Wednesday, 22 February 2017

More Red Flags.

Baltic Dry Index. 778 +21   Brent Crude 56.86

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.

Trumpmania may still be the flavour of the month, but if it wasn’t for red flags we’d have no flags at all.  From China to America to Europe, everyone is skating on thinner and thinner ice. What could possibly go wrong in a US recovery already deep into its 90th month.

China's $9 Trillion Moral Hazard Problem Grows Too Big to Ignore

Bloomberg News
China may be about to embark on its most ambitious -- and perilous -- campaign to convince investors that they can’t depend on a bailout during the country’s next market upheaval.

In a rare show of cooperation, the nation’s main financial regulators are drafting new rules for asset-management products that aim to make clear the investments have no government guarantee, people familiar with the matter told Bloomberg News on Tuesday. The products, which promise higher returns than bank deposits but are viewed by many investors as a form of risk-free savings, have become an integral part of the Chinese financial system after swelling in recent years to almost $9 trillion as of June 30.

Policy makers face a difficult balancing act. If they fail to dispel the notion of an implicit government guarantee, riskier investments could proliferate and pose an even greater threat to the financial system when Asia’s largest economy faces its next bear market. But if authorities act too forcefully now, they risk triggering a stampede away from products that have become a key funding source for banks.

“Rolling this back is China’s biggest financial challenge,” David Loevinger, a former China specialist at the U.S. Treasury who’s now an analyst TCW Group Inc. in Los Angeles, which oversees about $191 billion, said by e-mail. “But seeing is believing. Saying investors won’t get bailed out is important, but you have to show them you mean it.”

For President Xi Jinping’s government, it’s a particularly sensitive time to be shaking up an industry that manages assets worth more than three-quarters of China’s gross domestic product. Policy makers have been placing an emphasis on financial stability as the ruling Communist Party prepares for a twice-a-decade leadership reshuffle later this year. They also need to grapple with a host of other risks, from a potential trade war with America to political upheavals in Europe and North Korea’s nuclear program.

History suggests Beijing has a hard time following through on reforms. One of the biggest tests of the implicit guarantee on trusts -- sold to wealthy individuals -- came in 2014 when a product called Credit Equals Gold No. 1 lacked the funds to repay investors. The trust, which was sold to clients of state-run Industrial & Commercial Bank of China Ltd., was eventually bailed out by unidentified buyers after the episode roiled markets around the world.

When Chinese equities crashed in the summer of 2015, the government went to extreme lengths to protect individual investors from losses, allowing hundreds of companies to halt trading in their shares and banning major stockholders from selling. State-run funds also spent billions to prop up the market, which has rallied more than 20 percent from its low at the start of 2016.

The investments said to be under consideration by regulators play a much bigger role in China’s financial system than the stock market.

Kuroda: Bank of Japan won’t take rates deeper into negative territory

By Takashi Nakamichi  Published: Feb 21, 2017 11:19 p.m. ET
TOKYO — Bank of Japan Governor Haruhiko Kuroda said Wednesday that pushing rates further into negative territory was off the table, reflecting both his upbeat inflation outlook and his concerns over the contentious policy measure.
“There is not much likelihood that we will further lower the negative rate” from the current minus 0.1%, Kuroda said in parliament, citing Japan’s accelerating growth.
The BOJ introduced the measure in January 2016, imposing a 0.1% charge on certain yen deposits held by commercial banks in an effort to strengthen bank lending and weaken the yen, among other potential benefits.
However, its positive impact has been limited so far, while triggering a public backlash and threatening the financial health of commercial lenders. “My view is that the negative-rate policy has both positive and negative aspects in it,” Kuroda said.

The Next Financial Crisis Might Be in Your Driveway

With late payments on the rise, a dealership upsell begins to look dangerous.

by Kyle Stock
Lured by low interest rates, low gas prices, and a crop of seductive vehicles that are faster, smarter, and more efficient than ever before, American drivers are increasingly riding in style. Don’t be fooled by the curb appeal, though—those swanky machines are heavily leveraged. 

The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco. 

It’s an alarming number, big enough to incite talk of a bubble. In fact, the pile of debt would cover the cost of 43.4 million Ford F-150 pickups, one for every eight or so people in the country.

Another way to look at: Every licensed driver in the U.S., on average, owes about $6,100 in car payments.

But the market for cars is a lot different than that for houses. For one, vehicles are a much more fluid asset—they are far easier to repossess and resell. What’s more, car payments tend to be cheaper than mortgages and people tend to use their vehicles a lot, so when it comes time to prioritize bills, the auto loan typically takes precedent over other things.

Indeed, delinquencies on vehicle loans, though rising, are still lower than late payments on student loan debt and credit card balances. So preppers getting ready for global economic collapse shouldn’t panic about car payments just yet.

But they should worry—just like executives at the big automakers. Barring a few finance startups, the manufacturers are the ones loaning money to the riskiest buyers. They have more incentive to push a sale and, unlike a bank, make money on both the loan and the product, if all works out right.

Recently, carmakers have been focused on moving SUVs and trucks, which tend to carry higher profit margins than vanilla sedans and cost a little more as well. Lowering credit standards a bit and stretching repayment windows up to six or seven years has helped drive business to record levels, with 17.55 million vehicle sales in all last year.

In the past two years, U.S. drivers with credit scores of less than 620 borrowed $244 billion to buy cars, a tally not matched since 2006 and 2007 when the same strata of buyers rolled off with $254 billion in auto loans.

Tue Feb 21, 2017 | 1:34pm EST

EU to say French economy out of balance, Germany surplus too high

The European Commission will tell France on Wednesday its economy is improving but still has excessive imbalances, while chiding Germany over its current account surplus and warning Italy it must reduce its rising public debt, an EU official said.

The European Union's executive arm is to publish in-depth reviews of the economies of several countries identified last November as having "imbalances" or "excessive imbalances" such as large public debts, budget deficits or trade surpluses. 

The countries named were Bulgaria, Croatia, Cyprus, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and Sweden.

The idea is to prevent the excessive economic imbalances in these countries from developing eventually into a full-blown crisis that could threaten others in Europe and especially those in the euro zone. 

In November, the Commission said France's main economic imbalance was its rising public debt in the context of low productivity growth and weak competitiveness.

France, which holds presidential elections in April and May, will see its debt rise to 97.0 percent of gross domestic product (GDP) next year from 96.7 percent seen this year, the Commission forecast last week.

The EU official, who is familiar with the content of the Commission reviews, said that compared with last year France's economy has improved as previous reforms have begun to produce some results but that this improvement was not enough.

Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.

John Kenneth Galbraith

At the Comex silver depositories Tuesday final figures were: Registered 30.08 Moz, Eligible 154.00 Moz, Total 184.08 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today NATO again. This time freeloading NATO as seen from President Trump’s Washington. Europe has reached the end of Uncle Sam’s road. It’s put up the money time, or face a very different USA defence posture ahead. But is anyone in continental Europe listening? They’re mostly too busy lecturing President Trump from their High Horse of self righteous humbug.

February 20, 2017

The Evolving NATO Alliance

By George Friedman and Jacob L. Shapiro
US Secretary of Defense James Mattis met with defense ministers from other NATO member countries in Brussels on Feb. 15. The meeting was closed to the public, but some of Mattis’s comments were released to the media. “America will meet its responsibilities, but if your nations do not want to see America moderate its commitment to this alliance, each of your capitals needs to show its support for our common defense.” He added, “America cannot care more for your children’s security than you do.”

The previous US administration criticized NATO at times but in such a way that the complaint was never taken seriously. The new administration cannot afford for this demand to not be taken seriously. From a US strategic view, the status quo is unacceptable.

NATO was created to be a defense alliance. Defense requires military forces. Alliance means deploying those forces to protect or support an ally. Alliances usually involve countries with varying power and capabilities, some weak and some strong. This is to be expected. But sharing the burden is also expected in an alliance. Each partner gives what it can for the greater good.
By all these measures, NATO is not currently a coherent alliance. It is instead a collection of states disproportionately dependent on the US for security guarantees. This arrangement is significantly less valuable to the US than an alliance.  
The world is more unstable today than at any point since the Soviet Union’s fall. The US is still the only global power, but it is not all-powerful. The US must have the support of its allies to meet challenges such as Russia and China, as well as in the ongoing war with radical Islamism. Other NATO members also must have the support of the US.
Mattis has called attention to an unpleasant truth: NATO military capabilities are not adequate to meet all the challenges facing NATO members. This lack of capability can be attributed to three factors: the disproportionate level of NATO members’ defense spending, the decline in NATO members’ defense spending over the last seven years, and the unequal sharing of the alliance’s burdens relative to individual members’ resources.

----The chart above starts at the simplest level. Not all NATO members spend a similar amount on defense. NATO estimates that alliance members’ defense expenditures totaled $918.3 billion in 2016. More than 70% of that spending came from the United States. The US spends 2.5 times more on defense than all other NATO member states combined.

NATO is not currently a traditional military alliance. It is a list of 27 countries the US has agreed to defend.

----In 2006, NATO states agreed at a summit in Riga that all members should spend 2% of GDP on defense. In that year, six countries met that threshold: Bulgaria, France, Greece, Turkey, the UK, and the US. In 2016, only five countries met this threshold: Estonia, Greece, Poland, the UK, and the US.
In 2014, some NATO countries reaffirmed their commitment to increase spending to requisite levels by 2024. But NATO member states had already agreed to those spending levels in 2006. “Reaffirming a commitment” is code for not having fulfilled a previous promise and insisting this time will be different. Promises lose their worth when they have been broken in the past. A decade is a long enough time to wait for an ally to live up to a promise. And 18 years is an unreasonable amount of time.
The US cannot fight wars and defend NATO’s varied interests with promises. The US cannot honor commitments unconditionally. Its power has limits. The US faces a broad array of challenges in different parts of the world, and this makes having dependable allies a crucial part of US strategy. 

----There is only one country that spends a proportionate share on defense based on its share of overall GDP and population: the United Kingdom. The US contributes far more than its share. Every other NATO country spends less relative to its economic activity or its population. Western European countries (excluding the UK) account for 31% of NATO members’ GDP and 33%  of their population, and yet they contribute 16%  to NATO members’ total defense spending.

----After Mattis’s closed-door meeting with defense ministers, NATO Secretary General Jens Stoltenberg said at a press conference, “This is not the US telling Europe to increase defense spending. This is 28 allies, heads of states and governments sitting around the same table in 2014, and looking into each other’s eyes and agreeing that we shall increase defense spending.”
The NATO secretary general’s analysis is wrong. This is the US telling Europe to increase its defense spending. There will be a tangible change in NATO member states’ behavior, or there will be a tangible change in US support for NATO. If the second scenario takes shape, NATO will be replaced by a greater emphasis on important bilateral relationships.  
The US has asked for help and hasn’t gotten it. The US is now demanding help. NATO member states face a serious choice over whether to give the US this help.

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?

Printable solar cells just got a little closer

Research removes a key barrier to large-scale manufacture of low-cost, printable perovskite solar cells

Date: February 16, 2017

Source: University of Toronto Faculty of Applied Science & Engineering

Summary: A new innovation could make printing solar cells as easy and inexpensive as printing a newspaper. Researchers have cleared a critical manufacturing hurdle in the development of a relatively new class of solar devices called perovskite solar cells. This alternative solar technology could lead to low-cost, printable solar panels capable of turning nearly any surface into a power generator.
A U of T Engineering innovation could make printing solar cells as easy and inexpensive as printing a newspaper. Dr. Hairen Tan and his team have cleared a critical manufacturing hurdle in the development of a relatively new class of solar devices called perovskite solar cells. This alternative solar technology could lead to low-cost, printable solar panels capable of turning nearly any surface into a power generator.
"Economies of scale have greatly reduced the cost of silicon manufacturing," said Professor Ted Sargent, an expert in emerging solar technologies and the Canada Research Chair in Nanotechnology. "Perovskite solar cells can enable us to use techniques already established in the printing industry to produce solar cells at very low cost. Potentially, perovskites and silicon cells can be married to improve efficiency further, but only with advances in low-temperature processes."
Today, virtually all commercial solar cells are made from thin slices of crystalline silicon which must be processed to a very high purity. It's an energy-intensive process, requiring temperatures higher than 1,000 degrees Celsius and large amounts of hazardous solvents.
In contrast, perovskite solar cells depend on a layer of tiny crystals -- each about 1,000 times smaller than the width of a human hair -- made of low-cost, light-sensitive materials. Because the perovskite raw materials can be mixed into a liquid to form a kind of 'solar ink', they could be printed onto glass, plastic or other materials using a simple inkjet printing process.
But, until now, there's been a catch: in order to generate electricity, electrons excited by solar energy must be extracted from the crystals so they can flow through a circuit. That extraction happens in a special layer called the electron selective layer, or ESL. The difficulty of manufacturing a good ESL has been one of the key challenges holding back the development of perovskite solar cell devices.
"The most effective materials for making ESLs start as a powder and have to be baked at high temperatures, above 500 degrees Celsius," said Tan. "You can't put that on top of a sheet of flexible plastic or on a fully fabricated silicon cell -- it will just melt."
Tan and his colleagues developed a new chemical reaction than enables them to grow an ESL made of nanoparticles in solution, directly on top of the electrode. While heat is still required, the process always stays below 150 degrees C, much lower than the melting point of many plastics.
The new nanoparticles are coated with a layer of chlorine atoms, which helps them bind to the perovskite layer on top -- this strong binding allows for efficient extraction of electrons. In a paper recently published in Science, Tan and his colleagues report the efficiency of solar cells made using the new method at 20.1 per cent.

The monthly Coppock Indicators finished January

DJIA: 19864  +92 Up. NASDAQ:  5615 +95 Up. SP500: 2279 +95 Up.

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