Friday, 2 December 2016

The Bond Bear Arrives As Europe Folds.

Baltic Dry Index. 1196 -08   Brent Crude 53.54

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

Eurasian Snow cover. (How bad will winter be?)

“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn't. And contrary wise, what is, it wouldn't be. And what it wouldn't be, it would. You see?”

Mario Draghi, with apologies to Lewis Carroll and Alice.
Today, was November the straw that broke the Camel’s back in the multi-decade  bull market in bonds? If it was, Europe’s going to lose a slew of banks, probably starting with old Three Card Monte di Siena in Italy, and ending with under indictment Deutsche Bank in Germany. I wonder if Deutsche Bank and Volkswagen might consider a merger of dodgy equals? Today, Europe faces a critical weekend.

Global Bonds Suffer Worst Monthly Meltdown as $1.7 Trillion Lost

Garfield Clinton Reynolds and  Wes Goodman
November 30, 2016 — 10:16 PM EST December 1, 2016 — 2:04 AM EST
The 30-year-old bull market in bonds looks to be ending with a bang.
The Bloomberg Barclays Global Aggregate Total Return Index lost 4 percent in November, the deepest slump since the gauge’s inception in 1990. Gathering U.S. economic momentum and Donald Trump’s election win -- with promises of tax cuts and $1 trillion in infrastructure spending -- spurred investors to dump debt that was offering near-record-low yields and pile into stocks.
Calling an end to the three-decade bond bull market is no longer looking like a fool’s errand: the Federal Reserve is expected to start raising interest rates -- and do so more often than once a year, inflationary expectations are climbing and there are hints global central banks may be buying fewer sovereign securities going forward. Investors pulled $10.7 billion from U.S. bond funds in the two weeks after Trump’s victory, the biggest exodus since 2013’s “taper tantrum,” while American stock indexes jumped to record highs.
“A lot of people are beginning to think that it is the end of the bull rally,” said Roger Bridges, the chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management’s Australia unit, which oversees $14 billion. U.S. 10-year yields may rise to 2.7 percent in January, Bridges said. “The trend is your friend.”

The rout wiped $1.7 trillion from the global index’s value in November, also a record, in a month that saw world equity markets’ capitalization climb $635 billion.

Read More: Few bond investors are seeing an end to the rout

The yield on 10-year U.S. notes rose 56 basis points in November, the biggest jump since 2009, and was at 2.38 percent as of 7:03 a.m. in London on Thursday. The average yield on the Bloomberg Barclays Global gauge climbed to 1.61 percent on Nov. 23, after touching a record low of 1.07 percent on July 5.
The rise in yields shows the limitations of the quantitative easing policies at the biggest central banks, Bridges said. Bonds will be especially vulnerable if the European Central Bank discusses reducing its debt-purchase program at its Dec. 8 meeting, he said.
Up next, Italy’s big weekend. Are Italians man enough to do in the wealth and jobs destroying failed Bilderberger vanity project, the EUSSR. Below, Marketwatch spins the positive case and attempts to put lipstick on Europe’s pig.

What happens if Italy votes ‘no’ on Sunday

By Andrea Montanino Published: Dec 1, 2016 9:06 a.m. ET

It won’t kill the euro, but it will change the direction of Europe

Sunday’s Italian referendum is another challenging step for Europe and for its nervous financial markets. In the last few days, markets have been experiencing increased volatility, especially for Italian banks, and yields on sovereign bonds of highly indebted European nations have risen.
This is the result of uncertainty about what is to come next. A supporting vote for the proposed constitutional reforms, which would strip the Senate of much of its power, will strengthen the leadership of Prime Minister Matteo Renzi, both in Italy and in Europe, boost confidence about the reform process, and provide a path toward a more pro-growth Europe.
But what if the “no” vote wins and Renzi resigns? This won’t be the beginning of the failure of the euro or of the European project. Europe has faced far more problematic and challenging situations. Think of the financial assistance to Greece and Portugal, the decision to impose capital control in Cyprus, the refugee crisis, and the rescue of the Spanish banking system, just to mention a few in recent years. In all cases, the European leaders have found their way, although not always in a linear, straightforward and clear manner.

Those who consider that this vote could be a disruptive event for the European Union — potentially even worse than Brexit — forget this is a normal feature embedded in Italy’s constitutional system: The referendum was compulsory and not a political decision of the prime minister. No matter the outcome, it is very unlikely that Italy will face a financial and institutional crisis.
But a negative vote likely would make it harder for Italy’s fragile banks to recapitalize in the short term, exacerbate tensions among European leaders in the medium term — and could alter the vision of Europe in the long term.

In the short term, the recapitalization of Monte Paschi di Siena BMPS, -3.69%  , which started this week and will continue all through December, may become more problematic since foreign institutional investors might plan to put their investment decisions on hold for a while. Unicredit UCG, +2.97%   will likely go to the market for cash in the following months, and political uncertainty will not help.
Given the size and relevance of these banks, one can assume that other troubled banks in Europe will be affected by the uncertainty that would surround Italy and Europe after the vote. It is likely there will be a harsh debate on how bail-in rules for banks should be applied. Should there be a search for pragmatic solutions to protect retail bondholders in case of a bail-in, or should officials stick instead to the rigid line that shareholders and bondholders must be bailed in before any public capital injection? It will be tough for Germany, France and the Netherlands to agree for a pragmatic solution in the midst of their electoral campaigns where the current governments must campaign against a mounting anti-Europe mood.

Below, Der Spiegel’s take  on Italy.

Renzi's High Stakes PokerEurope Holds Its Breath Ahead of Italian Vote

Italian Prime Minister Matteo Renzi may be facing defeat in a game of high-stakes poker with the electorate. If the Dec. 4 constitutional referendum fails, there are dark clouds on the horizon for Europe's future. The country is in poor economic shape and financial markets are alarmed.

The photo montage on the stage behind the Italian leader looks more like a wanted poster: It depicts seven sinister looking men frowning, some of them well advanced in years. They look like mafia godfathers.

Italian Prime Minister Matteo Renzi uses the images to show who his adversaries are. Late in the evening at a trade fair in Bari, he is railing against those who would buck progress and vote against his planned constitutional reforms on Dec. 4. At the head of the pack are these seven elderly signori, including four former prime ministers, a former Constitutional Court president, a former government minister and the leader of the strongest opposition party.

The prominent rebels have divergent reasons for their objection to the upcoming national reform referendum. But they are united in their verdict that the new constitution, promoted as the key to slimming down the state, would damage Italy's democratic foundation.

The fact that Renzi is publicly attacking his critics betrays his nerves as the vote approaches. Recent polls show opponents leading, prompting the prime minister to increasingly invoke the country's "silent majority." Even if the ballot may show that the vote is a simple choice between "yes" and "no," in reality, Renzi has said, it's "now or never." The opportunity to set the course for a better future for Italy after decades of paralysis won't come around again soon, he says.

The 'Mother of all Battles'
The prime minister has said he will step down if he loses the referendum. Back in January, he declared the constitutional reform to be the "mother of all battles" and unnecessarily tied his own future to its outcome. It was an act of hubris that has transformed the referendum into a vote on his leadership. Those who want to see the back of the prime minister must merely vote "no" in the referendum.

If the government were to fall, it would hit highly indebted Italy, a core EU member state, at a sensitive time. The Italian central bank in Rome has already registered a "strong increase in uncertainty" on financial markets. The risk premium on Italian sovereign bonds relative to the interest rate Germany must pay its creditors has doubled since the beginning of the year, as trust in Italy had declined among investors. Economists like Nobel laureate Joseph Stiglitz and Germany's Hans-Werner Sinn are already speculating over the possibility Italy will leave the eurozone.

Elsewhere in Europe, the sky is starting to fall. A dithering UK government got hammered in an unnecessary by-election. In France, teenage love rat Hollande became a quitter. From the Mediterranean to the Baltic to the Atlantic, Germany now rules. But how will Brussels react?

Brexit Blow for May as Pro-EU Party Wins By-Election in London

by Eddie Buckle
The anti-Brexit Liberal Democrats unexpectedly gained a U.K. parliamentary seat in a by-election Thursday, a result that may further complicate Prime Minister Theresa May’s efforts to begin the process of leaving the European Union early next year.

Liberal Democrat candidate Sarah Olney won the seat of Richmond Park, a southwest London district that overwhelmingly backed staying in the EU in June’s referendum, according to the BBC. The party, which held the seat until 2010, put Brexit at the heart of the contest, calling for a second referendum on the exit terms achieved by May and threatening to vote in parliament against her plan to trigger the two-year countdown to leaving by the end of March.

Pro-Brexit former Conservative lawmaker Zac Goldsmith had been clear favorite with bookmakers to retain the district. He ran as an independent after quitting his seat in October and triggering the contest to protest the decision by May’s government to build a third runway at nearby Heathrow Airport. The constituency lies directly under the Heathrow flight path.

May and her fellow Conservative ministers have come under attack from opposition parties for failing to give details of the government’s demands for its post-Brexit deal. A YouGov Plc poll conducted in the middle of last month found only 18 percent of respondents saying the government is doing a good job in negotiating the divorce from the EU.

The next big test of May’s policy comes in the U.K. Supreme Court on Monday. Judges will begin a four-day hearing of the government’s appeal against a High-Court ruling that parliamentary approval is needed to invoke Article 50 of the EU’s Lisbon Treaty, the start of the withdrawal process.

Grim Hollande says he won't seek second term as French president

Thu Dec 1, 2016 | 7:19pm EST
President Francois Hollande shocked France on Thursday by announcing he would not seek a second term next year, acknowledging his deep unpopularity and making way for another leftist candidate to take on conservative Francois Fillon and far-right leader Marine Le Pen.

The surprise announcement - effectively an admission that by running again he would hurt his Socialist party's chances - marks the first time since France's fifth Republic was created in 1958 that an incumbent president has not sought a second mandate.

"I am aware today of the risk that going down a route that would not gather sufficient support would entail, so I have decided not to be a candidate in the presidential election," a sombre-looking Hollande said in a televised address.

Dogged by high unemployment, Hollande is the least popular president in French polling history, yet his closest aides had consistently said he would run.

After Britain's shock vote to quit the EU and the U.S. choice of Donald Trump as president, the election next April and May is on course to turn into another test of voters' anger with traditional elites, with Le Pen tapping into frustration with immigrants, austerity and the European Union.

The past two weeks have turned French politics on its head. First former president Nicolas Sarkozy was knocked out of the conservatives' primary, and then runaway favorite Alain Juppe was beaten to the party's nomination by Fillon, a reformist in the mold of Britain's Margaret Thatcher.

Hollande's retreat makes it likely that his prime minister, Manuel Valls, will throw his hat in the ring to take part in the Socialist primaries in January.

At the Comex silver depositories Thursday final figures were: Registered 33.25 Moz, Eligible 145.36 Moz, Total 178.61 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
OPEC, are Russian production cuts, real or imaginary? “After you. No after you!”
“Why, sometimes I've believed as many as six impossible things before breakfast.”
Lewis Carroll, Alice in Wonderland

Russia’s Pledge to OPEC Will Mean ‘Herding Cats’ to Deliver Cuts

Stephen Bierman and  Dina Khrennikova
December 1, 2016 — 6:36 AM EST
Russia has committed to cooperate with OPEC by cutting as much as 300,000 barrels a day from its oil output but offered no clear method for enforcement, creating uncertainty about how easily the reduction can be delivered.
Output cuts should be spread proportionally between Russian producers, who have said they support the move, Energy Minister Alexander Novak told reporters Thursday. Yet no oil companies have so far taken the lead on explaining how they will implement the cuts, said Chris Weafer, a partner at Macro Advisory. State-controlled Rosneft PJSC is likely to bear most of the burden, according to Renaissance Capital.
“Trying to get an agreement for a pro-rata cut amongst the Russian oil producers, even if mandated by the Kremlin, would be akin to herding cats,” Weafer said by e-mail Thursday. “All would want to wait to see what the others do first.”

The Organization of Petroleum Exporting Countries confounded skeptics on Wednesday by reaching an agreement to cut production by 1.2 million barrels a day. Russia added to the surprise by saying it too would reduce current output of 11.2 million barrels a day -- a reversal for Novak who had for months expressed Russia’s preference for freezing at that level. While crude futures jumped above $50 a barrel on the news, questions remain over how the supply curbs will be implemented.

Lukoil PJSC Russia’s second largest producer, supports OPEC’s moves to stabilize global oil markets, Pavel Zhdanov, the company’s director of capital markets and mergers and acquisitions, said on conference call Wednesday. It is too early to get into details, he said.

The press services of Rosneft, Russia’s largest producer, and Lukoil declined to comment on any measures they would take to enact cuts.

Rosneft’s Burden

“Rosneft looks like the number one company that should take the biggest share of the cut,” Ildar Davletshin, an oil analyst at Renaissance Capital, said by e-mail. It controls almost 50 percent of Russian oil output and it has one of the lowest shares of so-called greenfields, or new developments, in its current production portfolio, he said.

Cuts are more likely to be achieved by dialing back drilling on older fields, allowing the natural decline rates to grow, as opposed to stopping new projects, he said.

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?

India has built the world’s largest solar power plant

30 November 2016
Following eight months of construction, India has finished building its new solar power farm in Kamuthi which will replace California’s Topaz Farm as the world’s biggest solar plant.
The massive facility packs 648 megawatts, which should suffice to power over 150,000 homes, and consists of 2.5 million solar modules, 576 inverters, 154 transformers as well as 6,000 kilometers of cables.
The solar plant spreads over 2,500 acres (or 10 square kilometers) of land and cost a total of $679 million to build. By comparison, Topaz Farm, which can generate up to 550 megawatts of power, took almost two years and over 2.5 billion in funds to build.
Adani Group sponsored and oversaw the project. “Before us, the largest solar power plant at a single location was in California in the U.S. That was 550 MW and was completed in around three years. We wanted to set up a solar plant of 648 MW in a single location in less than a year,” said Adani CEO Vneet Jaain.
With the introduction of this solar farm, India is expected to become the world’s third-biggest solar market from next year, trailing behind only China and the US.
Still, the country has a long way to go before reaching its goals to generate solar energy for 60 million homes by 2022, with plans to produce 40 percent of its power needs from non-fossil fuels by 2030.
In case you want to catch a glimpse of the colossal plant, National Geographic has previously made a documentary about Adani’s ambitious undertaking.
Another weekend, and the season of mass marketing to children and harassed parents moves into top gear. In the canyons of Advertising Land, no gimmick is too low for the purveyors of mostly Asian made tat. So it is time to mount my first Seasonal Christmas appeal like Wikipedia and legions of massed bailed out banksters across five continents. If you have found the LIR of use, interest or amusement in the past year, please consider making a small donation via the PayPal link to Graeme’s Christmas Special Scotch appeal. Don’t let this poor Scot dry out this Christmas. Many thanks to all who have donated during the year. Have a great weekend everyone.

Set in Camelot, Arthur and Guinevere have a daughter. At the Blessing of Princess Aurora, Janet Yellen arrives and sets an evil curse on the child, forcing the child into paying off the exploding national debt. Lurking darkly in the wings, President Trump promises to double it next year.

Apologies to Richard Gauntlett author of Pantomime scripts.

The monthly Coppock Indicators finished November

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

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