Thursday, 5 January 2017

Bonds - Skating on Very Thin Ice.

Baltic Dry Index. 969  +16  Brent Crude 56.30

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.

We open today with the reddest of red flags yet. Klaxons blaring, alarm bells ringing, the bond Titanic is steaming full speed into the iceberg zone, and newbie Captain Trump is getting ready to spin the wheel.  Is 1981-2016 a repeat of 1441 – 14482?

‘Perfect storm’ could lead to historic bursting of bond bubble, warns Harvard academic

By Shawn Langlois Published: Jan 4, 2017 4:19 p.m. ET

Investors could be “worse off than the 1994 ‘bond massacre’ ”

Paul Schmelzing, a PhD candidate who specializes in economic history at Harvard University, took to the Bank of England’s blog on Wednesday to sound the alarm on what he describes as a “perfect storm” facing the bond market.
“Looking back over eight centuries of data, I find that the 2016 bull market was indeed one of the largest ever recorded,” he wrote, using this chart for some perspective on the 36-year run bond run. “Only two previous episodes — the rally at the height of Venetian commercial dominance in the 15th century, and the century following the Peace of Cateau-Cambrésis in 1559 — recorded longer continued risk-free rate compressions.”
And what does it all mean? “History suggests this reversal will be driven by inflation fundamentals, and leave investors worse off than the 1994 ‘bond massacre,’” Schmelzing said.
He was referring to the bond market’s meltdown two decades ago, when the 30-year long bond’s yield soared more than 150 basis points in a matter of months to 7.75% after Fed Chairman Alan Greenspan hiked rates in the wake of the 1991 recession.
Schmelzing warned that, in the current environment, the combination of a steepening bond-yield curve, Fed tightening and inflation could have painful implications for investors. “By historical standards, this implies sustained double-digit losses on bond holdings, subpar growth in developed markets and balance-sheet risks for banking systems with a large home bias,” he said.

Peace of Cateau-Cambrésis (1559)

With one bill, Republicans fast track plan to undo Obama regulations

Wed Jan 4, 2017 | 6:36pm EST
The U.S. House of Representatives passed legislation on Wednesday giving Congress the power to kill dozens of recently enacted rules in one fell swoop, as Republicans charged ahead on their campaign to strip down federal regulations.

It was the second time the Republican-dominated chamber took up legislation blocking "midnight rules," those rolled out at the close of a president's term. But the previous bill, introduced in November, had faced a certain veto from President Barack Obama, a Democrat.

On its second day back in session, the House passed the bill on a vote of 238 to 184. The Senate is expected to soon consider companion legislation, which could face a harder time because it would need eight votes from Democrats.

Under a law known as the Congressional Review Act, Congress has the right to review regulations for a certain period of time after they are issued. That means any federal regulation approved since May could be voided by the Republican-led Congress once President-elect Donald Trump moves into the White House and can sign off on their disapproval.

It takes only a simple majority of both chambers to reverse a rule, giving Senate Democrats little power to block a vote with a filibuster.

In other news, global money is about to get much tighter. Trumpmania is skating on very thin ice.

China Gets Strict on Forex Transactions to Stop Money Exiting Abroad

Bloomberg News
At risk of capital flight, China marked the new year with extra requirements for citizens converting yuan into foreign currencies.
The State Administration of Foreign Exchange, the currency regulator, said in a statement Dec. 31 that it wanted to close loopholes exploited for purposes such as money laundering and illegally channeling money into overseas property.
While the regulator left unchanged quotas of $50,000 of foreign currency per person a year, citizens faced extra disclosure requirements from Jan. 1.
The annual limits for individuals’ currency conversions reset at the start of each year, potentially aggravating outflow pressures that intensified in 2016 as the yuan suffered its steepest annual slump in more than two decades. An estimated $762 billion flowed out of the country in the first 11 months of last year, according to a Bloomberg Intelligence gauge, pumping up residential property markets from Vancouver to Sydney. Some money also spilled across the border into Hong Kong insurance products.
Key elements of the new requirements:
  • Customers must pledge money won’t be used for overseas purchases of property, securities, life insurance or investment-type insurance. While such rules aren’t new, citizens previously didn’t have to sign such a pledge
  • Customers must give a more detailed account of the planned use of funds, such as business travel, overseas study, family visits, medical treatment, merchandise trade or purchases of non-investment insurance policies, including the timing, by year and month
  • Violators of foreign-exchange rules will be be added to the currency regulator’s watch list, denied foreign-exchange quota for three years and subjected to anti-money-laundering investigations
  • Customers must confirm compliance with restrictions on money laundering, tax evasion and underground bank dealings
  • Customers must now confirm they aren’t lending or borrowing quotas to or from other citizens
The measures may curb enthusiasm for purchases of dollars and ease pressure for capital outflows, according to Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong.

Enough of the Tweets, China’s State Media Tells Trump

By JAN. 4, 2017
BEIJING — It’s become easy to imagine an aide to China’s president, Xi Jinping, knocking on his bedroom door in the middle of the night to report the latest from Trump Tower: “He’s tweeted about us again.”
China’s leaders thought they had a solution to the torrent of snark, jibes and condemnation on Twitter. They banned access to it in China. But, paradoxically, China has become the country that President-elect Donald J. Trump seems to most enjoy trolling on his open-all-hours Twitter feed.

In bursts of 140 characters or less, he has jabbed at Beijing over Taiwan, trade, the South China Sea and, most recently, North Korea. “China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won’t help with North Korea. Nice!” Mr. Trump said on Twitter on Monday.

How and when Mr. Xi reads about these broadsides remains a mystery to outsiders. Translating Mr. Trump’s sarcasm — “Nice!” — could be tricky. But Chinese officials and the state news media want Mr. Trump to know that their leaders prefer doing diplomacy the old-fashioned way, behind closed doors and muffled in platitudes.

Xinhua, the state news agency, has more or less asked Mr. Trump to shut up. “An obsession with ‘Twitter foreign policy’ is undesirable,” read the headline of a Xinhua commentary on Tuesday about Mr. Trump’s posts.

“Everyone recognizes the common sense that foreign policy isn’t child’s play, and even less is it like doing business deals,” said the article, published after Mr. Trump’s latest barbed comments on China.

“Twitter shouldn’t become an instrument of foreign policy,” the article said. Earlier that day, a spokesman for the Ministry of Foreign Affairs rejected Mr. Trump’s accusation that Beijing had coddled North Korea.

But the article acknowledged that it was probably too late to detach Mr. Trump from Twitter. Mr. Trump’s designated press secretary, Sean Spicer, has indicated that Mr. Trump will keep using the terse, punchy format after he settles in the White House.

3 January 2017, 03:08 GMT 3 January 2017, 08:34 GMT

The Greatest Money Manager Alive Attributes The Majority Of His Success To Just This One Thing

Jesse Felder January 7, 2016
Last April I wrote a post about the specific trading style that has made guys like Stan Druckenmiller, Jim Rogers and George Soros so successful. That post focused on a single quote from Druck which I found particularly compelling because it goes against what most investment pundits would tell you is the right way to invest.

But Druck made an even more poignant and timely point in that speech a year ago. He singled out specifically what he believes to be the most important factor behind the returns in risk assets, namely the stock market:

“Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”

Interestingly, his further point in this regard was not the popular, “don’t fight the Fed.” In fact, it was just the opposite:

“80% of the big, big money we made was in bear markets and equities because crazy things were going on in response to what I would call central bank mistakes during that 30-year period.”

He goes on to cite a specific time when the Fed made perhaps its most egregious error which led to some of the greatest profit opportunities of his career:

“Probably in my mind the poster child for a central bank mistake was actually the U.S. Federal Reserve in 2003 and 2004… we had great conviction that the Federal Reserve was making a mistake with way too loose monetary policy.”

And “Too loose monetary policy” has severe repercussions:

“The problem with this is when you have zero money for so long, the marginal benefits you get through consumption greatly diminish, but there’s one thing that doesn’t diminish, which is unintended consequences.”

What’s more, he says it’s happening again today:

“So that’s why, if you look at today… I’m experiencing a very strong sense of deja vu… If you look to me at the real root cause of the financial crisis, we’re doubling down. Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us there and enabled those bad actors to do what they do.”

The trouble is we only discover the consequences once it’s too late for the Fed to really do anything about it:
“I feel more like it was in ’04 where every bone in my body said this is a bad risk reward, but I can’t figure out how it’s going to end. I just know it’s going to end badly and a year and a half later we figure out it was housing and subprime. I feel the same way now.”

It could be even worse this time because the policies are that much more aggressive than they were back then:


Economics is extremely useful as a form of employment for economists.

John Kenneth Galbraith.

At the Comex silver depositories Wednesday final figures were: Registered 28.05 Moz, Eligible 153.85 Moz, Total 181.90 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, more of the same old story from New York.

No One Questioned This Hedge Fund’s Madoff-Like Returns

by Zeke Faux 4 January 2017, 10:00 GMT
In the years before Mark Nordlicht was arrested for what’s alleged to be one of the biggest investment frauds since Bernie Madoff’s, U.S. authorities had plenty of reasons to suspect something might have been fishy about his hedge fund, Platinum Partners.

As far back as 2007, Bank of Montreal accused Nordlicht of helping a rogue trader, costing it more than $500 million. Three years later, when the Securities and Exchange Commission was investigating what it called a “scheme to profit from the imminent deaths of terminally ill patients,” the agency discovered that Platinum had funded the deals. And in 2011, a Florida lawyer who confessed to running a $1.2 billion Ponzi scheme testified that Nordlicht, his biggest funder, lied to help him lure new investors.

And then there were the remarkable profits: 17 percent annually on average from 2003 through 2015, with no down years. The returns were almost as smooth as the fake gains that Madoff claimed year after year, as measured by a popular metric called the Sharpe ratio.

But until Murray Huberfeld, who founded Platinum with Nordlicht, was caught up in a New York City municipal-corruption probe in June, no one at the fund had been charged with wrongdoing. Within weeks of Huberfeld’s arrest, federal agents raided Platinum’s midtown Manhattan office. On Dec. 19, Nordlicht and six others were arrested in what the government called a $1 billion fraud. Nordlicht and Huberfeld have pleaded not guilty, and Platinum’s main fund is being wound down after filing for bankruptcy. Montieth Illingworth, a spokesman for Platinum, declined to comment.

Smooth Returns

That Platinum was able to avoid scrutiny for so long illustrates flaws in the post-Madoff regulatory regime. While the SEC says it now conducts “risk-based examinations” of funds that have suspiciously smooth returns, the agency didn’t do a thorough on-site audit of Platinum until 2015, according to a person with knowledge of the matter. Judy Burns, an SEC spokeswoman, declined to comment.

“The returns alone make no sense,” said Joelle Scott, who investigates money managers as senior vice president at Corporate Resolutions Inc. in New York. “This isn’t a Madoff thing where it was hard to find. This was a glaring, documented history of bad behavior.”

The fund’s presentations for investors touted its top-tier auditors and “independent valuations” by an experienced consultant. But those gatekeepers relied on Platinum to provide information about its investments. The valuation consultant says the firm never visited the California oil fields that supposedly accounted for much of Platinum’s assets. Even a simple check of public records would have revealed they were barely producing oil.

Nordlicht, 48, a second-generation commodities trader, started Platinum in 2003 with seed money from Huberfeld, a penny-stock trader from Brooklyn whose family owned a chain of kosher fast-food restaurants. Nordlicht, who has the rumpled look of a professor, was the face of the fund. Huberfeld, 56, who had been sanctioned three times for alleged securities-law violations, stayed in the background.

Little known on Wall Street, Nordlicht and Huberfeld cultivated connections in New York’s Orthodox Jewish community. Among the investors they recruited were the Gindi family, owners of the Century 21 department-store chain, and real estate moguls Ruby Schron and Abraham Fruchthandler. The Gindis, Schron and Fruchthandler declined to comment.

“You win some, you lose some,” said another investor, Gordon Diamond, a meat magnate who served on the board of a Holocaust charity with Huberfeld. “I guess I should have done more due diligence.”

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?

Yes, another January and another Consumer Electronics Show in Las Vegas. More iffy gadgets from China, Japan, and the Silly Con Valley.

CES 2017: Audi, Nvidia unveil plan for self-driving car

By Tim Higgins Published: Jan 4, 2017 11:33 p.m. ET
LAS VEGAS — Audi AG NSU, +1.28%   is joining with Nvidia Corp. NVDA, +2.33%   in the race among auto makers and tech companies to bring a fully self-driving car to market.
The luxury car unit of Volkswagen AG VOW, -0.44%   said Wednesday it forged a partnership with the chip maker to develop a vehicle for the road in 2020.
The announcement came on the eve of CES 2017, a technology expo in Las Vegas packed with auto makers and automotive suppliers demonstrating their efforts to create self-driving vehicles.
The Audi-Nvidia partnership is an expansion of the companies’ work to introduce an Audi A8 semiautonomous system later this year called the traffic jam pilot, which will allow a driver to hand off control of the vehicle at speeds of up to 35 miles an hour in certain conditions, according to the auto maker. The system uses Nvidia hardware and software.

Robots, laptops and a giant flash drive: All that matters from CES so far

A ton of new tech has already landed in Las Vegas and CES hasn't even officially started yet. Here's what CNET is following as the excitement builds.
by Kent German January 3, 2017 10:25 PM PST

Shrug off that New Year's hangover, there's no time to rest as CES begins once again. The CNET team is on the ground in Las Vegas ready to bring you all the gadget goodness. Though the show doesn't formally open until Thursday, there's plenty that's already been announced, unveiled and revealed. Here's a breakdown on some of the most exciting tech we've handled, and ridden, so far.

Loads of laptops

CES has already delivered a large selection of laptops in all shapes and, well, sizes. If you have money to burn and a lap strong enough to support it, the Acer Predator 21X is a beast of a gaming machine that weighs 17 pounds and has a 21-inch screen. The rest of the specs, like five system fans, are just as ridiculous.

----- Outside of laptops, Lenovo continued to keep us busy with announcements like the 500 multimedia controller, which has a QWERTY keyboard that's also a touch pad, and the Smart Assistant Amazon Alexa competitor. That device will debut in China this March.

---- Sometimes the most interesting products also are the most ordinary. Take the Kingston DataTraveler Ultimate GT flash drive. With a capacity of 2TB, it's (currently) the world's largest capacity flash drive. That may change as soon as tomorrow, and we'll have to wait on pricing when it's released next month. It looks a bit bloated, but with so much space for your holiday photos, that's a 1KB gripe.

---- Even though the Detroit Auto Show is next week, cars are driving into CES in force. Chrysler's Portal 
concept looks like a minivan, but it promises much more. It's autonomous, it runs on batteries and its face and voice recognition features mean that it will configure itself for individual drivers and passengers.
Faraday Future finally debuted its electric FF 91. It self-parks, has a range of 378 miles and an ambitious (and crazy) set of promised features. We'll have to see whether they all pan out.

---- The Kuri from Mayfield Robotics is a small robot that patrols your home and keeps an eye on things with a camera and a Bluetooth connection. It also has some personal assistant features and it's supposed to recognize faces and context and adapt its responses accordingly.
Darqi's Smart Glasses promise to let you guide a colleague's work by seeing their point of view.
The Sleep Number 360 Smart Bed warms your feet as you're falling asleep.

The monthly Coppock Indicators finished December

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

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