Category Archives: Other Views

Copper Sinks to Six-Year Low as Chinese Demand Slumps, by Tatyana Shumsky

Posted on November 10, 2015 | Leave a comment

From Tatyana Shumsky at Dow Jones Business News, nasdaq.com:

Copper prices skidded to a six-year low and mining shares tumbled on Monday after China’s import data showed declining demand from the world’s top buyer of the industrial metal.

China’s imports of copper and copper products for the first 10 months of 2015 fell 4.2%, to 3.82 millions tons, from the year-earlier period, the country’s General Administration of Customs said Monday. Imports are on track for their first year-on-year drop since 2013.

“This is further evidence of that slowing in China and that their demand for copper is going to continue to decline,” said Paul Nolte, a portfolio manager with Kingsview Asset Management in Chicago. “Obviously, declining demand is going to keep the pressure on copper prices.”

China accounts for about 40% of global copper demand and the import data highlighted long-running concerns that the country’s economic slowdown would translate into lower copper imports. Recent reports showed that Chinese factory activity continues to contract and construction starts lag behind last year’s pace.

Monday’s fall in copper prices rattled the mining sector, which has been battered by a prolonged slump in prices of metals and other commodities. The S&P Metals and Mining Select Index, which tracks the share prices of 30 companies, fell 1% on Monday, bringing year-to-date losses to 46%.

Shares of Glencore PLC, one of the world’s largest copper producers, declined 5.3%. Copper’s selloff has been particularly painful for Glencore, which got 20% of its operating income from copper production in the first half of 2015.

Copper futures for December delivery, the most actively traded contract, fell 1.20 cents, or 0.5%, to $2.2300 a pound. That is the lowest since July 2009. So far this year, copper prices have slid 21%, compared with a 16% decrease in the S&P GSCI.

To continue reading: Copper Sinks to Six-Year Low

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We’re in the Early Stages of Largest Debt Default in US History, by Porter Stansberry

Posted on November 10, 2015 | Leave a comment

From Porter Stansberry, Daily Wealth, at wolfstreet.com:

We are in the early stages of a great debt default – the largest in U.S. history.

We know roughly the size and scope of the coming default wave because we know the history of the U.S. corporate debt market. As the sizes of corporate bond deals have grown over time, each wave of defaults has led to bigger and bigger defaults. Here’s the pattern.

Default rates on “speculative” bonds are normally less than 5%. That means less than 5% of noninvestment-grade, U.S. corporate debt defaults in a year. But when the rate breaks above that threshold, it goes through a three- to four-year period of rising, peaking, and then normalizing defaults. This is the normal credit cycle. It’s part of a healthy capitalistic economy, where entrepreneurs have access to capital and frequently go bankrupt.

If you’ll look back through recent years, you can see this cycle clearly…

In 1990, default rates jumped from around 4% to more than 8%. The next year (1991), default rates peaked at more than 11%. Then default rates began to decline, reaching 6% in 1992. By 1993, the crisis was over and default rates normalized at 2.5%. Around $50 billion in corporate debt went into default during this cycle of distress.

Six years later, in 1999, the distress cycle began to crank up again. Default rates hit 5.5% that year and jumped again in 2000 and 2001 – hitting almost 8.7%. They began to fall in late 2002, reaching normal levels by 2003.

Interestingly, the amount of capital involved in this cycle was much, much larger: Almost $500 billion became embroiled in default. The growth in risky lending was powered by the innovation of the credit default swap (CDS) market. It allowed far riskier loans to be financed. As a result, the size of the bad corporate debts had grown by 10 times in only one credit cycle.

To continue reading: We’re in the Early Stages of Largest Debt Default in US History

See Also “Goldman Sachs Says Corporate America Has Quietly Re-levered,” SLL, 11/10/15 and “Neither a Borrower Nor a Lender Be,” SLL, 8/26/15

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What Is a ‘Bitcoin’? by Hugo Salinas Price

Posted on November 10, 2015 | Leave a comment

From a guest post by Hugo Salinas Price at theburningplatform.com:

A “Bitcoin” is a molecular magnetic field on a computer memory. The “Bitcoin System” allows a person to purchase one or more Bitcoins for fiat money and to move the purchased Bitcoins around the world, from one computer to another, free of interference by any governmental agency and independent of all banking systems.

Those who promote the Bitcoin System sing the Bitcoin’s praises as being a money that is free of any interference or influence by any government agency or monetary authority, and the owner’s Bitcoin property is known to no one but the owner. Secrecy and privacy are the Bitcoin’s great merits.

To enhance the desirability of the Bitcoin, its promoters have engaged in fraudulent advertising. They present the totally imaginary Bitcoin on the Internet as a pile of shiny gold-colored coins labeled “Bitcoin”.

The deception is calculated to have prospective buyers of Bitcoins and actual “owners” of Bitcoin balances think of these brassy, gold-colored coins when dealing in Bitcoins, thus confusing them with images of non-existent coins. The promoters want the public to associate the imaginary digital Bitcons with something tangible. This is most certainly fraudulent advertising.

Additionally, Bitcoins are promoted as free of inflationary risk, for the fanciful reason that the Bitcoins are “mined” – evoking the strenous labors of gold-miners in their dark caverns – by specialists who must rack their brains to “mine” Bitcoins and produce new, additional digital Bitcoins to contribute to the Bitcoin System as their property. The idea is to enhance the value of Bitcoins because they are very hard to “mine”. The fact is, that scarcity does not necessarily make a thing valuable. Nor does the work involved in “mining” them give them any value.

To continue reading: What Is a ‘Bitcoin’?

See also “Real Money,” SLL, 9/9/15

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Goldman Sachs Says Corporate America Has Quietly Re-levered, by Tracy Alloway

Posted on November 10, 2015 | 1 comment

It was only a year ago when mainstream analysts were chirping about how healthy corporate balance sheets were. They weren’t actually that healthy then, and they’ve deteriorated dramtically since. From Tracy Alloway at bloomberg.news:

One of the biggest post-financial crisis imbalances sits on corporate balance sheets, according to analysts at the bank.

You might choose to whisper it softly, but the balance sheets of U.S. companies are yelling it loudly, while wielding a baseball bat:

Corporate leverage is now at its highest level in a decade, according to a new analysis from Goldman Sachs.

Years of low interest rates and eager investors have encouraged Corporate America to go on a shopping spree. On its list are share buybacks and dividend hikes to reward equity investors, as well as a series of merger and acquisition deals, all funded through a generous bond market. Since cash flow has not kept up with the boom in bond sales, the splurge has left Corporate America with its highest debt load in about 10 years, according to the bank.

To continue reading: Goldman Sachs Says Corporate America Has Quietly Re-levered

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What An Industrial Depression Looks Like: Photos From An Australian Heavy-Machinery Auction, by Tyler Durden

Posted on November 10, 2015 | 1 comment

Who says there’s no deflation? What do you call a 99 percent discount on a Caterpillar Wheel Loader? Click the link at the end and check the photographs at the end of the stories for other massive discounts. From Tyler Durden at zerohedge.com:

Two weeks ago, when looking at the latest Caterpillar retail sales data…

… we said that “If Caterpillar’s Data Is Right, This Is A Global Industrial Depression.”

Today we get visual evidence of this, courtesy of an Australian heavy industrial equipment auction where machines such as a Caterpillar 992C wheel loader, which normally costs $2.9 million, can now be bought for just $15,000, a 99% discount!

As Australia’s ABC reports, now that the commodity bubble has burst for good, auctioneers are hard at work selling tens of millions of dollars of suddenly useless coal mining machinery for just a fraction of its original market value.

The reason is known: the severe downturn in the Australian resources sector (courtesy of China’s whose commodity imports are declining with every passing month) has led to a massive oversupply of equipment, and much of it is unsuitable for use in any other industry. This means unwanted excavators, trucks and sundry heavy machinery will end up as scrap, if not sold at auction.

ABC’s reporter visited just one such auction in New South Wales, which was owned by Big Rim, a mining services contractor which also collapsed after the miners it serviced also closed.

What he saw was stunning:

“At the moment we’ve probably got the worst downturn I’ve seen in 25 years,” said Chris Hassall, whose company is conducting the auction.

Peter Turner’s Gold Coast company Turner Engineering used to compete for contracts with Big Rim. “I’d be interested in at least 50 per cent of what’s here, and there are at least 100 machines here,” he said.

One of those machines was a large water tanker which Peter Turner was running the ruler over. “It’s not worth a lot. It’s worth $75,000 or something, but you can’t build the tank for that.”

Worse, when the auction began the owners of a once-thriving business were hoping this fire sale would at the very least cover their debts. No such luck as the photos of the epic discounts on the equipment show.

To continue reading: What An Industrial Depression Looks Like

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China Trade Swoons, Collapse of Containerized Freight Index Hits Worst Level Ever, Global Slowdown Worse than Forecast, by Wolf Richter

Posted on November 9, 2015 | Leave a comment

From bad to worse, that’s where the economy’s going, from bad to worse. From Wolf Richter at wolfstreet.com:

Who is going to pull the global economy out of its funk? No one knows. But it’s not going to be China – regardless of how many more times the central bank is going to tweak its policies and cut interest rates. That’s what China’s trade fiasco is saying.

Soothsayers were once again shocked on Sunday by just how far China’s imports and exports have deteriorated.

Exports dropped 6.9% in October from a year ago, to $192.41 billion, after a 3.7% drop in September, the fourth month in a row of year-over-year declines. Exports had peaked last December at $227.5 billion and have since dropped 15.4%.

Shipments to the US edged down 0.9% year-over-year, to the EU 2.9%, and to Japan, which is suffering from the Abenomics hangover, 7.7%. Is China’s economy getting the feverishly hoped-for boost from supplying the overseas holiday shopping season? Not yet.

China has been getting hit by two simultaneous forces: weak global demand and loss of competitiveness due to rising wages, land costs, and other expenses. It’s no longer the low-cost producer. And as it switches to robots for manufacturing, which it is doing at lightning speed, it has to confront a new reality: robots are the great equalizer; unlike labor, they cost the same everywhere.

Imports plunged 18.8% year-over-year to $130.8 billion, after a 20.4% cliff-dive in September, the 12th month in a row of declines. This isn’t weak global demand, but a swoon in demand in China. Part of the plunge is due to falling commodity prices and weak demand for commodities in China. But even then: for the first three quarters of the year, import volume, which eliminates prices as a factor, was down 4%. Imports peaked in Mark 2013 at $183.1 billion and are now down 28.6%.

To continue reading: China Trade Swoons

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Decline of the Family, by Jim Quinn

Posted on November 9, 2015 | Leave a comment

From Jim Quinn at theburningplatform.com:

The chart below captures much of what has gone wrong in this country since 1970. Households in 1970 looked entirely different than households today. In 1970, almost 71% of all households consisted of married couples. Today, only 50% of all households are occupied by married couples. The divorce rate prior to 1970 ranged between 9 and 11 per 1,000 married women. After 1970 the divorce rate skyrocketed by 100% to between 20 and 23 per 1,000 married women.

In 1970 46% of two parent households had a stay at home mom. Only 33% of mothers worked full-time in 1970. That was true because a family could live a decent middle class life on one salary. In 1970 31% of all the jobs in the country were higher paying goods production jobs. Today, only 10% of jobs are goods producing jobs. The shift from a country based upon saving and production to a services oriented nation based on debt based consumption is reflected in the chart.

The primary reason the percentage of mom’s working full time has risen from 33% to 52% is the fateful decision by Richard Nixon to close the gold window in 1971, allowing central bankers to print money, create relentless inflation (83% loss in purchasing power of USD), promoting the financialization of America by Wall Street, and encouraged politicians to promise voters goodies they can never deliver without the ability to run up the national debt without a seeming consequence.

To continue reading: Decline of the Family

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The Leviathan, by James Howard Kunstler

Posted on November 9, 2015 | Leave a comment

From James Howard Kunstler at kunstler.com

The economic picture manufactured by the national consensus trance has never been more out of touch with reality in my lifetime. And so the questions as to what anyone might do can hardly be addressed. How can I protect my savings? Who do I vote for? How do I think about where my country is going? Incoherence reigns, especially in the circles ruled by those who guard the status quo, which includes the failing legacy news media.

The Federal Reserve has morphed from being a faceless background institution of the most limited purpose to a claque of necromancers and astrologasters, led by one grand vizier, in full public view pretending to steer a gigantic economic vessel that has, in fact, lost its rudder and is drifting into a maelstrom.

For more than a year, the fate of the nation has hung on whether the Fed might raise their benchmark interest rate one quarter of a percent. They talk about it incessantly, and therefore the mob of financial market observers has to chatter about it incessantly, and the chatter itself has appeared to obviate the need for any actual action on the matter. The Fed gets to influence markets without ever having to do anything. And mostly it has worked to produce the false narrative of an advanced economy that is working splendidly well to the advantage of the common good.

This is all occurring against the background of a larger global network of economic relations that is quite clearly breaking apart. The rising tensions between the US, Russia, China, and the Euro Union grew out of monetary mischief “innovated” by our central bank, especially the shenanigans around debt monetization, which have created dangerous distortions in markets, trade, and perceptions of national interest. Nations are rattling sabers at one another and bluster is in the air. The world is bankrupt after thirty years of borrowing from the future to throw a party in the present, and the authorities can’t acknowledge that.

But they can provide the conditions for disguising it, especially in the statistical hall of mirrors that once-upon-a-time produced meaningful signals for the movement of capital. Instead of reality-based choices and decisions, the task at hand for the people in charge has been the ever more baroque elaboration of a Potemkin economic false-front, behind which lies a landscape of ruin scavenged by desperate racketeers. That this racketeering has moved so seamlessly into the once-sacred precincts of medicine and higher ed ought to inform us how desperate and perilous it has become.

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Does the Bell Toll for the Fed? by Ron Paul

Posted on November 9, 2015 | 1 comment

From a guest post by Ron Paul on theburningplatform.com:

Last week Federal Reserve Chair Janet Yellen hinted that the Federal Reserve Board will increase interest rates at the board’s December meeting. The positive jobs report that was released following Yellen’s remarks caused many observers to say that the Federal Reserve’s first interest rate increase in almost a decade is practically inevitable.

However, there are several reasons to doubt that the Fed will increase rates anytime in the near future. One reason is that the official unemployment rate understates unemployment by ignoring the over 94 million Americans who have either withdrawn from the labor force or settled for part-time work. Presumably the Federal Reserve Board has access to the real unemployment numbers and is thus aware that the economy is actually far from full employment.

The decline in the stock market following Friday’s jobs report was attributed to many investors’ fears over the impact of the predicted interest rate increase. Wall Street’s jitters about the effects of a rate increase is another reason to doubt that the Fed will soon increase rates. After all, according to former Federal Reserve official Andrew Huszar, protecting Wall Street was the main goal of “quantitative easing,” so why would the Fed now risk a Christmastime downturn in the stock markets?

Donald Trump made headlines last week by accusing Janet Yellen of keeping interest rates low because she does not want to risk another economic downturn in President Obama’s last year in office. I have many disagreements with Mr. Trump, but I do agree with him that the Federal Reserve’s polices may be influenced by partisan politics.

Janet Yellen would hardly be the first Fed chair to allow politics to influence decision-making. Almost all Fed chairs have felt pressure to “adjust” monetary policy to suit the incumbent administration, and almost all have bowed to the pressure. Economists refer to the Fed’s propensity to tailor monetary policy to suit the needs of incumbent presidents as the “political” business cycle.

To continue reading: Does the Bell Toll for the Fed?

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The Sham Syrian Peace Conference, by Gareth Porter

Posted on November 9, 2015 | Leave a comment

From Gareth Porter at antiwar.com:

I have always been enthusiastic in my support for peace negotiations, which have been neglected all too often in internal and international conflicts. But it is clear that the international conference on Syria that held its first meeting in Vienna on October 30 is a sham conference that is not capable of delivering any peace negotiations, and that the Obama administration knew that perfectly well from the start.

The administration was touting the fact that Iran was invited to participate in the conference, unlike the previous United Nations-sponsored gathering on Syria in January and February 2014. That unfortunate conference had excluded Iran at the insistence of the United States and its Sunni allies, even though several states without the slightest capacity to contribute anything to a peace settlement – as well as the Vatican – were among the 40 non-Syrian invited participants.

Iran’s participation in the Vienna conference represents a positive step. Nevertheless, the conference was marked by an even more fundamental absurdity: none of the Syrian parties to the war were invited. The 2014 talks at least had representatives of the Assad regime and some of the armed opposition. The obvious implication of that decision is that the external patrons of the Syrian parties – especially Russia, Iran and Saudi Arabia – are expected to move toward the outline of a settlement and then use their clout with the clients to force the acceptance of the deal.

The Vietnam model

The idea of leaping over the Syrian parties to the conflict by having an outside power negotiate a peace agreement on behalf of it clients is perfectly logical in the abstract. The classic case of such an arrangement is the US negotiation of the Paris Agreement with the North Vietnamese in January 1973 to end the US war in Vietnam. The US-backed Thieu regime’s total dependence on US assistance and the weight of the US military in Vietnam ensured Thieu’s forced acceptance of the arrangement.

But it should also be noted that arrangement did not end the war. The Thieu regime was unwilling to abide by either a ceasefire or a political settlement, and the war continued for two more years before a major North Vietnamese offensive ended it in 1975.

Even more important in regard to the applicability of the model to the Syrian War is the stark difference between the US interest in negotiating over the head of its Vietnamese client and the Iranian and Russian interests in regard to the Syrian government. The United States was negotiating to get out of a war of choice that it started, like Iraq, in the mistaken belief that its dominant power guaranteed control of the situation and in which it was forced to end by domestic political pressure. Iran, on the other hand, is fighting a war in Syria that it regards a vital to its security. And Russia’s political and security interests in Syria may be less clear-cut, but it also has no incentive to agree to a settlement that would risk a victory for terrorism in Syria.

To continue reading: The Sham Syrian Peace Conference

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