Monday, 31 July 2017

The Summer Doldrums 2017.

Baltic Dry Index. 933 -09.     Brent Crude 52.78

"It has always struck me as the world's great fortune that the two great superpowers were the United States and the Soviet Union, who managed the Cold War with meticulous care in retrospect. Imagine the European diplomats of 1914 or 1938 armed with nuclear weapons. It is easy to believe they would not have been as cautious."
George Friedman

We have reached month-end in what would normally be the summer doldrums silly season for news. This year complacency and hopium dominate our markets, from Asia to America, with even the dying EUSSR joining in via the ECB’s never-ending bond buying program keeping the EU’s zombie banks barely alive.

But it is far from a normal summer doldrums. War drums are beating over North Korea, whose latest ICBM test, seems to put most of continental America within nuclear bomb range. America is about to set off a trade war with China over steel dumping, but whose collateral damage hits Canada and Germany. America is about to impose further sanctions on Russia, but whose real target is Germany, and intended to replace Russian natural gas in Europe, with USA supplied liquified natural gas. A USA – EU trade war looms over Russia. US proxy wars continue in Yemen, Iraq, and Syria. Afghanistan drags on and on. A new conflict seems intended for Qatar, with countries from Turkey to Iran, and the Saudis and UAE, picking sides.

In America itself the “deep state” plus “Clintonistas,” seditionist civil war to bring down President Trump, continues apace. Could a foreign Asian adventure end the seditionist civil war?

This is far from a normal sleepy summer. The summers of 1914 or 1939 come to mind. Crude oil pricing seems to agree.

July 31, 2017 / 6:10 AM

China stocks extend gains, Hong Kong hits 25-month high

SHANGHAI, July 31 (Reuters) - China stocks extended gains on Monday morning, bolstered by strength in heavyweight blue-chips in the material sector that forecast robust mid-year earnings.

The CSI300 index rose 0.5 percent, to 3,740.85 points at the end of the morning session. The Shanghai Composite Index gained 0.6 percent, to 3,272.24 points, its highest in three and half months.

The market had a muted reaction to official figures released on Monday that showed China's July factory growth cooled slightly as export orders eased.

Sector performance was mixed.

Consumer firms and materials led the advance, with the materials index surging 2.3 percent to a nearly three-year high after sector leaders forecast robust mid-year profits. Banking and real estate stocks lagged.

"We continue to recommend consumer, financial and cyclical firms with solid performance and low valuations," Haitong Securities wrote in a report.

The official Purchasing Managers' Index (PMI) stood at 51.4 in July, down from the previous month's 51.7, but still well above the 50-point mark that separates growth from contraction on a monthly basis.

Asia Raw-Material Producers Gain; Oil Nudges $50: Markets Wrap

By Garfield Clinton Reynolds
Asian raw-material producers advanced after a surge in commodity prices bolstered optimism the global economy can gather momentum. Oil extended last week’s strongest rally this year.

BHP Billiton Ltd., Rio Tinto Ltd. and Nippon Steel & Sumitomo Metal Corp. underpinned gains on the MSCI Asia-Pacific Index, which is on track to rise for a seventh month. Equity gauges in Japan, South Korea and Australia fluctuated. Oil added to gains from Friday, which came as inventories for crude and gasoline shrank. Copper’s rally has further to go, Citigroup Inc. said last week after the metal reached a two-year high while top producer Chile raised its price forecasts.

Investors are assessing economic numbers from the world’s top three economies. China’s official factory gauge, the manufacturing purchasing managers index, slipped to 51.4 in July, compared to the 51.5 median forecast in a Bloomberg survey of economists and 51.7 in June, amid government efforts to curb financial risks. The U.S. economy expanded 2.6 percent in the second quarter, indicating the world’s largest economy is growing steadily. Meanwhile, Japan’s industrial output for June rose 1.6 percent from the previous month, rebounding amid solid global demand.

Asian stocks have rallied this year as evidence emerged of a resilient global economy. The MSCI Asia Pacific Index is set for a 3.7 percent gain in June, the biggest since January. It advanced 0.3 percent as of 12:55 p.m. in Tokyo, with a subindex of commodity producers up 1.1 percent, the biggest gain among industry groups.

Corporate earnings remain of interest, with HSBC Holdings Plc, Apple Inc., Tesla Inc., Berkshire Hathaway Inc. and Toyota Motor Corp. slated to unveil results throughout the week.

Here are some key events coming as the week gets going:

China Bets Trump Won't Resort to Strike Against North Korea

Bloomberg News
China is betting that U.S. President Donald Trump won’t make good on his threats of a military strike against North Korea, with Beijing continuing to provide a lifeline to Kim Jong Un’s regime.

Secretary of State Rex Tillerson singled out China and Russia as “economic enablers” of North Korea after Kim on Friday test-fired an intercontinental ballistic missile for the second time in a matter of weeks. While Tillerson said the U.S. wants a peaceful resolution to the tensions, the top American general called his South Korean counterpart after the launch to discuss a potential military response.

China on Saturday condemned the latest test while calling for restraint from all parties, a muted reaction to Pyongyang’s progress on an ICBM capable of hitting the U.S. mainland. Despite Kim’s provocations, analysts said Beijing still sees the collapse of his regime as a more immediate strategic threat, and doubts Trump would pull the trigger given the risk of a war with North Korea that could kill millions.

“The military option the Americans are threatening won’t likely happen because the stakes will be too high,” said Liu Ming, director of the Korean Peninsula Research Center at the Shanghai Academy of Social Sciences. “It’s a pretext and an excuse to pile up pressure on China. It’s more like blackmail than a realistic option.”

Relations between the world’s biggest economies have soured after an initial honeymoon between Trump and President Xi Jinping. The U.S. last month sanctioned a regional Chinese bank, a shipping company and two Chinese citizens over dealings with North Korea, which could be a precursor to greater economic and financial pressure on Beijing to rein in its errant neighbor.

Trump has expressed periodic public frustration with Beijing over the pace of its efforts to curtail Kim. Late Saturday he again linked China’s actions to the broader U.S.-China trade relationship.

“I am very disappointed in China,” he said in a series of Twitter posts. “Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!”

Hours later, Xi called on China to speed up its military modernization, telling troops at an army parade that “the world isn’t safe at this moment.”

We end for the day with Russia. Tired of the American War Party’s non-stop anti-Russian propaganda, President Putin abandons hope for a reset and orders some harsh retaliation. With no more Mr. Nice Guy in Moscow or Washington, what could possibly go wrong?

July 30, 2017 / 7:06 PM / 6 hours ago

Putin says U.S. must cut 755 diplomatic staff, more measures possible

MOSCOW/WASHINGTON (Reuters) - President Vladimir Putin said the United States would have to cut its diplomatic staff in Russia by 755 people and that Moscow could consider additional measures against Washington as a response to new U.S. sanctions approved by Congress.

Moscow ordered the United States on Friday to cut hundreds of diplomatic staff and said it would seize two U.S. diplomatic properties after the U.S. House of Representatives and the Senate overwhelmingly approved new sanctions on Russia. The White House said on Friday that U.S. President Donald Trump would sign the sanctions bill.

Putin said in an interview with Vesti TV released on Sunday that the United States would have to cut its diplomatic and technical staff by 755 people by Sept. 1.

"Because more than 1,000 workers - diplomats and support staff - were working and are still working in Russia, 755 must stop their activity in the Russian Federation," he said.

The new U.S. sanctions were partly a response to conclusions by U.S. intelligence agencies that Russia meddled in the 2016 U.S. presidential election, and to punish Russia further for its annexation of Crimea from Ukraine in 2014.

Russia's response suggested it had set aside initial hopes of better ties with Washington under Trump, something the Republican president, before he was elected, had said he wanted to achieve.

A federal law enforcement investigation and multiple U.S. congressional probes looking into the possibility that Trump's campaign colluded with Russia have made it harder for Trump to open a new chapter with Putin. Russia denies it interfered in the election and Trump has said there was no collusion.

Moscow said on Friday that the United States had until Sept. 1 to reduce its diplomatic staff in Russia to 455 people, matching the number of Russian diplomats left in the United States after Washington expelled 35 Russians in December.

June 28, 1914 - Archduke Franz Ferdinand, heir to the Austrian throne, and his wife, visit Sarajevo in Bosnia. A bomb is thrown at their auto but misses. Undaunted, they continue their visit only to be shot and killed a short time later by a lone assassin. Believing the assassin to be a Serbian nationalist, the Austrians target their anger toward Serbia.
July 23, 1914 - Austria-Hungary, with the backing of Germany, delivers an ultimatum to Serbia. The Serbs propose arbitration as a way to resolve dispute, but also begin mobilization of their troops.
July 25, 1914 - Austria-Hungary severs diplomatic ties with Serbia and begins to mobilize its troops.
July 26, 1914 - Britain attempts to organize a political conference among the major European powers to resolve the dispute between Austria-Hungary and Serbia. France and Italy agree to participate. Russia then agrees, but Germany refuses.
July 28, 1914 - The Austro-Hungarian Empire declares war on Serbia.
July 29, 1914 - Britain calls for international mediation to resolve the worsening crisis. Russia urges German restraint, but the Russians begin partial troop mobilization as a precaution. The Germans then warn Russia on its mobilization and begin to mobilize themselves.
July 30, 1914 - Austrian warships bombard Belgrade, capital of Serbia.
July 31, 1914 - Reacting to the Austrian attack on Serbia, Russia begins full mobilization of its troops. Germany demands that it stop.
August 1, 1914 - Germany declares war on Russia. France and Belgium begin full mobilization.
August 3, 1914 - Germany declares war on France, and invades neutral Belgium. Britain then sends an ultimatum, rejected by the Germans, to withdraw from Belgium.
August 4, 1914 - Great Britain declares war on Germany. The declaration is binding on all Dominions within the British Empire including Canada, Australia, New Zealand, India and South Africa.
August 4, 1914 - The United States declares its neutrality.
August 4-16, 1914 - The Siege of Liege occurs as Germans attack the Belgian fortress city but meet resistance from Belgian troops inside the Liege Forts. The twelve forts surrounding the city are then bombarded into submission by German and Austrian howitzers using high explosive shells. Remaining Belgian troops then retreat northward toward Antwerp as the German westward advance continues.
August 6, 1914 - The Austro-Hungarian Empire declares war on Russia.
August 6, 1914 - French and British troops invade the German colony of Togo in West Africa. Twenty days later, the German governor there surrenders.
August 7, 1914 - The first British troops land in France. The 120,000 highly trained members of the regular British Army form the British Expeditionary Force (BEF) commanded by Field Marshal John French.
August 7-24, 1914 - The French desire to score a quick victory ignites the first major French-German action of the war. The French Army invades Alsace and Lorraine according to their master strategy known as Plan XVII. However, the French offensive is met by effective German counter-attacks using heavy artillery and machine-guns. The French suffer heavy casualties including 27,000 soldiers killed in a single day, the worst one-day death toll in the history of the French Army. The French then fall back toward Paris amid 300,000 total casualties.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, yet more reasons to worry about a stock market crash, with or without a US attack on North Korea.
The industrious Michael Lebowitz of 720Global performed an invaluable service last week by assembling “22 Troublesome Facts” behind his reluctance to follow the bullish herd. Most have helpful source links, too.

Here’s a small sampling:
• The S&P 500 cyclically adjusted price-to-earnings (CAPE) valuation has only been higher on one occasion, in the late 1990s. It is currently on par with levels preceding the Great Depression.
• Total domestic corporate profits (w/o IVA/CCAdj) have grown at an annualized rate of just .097% over the last five years. Prior to this period and since 2000, five-year annualized profit growth was 7.95%. (Note: Period included two recessions.)
• Over the last 10 years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
• At $8.6 trillion, corporate debt levels are 30% higher today than at their prior peak in September 2008.
• At 45.3%, the ratio of corporate debt to GDP is at historical highs, having recently surpassed levels preceding the last two recessions.

So, US corporations are simultaneously more indebted, less profitable, and more highly valued than they have been in a long time. Furthermore, they are intentionally making themselves more leveraged by distributing cash as dividends and buying back shares instead of saving or investing that cash. Yet investors cannot buy their shares fast enough. Maybe this will end well… but it’s hard to imagine how.
By John Mauldin | Jul 29, 2017

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?

Robust catalyst to split water into hydrogen, oxygen produced

Date: July 26, 2017

Source: Rice University

Summary: A single, robust catalyst that splits water into hydrogen and oxygen has been developed with Earth-abundant materials that approach the efficiency of more expensive platinum, according to scientists.
Splitting water into hydrogen and oxygen to produce clean energy can be simplified with a single catalyst developed by scientists at Rice University and the University of Houston.

The electrolytic film produced at Rice and tested at Houston is a three-layer structure of nickel, graphene and a compound of iron, manganese and phosphorus. The foamy nickel gives the film a large surface, the conductive graphene protects the nickel from degrading and the metal phosphide carries out the reaction.
The robust material is the subject of a paper in Nano Energy.

Rice chemist Kenton Whitmire and Houston electrical and computer engineer Jiming Bao and their labs developed the film to overcome barriers that usually make a catalyst good for producing either oxygen or hydrogen, but not both simultaneously.

"Regular metals sometimes oxidize during catalysis," Whitmire said. "Normally, a hydrogen evolution reaction is done in acid and an oxygen evolution reaction is done in base. We have one material that is stable whether it's in an acidic or basic solution."

The discovery builds upon the researchers' creation of a simple oxygen-evolution catalyst revealed earlier this year. In that work, the team grew a catalyst directly on a semiconducting nanorod array that turned sunlight into energy for solar water splitting.

Electrocatalysis requires two catalysts, a cathode and an anode. When placed in water and charged, hydrogen will form at one electrode and oxygen at the other, and these gases are captured. But the process generally requires costly metals to operate as efficiently as the Rice team's catalyst.

"The standard for hydrogen evolution is platinum," Whitmire said. "We're using Earth-abundant materials -- iron, manganese and phosphorus -- as opposed to noble metals that are much more expensive."

The new catalyst also requires less energy, Whitmire said. "If you want to make hydrogen and oxygen, you have to put in energy, and the more you put in, the less commercially viable it is," he said. "You want to do it at the minimum amount of energy possible. That's a benefit of our material: The overpotential (the amount of energy required to trigger electrocatalysis) is small, and quite competitive with other materials. The lower you can get it, the closer you come to making it as efficient as possible for water splitting."

The monthly Coppock Indicators finished June

DJIA: 21,350 +196 Up. NASDAQ:  6,140 +235 Up. SP500: 2,423 +166 Up.

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