Draghi’s choice in restructuring the European financial system

So with apologies to Lewis Carroll, here’s the choice facing our modern-day Alice – does she sing a lullaby that keeps the Red King sleeping for a few more years, albeit at the cost of drinking a terrible potion that will turn her into a hideous giant … or does she let the Red King wake up, shattering the dream and risking the existence of everything, herself included, but preserving the story of her beautiful face and form?

 

If I were a betting man (and I am), I’d wager on Draghi drinking the potion and keeping the dream alive, no matter how complicit it makes him in preserving a very ugly and very politically-driven status quo. But there’s a non-trivial chance that it’s just too much to swallow, that becoming the public face of a European banking system that will ultimately come undone in national political elections over the next cycle or two establishes a personal and professional legacy Draghi is unwilling to accept. There are no easy choices here. Does Draghi postpone what I believe is an inevitable day of reckoning over the politically bloated balance sheets of the European banking sector? Or does he accelerate that time table so that he can (perhaps) better control its unwinding? I suspect he’ll take the former course and choose delay. But maybe not. This is one of those unlikely events that no one will anticipate in advance and everyone will claim was obvious in retrospect, which makes it a perfect item to examine through an Epsilon Theory looking glass. Curiouser and curiouser …

via Epsilon Theory, The Red King

Today’s $30 Drop Puts Recent Gold Run-Up In Question

Summary

  • Gold’s $30 drop today could be more than meets the eye. It puts the recent gold run in question.
  • It puts the inflation/growth scenario in question.
  • The bond market might have it right.

Gold Warning!

I’ve been bullish on gold since December; see my article here in the archives, “Why I Turned Bullish on Gold”. I reduced my position as gold swooned in the second quarter after a $200 run. I added to positions at $1240, and we rallied about a hundred dollars as of last week. Gold is down 30 bucks as I write this and I think there could be more than meets the eye.

It’s true that geo-political events are lessening, but they are usually temporary and gold investors know this. It’s also true that speculation has increased in gold lately and a lot of the speculators jumped ship today and set off stops. But the whole rally from the first of the year, in my view, was predicated on higher inflation and increased world growth for 2014.

The most recent data is reversing and putting that thesis to the test. Even as the economic and investment community is debating whether the Fed is behind the curve on inflation, and the public is suffering under high gas and food prices, both are falling and the underlying commodities are falling dramatically as of late.

Crude has fallen 11 out of 12 days and hanging on barely to the $100 mark. The CRB, which tracks commodities, has turned down suddenly and broken the 50 day moving average of 307 and is near challenging its 200 day support level of 293. Agriculture commodities are crashing in some cases. The Power Shares DBA Agriculture (NYSEARCA:DBA) ETF has broken through both the 200 and 50 day moving averages. Corn has fallen from $5.20 a bushel to $3.78 in just two months, a 27% drop. Corn feeds livestock and cattle prices are beginning to fall. Just as people are becoming alarmed over inflation, it is possible that it just peaked. Gas and food prices are likely to fall, and fall soon.

Meanwhile, on the world growth front, France fell to zero growth in the first quarter and to date is running at negative growth. Germany and Japan are turning down and looking surprisingly weak lately. China is struggling, England is faltering and Canada’s unemployment just ticked up to the highest since last summer. Then there are the PIGS: Portugal, Italy, Greece, and Spain, which are back in the news as a new euro crisis has suddenly appeared. I could go on, but the bottom line is the worldwide recovery is now in question.

Retail spending here in the US is said to be in a “funk.” And through all of this, the Fed is tightening even in the face of the money supply, which has gone flat. M2 has hardly moved since the first of the year. And perhaps this is why many inflation indicators have suddenly turned south.

Gold’s drop today could be confirmation of a return of the deflationary/recessionary bias that has been plaguing the world for six years now. I’m a nervous bull given the sudden reversal of data that contradicts the inflation/growth scenario. Maybe the bond market has it right: that we’re headed the other way.

I have not yet changed my view on the year as a whole, but today’s fall in gold could be a shot across the bow of the recent gold rally. If the world economy picks up even slightly along with inflation, it will represent a change in direction. I believe that is what moved commodities led by gold in the first quarter of the year. Commodities sensed higher future demand.

Even as US GDP was falling 2.9%, commodities rallied. This in my view was the expectation of world growth in general picking up as the year progressed. In fact, we saw signs of improvement in China and the eurozone indicating better growth ahead, and this in the negative first quarter of the year. Then the data began to turn, and with it so did gold, falling back from the $1400 area, to the $1180 area in the second quarter.

By mid-June the data once again began to look promising and gold and most other commodities rallied. It wasn’t until about ten days ago that we saw the problems of European banks become an issue again. Gold rallied as a safety play and was buoyed by geo-political events. But it masked the continuous fall in the oil and agriculture sectors. This may be of no importance in the long run, and could be due to independent factors at play in these individual markets.

Gold’s dramatic downturn today, however, confirms the down trend of the other markets and the bond market. I still think the preponderance of evidence is on the side of worldwide recovery, higher demand for commodities, and therefore, higher inflation rates to come. But if oil, agriculture and metals continue to fall, it is deflation and recession that the world needs to fear — not inflation.

via Today’s $30 Drop Puts Recent Gold Run-Up In Question | Seeking Alpha.

LG has a very flexible 18-inch display, promises 60-inch rollable TVs

LG Display announced that it’s been able to create an 18-inch OLED panel that has enough give and flexibility to roll into a tube that’s a mere 3cm across. The prototype currently has a resolution of 1,200 x 810, while it’s a new polyamide film on the back of the panel (instead of the typical plastic) which offers the panel substantially more flexibility — and it’s also even thinner.

Alongside the flexible demo, LG’s also crafted a transparent OLED panel which has triple the transmittance of existing see-through LCD displays — that means the picture looks much better and less hazy. According to LG Display’s SVP and Head of R&D, In-Byung Kang, he’s confident that “by 2017, we will successfully develop an Ultra HD flexible and transparent OLED panel of more than 60 inches.” Crank up that resolution and bring on the roll-up TVs

via LG has a very flexible 18-inch display, promises 60-inch rollable TVs.

A graphene replacement made from plastic

A team of Korean researchers has synthesized hexagonal carbon nanosheets similar to graphene, using a polymer. The new material is free of the defects and complexity involved in producing graphene, and can substitute for graphene as transparent electrodes for organic solar cells and in semiconductor chips, the researchers say.

Abstract of Nanoscale paper

Through a catalyst- and transfer-free process, we fabricated indium tin oxide (ITO)-free organic solar cells (OSCs) using a carbon nanosheet (CNS) with properties similar to graphene. The morphological and electrical properties of the CNS derived from a polymer of intrinsic microporosity-1 (PIM-1), which is mainly composed of several aromatic hydrocarbons and cycloalkanes, can be easily controlled by adjusting the polymer concentration. The CNSs, which are prepared by simple spin-coating and heat-treatment on a quartz substrate, are directly used as the electrodes of ITO-free OSCs, showing a high efficiency of approximately 1.922% under 100 mW cm−2 illumination and air mass 1.5 G conditions. This catalyst- and transfer-free approach is highly desirable for electrodes in organic electronics.

via A graphene replacement made from plastic | KurzweilAI.

Moody’s negative outlook on Ontario

Moody’s has assigned a negative outlook to Ontario:

Moody’s Investors Service has today changed the outlook on the Province of Ontario’s debt and issuer ratings to negative from stable, and at the same time affirmed the Aa2 ratings. This affects approximately CAD 250 billion in debt securities. Moody’s P-1 rating on Ontario’s commercial paper program remains unchanged.

The change in the outlook reflects Moody’s assessment of risks surrounding the province’s ability to meet its medium term fiscal targets. After several years of weak to moderate economic growth, and higher than previously anticipated deficits projected for the next two years, the province is facing a greater challenge to return to balanced outcomes than previously anticipated. Although the province has exceeded fiscal targets in recent years, consolidated deficits have shown little change over the period 2011/12-2013/14, averaging -9.9% of revenues. The required revenue growth, in an environment of continued slower than average economic growth, and necessary operating expense control to achieve fiscal targets will require a considerable shift from recent trends. The province also continues to face large, ongoing capital expenditures which also places pressure on the province’s fiscal position.

Ontario’s rating could be downgraded if the province fails to provide clear signals of its ability and willingness to implement the required measures to redress the current fiscal pressures. Furthermore, if medium-term debt affordability were to deteriorate due to higher-than-expected increases in debt levels or a significant rise in interest rates, the province’s fiscal flexibility would be reduced, exerting downward pressure on the rating.

The outlook could return to stable if the province demonstrates through concrete measures that it will be able to achieve the very constrained expenditure growth rates and expected revenue growth over the term of its fiscal plan.

Oh well. I’m sure the new Ontario Retirement Pension Plan will be a big investor in Ontario bonds.

The political response is standard:

But top cabinet ministers said they were unconcerned about the note from Moody’s.

“The bankers aren’t freaking here,” Finance Minister Charles Sousa said as he headed into a cabinet meeting at Queen’s Park Thursday. “We have controlled our spending, we have taken the necessary steps and we’re not done just yet. We’re still finding more savings in the system.”

Deputy Premier Deb Matthews , who was appointed President of the Treasury Board last week with the task of balancing the budget in three years, brushed off Moody’s warning and said another credit downgrade would not be particularly expensive.

via July 3, 2014 « PrefBlog.

A new battery that’s cheap, clean, rechargeable, and organic

A new battery that’s cheap, clean, rechargeable, and organic

Could pave the way for renewable energy sources to make up a greater share of a country’s energy generation by economically storing energy at night

Scientists at USC have developed a water-based organic battery that is long-lasting and built from cheap, eco-friendly components (no metals or toxic materials). The new battery is intended for use in power plants, where it could make the energy grid more resilient and efficient by creating a large-scale means to store energy for use as needed.

“The batteries last for about 5,000 recharge cycles, giving them an estimated 15-year lifespan,” said Sri Narayan, professor of chemistry at the USC Dornsife College of Letters, Arts and Sciences and corresponding author of an open-access paper published online by the Journal of the Electrochemical Society.

“Lithium ion batteries degrade after around 1,000 cycles, and cost 10 times more to manufacture,” he said.

“Such organic flow batteries will be game-changers for grid electrical energy storage in terms of simplicity, cost, reliability and sustainability,” said Prakash.

via A new battery that’s cheap, clean, rechargeable, and organic | KurzweilAI.

Will there be a Battery Singularity by 2025 ?

Ramez Naam, author of The Infinite Resource: The Power of Ideas on a Finite Planet, recently explained that lithium-ion batteries have a fifteen year history of exponential price reduction. Between 1991 and 2005, the capacity that could be bought with $100 went up by a factor of 11. The trend continues through to the present day.

SolidEnergy calculates that its materials could be used to make battery packs that cost $130 per kilowatt-hour, in line with U.S. Department of Energy goals for making electric vehicles affordable. Battery pack costs are typically kept secret, but estimates range from $250 to $500 per kilowatt-hour for packs in commercial electric vehicles.The 85 KWh battery pack for a Tesla S would go from $20,000 to $40,000 down to about $11,000.

Lithium ion could get even cheaper if only from economies of scale from factories that are ten times larger in China.Lithium Sulfur batteries are getting close to commercialization. They have the potential to drive costs to about $60 per KWh. This would be about $5000 for a Tesla S battery pack.


Here is 2012 presentation on NOHM battery commercial plans.

via Will there be a Battery Singularity by 2025 ?.