Wednesday, 5 April 2017

The Looming Shipping Crisis.

Baltic Dry Index. 1255 -27       Brent Crude 54.46

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

'Sooner or later, a crash is coming, and it may be terrific'.

Economist Roger Babson, September 5, 1929.

The east meets west, pow-wow under the palms, world championship fight, between the world’s largest debtor and the world’s second largest creditor, is just one day away. Short of an asteroid hitting planet earth this week, nothing else will have as much impact on the global economy as the outcome of face off in Florida. Will dealmaker “the Donald” thump and Trump, China’s President Xi? Making America first again, and China second? Will the inscrutable Xi, thump and trump the dealmaker king, making China first, and America second? In this high stakes, zero sum game, there can be only one winner and one loser, although this is no way to be running the still very wobbly global economy.

While we await the outcome of the no holds barred shoot-out at Mar-a-Lago, and the outcome of Trumpmania, Bloomberg has come up with a UN, man-made fiasco, looming on world trade and the global economy, starting in 2020. No one at present is even trying to fix this looming shock to global trade. The obvious, common sense solution is to delay the new emission rules start date, but common sense is generally far from common in our now, not so new, Great Nixonian Error of fiat currency, just-in-time, globalized world.  Left unaddressed, our globalized economy faces a massive shipping shock in just over two and a half years. I’ll bet that this isn’t even on the agenda at the shoot-out at the Mar-a-Lago coral.

“Never interrupt your enemy when he is making a mistake.”

Napoléon Bonaparte. French Dictator. Mentor to J-C Juncker.

Global Shipping Fleet Braces for Chaos of $60 Billion Fuel Shock

by Firat Kayakiran
Little more than 2 1/2 years from now, the global fleet of merchant ships will have to reduce drastically how much sulfur their engines belch into the atmosphere. While that will do good things -- like diminishing the threat of acid rain and helping asthma sufferers -- there’s a $60 billion sting in the tail.

That’s how much more seaborne vessels may be forced to spend each year on higher-quality fuel to comply with new emission rules that start in 2020, consultant Wood Mackenzie Ltd. estimates. For an industry that hauls everything from oil to steel to coal, higher operating costs will compound the financial strain on cash-strapped ship owners, whose vessels earn an average of 70 percent less than they did just before the 2008-09 recession.

The consequences may reach beyond the 90,000-ship merchant fleet, which handles about 90 percent of global trade. Possible confusion over which carriers comply with the new rules could lead to some vessels being barred from making deliveries, which would disrupt shipments, according to BIMCO, a group representing ship owners and operators in about 130 countries. Oil refiners still don’t have enough capacity to supply all the fuel that would be needed, and few vessels have embarked on costly retrofits.

“There will be an absolute chaos,” said Lars Robert Pedersen, the deputy secretary general of Denmark-based BIMCO. “We are talking about 2.5 million to 4 million barrels a day of fuel oil to basically shift into a different product.”

Merchant ships around the world are required to cut the amount of sulfur emitted under rules approved in October by the International Maritime Organization, a UN agency that sets industry standards for safety, security and the environment. As well as contributing to acid rain, sulfur, combined with oxygen, can form fine sulfate particles that can be inhaled by humans and may cause asthma and bronchitis, according to the U.S. Environmental Protection Agency.

There are two main ways to comply: vessel engines are fitted with scrubbers that would eliminate the pollutant, or oil refiners will have to make lower-emission fuels. The limit on sulfur content will drop to 0.5 percent from 3.5 percent.

So far, neither the refining industry nor shipping is doing anywhere near enough for owners to achieve compliance in 2020, according Iain Mowat, a senior analyst at Wood Mackenzie.

“Ship owners are reluctant to install scrubbers to continue using the same oil because of uncertainties and lack of funding,” Mowat said. “And most refineries won’t invest to convert heavy fuel because that will cost more than $1 billion and take about five years to complete.”

In shoot-out news, President Trump’s team ups the ante going in.

Tue Apr 4, 2017 | 6:46pm EDT

White House official says North Korea is test for U.S.-China relations

U.S. President Donald Trump will discuss how to rein in North Korea's nuclear program with Chinese President Xi Jinping later this week in what a senior White House official said on Tuesday would be a test for the U.S.-Chinese relationship.

Trump and Xi are to meet on Thursday and Friday at Trump's Mar-a-Lago retreat on the Atlantic coast in Palm Beach, Florida. It will be their first face-to-face meeting since Trump took office on Jan. 20, and trade and security issues are to figure prominently in their talks.

"We would like to work on North Korea together," the official said in a briefing for reporters. "This is a test for the relationship."

Trump wants China to do more to exert its economic influence over unpredictable Pyongyang to restrain its nuclear and missile programs, while Beijing has said it does not have that kind of influence.

In an interview with the Financial Times last weekend, Trump held out the possibility of using trade as a lever to secure Chinese cooperation.

In the same interview, Trump was quoted as telling the FT that Washington was ready to address the North Korean threat alone, if need be.

The White House official -- speaking just as North Korea fired a projectile believed by South Korea's military to be a ballistic missile into the sea -- said the situation had become more urgent.

"The clock is very, very quickly running out," the official said. "All options are on the table for us."
Trump does not plan to give in to Chinese pressure for the United States to withdraw its THAAD anti-missile system in South Korea, which Beijing considers destabilizing.

We close with the European Banking Authority deep in the hoping-something-will-turn-up territory, and hoping what turns up isn’t the next Lehman or a new global recession that wipes out most of Euroland’s dodgy banks. If they’re worried about non-performing loans now, in the 92nd month of our weak recovery from banksterism 2008, just wait to see Euroland’s NPLs once the next recession hits. Stay long some fully paid up physical gold and silver for insurance.

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F. A. von Hayek

EBA updated Risk Dashboard confirms that elevated NPLs and low profitability are the main challenges for the EU banking sector

03 April 2017
The European Banking Authority (EBA) published today a periodical update of its Risk Dashboard summarising the main risks and vulnerabilities in the EU banking sector by a set of Risk Indicators in Q4 2016.

In Q4 2016, EU banks' ratio of common equity tier 1 (CET1) reached new highs, increasing by 20 bps to 14.2%.  This effect is mainly explained by a decrease in RWAs, also in connection with asset disposals. 
The ratio of non-performing loans (NPLs) was 5.1%, 30 bps below Q3 2016 and suggesting that supervisory efforts are bearing fruit, albeit slowly. Looking forward, the Risk Assessment Questionnaire shows that more than half of the banks plan to increase their volumes of corporate and SME financing portfolios, as well as residential mortgage and consumer loans. 

Profitability remained squeezed, and the annualised return on equity (RoE) decreased to its lowest level to 3.3%, 2.1 percentage points (p.p.) below the third quarter. The cost-to-income ratio continued to increase reaching 65.7% up from 62.8% in the previous year.

The loan-to-deposit ratio decreased to 118.4%, compared to 120.1% in the former quarter and the asset encumbrance ratio decreased slightly to 26.3% (26.5% in the previous quarter). 

The average liquidity coverage ratio (LCR) was 141.1% in December 2016, well above the threshold defined as the liquidity coverage requirement for 2016 (70%).

Tue Apr 4, 2017 | 4:58pm EDT

Italy's Veneto banks confirm capital shortfall of $6.8 billion

Struggling Italian regional lenders Banca Popolare di Vicenza and Veneto Banca confirmed on Tuesday the European Central Bank has estimated they have a combined capital shortfall of 6.4 billion euros ($6.8 billion) after stress tests by the regulator last year.

In almost identical statements, the two banks said that the ECB had indicated they both qualified for a so-called precautionary recapitalization by the state.

The scheme, already used by Italy's fourth biggest lender Monte dei Paschi di Siena (BMPS.MI), takes advantage of an exception to EU banking liquidation rules that allows public money to be injected into ailing banks with a limited contribution from their creditors.

The European Commission must now decide whether the two banks' requests for public support breaches EU state aid rules, and approve their restructuring plans for the funds to be unlocked. On Monday, a spokesman for the Commission said it was confident that a solution could be found in the coming weeks.

The capital shortfall was calculated taking into account the lenders' score in the adverse scenario of the stress tests, whose results had not been previously made public.

Two sources close to the matter had earlier put the capital gap for the two banks at 6.4 billion euros. One of the sources said the ECB considered the lenders solvent, a key condition for them to receive the state bailout they have requested.

Popolare di Vicenza said in its statement it had failed the stress test adverse scenario, which looked at how banks could withstand a three-year theoretical economic shock, recording a Common Equity Tier 1 ratio at the end of 2018 of minus 3.19 percent against the 8 percent minimum requirement set by the ECB. That shortfall translated into a capital gap of 3.3 billion euros according to ECB calculations, the bank said.

Veneto Banca said it had also failed the baseline scenario of the tests, but that shortfall had been plugged thanks to an injection of capital by Italian bank bailout fund Atlante.

The state-sponsored fund - financed mostly by private banks and financial institutions - rescued both Popolare di Vicenza and Veneto Banca last year after they failed to raise funds on the market. It has invested nearly 3.5 billion euros to save them.

At the Comex silver depositories Tuesday final figures were: Registered 29.80 Moz, Eligible 161.41 Moz, Total 191.21 Moz.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
No crooks again today while we await the week’s big meeting, just interesting developments in Mexico silver mining for Toronto listed Endeavor Silver. I think our new Electric Vehicle, solar power, graphene 21st century, is going to require major new resources of silver. It’s one of the main reasons I follow companies like Endeavor and cover the Comes silver inventory.

Endeavour Silver a step closer to developing fifth mine based on positive reserve estimates, PFS

4th April 2017

VANCOUVER ( – The TSX-listed stock of primary silver producer Endeavour Silver rose as much as 7% on Monday after the company released an updated National Instrument (NI) 43-101-compliant reserve estimate and positive preliminary feasibility study (PFS) for its Terronera silver/gold project, located 40 km northeast of Puerto Vallarta, in Mexico’s Jalisco state.

The Vancouver-based miner reported that the main mineralised zone comprises a shallow, steeply dipping, thick, high-grade part of the Terronera vein.

Endeavour reported significant gains in resources and reserves when compared with the May 2015 preliminary economic assessment (PEA). The indicated resource is now 3.96-million tonnes grading 332 g/t silver and 2.18 g/t gold (or 385 g/t silver equivalent) and containing 29.53-million oz of silver and 277 000 oz of gold. Resources in the inferred category total 720 000 t grading 309 g/t silver and 1.48 g/t gold (or 413 g/t silver equivalent) and containing 7.15-million oz of silver and 34 000 oz of gold.

The probable reserve stands at 4.06-million tonnes grading 207 g/t silver and 1.95 g/t gold (or 344 g/t silver equivalent) and containing 27.03-million oz of silver and 255 000 oz of gold.

“We look forward to getting the green light to develop Terronera into our fifth mine. We consider the exploration potential to make new discoveries and expand the resources at Terronera to be very good.

“In 2016, drilling on the Terronera vein expanded the main high-grade, mineralised zone to depth. Surface sampling also located high-grade, silver-gold mineralisation in nine other veins on the property. Recently released, very high-grade drill results from the La Luz vein confirm the potential for new discoveries. The deep Terronera and shallow La Luz drill results were not included in either the updated mineral resource estimate or the PFS, and they represent one of several opportunities for extending the mine life and optimising the PFS,” Endeavour CEO Bradford Cooke stated.

The PFS has calculated a net present value (NPV), at a 5% discount rate, of $78.1-million, and an internal rate of return (IRR) of 21%, with a period of 4.3 years to pay back the $69.2-million initial capital expenditures that include $43.1-million for the plant and site infrastructure; $8.7-million for mine development and equipment; and $9.4-million for owners’ costs, construction camp and engineering, procurement and construction management.

Endeavour calculated the resource estimate based on a silver price of $18/oz and a gold price of $1 260/oz for the base case scenario.

Contingencies are estimated at $8-million. The operation is rated to produce 1 000 t/d for the first two years and double to 2 000 t/d in the third year. A seven-year mine life is planned.

---- Meanwhile, Endeavour last week completed an initial NI 43-101-compliant mineral resource estimate and a PEA for its El Compas project, also in Mexico, pointing to an economically robust project, prompting management to proceed with mine development.

Management stressed this decision was not made purely off the results of the assessments. Rather, the company based its decision on the fact it has successfully developed similar mines in Mexico, the total capital required is low and it has enough experience to build and operate a mine of this size.

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise. The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."

Hans F. Sennholz

Technology 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?

New ultrafast flexible and transparent memory devices could herald new era of electronics

Date: March 31, 2017

Source: University of Exeter

Summary: An innovative new technique to produce the quickest, smallest, highest-capacity memories for flexible and transparent applications could pave the way for a future golden age of electronics.
Engineering experts from the University of Exeter have developed innovative new memory using a hybrid of graphene oxide and titanium oxide. Their devices are low cost and eco-friendly to produce, are also perfectly suited for use in flexible electronic devices such as 'bendable' mobile phone, computer and television screens, and even 'intelligent' clothing.
Crucially, these devices may also have the potential to offer a cheaper and more adaptable alternative to 'flash memory', which is currently used in many common devices such as memory cards, graphics cards and USB computer drives.
The research team insist that these innovative new devices have the potential to revolutionise not only how data is stored, but also take flexible electronics to a new age in terms of speed, efficiency and power.
The research is published in the leading scientific journal ACS Nano.
Professor David Wright, an Electronic Engineering expert from the University of Exeter and lead author of the paper said: "Using graphene oxide to produce memory devices has been reported before, but they were typically very large, slow, and aimed at the 'cheap and cheerful' end of the electronics goods market.
"Our hybrid graphene oxide-titanium oxide memory is, in contrast, just 50 nanometres long and 8 nanometres thick and can be written to and read from in less than five nanoseconds -- with one nanometre being one billionth of a metre and one nanosecond a billionth of a second."
Professor Craciun, a co-author of the work, added: "Being able to improve data storage is the backbone of tomorrow's knowledge economy, as well as industry on a global scale. Our work offers the opportunity to completely transform graphene-oxide memory technology, and the potential and possibilities it offers."

"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

Kenneth J. Gerbino

The monthly Coppock Indicators finished March

DJIA: 20,663  +131 Up. NASDAQ:  5,912 +165 Up. SP500: 2,363 +135 Up.

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