Thursday, 25 August 2016

The Jackson Hole – D-Day Minus One.

Baltic Dry Index. 692        Brent Crude 49.12

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

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Adam Smith. The Wealth of Nations. 1776.
As the not so good, the bad and the downright evil, Great Vampire Squids of Wall Street assemble in the back of beyond Jackson Hole, Wyoming, what Ronald Reagan’s Director of the Office of Management and Budget, David Stockman calls “Flyover America,” the rest of the world watches on nervously. Will the Fed’s talking chair really stick the knife into Ebenezer Squid and all the other cavorting Great Vampire Squids and Banksters, by finally outlining a plan to normalise US interest rates? (Unlikely.)
Or is the Fed’s talking chair’s master plan, going to be falling in behind Europe’s fallen former “Super Mario” over at the ECB, and joining the EU, Switzerland, and the Asian Old Age Society of Japan, in plunging into negative interest rates? (Unlikely.)
50 year bonds? Perpetual bonds? Buying US government bonds direct from the US Treasury, cutting out the rent seeking, front running Great Vampire Squids? (Unlikely, but better hire a food taster for the talking chair if that ever happens.)  My guess is that Mrs. Yellen having dug herself into a deep hole of expectation in the Jackson Hole, is going to deliver an epic round of gobblygook, disinformation, and massive disappointment and confusion tomorrow.
But stock and bond bubble marketeers, still have one day and a half left to place their highly leveraged bets. With London, the world’s leading financial centre heading into a long weekend, any unanticipated shock and awe announcement by the talking chair tomorrow, is likely to be met by an “excited” market, too say the least.
For today though, the floor is held by the ever irrepressible, highly entertaining, and depressingly accurate, David Stockman.

Bubbles In Bond Land—-A Central Bank Made Mania, Part 3

by David Stockman • 
----…….In short, the global bond market has become a giant volcano of uncollectible capital gainsFor example, long-term German bunds issued four years ago are now trading at 200% of par.

Yet even if the financial system of the world somehow survives the current mayhem, the German government will never pay back more than 100 cents on the dollar.

What that means is there will eventually be a multi-trillion dollar bond implosion as speculators and bond fund managers alike scramble to cash-in their capital gains at the first sign that the global bond markets are breaking and heading back to par or below. And it is not just the “winners” who will be stampeding for the exists.

There will also be an even larger and sorrier band of “losers” in an even greater state of panicked flight. We refer here to all the Johnny-come-lately bond managers on the planet who are today buying trillions of bonds at a premium to par. For example, the premium price of the 4% coupon Italian bonds that have traded up to a 1.2% yield owing to Mario Draghi’s $90 billion per month buying spree will get absolutely monkey-hammered when the ECB’s Big Fat Bid finally ends.

To be sure, these befuddled money manages claim to have no choice or that these premium bonds still have a slightly better yield than subzero. Yet what they are actually doing is strapping on a financial suicide vest. These premiums absolutely must disappear before maturity, and most probably suddenly, violently and all at once when the great global bond bubble finally implodes.

Likewise, there is nearly $3 trillion of junk bonds and loans outstanding in the US alone, and that is double the level extant on the eve of the great financial crisis. But double the money embodies far more than double the risk.

That’s partially because the drastic, central bank induced compression of benchmark bond yields has been transmitted into ultra-low absolute levels of junk bond yields via spread pricing. Compared to all of modern history, current junk bond yields in the 5-6% range are just plain ridiculous.

After all, long-term junk bond losses have been in the 3-4% range, inflation is still running close to 2% on a trend basis and taxes have not yet been abolished. So the sheer math of it is that the average single B junk bond today has negative value——and that’s before the next default cycle really kicks into gear..

And junk bond defaults like never before in history are coming with a vengeance. That’s because a very substantial portion of current junk credit outstandings went into speculations that even LBO shops wouldn’t have entertained 15 years ago.

To wit, it was used to fund radical commodity price speculations in the shale patch, mining and other commodity plays, subprime auto lending schemes and financing for stock buybacks and dividend recaps by highly leveraged companies. Accordingly, the embedded business and credit risk in the $3 trillion of outstanding US junk bonds and loans is off the charts.

Already by mid-year 2016, defaults in the shale patch had taken down 40% of outstandings. Even cautious rating agencies like Fitch now project high yield bond defaults will hit nearly $100 billion in 2016 or double last year’s already elevated levels.

But as usual the rating agencies are far behind the curve. Standard and Poor’s, for example, projects that by June 2017 today’s rapidly rising defaults will only hit the 4-7% range. But they are smoking the same thing they were in 1989, 1999, and 2007!

In fact, the junk bond sector will soon be hit by a double whammy that will push loss rates to unprecedented levels. That’s because there is already a deeply embedded loss due to the distortions of ZIRP/NIRP on benchmark bond pricing. When the central banks of the world are eventually forced to shut down their printing presses and permit rates to normalize, these losses will be transmitted across the entire credit spectrum.
We end for today with the all too real harsh reality of e-commerce start up hype. What goes up all too often comes crashing back down. You just rarely get to hear of the crashes on main stream media bubblevision.

One Kings Lane sold for less than $30 million after being valued at $900 million

20 Hours Ago
One Kings Lane, an online home-furnishings retailer, fetched less than $30 million in its recent sale to Bed Bath & Beyond, according to three people familiar with the deal. The purchase price marks a massive discount from a valuation of $900 million that the startup had secured when it raised more than $100 million from investors in early 2014.

The disappointing sale, which was announced in June without a purchase price, does not come as a total surprise to those who had followed the once-hot startup in recent years. Recode had reported in January that the shopping site had been searching unsuccessfully for a buyer, in the wake of multiple rounds of layoffs and a business that had been deteriorating for some time.

A Bed Bath & Beyond spokesperson did not immediately respond to a request for comment.

In the wake of Dollar Shave Club's $1 billion sale to Unilever and Walmart's impending $3.3 billion acquisition of Jet, the One Kings Lane outcome is a reminder of how brutal the e-commerce industry can be for many startups.

The web retailer, co-founded by Ali Pincus and Susan Feldman, burst onto the scene in 2009 with limited-time sales — known as "flash sales" — of upscale furniture and home decor at heavily-discounted prices.

As Gilt Groupe did with the fashion industry, One Kings Lane initially benefited from the fallout of the Great Recession; businesses were desperate to find new ways to unload pricey goods as the economy slumped and shoppers shunned full-price discretionary items.

Over time, the company secured $225 million in investments from firms such as Greylock, Tiger Global, Kleiner Perkins Caufield & Byers and Mousse Partners, and at one point it booked hundreds of millions of dollars in annual revenue.

As the economy bounced back, however, excess inventory was harder to come by for flash-sale sites across the board. Traditional retailers and brands also began running their own versions of these sales on their own sites. In short, it was really tough to keep the selection of goods fresh on a daily basis.

To make matters worse for One Kings Lane, the furniture and home decor categories are much less seasonal than the fashion industries, meaning there wasn't as much unsold merchandise to come by organically on a quarterly basis, as there is for discount sites in apparel.

The startup tried to jump-start growth through new initiatives like Hunters Alley, a site that was like an eBay for high-end decor. But that project was killed less than a year after launching.

One of the first red flags now seems so obvious in hindsight. Within months of raising $112 million for his company in early 2014, then-CEO Doug Mack stunned insiders and outsiders by leaving for the same role at Fanatics, an online seller of licensed sports apparel.

There's a lot more to the story of what went wrong at One Kings Lane and what e-commerce entrepreneurs and employees can learn from it. That includes the tough lessons some employees learned after spending thousands of dollars to exercise stock options that were rendered completely worthless after the sale to Bed Bath & Beyond.
Speak up, Mrs Yellen, all the world’s a stage and all the world is listening, except those London Great Vampire Squids who’ve left early for their last late summer 5 star vacation.
To widen the market and to narrow the competition, is always the interest of the dealers…The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Adam Smith. The Wealth of Nations. 1776.
At the Comex silver depositories Wednesday final figures were: Registered 27.43 Moz, Eligible 131.09 Moz, Total 158.53 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
While the Fedster’s and their owners junket away in the Kansas Fed’s favourite party town of Jackson Hole, Wyoming, all awaiting the talking chair’s killer policy speech tomorrow, China is busy prepping for hosting next month’s G-20 Great Leaders’ summit in Hangzhou, China. Strictly macro-economic topics are acceptable, do not bring up the South China Sea, the Diaoyu Islands,  China’s exports, nor deteriorating human rights, the bursting Vancouver capital flight real estate bubble, nor China’s scripted economy. It’s only as scripted as Uncle Scam’s since 2008.

China’s Moment in the G-20 Sun Overshadowed by What Lies Beneath

August 23, 2016 — 11:00 PM BST
Chinese President Xi Jinping may feel a bit smug when he hosts global leaders at next month’s Group of 20 summit.

The heralded hard landing of the world’s number two economy hasn’t materialized --instead many Western nations are facing economic and political upheaval. Surging nationalism, terrorism threats, social unrest and Europe’s biggest migration crisis since World War II are shaking governments around the world.

China meanwhile seems to have dodged a currency crisis and is busy bolstering its economy, growing the nation’s military muscle and securing influence abroad with hundreds of billions of dollars in infrastructure projects. With China’s markets calmed at home, the Communist Party’s message to critics is: our system works.

It’s a long way from the turbulent period between June 2015 and March this year when the economy seemed to be lurching and market chaos raised concern that policy makers had lost their grip, according to Arthur Kroeber, the Beijing-based founding partner and managing director at Gavekal Dragonomics, a research firm.

"Today, China’s contribution to global macro risk seems pretty close to zero, and the main issues are populist anti-globalization backlash on the political front, and the impact of negative interest rates on the economic front," said Kroeber, author of the 2016 book “China’s economy: What Everyone Needs to Know”. "I’d guess that Xi Jinping is feeling pretty confident about things."

Even with growth at the lower end of the government’s projection and recent data signaling another soft patch, China’s economy is on track to overtake the whole of the euro zone.

But Xi’s I-told-you-so moment may prove fleeting. Behind China’s recovery is the old play book of cheap credit rather than painful but necessary reforms. Overall debt has risen to about 250 percent of the size of the economy, from 164 percent in 2008. And it’s still rising.

Meanwhile China’s assertions over territory in the South China Sea and East China Sea have aggrieved neighbors and heightened tension in the western Pacific. Developed nations like the U.K. and Australia are starting to be more wary of China’s infrastructure investment.

At home, political tensions are simmering ahead of a mid-term power transition next year. Lax law enforcement and persistent pollution is brewing discontent among the middle class. Migrant workers have seen the end of the boom days and officials at all levels are still reeling from Xi’s unprecedented anti-graft sweep. The government has tightened its grip on state and social media and cracked down on dissent.

There are even signs of division among the leadership over how to manage the nearly $11 trillion economy. An anonymous front page commentary on the People’s Daily in May, penned by an "authoritative person," warned of the "deadly" risks associated with debt, hinting at discomfort among top officials about where the economy was headed.

The result has been near-term stabilization at the cost of longer-term reforms, according to Eswar Prasad, a former chief of the International Monetary Fund’s China division and now a professor at Cornell University in Ithaca, New York.

The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

Adam Smith. The Wealth of Nations. 1776.

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?

Stretchy supercapacitors power wearable electronics

Date: August 23, 2016

Source: American Chemical Society

Summary: A future of soft robots or smart T-shirts may depend on the development of stretchy power sources. But traditional batteries are thick and rigid -- not ideal properties for materials that would be used in tiny malleable devices. In a step toward wearable electronics, a team of researchers has produced a stretchy micro-supercapacitor using ribbons of graphene.
A future of soft robots that wash your dishes or smart T-shirts that power your cell phone may depend on the development of stretchy power sources. But traditional batteries are thick and rigid -- not ideal properties for materials that would be used in tiny malleable devices. In a step toward wearable electronics, a team of researchers has produced a stretchy micro-supercapacitor using ribbons of graphene.
The researchers will present their work today at the 252nd National Meeting & Exposition of the American Chemical Society (ACS).
"Most power sources, such as phone batteries, are not stretchable. They are very rigid," says Xiaodong Chen, Ph.D. "My team has made stretchable electrodes, and we have integrated them into a supercapacitor, which is an energy storage device that powers electronic gadgets."
Supercapacitors, developed in the 1950s, have a higher power density and longer life cycle than standard capacitors or batteries. And as devices have shrunk, so too have supercapacitors, bringing into the fore a generation of two-dimensional micro-supercapacitors that are integrated into cell phones, computers and other devices. However, these supercapacitors have remained rigid, and are thus a poor fit for soft materials that need to have the ability to elongate.
In this study, Chen of Nanyang Technological University, Singapore, and his team sought to develop a micro-supercapacitor from graphene. This carbon sheet is renowned for its thinness, strength and conductivity. "Graphene can be flexible and foldable, but it cannot be stretched," he says. To fix that, Chen's team took a cue from skin. Skin has a wave-like microstructure, Chen says. "We started to think of how we could make graphene more like a wave."
----The next step was to create the stretchable polymer chip with a series of pyramidal ridges. The researchers placed the graphene ribbons across the ridges, creating the wave-like structure. The design allowed the material to stretch without the graphene electrodes of the superconductor detaching, cracking or deforming. In addition, the team developed kirigami structures, which are variations of origami folds, to make the supercapacitors 500 percent more flexible without decaying their electrochemical performance.

----In future experiments, the researchers hope to increase the electrode's surface area so it can hold even more energy. The current version only stores enough energy to power LCD devices for a minute, he says.

The monthly Coppock Indicators finished July

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

No comments:

Post a Comment