Baltic Dry Index. 2216 -64
LIR Gold Target by 2019: $3,000.
“What me worry?”
Mad Magazine.
We open this morning with the BDI back to 2216, just a little over double the historic low it hit back in late 2008 at the height of the aftermath of the Lehman crash. Since the 26th of May high, the Baltic Dry Index has fallen some 47%. While one swallow doesn’t make a summer, the BDI’s collapse implies an impending trade implosion right ahead. Of course much of it is down to events in China, where the authorities can turn on or off massive sections of the economy, virtually at will. For now, commodities restocking, inventory rebuilding, seems to have been turned off. Much of the current decline is reportedly due to a major decline in Chinese imports of iron ore. As we reported yesterday, China’s domestic coal prices now make it uneconomic to import coal from any export country. China’s boom may now be already headed into bust. If so, the BDI and the global economy are both going to decline more.
Below, Harvard’s professor Rogoff on China’s property bubble starting a collapse, he thinks. If he’s right, bad things will happen fast from here.
Facts are meaningless. You could use facts to prove anything that’s even remotely true!
Ben Bernanke, with apologies to Homer Simpson.
Rogoff Says China Property Starting to ‘Collapse’
July 6 (Bloomberg) -- China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.
As China’s economy develops, “especially at the speed it’s growing, it’s going to have bumps,” said Rogoff, speaking in an interview with Bloomberg Television in Hong Kong. He also said that while recoveries across the global economy are “very slow,” the danger of a return to recession isn’t “elevated.”
Rogoff’s concern echoes that of investors, who sent China’s benchmark stock index to its worst loss in more than a year last week. China’s data have been a focus because the nation has led the global recovery from the worst postwar recession.
The Shanghai Composite Index tumbled 6.7 percent last week, and dropped 0.8 percent yesterday to close at 2,363.95.
Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Measures have included raising minimum mortgage rates and down payment ratios for some home purchases. Officials may also start a trial property tax, according to state media.
Sales Dive
The efforts have contributed to a slump in real-estate sales, while prices continue to climb. The value of property sales dropped 25 percent in May from the previous month. The increase in prices, at an annual 12.4 percent in May according to a government survey of 70 cities, was down from a 12.8 percent advance in April.
“You’re starting to see that collapse in property and it’s going to hit the banking system,” said Rogoff, 57, who also serves on the Group of 30, a panel of central bankers, finance officials and academics led by former Federal Reserve Chairman Paul Volcker.
----- Property prices will probably fall in some regions of China in about three months, said Xu Shaoshi, minister of Land and Resources, according to a Securities Times story yesterday. Values are now stagnant, Xu also said, according to the report.
Rogoff in February said that real estate values in Beijing and Shanghai had “taken a departure from reality,” and a real- estate bubble bursting would be the most likely cause of a slump in Chinese growth to as low as 2 percent at some point in the coming decade.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aA9Y5VxWh9lw
On the other side of the world to China, when is a bank “stress test” really not a stress testl? Answer, when the stress test is run on EU banks for the purpose of conning the markets. Of course, EU stress tests or not, the markets aren’t fooled for long, if at all. Below The Telegraph covers Europe’s worse than useless bank stress tests. There goes the EU banking neighborhood it seems. Stay long precious metals. With trouble in China and the across the EU, what else could possibly go wrong?
The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do.
Warren Buffett.
Europe’s ‘toothless’ bank tests making matters worse
RBS and other City institutions have warned that Europe’s stress tests for banks are almost useless and may further damage confidence if they fail to cover the risk of large losses on sovereign defaults by Greece and other Club Med states
By Ambrose Evans-Pritchard Published: 9:55PM BST 05 Jul 2010
“I don’t think it is going to work,” said Jacques Cailloux, Europe economist at RBS. “These stress tests are not rigorous enough. Investors are already pricing in a 50pc “haircut” on some Greek bonds so this has to be included, and perhaps 30pc for Spain.”
“We have had a complete failure of communication by the eurozone over recent months with 16 countries all saying different things, and there is a very high chance of another failure this time.”
Mr Cailloux, who has issued a “double dip alert” for Europe, said it would be unwise for EU policy-makers to go holiday this summer. Markets are no longer willing to take on exposure to some €2 trillion of household and company debt in Spain, and this gap cannot be plugged for much longer by three-month loans from the European Central Bank.
“If by the end of the summer we have not had much more aggressive policy action, we’re back to contagion. This time it is no longer just a peripheral story. It is starting to infect the core eurozone as well, France in particular. I cannot understand why the ECB is not buying Spanish corporate bonds,” he said.
Christine Lagarde, French finance minister, said the result of tests would be published on July 23. Details will emerge over coming days on “the exact criteria we apply and of how heavily we stress the system”.
The tests will cover up to 100 banks, including many of the Spanish cajas and German savings banks at the eye of the storm. A report by CreditSights said some cajas have disguised the true scale of losses from the housing bust by propping up mortgage securities through purchases of delinquent loans from mortgage pools. The share prices of Allied Irish, Bank of Ireland, Dexia, and Credit Agricole have all fallen hard recently.
Mrs Lagarde said the tests will show that Europe’s banks are “solid and healthy”, but it is this tone of certainty that is causing markets to ask whether this is really a “stress test without stress” – as dubbed in Germany’s media.
Interbank lending in Europe has been half-paralysed since Greek debt woes escalated into a broader banking and sovereign debt crisis. The authorities hope the stress test will prove a magic cure. Last year’s tests in the US were the turning point for America’s banks, but that is because 10 of the 19 banks failed, requiring $75bn (£49.5bn) of extra capital.
Der Spiegel said the test will not include defaults by Greece or other states for fear that this would hurt the credibility of the EU’s new €440bn European Financial Stability Facility (EFSF) designed to shore up eurozone debtors.
That “what else could possibly go wrong,” might just be Japan. With China an enigma of iffy statistics suggesting trouble and a slowdown underway, and Toyota still not firing on all cylinders in Japan, Japan’s economy is now also hitting the global wobble. A wobble that to me looks all too likely to end in the double dip G-7 recession.
Japan Economy Index Falls for First Time in 14 Months
July 6 (Bloomberg) -- Japan’s broadest indicator of economic health dropped for the first time in 14 months, signaling the recovery is losing momentum after rebounding from the worst postwar recession.
The coincident index, a composite of 11 indicators including factory production and retail sales, fell to 101.2 in May from 101.3, the Cabinet Office said today in Tokyo. The result matched the median estimate of 16 economists surveyed.
The report adds to evidence that the world’s second- largest economy is cooling after growing 5 percent in the first quarter. Japanese stocks have tumbled in recent weeks, part of a worldwide slump that reflects investor concern the global recovery will falter.
“With production starting to slow, it’s hard to imagine that the economy will sustain the pace of expansion seen at the beginning of the year,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo.
The Nikkei 225 Stock Average rose 0.6 percent at 2:05 p.m. in Tokyo, reversing declines of as much as 1.9 percent. The gauge has retreated 18 percent from this year’s peak on April 5, exacerbated by gains in the yen that threaten to erode exporters’ profits.
------ Shipments abroad have led Japan’s economic revival that began in the second quarter of last year. Recent data suggest the benefits are slow to spread to households, whose outlays account for more than half of the economy.
The jobless rate reached a five-month high of 5.2 percent in May, household spending retreated for a second month and factory output slipped 0.1 percent from April, government reports showed last week.
http://noir.bloomberg.com/apps/news?pid=20601068&sid=azUvTW1LtU8E
We end for today with oil news, did the majors give up on the North Sea too quickly? Latest developments suggest that might have.
North Sea oil: hopes rise of the biggest discovery in a decade
Estimates of reserves in a new North Sea discovery have been raised for the second time in two weeks and the third in a month after further drilling found more oil in an area that had been regarded as a poor prospect.
By Roland Gribben Published: 10:43PM BST 05 Jul 2010
The four-field Catcher complex, 110 miles south-east of Aberdeen, is now estimated to contain up to 350m barrels and with more wells planned could emerge as the biggest North Sea discovery in a decade. Recent discoveries have been in the "tiddler" category with reserves of between 20m-30m barrels.
Around half the oil is expected to be recoverable but Premier Oil, the biggest partner with a 35pc stake in the find, is being cautious about the potential. Premier on Monday upgraded its recoverable estimate from the 50m-80m barrels announced a week ago to between 60m-100m following the latest drilling result.
Encore, the Aim-listed operator with a 15pc interest in the field, has been more bullish about the size of the field but is expected to either sell its interest or hand over development to Premier, one of the few remaining independent North Sea investors who have stayed the course for almost 40 years.
Simon Lockett, Premier chief executive, said the partners intended to move rapidly to assess the remaining exploration potential and development options. Direct tanker loading is seen as the main option but with more wells planned the field could justify a pipeline link to shore from a production platform.
The Catcher discovery has provided a fillip for North Sea exploration at a time when the Government is stepping up efforts to increase investment and attract new players after the exodus of the major oil companies. Analysts believe the Catcher fields open up the prospect of more finds in the central North Sea area.
Interest has been heightened because the seismic data from the latest Catcher well was not seen as promising. Current plans involve drilling at least two more wells to determine the extent of the find.
At the Comex silver depositories Friday, final figures were: Registered 50.93 Moz, Eligible 63.37 Moz, Total 114.31 Moz.
"Let's make sure that there is certainty during uncertain times in our economy."
President George W. Bush
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Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, Germany. As with Wall Street, when the banks’ stock peddlers call, hang up. Why would Germany’s top bank push a stock on its “clients” that it wasn’t prepared to invest in itself. Der Spiegel thinks it might be to do with the extraordinary commission rate of 12%! They wouldn’t just chase commissions would they?
"We shouldn't pour cold water on everything. We, the eight or nine players in global investment banking, have a very good future."
Deutsche Bank, CEO Josef Ackermann. Davos, January 2007.
Discontent Over Deutsche Bank's Dubious Fund Advice
By Andreas Wassermann 07/05/2010
Deutsche Bank is coming under pressure to explain why it advised its clients to buy shares in a Ferris wheel fund and then deemed the project too risky to invest in itself. So far no wheels have been built and many small investors have lost their money.
Peter Schmidt, a retiree in Berlin, was skeptical from the beginning. What reason did he have to get involved with Ferris wheels, he wondered. His retort to his financial advisor was, "I'm not with the circus or the carnival." But the expert at Deutsche Bank described the investment opportunity in glowing terms, talking, at least as Schmidt remembers it, of double-digit yields and of enormous observation wheels like the London Eye, an attraction that has drawn hordes of visitors in the British capital since 2000.
Eventually, Schmidt was won over and bought shares worth €15,000 ($18,800) in a Ferris wheel fund called Global View. He believed then, in November 2006, that after all Deutsche Bank was endorsing the investment, and he had trusted the bank in financial matters for decades.
Schmidt now knows that the bank's recommendation wasn't sound advice. Global View, promoted as a "highly attractive investment," has largely squandered €208 million, without building even a single one of the Ferris wheels planned for Beijing, Florida and Berlin. Berlin's public prosecutors office has developed an interest in the fund, investigating whether those who initiated the much vaunted investment misappropriated investors' money. They deny the accusation. And it remains to be seen whether Schmidt will ever get his money back.
Failed Investment
For Deutsche Bank, though, the Ferris wheel project turned out to be very good business. The Frankfurt-based bank earned €19.2 million through Global View thanks to its client advisors, who drew in €160 million from the bank's customers within the space of 10 weeks, primarily from German small investors like Schmidt. The bank itself, however, never invested in the fund. Global View used the bank Delbrück Bethmann Maffei (DBM) instead. Deutsche Bank preferred not to invest its own money in the project, for example through loans. Even when that money was badly needed, the bank declined on the basis of a "market risk" that couldn't "be assessed and covered by the bank."
The uproar over the failed investment plan raised questions again that have been debated around the world since the onset of the financial crisis and the Lehman Brothers' bankruptcy: to what degree a bank shares responsibility for investments it recommends to its clients. Does Deutsche Bank bear a share of the accountability for a project that it first pitched to its clients, then later internally determined to be too high risk? That evaluation can be found in the correspondence between Deutsche Bank, DBM and the project's initiators, which offers insight into dubious business practices on the part of Germany's largest bank. The letters and e-mails raise suspicions that Deutsche Bank not only insisted on unusually high commission rates that were meant to be concealed from investors, but even doubted the project's chance of success.
From the beginning, the bank calculated using an "equity commission of 12 percent." The sales brochure was only supposed to show 10 percent, which called for a creative solution.
http://www.spiegel.de/international/business/0,1518,704655,00.html#ref=nlint
"It's strange that men should take up crime when there are so many legal ways to be dishonest. “
Al Capone
The monthly Coppock Indicators finished June:
DJIA: +269 Down. NASDAQ: +460 Down. SP500: +290 Down.
The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. Given the weakening BDI, and the ECRI leading indicators signaling recession ahead, it is probably safer to assume that the great stock market bounce has ended and that we are entering a new bear market, or alternately, resuming the old one after a bear market rally.
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Sunspots – A 22 year colder world? (From 2004?)
Spotless Days July 05
Current Stretch:0 days
2010 total: 35 days (19%)
2009 total: 260 days (71%)
Since 2004: 803 days
Typical Solar Min: 485 days
