resulted in the controversial political status of Taiwan, since the Treaty of Peace did not specify to whom Taiwan's sovereignty was to be turned over, and left the ROC's administration and sovereignty over Taiwan disputed and unresolved in international law.
“There are some bored foreigners, with full stomachs, who have nothing better to do than point fingers at us [China]. First, China doesn’t export revolution; second, China doesn’t export hunger and poverty; third, China doesn’t come and cause you headaches, what more is there to be said?

President Xi Jinping
At the Comex silver depositories Wednesday final figures were: Registered 26.45 Moz, Eligible 131.01 Moz, Total 157.46 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
In EUSSR news, ten nations still want to tax away their financial business to the rest of the world. Only in the insane asylum known as the dying European Union.
If all else fails, immortality can always be assured by spectacular error.

John Kenneth Galbraith.

EU Financial Transaction Tax Deadline Said to Be Pushed Back

August 16, 2016 — 3:05 PM BST
The 10 European Union countries pushing for a new tax on financial transactions have pushed back a September deadline for a verdict on the plan, according to a European official with knowledge of the talks.
Austrian Finance Minister Hans Joerg Schelling, who’s leading the discussions, presented a compromise proposal in June, and said a “final decision” would have to be made in September when task forces report back on two “technical issues” that remain to be resolved.

Those groups weren’t able to wrap up their work over the summer, however, so the next round of discussions is now planned for an Oct. 10 meeting of euro-area finance ministers, the official said, declining to be identified because the negotiations are private. The delay doesn’t indicate that fresh disagreements on the plan have emerged, the official said.

Plans for a transaction tax already failed among all 28 EU nations, and the current talks are seeking a compromise among a smaller group that sought to press on under “enhanced cooperation” rules, which require consensus from at least nine nations. The countries still involved are Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

Under the June proposal, “harmonized taxation” would be applied to stocks issued in one of the 10 participating countries. “All shares” would be taxed after a transition period “unless participating member states decide otherwise.”

The tax would cover “all derivatives,” though initially products “with public debt to 100 percent as direct underlying” would be exempt. Repurchase agreements, which are used for short-term financing, as well as transactions of public debt managers would also be excluded.

German Finance Minister Wolfgang Schaeuble said last month that he would prefer to tax financial transactions on a global level and that Europe was “hitting a wall” in trying to reach a solution.

You will find that the State is the kind of organization which, though it does big things badly, does small things badly, too.

John Kenneth Galbraith.

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?

Researchers resolve a problem that has been holding back a technological revolution

Date: August 16, 2016

Source: McMaster University

Summary: Researchers have cleared that obstacle by developing a new way to purify carbon nanotubes -- the smaller, nimbler semiconductors that are expected to replace silicon within computer chips and a wide array of electronics.
Imagine an electronic newspaper that you could roll up and spill your coffee on, even as it updated itself before your eyes.
It's an example of the technological revolution that has been waiting to happen, except for one major problem that, until now, scientists have not been able to resolve.
Researchers at McMaster University have cleared that obstacle by developing a new way to purify carbon nanotubes -- the smaller, nimbler semiconductors that are expected to replace silicon within computer chips and a wide array of electronics.
"Once we have a reliable source of pure nanotubes that are not very expensive, a lot can happen very quickly," says Alex Adronov, a professor of Chemistry at McMaster whose research team has developed a new and potentially cost-efficient way to purify carbon nanotubes.
Carbon nanotubes -- hair-like structures that are one billionth of a metre in diameter but thousands of times longer -- are tiny, flexible conductive nano-scale materials, expected to revolutionize computers and electronics by replacing much larger silicon-based chips.
A major problem standing in the way of the new technology, however, has been untangling metallic and semiconducting carbon nanotubes, since both are created simultaneously in the process of producing the microscopic structures, which typically involves heating carbon-based gases to a point where mixed clusters of nanotubes form spontaneously as black soot.
Only pure semiconducting or metallic carbon nanotubes are effective in device applications, but efficiently isolating them has proven to be a challenging problem to overcome. Even when the nanotube soot is ground down, semiconducting and metallic nanotubes are knotted together within each grain of powder. Both components are valuable, but only when separated.
Researchers around the world have spent years trying to find effective and efficient ways to isolate carbon nanotubes and unleash their value.
While previous researchers had created polymers that could allow semiconducting carbon nanotubes to be dissolved and washed away, leaving metallic nanotubes behind, there was no such process for doing the opposite: dispersing the metallic nanotubes and leaving behind the semiconducting structures.
Now, Adronov's research group has managed to reverse the electronic characteristics of a polymer known to disperse semiconducting nanotubes -- while leaving the rest of the polymer's structure intact. By so doing, they have reversed the process, leaving the semiconducting nanotubes behind while making it possible to disperse the metallic nanotubes.
The researchers worked closely with experts and equipment from McMaster's Faculty of Engineering and the Canada Centre for Electron Microscopy, located on the university's campus.
"There aren't many places in the world where you can to this type of interdisciplinary work," Adronov says.
The next step, he explains, is for his team or other researchers to exploit the discovery by finding a way to develop even more efficient polymers and scale up the process for commercial production.

The monthly Coppock Indicators finished July

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

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