Thursday, 22 June 2017

2017 – War in the Baltic Minnows?

Baltic Dry Index. 844 -03     Brent Crude 44.78

“Every gun that is made, every warship launched, every rocket fired signifies in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the clouds of war, it is humanity hanging on a cross of iron.”

Dwight D. Eisenhower.
We open with ominous developments in the Baltic Sea. Can the American War Party’s plans to start a war there, be much delayed? Last century August and September, were favoured for start European Wars. But is “Mad Dog” McCain a traditionalist?

Below, what would have happened if Russia had responded like NATO member Turkey, and shot down NATO’s F-16?

“God created war so that Americans would learn geography.”

 Mark Twain

Wed Jun 21, 2017 | 6:23am EDT

Russian defense minister's plane buzzed by NATO jet: agencies

A plane carrying Russian Defense Minister Sergei Shoigu was buzzed by a NATO F-16 fighter jet as it flew over the Baltic Sea, but was seen off by a Russian Sukhoi-27 military jet, Russian news agencies reported on Wednesday.

The F-16 had tried to approach the aircraft carrying the defense minister even though it was flying over neutral waters, agencies said. Shoigu was reported to be en route to the Russian exclave of Kaliningrad for a meeting to discuss how well Russia's western flank was defended.

One of the Russian fighter jets escorting Shoigu's plane had inserted itself between the defense minister's plane and the NATO fighter and tilted its wings from side to side to show the weapons it was carrying, Russian agencies said.

After that, agencies said the F-16 left the area.

The Baltic Sea has become an area of rising tensions between Moscow and NATO. Earlier this month, Russia scrambled a fighter jet to intercept a nuclear-capable U.S. B-52 strategic bomber it said was flying over the Baltic near its border, in an incident that had echoes of the Cold War.

The Kremlin referred questions about the latest incident to the defense ministry, which did not immediately comment. It has said in the past that all Russian flights over the Baltic are conducted in strict accordance with international law.

The incident occurred a day after the Russian defense ministry said an RC-135 U.S. reconnaissance plane had swerved dangerously in the proximity of a Russian fighter jet over the Baltic. The ministry said at the same time that another RC-135 had been intercepted by a Russian jet in the same area.

In stock market news, what me worry? As they used to say in the old B list cowboy movies “spread out they’re sure to get one of us.” Not to worry, there will always be a greater fool buyer, right? The Fed guarantees it.

Yen Climbs With Gold on Oil Rout; Asia Stocks Rise: Markets Wrap

By Adam Haigh
21 June 2017, 23:18 GMT+1 22 June 2017, 05:30 GMT+1
The yen strengthened and gold rose for a second day as oil languished in a bear market. Asian stocks climbed as equities in Australia rebounded and China extended gains.

West Texas Intermediate crude fluctuated amid speculation that rising U.S. output will blunt OPEC-led efforts to trim a global glut. Technology companies continued to recover from a selloff, lifting Asian equities. Australian shares bounced back after the biggest drop since November, while Chinese stocks climbed for a second day after MSCI Inc.’s decision to include mainland shares in its indexes. The kiwi rose after the nation’s central bank maintained its neutral policy stance.

The oil rout is raising the chance that inflation will be harder to come by, adding to concerns at the world’s most influential central banks. The weakness in crude and other commodities dents arguments from U.S. Federal Reserve officials that weak inflation rates will be transitory, even as the economy shows few signs of distress. More reaction from central bank policy makers may come from Jerome Powell, James Bullard and Loretta Mester who are all due to speak this week.

This ‘irrational exuberance’ indicator could spell trouble for the stock market

Published: June 21, 2017 2:46 p.m. ET

Some analysts compare low levels of implied volatility to similar quiet periods in pre-crisis 2007

The stock market has few believing that it’s trading anywhere near a bargain price, yet nearly all are expecting the major averages to be higher next year — a recipe for trouble if earnings or economic data disappoint, according to analysts at Bespoke Investment Group.

Bespoke analysts recently introduced their “Irrational Exuberance” Indicator, which uses monthly Yale School of Management sentiment data compiled by Nobel laureate Robert Shiller. He authored the best-selling book, “Irrational Exuberance,” and the phrase harkens back to 1996 remarks about the frothy stock market uttered by then Federal Reserve Chairman Alan Greenspan.

The indicator combines two sentiment readings: one that asks investors how confident they are that the equity market will be higher a year from now and another that tracks how confident investors are in the valuation of the market.

The percentage of both retail and institutional investors who think that the market is cheap is at the lowest level since 2000, which is not surprising given that stocks are trading at the highest multiples since the days of the tech bubble.

Valuation metrics are pretty useless as predictors of market tops or bottoms, but they do have a good record of forecasting long-term average returns. For example, the cyclically adjusted price-to-earnings ratio, or CAPE, devised by Shiller, is at 29, the highest since 2000. When CAPE is at these levels, 10-year average returns are forecast to be in the low-single digits.

Despite investor agreement that stocks are expensive, however, the vast majority of retail and institutional investors believe the market will continue to rise for another year.

The difference between one-year price confidence and valuation confidence makes up the “Irrational Exuberance” indicator.

“When the resulting reading is high, it means investors expect the market to go up, but they don’t like the market’s valuation. When the reading is negative, it means investors find the market’s valuation attractive but they don’t think the market is going to go up,” said George Pearkes, macro strategist at Bespoke Investment Group.

“People expect the market to go up because they expect earnings to rise, but if underlying fundamentals disappoint, the pain will be greater than if we simply expected no growth or negative growth. It is difficult to say how much the market will drop as we don’t have any precedent for such sentiment,” said Pearkes.

Thu Jun 22, 2017 | 4:04am BST

Asian stocks rise as oil tries to claw up from 10-month low

Asian stocks advanced on Thursday as oil prices struggled to climb off a 10-month low hit overnight on concerns over a supply glut and falling demand.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS climbed 0.3 percent.
Japan's Nikkei .N225 fell 0.1 percent, with shares in auto air bag maker Takata Corp plunging 50 percent as they exchanged hands for the first time since sources said last week it was preparing to file for bankruptcy.

South Korea's KOSPI .KS11 added 0.2 percent, while Australian shares jumped 0.6 percent.
Chinese shares added to gains made on Wednesday after MSCI included mainland shares in its emerging market indexes. The blue-chip index .CSI300 rose 0.4 percent. Hong Kong's Hang Seng .HSI was flat.

Crude oil crept up from multi-month lows hit on Wednesday after data showed a drop in U.S. inventories, but gains were capped as investors fretted about whether OPEC-led output cuts would dent a three-year glut.

----U.S. crude futures CLc1 rose 0.1 percent, or 5 cents, to $42.58 a barrel. They closed down 1.6 percent on Wednesday after touching their lowest level since August.

Global benchmark Brent LCOc1 climbed less than 0.1 percent, or 3 cents, to $44.85. It closed down 2.6 percent on Wednesday after touching a seven-month low.

The resulting decline in oil shares hit indexes in Europe and on Wall Street overnight.

Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI closed between 0.3 percent and 0.4 percent lower.

----Boston Fed President Eric Rosengren and Fed Vice Chair Stanley Fischer suggested they are concerned less about raising rates too fast or too high than about keeping them too low for too long.

In other significant global auto news, Ford is about to make China Great Again. Germany’s Daimler aims to do the same with Russia. VW pays slave wages in Slovakia but not Germany. It’s a funny old world in 21st century car making.

Tue Jun 20, 2017 | 6:08pm EDT

Ford bets on low oil prices, moves Focus production to China

Ford Motor Co (F.N) said on Tuesday it will move some production of its Focus small car to China and import the vehicles to the United States in a long-term bet on low oil prices and stable U.S.-China trade relations despite recent tensions.

The move suggests China could play a much larger role in future vehicle production for North America, perhaps eclipsing Mexico as a low-cost manufacturing source.

Ford painted the production shift from Mexico to China, slated for mid-2019, as a purely financial move that will save the company $500 million in reduced tooling costs.

But Ford also expects to ship about 80,000 vehicles to China this year, including the redesigned Lincoln Navigator luxury sport utility vehicle, which goes into production this fall at Ford's Kentucky truck plant.
Ford's decision to import its first vehicles from China to the United States is also the first major manufacturing investment decision made by new Chief Executive Jim Hackett, who succeeded Mark Fields in May. Discussion about the small-car production shift from Mexico to China began "a couple months ago" under Fields, said Joe Hinrichs, president of global operations.

The decision also signals a shift in strategy at Ford, which is responding to dwindling U.S. consumer demand for small cars in favor of more expensive and more profitable trucks and SUVs. Cars accounted for more than 50 percent of U.S. auto sales as recently as 2012, but have fallen to just 37 percent of sales this year.

Ford on Tuesday said it would invest $900 million at the Kentucky truck plant to build the redesigned Navigator and Ford Expedition. It has contingency plans to build more of the big SUVs at an Ohio plant if demand grows.

Tue Jun 20, 2017 | 11:25am EDT

Daimler presses ahead with Mercedes-Benz plant in Russia

Germany's Daimler (DAIGn.DE) began construction of a new Mercedes-Benz plant near Moscow on Tuesday, following through on the first new investment by a major foreign automaker in Russia since Western sanctions were imposed three years ago.

Daimler said in February that it will invest more than 250 million euros ($279 million) in the factory, contrasting with widespread wariness among international investors after a prolonged downturn brought on by sanctions and a collapse in global oil prices.

But Russia's economy has recently shown signs of recovery, while its car market is returning to growth after four years of decline.

Speaking at a ceremony to lay the factory's first stone, Markus Schaefer, a member of the divisional board of Mercedes-Benz Cars, said Daimler had made the decision after a "very, very successful conversation" with the Russian government.

Moscow Regional Governor Andrey Vorobyov said President Vladimir Putin had personally signed off on the deal, allowing the regional government to offer unspecified conditions previously not available to foreign investors.

"Ultimately, we want to build cars where customers are," Schaefer said at the construction site in the town of Esipovo, 60 km (37 miles) from Moscow. "We are confident in the long-term potential of Russia."

VW's Strike in Slovakia Exposes a European Divide

Eastern Europeans feel their countries are being treated as colonies, and that's a danger to the European project.
by Leonid Bershidsky
21 June 2017, 14:47 GMT+1

Slovakia is in many ways the poster child for East European integration into the European Union. But the strike taking place now at Volkswagen's Bratislava plant says a lot about how disunited Europe looks from the European Union's eastern edge. Eastern Europeans often feel their countries have turned into Western Europe's colonies, and that sense may be a more serious threat to the EU's unity than Brexit.

Unlike most of its neighbors, Slovakia adopted the euro and hasn't suffered for it, though many predicted it would. In 2010 through 2016, its economic output in constant prices grew an average of 2.9 percent a year. The impressive growth has been possible thanks to Slovakia's increasing specialization as the EU's car assembly hub.

In 2005, the country produced about 200,000 cars a year. In the last two years, it passed the million mark. According to the Organization for Economic Cooperation and Development, which released a detailed  of the Slovak economy on Wednesday, the sector accounts for 40 percent of Slovakia's industrial output and one-third of exports (which go mostly to the rest of the EU), but only 4 percent of the value added: Slovakia is well integrated into the European car industry's sprawling and its ultra-fast production chains.

----Zoroslav Smolinsky, the labor leader at Volkswagen's Bratislava factory, wrote in a recent blog post that though the workers there make decent money by Slovak standards, it wasn't fair that salaries weren't even comparable with VW's flagship factory in Wolfsburg, Germany. Indeed, the average gross monthly pay in Wolfsburg is about 2.5 times higher than at the Bratislava plant. (Of course, the cost of living in Wolfsburg is also higher than that in Bratislava, but that is usually not mentioned.)

The Slovak workers at VW make relatively cheap VW Up! cars, but also ultra-luxury models such as the Porsche Cayenne and the Bentley Bentayaga. It's the luxury cars that drive up VW's profit margins, and those are the vehicles Bratislava workers stopped creating when they walked out on Tuesday, rejecting the management's offer of a 4.5 percent pay raise (they're holding out for 16 percent).

This is no ordinary industrial action. The country's populist leader, Prime Minister Robert Fico, has strongly backed the workers. His description of the conflict on Tuesday was even more aggressive than labor leader Smolinsky's:

Our western friends do not understand when we ask them why a worker in Bratislava, in a firm that has the highest quality, high productivity and manufactures the most luxurious cars, has a salary half or maybe two thirds lower than a worker in the same firm 200 km westwards, in any western country, where the work has lower quality, lower productivity and manufactures lower-quality products.

This political angle is not unique to Slovakia. Eastern Europeans as a group feel they're being short-changed by their Western neighbors. They accuse multinational companies of selling cheaper, poorer-quality versions of brand-name food in their countries. They claim that the EU, in allocating so-called convergence funds to its post-Communist member countries, is helping Western corporations as much if not more as the poorer countries.

We close for the day with GB Brexit news.  GB will cut corporation tax to make GB ex-EUSSR, an attractive place to base. Who need dodgy tax havens like Luxembourg, Malta,  and Ireland, when the race to the bottom gets underway in the major economies.

Wed Jun 21, 2017 | 4:43pm BST

May will cut corporation tax to encourage economic growth

Prime Minister Theresa May said on Wednesday her government would continue to cut corporation tax to encourage businesses to invest in Britain and help the economy grow.

"If we're going to grasp the opportunities as we leave the European Union, we need to build a stronger economy," she told parliament after presenting her government's programme in the Queen's speech.

"In this Queen's speech we will continue to improve the public finances and work towards getting our country back to living within its means ... and we will encourage businesses to grow and create jobs by continuing to cut corporation tax."

“Only the dead have seen the end of war.”


Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

It’s the banksters again today. The bent and seriously bent, are today about to reveal Liebor 2.O.

Tue Jun 20, 2017 | 11:29am EDT

Banks to vote on alternative to Libor as new rate benchmark

A committee of global banks will vote on Thursday on an alternative to the London Interbank Offered Rate (Libor) for use as a benchmark U.S. interest rate for derivatives contracts, after a decline in short-term bank lending since the 2008 financial crisis undermined faith in the rate.

Reforms to banking and money market fund regulations, along with allegations of Libor manipulation before and during the crisis, has resulted in fewer interbank short-term loans and reduced funds' demand for bank debt, so Libor rates are sometimes estimated rather than based on actual transactions.

As a result, bankers and regulators in the United States, Britain, Europe and Japan are developing alternative benchmark interest rates.

"Getting a rate that’s supported, that’s well built and robust, is very important because they need to move a lot of the swaps market off of Libor,” said Darrell Duffie, a finance professor at Stanford University who chaired a committee of market participants that advised the Financial Stability Board on reference rate reform.

The two alternative rates under proposal in the United States are the Overnight Bank Funding Rate, an unsecured bank lending rate based on transactions in the fed funds and eurodollar markets, and a rate based on overnight lending in the U.S. Treasury collateralized repurchase agreement, or "repo", market.

Over time, the new benchmark may be used as a reference rate for corporate loans, residential mortgages and credit cards.

“The hope is that whatever rate emerges can be the basis of a liquid enough market that it can be used for many different purposes, just as Libor is,” Duffie said.

However, the process of building trading volumes around the new benchmark is likely to be slow. Asset managers, corporations and other swaps users are unlikely to trade any contracts based on the new rate until liquidity has been established.

Private and exchange-traded derivatives have by far the largest exposures to U.S. dollar Libor, at around $150 trillion.

To regulators including the Federal Reserve, the size of the derivatives exposures creates systemic risks for financial markets if liquidity in Libor falls further.

----The process of moving to a new benchmark rate is likely to be slow, but over time it may reshape financial markets.

“Any movement away from Libor for United States dollar transactions, however its stage and whatever the scope of that transition, will undoubtedly have profound implications for financial markets throughout the world,” said David Duffee, a finance partner at law firm Mayer Brown in New York.
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?

No update today. More tomorrow.

The monthly Coppock Indicators finished May

DJIA: 21,009 +157 Up. NASDAQ:  6,199 +219 Up. SP500: 2,412 +161 Up.

1 comment:

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