Wednesday 31 January 2018

The Tide’s Going Out.

Baltic Dry Index. 1214 -05    Brent Crude 68.63

Only when the tide goes out do you discover who's been swimming naked.

Warren Buffett

He came, he saw, he delivered a masterful Reaganesque speech pitched to American patriotism. He conquered. But it may not be enough. What happens next in global markets has more to do with what happens next in global bond markets, in global inflation, and if rising interest rates trigger “the next Lehman.” 

Later today we get the thoughts of the outgoing Yellen Fed. Will the new incoming Trump Fed get in front of the yield curve rattling too many corporations that binged on cheap debt, largely to hype stocks via stock buybacks, or will they opt to lag behind the apparent reappearance of global inflation, attempting to resurrect stocks “Trump Tower?”

It would seem a no brainer to lag behind in our brave new world of central bankster rigged currency and stock markets, but in practise does the Fed have that luxury? After a decade of ZIRP and in some places NIRP, quantitative easing, has been replaced by the baby step beginning of quantitative tightening.  China is tightening, the USA is tightening, the EUSSR says it will start tightening later this year.

President Trump is expanding his trade wars, and talking about a strong dollar policy, even as his Treasury is out almost daily weakening the dollar. How long, even in a giant economy like America’s, before a weak dollar shows up in the inflation figures?  How much room, if any, does the new Fed have to really lag behind the rate curve.  I suspect that as winter in America turns to spring, and spring nears to summer, we are all going to find out, like it or not.

In the business world, the rearview mirror is always clearer than the windshield.

Warren Buffett

January 31, 2018 / 12:35 AM

Asia stocks slip as high bond yields weigh, dollar steadies

TOKYO (Reuters) - Asia stocks pulled further back from record highs on Wednesday as the recent rise in global bond yields weighed on equities, while the dollar steadied ahead of the Federal Reserve’s policy decision.

In his first State of the Union address since becoming U.S. President, Donald Trump urged Republicans and Democrats to work toward compromises on immigration and infrastructure and implement legislation that generates at least $1.5 trillion for new infrastructure investment. Market reaction to the address was limited.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added to the previous day’s losses and dipped 0.2 percent, after reaching a record high on Monday.

South Korea's KOSPI .KS11 rose 0.3 percent and Japan's Nikkei .N225 dropped 0.1 percent.

Hong Kong's Hang Seng .HSI shed 0.55 percent Shanghai .SSEC retreated 0.6 percent.

Wall Street, which has recently hit a succession of record peaks, has led a global equities rally over the past year thanks to strong world growth fuelling higher corporate earnings and stock valuations.
But the recent surge in U.S. long-term bond yields to near four-year highs have poured cold water on the rally.

U.S. stocks fell for a second straight day on Tuesday, with the Dow registering its biggest two-day drop since September 2016, pressured by healthcare stocks and rising bond yields. [.N]

“The key point is the speed of the latest rise in yields, which has been very rapid. Until recently the yield rise helped the financial sector, but the pace of the rise is now too rapid and raising worries about corporate borrowing costs,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

Higher yields are seen hurting equities as they increase borrowing costs by companies and reduce their risk appetite. Higher yields also present a fresh alternative to investors, who may choose to allocate some of their money from equities to bonds.

The U.S. Treasury 10-year note US10YT=RR yield touched its highest in nearly four years overnight at 2.733 percent, while 30-year bond yield US30YT=RR climbed to its highest since May 2017.

Yields rose after the start of the Federal Reserve’s two-day meeting on Tuesday, which could offer more clues on the central bank’s economic and rate hike outlook.

Stocks Tumble, Bonds No Haven as Selloff Worsens: Markets Wrap

By Sarah Ponczek and Kailey Leinz
29 January 2018, 21:56 GMT Updated on 30 January 2018, 21:09 GMT
The Dow Jones Industrial Average tumbled 362 points, helping to send U.S. stocks to the biggest two-day decline since May, while yields on benchmark government bonds touched April 2014 highs as caution crept into markets after one of the best starts to a year in recent history.

Screens flashed red across most asset classes, with investors on edge ahead of a slew of earnings, a U.S. rate decision, the president’s address to Congress and major economic data. All major U.S. equity indexes sank a second day, with investors pocketing profits from a four-week rally that greeted 2018. The 10-year Treasury yield pushed above 2.73 percent, the highest since April 2014. Commodities retreated, led by crude and industrial metals. Gold turned lower, while the dollar fluctuated.

Equities took a series of blows that added to the selling. MetLife Inc. headlined a series of disappointing earnings, dampening enthusiasm over tax cuts. News that, JPMorgan Chase and Berkshire Hathaway plan a joint unit that may redefine health-care jolted that sector to the steepest drop in more than a year. Apple Inc., the world’s largest company by market value, sank to a three-month low amid reports of a government inquiry and as concern mounts that its latest iPhone isn’t selling briskly. Energy producers slumped with the price of crude.

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3%

By Liz McCormick And Daniel Flatley
29 January 2018, 23:00 GMT Updated on 30 January 2018, 13:45 GMT
It’s getting harder and harder to quarantine the selloff in Treasuries from equities and corporate bonds.

The benchmark 10-year U.S. yield cracked 2.7 percent on Monday, rising to a point many forecasters weren’t expecting until the final months of 2018. For over a year, range-bound Treasuries helped keep financial markets in a Goldilocks state, with interest rates slowly rising due to favorable forces like stronger global growth and the Federal Reserve spearheading a gradual move away from crisis-era monetary policy.

Yet the start of 2018 caught many investors off guard, with the 10-year yield on pace for its steepest monthly increase since November 2016. It’s risen 30 basis points this year and reached as high as 2.73 percent in Asian trading Tuesday. Suddenly, they’re confronted with thinking about what yield level could end the good times seen since the presidential election. For many, 3 percent is the breaking point at which corporate financing costs would get too expensive, the equity market would lose its luster and growth momentum would fade.

“We are at a turning point in the psyche of markets,” said Marty Mitchell, a former head government bond trader at Stifel Nicolaus & Co. and now an independent strategist. “A lot of people point to 3 percent on the 10-year as the critical level for stocks,” he said, noting that higher rates signal traders are realizing that quantitative easing policies really are on the way out.

----What often goes unsaid in explaining the equity-market exuberance is that Treasury yields refused to break higher last year. Instead, they remained in the tightest range in a half-century, allowing companies to borrow cheaply and forcing investors to seek out riskier assets to meet return objectives.

In fact, investors had largely been better off owning stocks for fixed income than short-term Treasuries. Not so anymore: two-year Treasuries yield 2.12 percent, compared with the 1.78 percent dividend yield on the S&P 500.

In it never rains but it pours news, crypto mania now seems so last year.

Bitcoin Heads for Worst Monthly Slide Since December 2013

By Eric Lam
January is turning into a month to forget for digital currency investors.

Cryptocurrencies are extending losses with Bitcoin headed for its worst monthly slide since December 2013 on the last day of January trading as U.S. regulators ramp up their scrutiny of one of the world’s largest digital currency exchanges while Facebook Inc. is banning ads tied to the industry.

Bitcoin is down about 31 percent this month, trading at $9,817 as of 10:20 a.m. in Hong Kong, according to composite pricing compiled by Bloomberg. Rival coins Ripple, Ethereum and Litecoin are also down at least 2 percent, the data show.

“The regulatory oversight and the clampdown is really coming to the fore right now,” Stephen Innes, head of trading for Asia Pacific at Oanda, said by phone from Singapore. “I don’t think we’ve seen the last of it.”

The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to cryptocurrency trading venue Bitfinex and Tether, a company that issues a widely traded coin it claims to be pegged to the dollar, according to a person familiar with the matter who asked not to be identified discussing private information. The firms share the same chief executive officer.

Facebook, meanwhile, will ban ads on its social network promoting digital currencies, initial coin offerings and binary options, warning they’re “frequently associated with misleading or deceptive promotional practices.”

Cryptocurrencies are still reeling after a record $500 million heist from Japanese exchange Coincheck Inc. on Jan. 26, further intensifying calls for increased oversight in global trading hotbeds such as South Korea.

U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether

By Matthew Leising
Updated on 31 January 2018, 01:26 GMT
U.S. regulators are scrutinizing one of the world’s largest cryptocurrency exchanges as questions mount over a digital token linked to its backers.

The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information. The firms share the same chief executive officer.

Tether’s coins have become a popular substitute for dollars on cryptocurrency exchanges worldwide, with about $2.3 billion of the tokens outstanding as of Tuesday. While Tether has said all of its coins are backed by U.S. dollars held in reserve, the company has yet to provide conclusive evidence of its holdings to the public or have its accounts audited. Skeptics have questioned whether the money is really there.

“We routinely receive legal process from law enforcement agents and regulators conducting investigations,” Bitfinex and Tether said Tuesday in an emailed statement. “It is our policy not to comment on any such requests.”

Erica Richardson, a CFTC spokeswoman, declined to comment.

Bitcoin, the biggest cryptocurrency by market value, tumbled 10 percent on Tuesday. It fell another 3.2 percent to $9,766.41 as of 9:19 a.m. in Hong Kong, according to composite pricing on Bloomberg. The virtual currency hasn’t closed below $10,000 since November.

While Tether and Bitfinex don’t disclose on their websites or in public documents where they’re located or who’s in charge, Ronn Torossian, a spokesman for the firms, said in a Dec. 3 email that Jan Ludovicus van der Velde is the CEO of both. Phil Potter is a Tether director, according to documents -- dubbed the Paradise Papers -- recently leaked by the International Consortium of Investigative Journalists. He’s also the chief strategy officer at Bitfinex.

Last year, Wells Fargo & Co. ended its role as a correspondent bank through which customers in the U.S. could send money to bank accounts held by Bitfinex and Tether in Taiwan. The firms sued the lender, but later withdrew the complaint. Torossian previously declined to identify the banks used by Bitfinex unless a non-disclosure agreement was signed, which Bloomberg News refused.

A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.

Walter Bagehot. Lombard Street. 1873

Crooks and Scoundrels Corner

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

Today, more on the Great Nixonian Error of fiat money.

All the best stories in the world are but one story in reality - the story of escape. It is the only thing which interests us all and at all times, how to escape.

Walter Bagehot.

Flying Blind, Part 1: How Bubble Finance Destroys Economic Efficiency And Rationality

By David Stockman. Posted On Tuesday, January 23rd, 2018
You could say thank heavens they have finally stopped buying the "dip". Then again, there apparently aren't any left!

That's the case, anyway, even if your notion of a "dip" is any day the market doesn't go up. So far there has been exactly one such occasion during 2018. Or worse still, if you assume the traditional metric of at least a 5% drop, you have already been out of the dip buying business for a lifetime---- whether measured in market lives or even dog years.

That's right. Heisenberg reminds us this morning that we are in undisputable record territory. It has been fully 395 trading days since the market had a 5% drop, and that's never happened before in all of recorded history.

Than again, the central banks of the world had never even dreamed of snatching $22 trillion of fiat credit from thin air prior to 1995, either. But in the nine years since the financial crisis they generated $14 trillion of new footings, and more than $20 trillion during the last three bubble cycles combined.

Needless to say, this $20 trillion emission of something for nothing has deformed and poisoned the entire warp and woof of the global financial system. Everywhere financial asset prices have been massively inflated and falsified, causing a two-phase distortion of the global economy.

Initially, massive money printing by the Fed fostered defensive currency market interventions (i.e. "dirty floats") and exchange rate suppression by the PBOC, BOJ, BOK and other exporters of both commodities and industrial goods. Buying in dollars to sequester in their own central banks, the mercantilist exporters of the world---including the dollar-linked petro-states---essentially imported the US dollar inflation.

So doing, of course, they expanded their own monetary bases and domestic credit systems with reckless abandon. That led, in turn, to a monumental global CapEx boom funded not by real money savings, but directly and indirectly by the prodigious fiat credit emissions of the mercantilist central banks. Accordingly, capital spending by worldwide publicly traded firms increased by 5X during the decade ending in 2012.

Ultimately that tsunami of cheap capital funded monumental excess capacity in global mining, energy, shipping, manufacturing and distribution industries and mobilized hundreds of millions of subsistence workers from the rice paddies and village economies of Asia into the globally traded markets. The resulting China Price for goods and India Price for internet based services, in turn, resulted in a massive flattening of the global labor cost curve.

Together, excess industrial and labor capacity ushered in an era of  global commodity and industrial price disinflation that led to an utterly perverse reaction function among the Keynesian central bankers. That is, the only lesson they ever learned after the last remnant of real money was destroyed when Nixon trashed the Bretton Woods gold-exchange standard at Camp David in August 1971 is that too much monetary expansion leads to a rising and ultimately punishing CPI.

But the central bankers have not seen much CPI inflation in the present money printing era---especially after authorities sawed off the inflation ruler in the 1980s and 1990s via statistical tricks such as hedonics, geometric mean adjustments and imputations like homeowners equivalent rents in lieu of actual, measurable housing prices. So they perceived a green light to print central bank credit at will.

Except that was a gigantic mistake owing, ironically, to the fact that their mental models traced back to the hopeless economic nationalism and autarchic views of the Great Thinker himself, John Maynard Keynes.

After 1930 and long before his opus was published in 1936, in fact, Keynes had become a militant protectionist who advocated "homespun goods" and a thorough-going mercantilism that would make even Donald Trump blush.

Alas, Keynesian mercantilism doesn't  work in an environment of global monetary expansion and billowing excess capacity and malinvestment. What transpired after the mid-1990s was, in fact, something new under the monetary sun that reduced the models of the Great Thinker and his American disciples to economic gibberish.

What we mean here is that in the pre-1971 world of gold-based money and relatively fixed exchange rates, to speak of CPI inflation was essentially to speak of "inflation in one country". That's because inordinate monetary expansion in that context led to excess demand, rising domestic wages, prices and costs and a surge of imports to fill the gap.

Alas, that was also the skunk in the woodpile. The counterpart of a swelling current account deficit was eventually an outflow of the settlement asset---gold---as foreign investors lost interest in accumulating the domestic currency liabilities of inflating countries.

At length, the loss of gold drained the inflating country's domestic banking system of reserves---- causing credit and domestic economic activity to contract, thereby squelching "inflation in one country".

Nixon's monetary jail break at Camp David in 1971 was precisely motivated by his desire to break the financial discipline of even the US dominated and wobbly gold exchange standard of Bretton Woods. That is, the required shrinkage of domestic credit to stem the demand for gold by other central banks sitting on mountains of dollar liabilities would have triggered a 1972 recession---and that Tricky Dick was not about to countenance.

In any event, globally synchronized money printing---especially after China elected to become a mercantilist exporter in the early 1990's under Mr. Deng's dispensation that it is glorious to be rich---- meant the opposite of what was implied by the bathtub economics of the Keynesian central bankers.

To wit, too much money printing in a globally-linked central banking system leads to excess capacity, rampant malinvestment and, consequently, industrial and consumer disinflation, not inflation.
The investor of today does not profit from yesterday's growth.

Warren Buffett
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?

Singapore’s First Flash-Charging Electric Shuttle Launched

Published on January 24, 2018
Singapore’s first flash-charging electric shuttle was launched by Nanyang Technological University, Singapore (NTU Singapore) and BlueSG Pte Ltd (a subsidiary of Blue Solutions owned by the Bolloré Group).

The fully electric vehicle, named the NTU-Blue Solutions Flash Shuttle, takes just 20 seconds to recharge at charging stations, which are equipped for its rapid charging while commuters board and alight.

The 22-seater electric shuttle uses Bolloré’s Bluetram vehicle, which aspires to be as efficient as tram systems, but comes with emission-free and fast-charging continuous operation.

Road trials have been planned for the electric shuttle, which will be between JTC’s CleanTech One (part of the Jurong Innovation District where exclusive charging stations have been built) and NTU’s Halls of Residence at North Hill.

BlueSG’s Managing Director Mr Franck Vitté and NTU’s Vice President (Research) Professor Lam Khin Yong launched the shuttle on 22 January 2018, witnessed by Ms. Frédérique Vidal, the French Minister of Higher Education, Research and Innovation.

The move to introduce electromobility and cutting-edge transportation technologies is part of our vision to transform NTU into a Smart Campus. The use of electric vehicles in public transportation is rapidly expanding across the world, as it offers more efficient transportation systems and reductions in greenhouse gas emissions.

As a leading global university with deep expertise in sustainable technologies, the NTU Smart Campus is already a living testbed for various sustainable and energy-efficient technologies, and the perfect partner for BlueSG to test and develop electric shuttles for Singapore.  We expect that the insights and innovations developed from this partnership will ultimately benefit Singapore and the world by enhancing the first-mile and last-mile transportation options.
Professor Subra Suresh, NTU President

We are very proud of our partnership with Nanyang Technological University (NTU), one of the most prestigious scientific institutions in the world. The launch of this very first Bluetram in Singapore, for the students and professors of NTU, further validates the technology and expertise of the Group in the field of electric battery. Our ambition is to make available innovative mobility solutions to the greatest number (individuals, states, communities and companies) that respect the environment.
Marie Bolloré, Managing Director of Blue Solutions.

Supported by the Economic Development Board in Singapore, this research collaboration with BlueSG will run for a couple of years. As part of the research trials, NTU students will be able to travel on the electric shuttle from the mid half of 2018. Moreover, the association is the main initiatives under the France-Singapore Year of Innovation, which intends to strengthen the cooperation on innovation between France and Singapore in 2018.

Tram-Like Efficiency with Fast-Charging

The Bluetram is different from other electric vehicles that operate only on batteries and emulates the efficiency of trams by continuously operating without the necessity for offline charging.

The shuttle is fitted with supercapacitors, as well as a LMP® battery developed by Blue Solutions, and it is designed to travel two kilometers on just a single charge, with backup power that offers an extra 30 kilometers.

In addition, when compared to tram systems, the costs of operating Bluetram is as much as five to ten times lower because it does not need any expensive infrastructure, such as catenary or rails, and an entire fleet can be deployed in just a matter of weeks.

The monthly Coppock Indicators finished December

DJIA: 24,719 +265 Up. NASDAQ:  6,903 +297 Up. SP500: 2,674 +199 Up.