Monday, 26 December 2016

America Wobbles.

Baltic Dry Index. 961 +33   Brent Crude 55.16

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

 “The moment the idea is admitted into society, that property is not as sacred as the law of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.”

John Adams. U.S. Second President.

Today, some worrying news from America last week that Trumpmania may be about to be trumped by an arriving recession. As goes GM so goes America may no longer be as relevant in the last century post WW2,  but GM and autos in general are still a pretty good indicator of what’s happening in the US economy. That pretty good indicator is turning quite ugly.

Below, some reasons for the President-elect to reconsider the wisdom of starting a hot trade war with China. America’s wobble could turn into something very much worse, and fast, if China also wants to play hardball.

“Car Recession” Bites GM: Inventory Glut, Layoffs, Plant Shutdowns

by Wolf Richter • Dec 19, 2016 

But GM already booked those vehicles on dealer lots as revenue

GM has been reacting to its fabulously ballooning inventory glut by piling incentives on its vehicles. But that hasn’t worked all that well though it cost a lot of money. Now it’s time to get serious.
It will temporarily close five assembly plants in January and lay off over 10,000 employees, spokeswoman Dayna Hart said today. Plants that assemble cars will be hit, according to the AP:

The company’s Detroit-Hamtramck factory and Fairfax Assembly plant in Kansas City, Kansas, each will be shut down for three weeks, while a plant in Lansing, Michigan, will be down for two weeks. Factories in Lordstown, Ohio, and Bowling Green, Kentucky, each will be idled for one week.

The factories make most cars in the General Motors lineup including the Chevrolet Cruze, Camaro, Corvette, Malibu, Volt, and Impala; the Cadillac CT6, CTS and ATS; and the Buick LaCrosse.

While retail sales for the 11 months of the year edged up less than 2%, GM expects sales to rental companies to drop by about 75,000 vehicles this year. And rental companies buy mostly cars.

Sales of trucks and SUVs accounted for nearly 62% of all GM vehicles sold in November in the US, a record percentage. But car sales stank.

With car sales slowing for months, GM has kept production up, trying to move the iron with incentives, but that hasn’t worked. And overall inventory on dealer lots has soared to 874,162 vehicles at the end of November, up 26.5% from a year ago, up 28% from last July, and the highest level in eight years when GM was skidding into bankruptcy during the Great Recession. This pile of vehicles translates into 87 days’ supply.

Normally, 60 days’ supply is considered healthy. This is what the inventory debacle looks like:

Red Flag on Recession Crops up in NY Fed’s Coincident Economic Index

by Wolf Richter • Dec 22, 2016 

Last time the index declined was in November 2009.

“Our Indexes of Coincident Economic Indicators (CEI) for November show economic activity declining for the 3rd straight month in New York State, flattening out in New York City, and remaining essentially flat in New Jersey”: so the New York Fed.

The CEI for New York State fell at an annual rate of 1.9%, following a 1.1% decrease in October, and a 1.0% decrease in September. The index is still up 1.9% over the past 12 months, but is now below where it had been in June and is just above its level in May:

---- That’s why we’re paying attention to this. These indices, particularly for New York State and New York City, have an uncanny accuracy in moving with the national economy and turning south just before the business cycle for the nation turns south. And shortly after they turn south, a national recession begins.
But official recessions are based on hindsight. The National Bureau of Economic Research, whose job it is to declare official recessions, normally declares them only after they have already ended. The Great Recession was the exception. It lasted so long that the NBER decided that it existed even while it was still going on.
---- So we look for red flags beforehand. One monthly dip doesn’t make a trend. But the CEI for New York State declined for the third month in a row. And suddenly we have what might be the beginnings of a trend. And it hasn’t done that since the Great Recession.
The NY Fed’s 50-year chart below shows this relationship between national business cycles that end in recessions, and the CEI for New York State going back to 1965. The gray areas are not official recessions, as identified by the NBER, but are indications of when the business cycles contracted.

World Trade Falls to 2014 Level, just in Time for a “Trade War”

by Wolf Richter • Dec 23, 2016

Threatened Trade War meets the Great Stagnation.

“If you get into a trade war with China, sooner or later we’ll have to come to grips with that,” Carl Icahn, now special advisor to President-Elect Trump, told CNBC on Thursday. “I remember the day something like that would really knock the hell out of the market.”

A trade war with China surely would be another wall of worry for stocks to climb. Trump’s rhetoric against China, each morsel packaged into 140 characters or less, has already recreated much-needed turbulence [read… Trump Tweets about China, US Businesses Freak out].

“But maybe if you’re going to do it,” Icahn said about the looming trade war with China, “you should get it over with, right?”

This comes after rumors emerged that Trump’s transition team is chewing over the idea to impose import tariffs of up to 10%, “according to multiple sources,” including a “senior Trump transition official,” CNN reported. The idea is to boost US manufacturing. The new tariffs could be imposed by executive order or by Congress as part of broader tax reform legislation.

The 10% would be an uptick from the 5% tariff that incoming White House Chief of Staff Reince Priebus had put on the table last week, in “meetings with key Washington players,” two sources “who represent business interests in Washington” told CNN. These tariffs would be in line with Trump’s campaign motto of “America First.”

Other countries would, as they always do, retaliate. Hence the term “trade war.” Countries will be careful not to escalate, but these things can escalate nevertheless, because no one wants to seem weak and back off. Either way, it would pull the rug out from under world trade.

But world trade, a reflection of the health of the global goods-producing economy, is already in bad shape. For the past two years, it has been languishing in a condition we now call the Great Stagnation.

If all else fails, immortality can always be assured by spectacular error.

John Kenneth Galbraith.

At the Comex silver depositories Friday final figures were: Registered 36.15 Moz, Eligible 147.43 Moz, Total 183.58 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Below how Italy tries to make it’s bail-in into a bailout.

Italy's Monte dei Paschi bail-in is a bailout

Fri Dec 23, 2016 | 5:34am EST
Reuters Breakingviews) - Monte dei Paschi's rescue is a bailout masquerading as a bail-in. European rules now mean governments that save banks have to force losses on creditors, or convert them into shares. Italy is doing that with MPS, but adding an unjustified bit of financial engineering that makes it no better than bank bailouts from 2008.
At first glance the MPS rescue, announced on Dec. 23, appears a classic application of European rules. The bank has been unable to raise the 5 billion euros it needs to fill a capital shortfall created by stress tests. Ergo, under article 32 of the Banking Recovery and Resolution Directive, the government can step in. Under state aid rules, that requires MPS' 4 billion euros-plus of subordinated debt to convert into equity.
Yet the government is bolting on another leg. The bank can then swap those shares held by retail investors for a new bond, this time a senior-ranking one, with little default risk. That would create a problem for MPS, as it would have less equity. So, the government will then buy those shares from the bank. Economically, it looks similar to the government simply buying the shares directly from retail creditors.
There are still some missing details. It's not clear what the terms of the new bonds will be, or the price the government will pay for the shares. Still, it seems likely both will be at par. It's also not clear how many shares can be swapped in this way. Statements so far suggest it will apply to all bonds held by retail creditors.
The complex trade is probably a way of dealing with the thorny issue of bonds held by retail investors in Italy's sickly banks. With a weak government, and support for the anti-establishment 5-Star Movement growing, it would have been politically toxic to impose real losses on creditors with elections likely next year. 
Yet if such a scheme is applied to all retail creditors at par, it simply looks like a bailout at taxpayer expense. Retail bonds are held by the wealthiest 10 percent of Italian households, according to the Centre for European Policy Studies. The good news is that this fudge should accelerate restructuring of other weak Italian banks. The bad is that European rules can easily be bent to suit political ends.

"In economics, hope and faith coexist with great scientific pretension."

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?

Graphene able to transport huge currents on the nano scale

Date: December 21, 2016

Source: Vienna University of Technology, TU Vienna

Summary: New experiments have shown that it is possible for extremely high currents to pass through graphene, a form of carbon. This allows imbalances in electric charge to be rapidly rectified.

Once again, graphene has proven itself to be a rather special material: an international research team led by Professor Fritz Aumayr from the Institute of Applied Physics at TU Wien was able to demonstrate that the electrons in graphene are extremely mobile and react very quickly. Impacting xenon ions with a particularly high electric charge on a graphene film causes a large number of electrons to be torn away from the graphene in a very precise spot. However, the material was able to replace the electrons within some femtoseconds. This resulted in extremely high currents, which would not be maintained under normal circumstances. Its extraordinary electronic properties make graphene a very promising candidate for future applications in the field of electronics.
The Helmholtz-Center Dresden-Rossendorf and the University of Duisburg-Essen participated in the experiment alongside TU Wien. The international team received theoretical support from Paris and San Sebastian as well as from in-house staff (Institute of Theoretical Physics at TU Wien).
Highly charged ions
'We work with extremely highly-charged xenon ions,' explains Elisabeth Gruber, a PhD student from Professor Aumayr's research team. 'Up to 35 electrons are removed from the xenon atoms, meaning the atoms have a high positive electric charge.'
These ions are then fired at a free-standing single layer of graphene, which is clamped between microscopically small brackets. 'The xenon ion penetrates the graphene film, thereby knocking a carbon atom out of the graphene -- but that has very little effect, as the gap that has opened up in the graphene is then refilled with another carbon atom,' explains Elisabeth Gruber. 'For us, what is much more interesting is how the electrical field of the highly charged ion affects the electrons in the graphene film.'
This happens even before the highly charged xenon ion collides with the graphene film. As the highly charged ion is approaching it starts tearing electrons away from the graphene due to its extremely strong electric field. By the time the ion has fully passed through the graphene layer, it has a positive charge of less than 10, compared to over 30 when it started out. The ion is able to extract more than 20 electrons from a tiny area of the graphene film.
This means that electrons are now missing from the graphene layer, so the carbon atoms surrounding the point of impact of the xenon ions are positively charged. 'What you would expect to happen now is for these positively charged carbon ions to repel one another, flying off in what is called a Coulomb explosion and leaving a large gap in the material,' says Richard Wilhelm from the Helmholtz-Center Dresden-Rossendorf, who currently works at TU Wien as a postdoctoral assistant. 'But astoundingly, that is not the case. The positive charge in the graphene is neutralised almost instantaneously.'

The monthly Coppock Indicators finished November

DJIA: 19124  +53 Up NASDAQ:  5324 +41 Up. SP500: 2198 +58 Up

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