Wednesday, 24 May 2017

Modern Banking.

Baltic Dry Index. 949 -05     Brent Crude 54.24
“George goes to sleep at a bank from ten to four each day, except Saturdays, when they wake him up and put him outside at two.”
Jerome K. Jerome, Three Men in a Boat. Real Banking.
For more on modern banking, scroll down to Crooks Corner. It’s nothing like banking when Jerome wrote Thee Men in a Boat, 1889.

We open with yet more bad news from China. An earthquake is coming, and soon, I think.

Wed May 24, 2017 | 12:35am EDT

Moody's downgrades China, warns of fading financial strength as debt climbs

Moody's Investors Service downgraded China's credit ratings on Wednesday, saying it expects the financial strength of the world's second-biggest economy will erode in coming years as growth slows and debt continues to rise.

The one-notch downgrade in long-term local and foreign currency issuer ratings, to A1 from Aa3, comes as the Chinese government grapples with the challenges of rising financial risks stemming from years of credit-fueled stimulus.

"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," the rating agency said in a statement.

"While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government," it said.

The ratings agency also changed its outlook for China to stable from negative.

China's top leadership has identified the containment of financial risks and asset bubbles as a top priority this year. All the same, authorities have moved cautiously to avoid knocking economic growth, gingerly raising short-term interest rates while tightening regulatory supervision.

While the downgrade is likely to modestly increase the cost of borrowing for the Chinese government and its state-owned enterprises (SOEs), it remains comfortably within the investment grade rating range.

China's Shanghai Composite index .SSEC fell more than 1 percent in early trade before paring losses, while the yuan currency in the offshore market CNH=D3 briefly dipped nearly 0.1 percent against the U.S. dollar after the news.

In US news, desperation time. With a new age of electric vehicles dawning, President Trump proposes to sell off half of the US strategic oil reserve as a budgetary measure. But is it too soon to gamble with the strategic reserve? Probably not, with US frackers now exporting oil to the rest of the world again.  But even if the excess oil is sold, is President Trump’s fairy tale budget all that it seems?

As posited last week, the US is to sue Fiat Chrysler over faking its dirty killer diesel emissions. Is there any European diesel engine maker that’s legit?

Trump Proposes Selling Off Half the U.S. Strategic Oil Reserve

by Catherine Traywick and Jennifer A Dlouhy
23 May 2017, 02:00 GMT+1
The White House plan to trim the national debt includes selling off half of the nation’s emergency oil stockpile, part of a broad series of changes proposed by President Donald Trump to the federal government’s role in energy markets.

Trump’s first complete budget proposal, released in part on Monday, would raise $500 million in fiscal year 2018 by draining the Strategic Petroleum Reserve, and as much $16.6 billion in oil sales over the next decade.

The proposal also seeks to boost government revenues by allowing oil drilling in the Alaska National Wildlife Refuge, ending the practice of sharing oil royalties with states along the Gulf of Mexico and selling off electricity transmission lines in the West. Like much of the budget, those moves are likely to face opposition in Congress.

Presidential budget proposals typically undergo significant changes in Congress, but provide insight into White House priorities.

The Strategic Petroleum Reserve currently holds 687.7 million barrels of oil in salt caverns and tanks at designated locations in Texas and Louisiana. That allows for quick distribution when natural disasters or unplanned accidents occur, according to the Energy Department website.

Measures passed in 2015 and 2016 call for the sale of nearly 190 million barrels of oil from the reserve between 2017 and 2025, to raise money for unrelated government programs. Those sales would cut the reserve by about 27 percent. Slashing the stockpile by half would require further sales, and would risk breaching the legally required inventory threshold. The reserve must contain a minimum of 450 million barrels.

The budget summary document doesn’t indicate the scope or timing of potential oil reserve sales, or whether a $2 billion program to modernize the stockpile’s infrastructure would be affected.

Why deficit hawk Alan Simpson isn’t impressed with Trump’s budget

Published: May 23, 2017 2:44 p.m. ET
Former Republican senator and noted deficit hawk Alan Simpson isn’t very impressed with President Donald Trump’s first budget proposal.

“This is nuts,” Simpson said, during a rant on CNBC with the equally loquacious Rick Santelli.

His biggest complaint is that the Trump budget doesn’t address Medicare or the solvency of Social Security. Simpson was the co-chair of 2010 Simpson-Bowles deficit reduction plan that would have tamed the budget deficit but was abandoned by President Barack Obama and congressional Republicans.

Asked about the Trump’s team’s pledge to get to 3% growth, Simpson scoffed at the idea that any government official could ever forecast GDP growth.

 “I was there for 18 years. I never saw a single projection on economic growth take place. That is a dream world. It’s the Great Oz, taking up over the rainbow,” he said.

He added: “They come up with us on the street and say, ‘I love what you did except for that one part’ which is their part. You mess with their part, they will jab your eyes out with a salad fork.”

Tue May 23, 2017 | 4:45pm EDT

U.S. government sues Fiat Chrysler over excess emissions

The U.S. government filed a civil lawsuit on Tuesday accusing Fiat Chrysler Automobiles NV (FCHA.MI) of illegally using software to bypass emission controls in 104,000 diesel vehicles sold since 2014.

The U.S. Justice Department lawsuit, filed in U.S. District court in Detroit, is a procedural step that may ramp up pressure on Fiat Chrysler and comes amid growing scrutiny of diesels by regulators around the world.

The lawsuit could ultimately help lead to a settlement, as in an earlier probe of Volkswagen AG (VOWG_p.DE) that will cost VW up to $25 billion, but which affected a much larger number of vehicles.
VW admitted to intentionally cheating while Fiat Chrysler denies wrongdoing.

It said on Tuesday it was disappointed the Justice Department filed suit and would vigorously defend itself against claims "it engaged in any deliberate scheme to install defeat devices to cheat U.S. emissions tests."

U.S.-listed Fiat Chrysler shares (FCAU.N) fell 4.1 percent to close at $10.32 in heavy trading on Tuesday. Shares fell sharply after Reuters first reported the government's plan to file suit.

The lawsuit also names Fiat Chrysler's unit VM Motori SpA, which designed the engine in question. Reuters reported last week the Justice Department and EPA have obtained internal emails and other documents written in Italian that look at engine development and emissions issues that raise significant questions. The investigation has scrutinized VM Motori.

The suit said VM employees from Italy worked at Fiat Chrysler's Michigan headquarters on engine calibration and air emission issues.

----The lawsuit asserts the Italian-American automaker placed undeclared "defeat devices," or auxiliary emissions controls, in 2014-2016 Fiat Chrysler diesel vehicles that led to "substantially" higher than allowable levels of nitrogen oxide, or NOx pollution, which is linked to smog formation and respiratory problems.

We close for the day with more on the near collapse of commodities trader Noble Group Ltd. Will its lenders try to keep them alive, and still in the big commodities game, or is it safer to cut and run and force a bankruptcy? Who really knows, but after the MF Global and Refco scandals, it’s a high risk, high pressure game.

The Noble Rot

By David Fickling  May 23, 2017 2:02 AM EDT
If you owe the bank $100, that's your problem, according to a maxim attributed to famed old commodities player John Paul Getty -- but if you owe $100 million, that's the bank's problem.
That's a rare bit of good news for Noble Group Ltd., whose shares and bonds have been plunging after S&P Global Ratings warned the company may default on its debt within a year. Noble's rotten business model may lead to its demise in the long term -- but in the short term, its lenders have more to gain from forgiveness than rigidity.
"The company's capital structure is not sustainable," S&P analysts led by Danny Huang wrote Monday, adding that there's a "risk of nonpayment of its debt obligations due to weakened access to funding."
Sinking Ship
Credit and equity markets agree. The shares Tuesday slid as much as 32 percent, hitting their lowest level since 2001, before being suspended. Yields on Noble's 6.75 percent bonds due in 2020 surged to about 48 percent as the price on the securities dropped to 42 cents on the dollar, while its 8.75 percent 2022 debentures issued in March are commanding 35 percent.
That sounds bad until you consider: A 48 percent yield looks pretty attractive, unless there's zero possibility of recovering your principal.
The odds of such a positive outcome aren't as bad as they might appear. For all Noble's travails, its liquidity looks about as strong now as it's ever been.
The cash ratio and quick ratio (measuring its ability to fund short-term liabilities out of cash and cash plus receivables, respectively) are still short of 1, but that's normal for a commodities trader that holds a large volume of easily marketed inventory. The better guide is the current ratio, which at 1.9 is higher than it's been at any point over the past 10 years.
Noble has some major debts coming due over the next 12 months, according to S&P: A $620 million borrowing-base facility used as trade finance that matures next month, $379 million in bonds coming due in March 2018, and $1.1 billion in revolving credit facilities that run out in May 2018. On the other hand, it also has $1.55 billion in cash and equivalents, $2.06 billion in receivables, and $1.77 billion in inventories. Liquidating those to meet loan repayments may be drastic, but it shows there's a narrow path to survivability.


Refco was a New York-based financial services company, primarily known as a broker of commodities and futures contracts. It was founded in 1969 by Raymond Earl Friedman as Ray E. Friedman and Co. Prior to its collapse in October, 2005, the firm had over $4 billion in approximately 200,000 customer accounts, and it was the largest broker on the Chicago Mercantile Exchange. The firm's balance sheet at the time of the collapse showed about $75 billion in assets and a roughly equal amount in liabilities.

MF Global

MF Global, formerly known as Man Financial, was a major global financial derivatives broker, or commodities brokerage firm that went bankrupt in 2011. MF Global provided exchange-traded derivatives, such as futures and options as well as over-the-counter products such as contracts for difference (CFDs), foreign exchange and spread betting. MF Global Inc., its broker-dealer subsidiary, was a primary dealer in United States Treasury securities. A series of perceived liquidity problems and large fines and penalties dogged MF Global starting in 2008, and led to its bankruptcy in 2011.

“People who have tried it, tell me that a clear conscience makes you very happy and contented; but a full stomach does the business quite as well, and is cheaper, and more easily obtained.”

Jerome K. Jerome. Three Men in a Boat.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, the banksters again. I guess Cornell University doesn’t yet have an ethics course.  Whatever else it is, it’s not banking. Even so, why do these firms still hold banking licences?
"I doubt if any of them would even intentionally double-park."
President Richard M. Nixon. On Haldeman and Ehrlichman.

Novice Nomura Trader Tells Jury How Bosses Taught Him to Lie

by Chris Dolmetsch
22 May 2017, 19:32 GMT+1 22 May 2017, 23:42 GMT+1
When Caleb Chao started working on Nomura Holdings Inc.’s mortgage-bond desk after graduating from college, he got an education very different from the one offered at Cornell University.

Testifying at the trial of three former Nomura traders, Chao said Monday that he was soon taught how to mislead customers about prices and other details in order to get larger commissions.

“The purpose was to sort of make a client feel like we were working for them, but in reality we were making more money,” Chao told jurors in federal court in Hartford, Connecticut. “I just graduated from college and I had no other prior experience. I was relying on how my bosses told me how the market operated."
Chao, who worked for Nomura from 2010 to 2014, is the second former trader at the Japanese firm to take the stand for prosecutors in the trial of three ex-colleagues accused of lying to their clients. Ross Shapiro, Michael Gramins, and Tyler Peters deny wrongdoing, saying their tactics were commonplace and didn’t deceive the sophisticated parties with whom they negotiated.
“I wasn’t thinking about it in legal terms," said Chao, now a fixed-income salesman at StormHarbour Securities LLC in New York. “I thought it was OK because I continued to see it on a regular basis.”
Chao, who is testifying for prosecutors in exchange for not being prosecuted, was questioned Monday about a May 2012 trade with Hartford Investment Management Co. A portfolio manager at the firm, Aadil Abbas, testified last week that he wouldn’t have paid as much for a bond if he had known the information was bogus.

While Chao said he didn’t recall the details of the specific deal with Abbas, he said he would generally look to Gramins for advice on what to tell the customer.

“In a trade like this, he would instruct me on what I should be telling a client," Chao said. "In trades where he was not being straightforward, I would need some advice on what I was telling the client."

The former Nomura traders on trial are among more than a half-dozen people who have been charged for lying to customers. The crackdown began with the arrest of former Jefferies LLC managing director Jesse Litvak in January 2013. Litvak was sentenced last month to two years in prison.

Prosecutors have argued that the three former traders continued to lie even after Litvak was arrested, while their attorneys contend that they changed their ways afterward. Defense lawyers failed to block prosecutors for mentioning the Litvak case.

Chao’s testimony comes after that of Frank DiNucci Jr., the trial’s first witness, who told jurors that he was taught to deceive clients shortly after coming to the company in 2009 and continued to use the tactics even after leaving in 2012. Defense attorneys have painted DiNucci as a serial liar and criminal who even stole money from his own mother.
Writing for Harpers in 2016, journalist Dan Baum described a meeting he had with Ehrlichman in 1994 while researching a book about the politics of drug prohibition. Ehrlichman cut through Baum's questions and gave his story about the reason for Nixon's war on drugs:

The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people. You understand what I’m saying? We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.
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?

25 April 2017 · Robert Leeming ·

LED has potential to end use of pesticides in farming

Research is proving that light produced by LEDs has the ability to speed up plant growth and improve the taste of fruit and vegetables. However, researchers in the United States are also proving that LED light is able to reduce disease in plants, a discovery that could, ultimately, lead to the redundancy of expensive and unpopular pesticides.
What is more, early research suggests that the same wave lengths of light produced by LED that improves flavor, can also control pathogens.
Lux caught up with Jaimin Patel, a plant pathologist at the Lighting Research Center of the Rensselaer Polytechnic Institute in New York, who is currently conducting a range of studies and research into plant pathogens, the microorganisms that cause diseases to spread in plants.
Patel aims to understand which light wavelengths are beneficial to pathogens and what wavelengths will do them more harm than good, information that will be passed onto to growers, in the hopes of decreasing plant disease.
Patel’s team, in conjunction with partners at New York’s Cornell University, have conducted studies on the effect of LED and ultraviolet light on strawberries, rosemary, cucumber, as well as a string of other fruit and vegetables, and each time the light has been found to reduce pathogens whilst increasing production.
----LEDs can be controlled to produce a particular spectrum of light that utilises what is required for the job at hand. So, for example, a spectrum of light can  be created that can harm pathogens and benefit plant development.
‘This is a new area of research and studies have only been carried out on a limited number of diseases,' Patel added. 'I cannot say confidently that LED light has an effect on all pathogens, but as a living organism I can certainly say that every living organism depends on light.’
What is more, if light is proved to be an effective suppressor of pathogens across a range of plants, then this means that expensive and some say, unhealthy, pesticides will no longer be required to keep plants healthy, a plus point not only for the grower, but also, many would say, for the consumer too.

“I don't understand German myself. I learned it at school, but forgot every word of it two years after I had left, and have felt much better ever since.”

Jerome K. Jerome, Three Men in a Boat.

The monthly Coppock Indicators finished April

DJIA: 20,941 +149 Up. NASDAQ:  6,048 +190 Up. SP500: 2,384 +152 Up.

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