Friday, 12 May 2017

War Or Peace?

Baltic Dry Index. 1012 +07     Brent Crude 50.81

Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

H. L. Mencken.

The big news today and tomorrow is the G-7 finance ministers meeting in Bari, Italy. Will the outcome be trade war or peace? Will it be “America First,” or something less confrontational? G-1 v Rest of the World, or G-1 with the Rest of the World? Will U.S. Treasury Secretary Steven Mnuchin lay down the Trumpian surrender terms, or will he deliver yet another Trump U-turn and seek compromise and peace. No one knows yet, of course, and there’s still an open issue of how much authority President Trump’s cabinet officials really have, or for how long any peace deal will last in Washington.

Below Reuters covers developments.

For every complex problem there is an answer that is clear, simple, and wrong.

H. L. Mencken.

Thu May 11, 2017 | 7:06pm EDT

G7 finance chiefs in Italy try to gauge Trump's policy plans

Finance chiefs from the G7 begin a two-day meeting in Italy on Friday, with Europe, Japan and Canada hoping to come away with a clearer picture of U.S. President Donald Trump's direction on important policies that he has yet to spell out.

The official agenda for Group of Seven finance ministers and central bankers who arrived in the Adriatic port city of Bari on Thursday focuses on inequality, international tax rules, cyber security and blocking the funding of terrorism.

However, many participants will be looking to U.S. Treasury Secretary Steven Mnuchin to gauge U.S. intentions on issues where Trump has threatened to upset the group's consensus: protectionism and climate change.

"It will be another chance to learn what the U.S. government is thinking and planning," said a G7 official at one of several briefings by national delegations this week.

At a meeting of the larger Group of 20 finance ministers in Germany in March, ministers dropped their traditional pledge to keep global free trade open, bowing to an increasingly protectionist United States.

Trump will decide whether to quit the global Paris agreement on climate change - a campaign promise - after meeting leaders at a G7 summit on May 26-27, the White House has said.

A U.S. Treasury spokesman said Mnuchin will brief his counterparts in Bari on the Trump administration's still-emerging plans to revamp the U.S. tax system - with major cuts for businesses - and ease regulatory burdens.

Reflecting tensions over Trump's attitude to protectionism, there will be no formal discussion of trade in Bari, Italian Treasury officials said. However, the U.S. Treasury spokesman said the issue was likely to come up in bilateral talks.

The closing statement from Bari will reiterate a warning against competitive devaluations, Italian officials said, as March's G20 did, allaying fears that the new U.S. administration might weaken the G20's united front on global currency policy.

The G7 will kick off on Friday with an early morning discussion of Greece's debt ahead of a May 22 meeting of euro zone finance ministers on the disbursement of new loans, French officials said.

---- At a bilateral meeting on Thursday ahead of the G7, Italy's finance minister Pier Carlo Padoan sought to reassure Mnuchin about the state of Italy's banks, an Italian official present at the meeting said.
Italian banks are saddled with about 350 billion euros ($380 billion) of bad debt, a third of the euro zone's total.

Below, the Fed’s “top gun” yesterday, set out to spike President Trump’s protectionist guns. Apparently there’s still no joined up government in Washington D.C.

Thu May 11, 2017 | 4:02pm EDT

In Trump's shadow, Fed official says trade barriers a 'dead end'

Trade protectionism is a "dead end" that may score political points but will ultimately hurt the U.S. economy, one of the most influential Federal Reserve officials said on Thursday in the central bank's strongest defense yet of open borders in the face of a skeptical Trump administration.

William Dudley, head of the New York Fed, did not mention U.S. President Donald Trump by name in a speech at the Bombay Stock Exchange. But he gave a full-throated economic and even political argument for resisting trade barriers that he said would hurt growth and living standards in both the United States and around the world.

"Protectionism can have a siren-like appeal," said Dudley, a close ally of Fed Chair Janet Yellen and a key decision-maker on U.S. interest-rate policy.

"Viewed narrowly, it may be potentially rewarding to particular segments of the economy in the short term," he said in prepared remarks. "Viewed more broadly, it would almost certainly be destructive to the economy overall in the long term."

The Fed is independent but answerable to Congress, and its governors are appointed by the White House and confirmed by the Senate. While Fed officials usually avoid recommending fiscal policies, several have highlighted the benefits of open borders since Trump was elected on an "America First" platform of revamping or ripping up trade deals.

The White House has said trade deals often do more harm than good for U.S. workers and companies, especially those in the manufacturing sector hard-hit by globalization. Over the last 25 years trade has grown to represent roughly 57 percent of global output, from less than 40 percent.

Dudley said he was speaking out because "we are at a particularly important juncture" in which trade issues could imperil the long-term health and productivity of the economy and "the economic opportunities available to our people."

Barriers to trade are very costly, he said, because they blunt export opportunities, make everyday goods more expensive, and they can often "backfire" by harming workers who can no longer compete in a global economy.

"There are many approaches to dealing with the costs of globalization, but protectionism is a dead end," said Dudley, a former Goldman Sachs partner who joined the New York Fed in 2007 and became its president in the depths of the financial crisis in early 2009.

"Trying to achieve a high standard of living by following a policy of economic isolationism will fail," he said in Mumbai.

The unusually pointed speech comes after the New York Fed published research in recent months that warned against a Republican proposal for a border-adjustment tax and a Trump threat to ditch the North American Free Trade Agreement. Both the Republicans and Trump have since largely backed down from those positions.

The U.S. central bank has hiked interest rates twice since December and expects to tighten policy about two more times this year as the economy carries on a roughly 2-percent growth track, and as unemployment at 4.4 percent remains low.

Dudley has said the Fed would adapt its approach as tax, spending and trade policies emerge from Washington. He does not expect a "dramatic change" in policy, he said on Thursday, repeating his preference to start trimming the Fed's $4.5 trillion balance sheet as early as this year in such a way that it is "a modest and minor" event.

In commodities news, worrying developments in Asia. The next Lehman is out there and getting closer by the day. Or in commodities, the next M. F. Global or Refco. In China, is it time to head for the hills?

Noble Group's Share Collapse Worsens as DBS Sees Further Losses

by Jasmine Ng
12 May 2017, 04:29 GMT+1
Noble Group Ltd.’s losses may continue as the commodity trader is unable to hedge price risks in its coal business effectively, according to DBS Group Holdings Ltd., which cut its share price target by about 60 percent. The stock extended its plunge to a 15-year low.

A change in the structure of the coal market, a flattening of the forward oil curve and higher borrowing costs could delay the company’s return to profitability, analyst Mervin Song wrote in a report Friday. The bank slashed its target to S$0.94 from S$2.30, while maintaining a hold rating.

The trader said Thursday it will take at least a year to get back to profit after posting its worst quarterly loss since 2015, and blamed the result on wrong-way bets on coal because of price distortions caused by hedge funds. That’s the latest in a string of setbacks for Noble, once the largest commodity trader in Asia, which has been selling assets and cutting costs to bolster its finances after years marked by credit-rating downgrades and a share-price collapse.

“There is risk that losses may continue due to the inability to effectively hedge the price risk in its coal business, and still negative operating cashflows,” Song wrote, which suggests that Noble’s return to profitability may take at least two years. “There are questions surrounding Noble’s ability to secure sufficient liquidity from its key banks.”

The former blue-chip stock tumbled as much as 30 percent to 61 Singapore cents on Friday, the lowest since March 2002, before trading at 69.5 cents at 11:26 a.m. local time. That extends the previous day’s record 32 percent slump, and the shares have now lost almost half their value this week.

Noble posted a net loss of $129 million in the three months to March from a profit of $40.5 million a year earlier. That’s the biggest loss since the final quarter of 2015, when coal was also partly to blame.

China bond yields invert for the first time on record

Published: May 11, 2017 7:28 a.m. ET

For the first time since records began, five-year government-bond yield breaks above the 10-year

SHANGHAI—China’s $1.7 trillion government-bond market is exhibiting a new sign of stress: The yield on longer-term debt has fallen below that on shorter-term debt—an anomaly that some traders are blaming on Beijing’s efforts to reduce financial risk.

Early on Thursday, the five-year yield AMBMKRM-05Y, +0.80%   rose to 3.71%, breaking above the 10-year yield AMBMKRM-10Y, +0.05%   for the first time since records began—even though the latter, at 3.68%, was near a 25-month high. Bond yields rise as their prices fall.

Such a “yield-curve inversion” defies normal market logic that bonds requiring a longer commitment should compensate investors with a higher return. It usually reflects investor pessimism about a country’s long-term growth and inflation prospects. When the U.S. Treasury TMUBMUSD10Y, -0.59%   yield curve inverted in 2006 and 2007, most analysts cited Asian central banks’ heavy buying of longer-dated U.S. government debt.

But in China, while growth has been slowing and inflation has been relatively subdued, few are predicting prolonged deflation or recession.
"We finished the year, and we reported that we had $17 billion of cash sitting at the bank's parent company as a liquidity cushion. As the year has gone on, that liquidity cushion has been virtually unchanged."
Alan Schwartz, CEO Bear Stearns, March 12, 2008. Bust March 16, 2008.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
One week on from Macron’s election in France, and as Macron heads to meet Merkel in Berlin next week, Bloomberg covers the rising tension between the two nations leaders. In the EUSSR asylum, only one of the inmates plans can prevail. From Brexiting London, that would seem to be Mrs. Merkel’s, but what if she doesn’t win re-election on September 24th? Then the rump-EUSSR will have a lot more than just Brexit on its plate.

Macron Flexes Muscle in France as He Demands EU Protect Workers

by Mark Deen and Gregory Viscusi
10 May 2017, 10:58 GMT+1
President-elect Emmanuel Macron is imposing his authority on the French political class as he begins to stake out his plans for Europe.

Macron on Wednesday rejected an offer of support from former Prime Minister Manuel Valls, his boss in the Francois Hollande government less than a year ago, as he shifted focus to push for more worker protections at the European level.

“In the five coming years, I’ll fight so that everywhere in the European Union our freedoms and fundamental rights are scrupulously respected,” Macron said late Tuesday in a video released on social media. “We also need a Europe that protects -- that protects workers, employees, protects craftsmen as well as academics.”

The remarks were Macron’s first since his victory speeches on Sunday night and underline his determination to refashion European political discussion as the continent moves beyond its sovereign-debt crisis and looks ahead to life as 27-nation bloc after the U.K. leaves.

French bond spreads have almost halved since Macron won the first round of the presidential election on April 23. The extra yield investors demand to hold French 10-year bonds instead of German bunds fell by 1 basis point at 11:45 a.m. on Wednesday to 42 basis points.

Germans Divided

The 39-year-old president-elect’s European views are already sparking debate in Germany. As politicians in Europe’s biggest economy gear up for their own national elections in September, Bild newspaper ran a headline Tuesday asking “How much will Macron cost us?” Germany’s Social Democrats have struck the opposite pose, saying Macron’s arrival requires a new approach.

German Foreign Minister Sigmar Gabriel set the tone in a statement eight minutes after polls closed in France on Sunday, saying “the time of financial orthodoxy and finger-wagging must finally end.” Merkel, responding at a Monday news conference, said Germany is ready to help “wherever possible” but France needs to take the lead in overhauling its economy.

Macron is due to meet Merkel next week after his inauguration on May 14.

Macron’s Ascent Stokes a Fight Over Euro in Germany

by Rainer Buergin, Arne Delfs, and Birgit Jennen
9 May 2017, 17:24 GMT+1 10 May 2017, 12:13 GMT+1
Emmanuel Macron’s ascent to the French presidency is stoking an election-year fight over the euro in Germany, as the Social Democrats tell Chancellor Angela Merkel his resounding victory is the signal for her to dump fiscal austerity in Europe.

Trailing in the polls, the SPD is trying to turn Macron’s victory into a campaign weapon to energize its pro-European base behind Martin Schulz, the former European Parliament president who’s challenging Merkel in the Sept. 24 election. It’s the revival of a push by the Social Democrats, Merkel’s junior coalition partner, and allies who say the balanced-budget policies championed by Finance Minister Wolfgang Schaeuble are bad for Europe.

“Macron doesn’t want Germany’s money, he wants its solidarity,” Marcel Fratzscher, head of the DIW economic institute in Berlin, said by email. “Germany finally needs to accept more responsibility for Europe. The government’s rejectionist stance will lead to another crisis if the necessary European reforms aren’t finally addressed.”

----“We have to wait for the new president to present his ideas and his wishes,” Merkel told reporters in Berlin on Monday. “Then we’ll see which points we have in common. I don’t see that changing our policies would be the priority.”

----While the defeat of French nationalist Marine Le Pen was welcomed by Merkel and heartened European Union supporters across the continent, Germany’s red lines haven’t changed. Merkel remains opposed to shared euro-area debt, her chief spokesman Steffen Seibert said Monday. Any push by France for more economic stimulus or a special finance minister for the 19-nation currency union would also run into resistance in Berlin.

“The SPD can always think of only one solution to all problems: to spend more money and increase debt,” German Deputy Finance Minister Jens Spahn, a senior member of Merkel’s Christian Democrats, said in a text message. “It’s about structural reforms for more investment and growth in France, in Germany, in all of Europe.”
If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner.

H. L. Mencken.
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?

May 11, 2017 04:25 PM IST | Source:

Solar energy in India is now cheaper than coal power. Here’s why

Wind power has still not met as much success in India as abroad because of a lack of clarity on policy issues.

Over the last few decades many businesses have been affected by disruptive technologies which have delivered the same products as theirs at much lower cost and in an easier way. Be it telecommunication, computers, taxi operations, hospitality or travel, all have faced the brunt of technological disruption.

The power sector is also facing the impact of developments in solar and wind technology, both globally as well as in India.

Wind power has still not met as much success in India as abroad because of a lack of clarity on policy issues and restrictions in adapting new technology. What has brought India onto the world map is solar energy.

From a figure of 2,650 MW,  capacity has increased to 10,000 MW in just over two years. This is important as the increase has taken place when tariff rates had crashed over the years. From a tariff rate of around Rs 12 per unit in 2010, solar power touched a tariff of Rs 2.62 per unit in the recently auctioned Bhadla Solar Park, Rajasthan.

It’s worth noting that there were 27 bidders for Bhadla Solar Park and many bid near the lower price range, thus highlighting the interest the sector is generating. The present price is lower than India’s largest thermal power producer NTPC’s average coal-based power tariff of Rs 3.20 per unit.

There are many reasons that the cost of solar power has come down in India and cheaper solar panels is only one of them. Solar panel prices have fallen by 85 percent over the last five years.

There have been more structural issues that has led to the sharp drop in power tariff. Top of the list is the decision of the government to provide security to bidders that the solar power generated will be bought by the government and payment will be ensured. This has been done by setting up the Solar Energy Corporation of India (SECI) under the ambit of the Tripartite Agreement for payment security against defaults by state distribution companies.

This single move has transformed solar power from a power sector play to a financial one. Investments are based on how much internal rate of return (IRR) the project can generate. Many investment companies and banks are partnering with companies who understand the solar sector to invest in India as the risk has been taken care of by the government, making the project as good as a financial instrument with visible cash flows.

A double-digit IRR is good enough for most foreign players.

Apart from ensuring purchase and payment, the government has also taken care of the next big issue, land. Solar companies were finding land acquisition one of the biggest hurdles in setting up solar power plants. The government has now allowed companies who specialize in land acquisition, and state governments, to allocate land which can be leased out to parties interested in setting up units.

Another weekend and another G-7 finance ministers meeting, this time in Bari, Italy. This weekend, everyone waits to see if the G-6 will fall in line with the G-1 Trumpian, protectionist, “America First” line. The expectation is that they will duck it altogether, leaving it for President Trump to push at the upcoming “dear leaders” summit on May 26-27 in Taormina, Sicily. There, wll President Trump make them an offer they can’t refuse?

Given all the new participants heading there it ought to be a little different from earlier G-7 leader summits. Interestingly, Taormina once had a reputation as Sodom on the Sea. With Juncker attending, I’m sure a good time will be had by all. For Mrs. May facing a June 8th election, this might be her first and last G-7 role.

Have a great weekend everyone.

The attendees will include the leaders of the seven G7 member states as well as representatives of the European Union. The President of the European Commission has been a permanently welcome participant at all meetings and decision-making since 1981.

The 43rd G7 summit will be the first summit for British Prime Minister Theresa May, French President Emmanuel Macron, Italian Prime Minister Paolo Gentiloni, and U.S. President Donald Trump.

Once again, no one is slumming it at the G-7 +Juncker meeting in Sicily. Someone’s got to do it, I suppose, but couldn’t they all do it at half the price? Rent one of “the Donald’s” many resorts, and get a large group discount rate with a round of golf thrown in?

Here is where most great leaders are staying, with the G-1 POTUS opting for a nearby US airbase.

'They are driving us mad': Donald Trump's visit to Taormina in Sicily for G7 summit creating 'security nightmare'

26 April 2017 • 12:22pm

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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