Friday 27 January 2017

A Lehman Moment?



Baltic Dry Index. 840 -22   Brent Crude 56.18

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.

While Trumpmania rolls on in America, it’s a very troubling view of the global economy as seen from London this morning. We open with alarming developments in NAFTA, where Mexico has trumped China and Germany, to become bad boy number one in the eyes of the Trump government.

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

John Kenneth Galbraith.

U.S. Edges Toward Trade War as Trump Clash With Mexico Escalates

by Austin Weinstein Eric Martin, and Justin Sink
27 January 2017, 00:53 GMT
U.S. and Mexico relations plunged into chaos on Thursday, pushing the countries closer to a trade war that threatens to spoil decades of friendship and economic cooperation.

The feud grew increasingly hostile throughout the day, as Mexican President Enrique Pena Nieto scrapped his trip to Washington after his U.S. counterpart Donald Trump doubled down on campaign pledges to rewrite North American Free Trade Agreement and charge his southern neighbor to build a border wall. The Trump administration retaliated to Pena Nieto’s cancellation by floating the idea of imposing a 20 percent tax on all Mexican imports.

“This is a very bad day for U.S.-Mexican relations -- the worst day in memory,” said Michael Shifter, president of the Inter-American Dialogue in Washington. “There is the real risk of things spiraling out of control.”

The Mexican peso plunged and the clash slowed gains in the U.S. stock market amid growing concern that one of the world’s largest trading relationships was headed for divorce.

For all of Trump’s complaints about Mexico, the two nations’ economies are deeply intertwined, especially in the border states -- so much so that it might be nearly impossible to pull them apart without serious political or economic unrest.

Cars, auto parts, farm goods, textiles and food all flow freely back and forth -- and any move to disrupt that could cause economic harm on both sides of the border, including in the Rust Belt industrial states that propelled Trump to the presidency.

Automakers would be the hardest hit, as Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles NV have assembly plants in Mexico. Several foreign automakers also have Mexican factories that export vehicles to the U.S., including Honda Motor Co. Ltd., Volkswagen AG and Mazda Motor Corp. Other American companies that benefit from Nafta include Whirlpool Corp. and General Electric Co.
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In EUSSR news, it’s more of the same wealth and jobs destruction.

Volkswagen plant in Germany extends production stop

Tue Jan 24, 2017 | 12:25pm EST
Volkswagen (VOWG_p.DE) said it will halt production at one of its biggest auto-making factories in Germany on more days than originally planned because of shrinking demand for the Passat saloon and estate models.

Production of the Passat at VW's northern German plant in Emden will be stopped on Feb. 16-17 and Feb. 21, a spokesman said, adding to disruptions agreed earlier this month.

Europe's largest automaker said last week it will shut down the Emden plant which employs about 9,000 people for eight days between Jan. 25 and Feb. 3 and on Feb. 20, he said.
"We are having problems in England, Turkey and Russia," the spokesman said. "Demand for the Passat is declining, we cannot rule out further shutdowns until Easter. No one knows how the world will develop."
German news agency Deutsche Presse-Agentur reported the production stop earlier on Tuesday.
The plant in Emden was affected by disruptions last summer when suppliers halted parts deliveries to more than half of VW's German factories over a contract dispute.
The factory, adjacent to one of Europe's largest vehicle transshipment ports, is particularly exposed to weakening demand for the Passat since it stopped making the CC saloon in October and has not yet taken up assembly of VW's new Arteon model.

EU could fall apart if populists win Dutch, French elections-Germany's Gabriel

Thu Jan 26, 2017 | 3:50am EST
German Economy Minister Sigmar Gabriel warned on Thursday that the European Union could fall apart if populists in France or the Netherlands win in elections this year.
"The French presidential elections this spring are bitter fateful elections for Europe," Gabriel told the Bundestag lower house of parliament.
He added: "After Brexit last year, if enemies of Europe manage again in the Netherlands or in France to get results then we face the threat that the largest civilization project of the 20th century, namely the European Union, could fall apart."

Elsewhere, China’s capital flight crackdown, is bursting real estate bubbles everywhere. On my Trump synthetic double option play, I would now close out the longs and  ride with the put side.

China’s Army of Global Homebuyers Is Suddenly Short on Cash

Bloomberg News
26 January 2017, 16:00 GMT 27 January 2017, 00:30 GMT
China’s escalating crackdown on capital outflows is sending shudders through property markets around the world.

In London, Chinese citizens who clamored to purchase flats at the city’s tallest apartment tower three months ago are now struggling to transfer their down payments. In Silicon Valley, Keller Williams Realty says inquiries from China have slumped since the start of the year. And in Sydney, developers are facing “big problems” as Chinese buyers pull back, according to consultancy firm Basis Point.

“Everything changed’’ as it became more difficult to send money offshore, said Coco Tan, a broker associate at Keller Williams in Cupertino, California.

Less than a month after China announced fresh curbs on overseas payments, anecdotal reports from realtors, homeowners and developers suggest the restrictions are already weighing on the world’s biggest real estate buying spree. While no one expects Chinese demand to disappear anytime soon, the clampdown is deterring first-time buyers who lack offshore assets and the expertise to skirt tighter capital controls.

“If it’s too difficult, I’m out,’’ said Mr. Zheng, 66, a retired civil servant in Shanghai who declined to give his first name to avoid attracting regulatory scrutiny. He may abandon a 2.4 million yuan ($348,903) home purchase in western Melbourne, even after shelling out a 300,000 yuan deposit last August. He’s due to make another big payment next month.

The change spooking Zheng and his compatriots came in a statement from the State Administration of Foreign Exchange on Dec. 31, hours before the reset of Chinese citizens’ annual foreign currency quotas. Among other requirements, SAFE said all buyers of foreign exchange must now sign a pledge that they won’t use their $50,000 quotas for offshore property investment. Violators will be added to a government watch list, denied access to foreign currency for three years and subjected to money-laundering investigations, SAFE said.

“A lot of clients are worried and have started hesitating,’’ said Wang Ning, vice president of the international department at Fang Holdings Ltd., China’s most popular property website. While the regulator has long banned the use of foreign currency for real estate, its call for additional documentation was seen as a signal that the government is serious about cracking down.
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Hong Kong Yuan Deposits Post Record Monthly Decline in December

27 January 2017, 06:41 GMT
Yuan deposits in Hong Kong posted their biggest monthly drop on record as the currency’s steepest depreciation in more than two decades undercut its appeal for savers.

Savings in the Chinese currency fell 12.9 percent on month to 546.7 billion yuan ($79.4 billion) in December, the most since local banks started taking such funds in 2004, Hong Kong Monetary Authority data showed Friday. The onshore exchange rate weakened 6.5 percent last year as capital outflows picked up amid higher U.S. interest rates -- a trend that’s projected to continue in 2017.

"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

At the Comex silver depositories Thursday final figures were: Registered 29.34 Moz, Eligible 152.19 Moz, Total 181.53 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Despite Trumpmania in America, all does not seem to be well in the wider global economy. Below a worrying red flag from the Swiss. And add Italy to the list of problematic European elections in 2017.

Swiss Watch Exports Have Worst Year Since Financial Crisis

by Corinne Gretler 26 January 2017, 07:48 GMT
Swiss watch exports fell 9.9 percent in 2016, the biggest drop in seven years, as high-end timepieces went unsold on retailers’ shelves in Hong Kong, the industry’s largest market.

Exports declined to 19.4 billion francs ($19.4 billion) in December, the Federation of the Swiss Watch Industry said in a statement Thursday. The annual decline is the worst performance since exports fell 22 percent in 2009 in the wake of the bankruptcy of Lehman Brothers and the subprime mortgage crisis.

The boom years, when exports doubled during the early 2000s, are long gone. The industry is retrenching following the Chinese government’s four-year campaign against bribery, improper gift-giving and extravagance, and the Hong Kong market has been cut in half in the past four years. Richemont spent more than 200 million euros ($215 million) buying back unsold watches last year, and it’s cut about 200 jobs in watchmaking at Cartier, Vacheron Constantin and Piaget.

The watch federation said it expects exports to stabilize in 2017 as initial signs of a rebound emerge. Richemont, which makes watches under a dozen brands, has reported a return to growth in sales of watches at its own stores in the final three months of 2016.

China rebounded in the second half, with exports rising 9.1 percent, according to the trade group. The total number of watches exported in 2016 dropped to 25.4 million, also the lowest since 2009.

Italian court ruling paves way for possible 2017 election

Wed Jan 25, 2017 | 3:10pm EST
Italy's constitutional court on Wednesday threw out aspects of an electoral law approved by former prime minister Matteo Renzi but presented a reworked version that can be used immediately, raising the chance of early elections this year.
Italy's largest parties - Renzi's Democratic Party (PD) and the anti-establishment 5-Star Movement - are both calling for a vote by the summer, about a year ahead of schedule.
The system laid out by the court, which only applies to the lower house Chamber of Deputies, is based on proportional representation and hands a clear parliamentary majority to any
party winning 40 percent of the vote.
Both of these aspects were part of Renzi's law, but the court also said the election should be held in just one round, eliminating the run-off between the two largest parties which Renzi had envisaged if none got 40 percent in the first round.
No opinion polls put any of Italy's plethora of parties anywhere near 40 percent, meaning the new system will probably lead to a coalition government.
That may benefit traditional parties, including the PD, and penalize 5-Star, which has always refused to form alliances.
The court said the amended law could be used immediately if elections were called, even though following its ruling there are now different voting systems in the lower house and the upper house Senate.
However, President Sergio Mattarella is the only one with the power to dissolve parliament, and he has said a vote should not be held until the systems are harmonized, in order to try to ensure political stability.
More

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?

MIT 3D Graphene Material Opens Up Lightweighting Possibilities

Graphene, widely hailed for its strength, has not been readily harnessed for lightweighting applications in automotive or electronics product design primarily because the existing atom-thin 2D materials haven’t been adapted to deliver adequate structural stability.
That scenario may change thanks to a recent development by researchers at MIT. The team was able to design a lightweight graphene material through a process that compressed and fused graphene flakes into a porous, sponge-like 3D form that boasts 5% of the density of steel, but is nearly 10 times stronger, according to a study published in the Science Advances journal.
Using a combination of heat and pressure, the MIT research team created a 3D structure similar to corals and microscopic creatures called diatoms, the researchers said. The shapes turn out to have a large surface area in proportion to their volume—a design decision that resulted in a structure that delivers the strength and stability that was so elusive with straight up 2D graphene.
Because of the extraordinary thinness of 2D graphene sheets, “they are not very useful for making 3D materials that could be used in vehicles, buildings, or devices,” noted Markus Buehler, the head of MIT’s Department of Civil and Environmental Engineering (CEE) and the McAfee Professor of Engineering, in a press release announcing the new finding. Moreover, the team said the strength targets achieved had less to do with the use of graphene and more to do with the usual geometric configuration, which opens the door to using a similar process to create other lightweight, strong materials, researchers said.
While other research teams had strived for similar lightweight structures, they kept running into problems in the lab, with experiments not matching up to their predictions and with strength targets reaching far lower levels than expected. This MIT team tried a different approach, analyzing the material’s behavior at an individual atom level, which enabled them to produce a mathematical framework that turned out to closely match their observations during the experiments, the researchers said.
Before the physical tests, the researchers conducted a range of simulations to mimic the loading conditions in tensile and compression tests performed in a tensile loading machine. In addition, the 3D structures were also produced on a multi-material 3D printer so they could be tested, and their mechanical response under loading was simulated using the team’s theoretical models—a process that resulted in an accurate match, the researchers said.
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Another weekend and time for me to be out of balanced risk. With the global economy looking vulnerable to a downdraft, I would just add a few more highly speculative, deep-out-of-the-money purchased stock put options here. We seem to be entering trouble times. Have a great weekend everyone.

The monthly Coppock Indicators finished December

DJIA: 19763  +74 Up NASDAQ:  5383 +70 Up. SP500: 2239 +75 Up

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