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Updated: 6 hours 26 min ago

Feb 12/A massive 11.98 tonnes of gold added to the GLD/no change in silver inventory at SLV/CME initiates hike in margin for comex gold and that sends gold down a bit/gold equity shares still rise today/COT report shows the banks supplying massive non...

Fri, 02/12/2016 - 18:47

Gold:  $1,239.10 down $8.80    (comex closing time)

Silver 15.78 down 1  cent

In the access market 5:15 pm

Gold $1138.00

Silver: $15.74

 

The major reason for gold to be “under the weather” today: the crooked CME raised margins on gold futures at the close of trading today.  Interestingly enough, even though gold was down today, gold/silver equity shares rose.

 

(courtesy Kitco)

CME Group Hiking Margins On Comex Gold Futures As Of Friday Close


Friday February 12, 2016 08:07

(Kitco News) – CME Group is raising margins on gold futures as of the end of business on Friday, the exchange operator reported.

The “initial” margin for speculators on the Comex division of the New York Mercantile Exchange will rise to $4,675 from $4,125. The “maintenance” margin for existing accounts, as well as all hedge accounts, will increase to $4,250 from $3,750. The margin will also change for smaller-sized contracts.

Margins act as collateral for holders of positions in futures market, with traders putting up only a small percentage of the total value of a contract. In a notice late Thursday, CME Group said the increases were “per the normal review of market volatility to ensure adequate collateral coverage.”

A link to the full notice for the gold margins, as well as margin changes in a number of other markets, can be seen right here.

 

end

 

At the gold comex today, we had a good delivery day, registering 44 notices for 4400 ounces. Silver saw 41 notices for 205,000 oz.

 

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 204.26 tonnes for a loss of 99 tonnes over that period.

In silver, the open interest rose by a huge 6,379 contracts up to 167,524. In ounces, the OI is still represented by .838 billion oz or 120% of annual global silver production (ex Russia ex China).

In silver we had 41 notices served upon for 205,000 oz.

In gold, the total comex gold OI rose by 6,379 contracts to 424,537 contracts as the price of gold was up $53.20 with yesterday’s trading.

We had a mammoth change in gold inventory at the GLD, a huge deposit of 11.98 tonnes  / thus the inventory rests tonight at 716.01 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had no change  in inventory  and thus/Inventory rests at 308.380 million oz.

First, here is an outline of what will be discussed tonight:

 

1. Today, we had the open interest in silver rise by 6,379 contracts up to 167,524 as the price of silver was up 51 cents with yesterday’s trading.   The total OI for gold rose by 13,180 contracts to 424,537 contracts as gold rose by $53.20 in price from yesterday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

 

b) COT report

(Harvey)

 

 

3. ASIAN AFFAIRS

 

i) Late  THURSDAY night/ FRIDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed badly by 226 points or 1.22% . The Nikkei was closed down 760.78 or 4.84%. Australia’s all ordinaires was also down. Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil gained  to 27.53 dollars per barrel for WTI and 31.31 for Brent. Stocks in Europe so far deeply in the geen . Offshore yuan trades where it finished last Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/

 

ii)Japanese trading last night:  the Nikkei falters by 4.78%.  The big question is how will the citizenry react when they find that Abe put their pension funds in stocks and they are plummeting@!

( zero hedge)

 

4.EUROPEAN AFFAIRS

 

i)Greece is again in the spotlight as their GDP drops .6% last quarter.Riots on the street as farmers refuse pension reform. Middle eastern migrants are also entering the country causing huge fiscal problems for Greek finances.  There is now renewed calls for a GREXIT:

( zero hedge)

 

ii) Deutsche bank states that the markets are crying out for a circuit breaker but the problem is that they do not know what that breaker is.  We basically have 3 problems in the globe:

a) Japan has lost confidence with their NIRP as the yen has strengthened to 112.90 to the dollar from 123.00 to the dollar. b) the USA has lost confidence in the market by raising rates even though their economy is faltering c) that leaves it up to Draghi to stimulate the EU but they are already in NIRP and the banks are suffering  (see below).  Draghi cannot QE anymore as they have bought up most of the bonds already and very little left to monetize: ( Deutsche bank/zero hedge)

iii The “death doom loop” of negative rates  (see below) is having a disastrous effect on European banks.

( zero hedge)

 

iv) VERY IMPORTANT

This is not good:  An ECB leak  (trial balloon?) shows a firm support for another deeper NIRP which will cause further deterioration in banking profits: see commentary on NIRP’s Death Doom Loop Note: 1. Bond yields in Europe are lower as investors seek safe haven status as opposed to equities.  Lower bank shares make it difficult for new share offering 2. Asynchronous easing by the Bank of Japan and the EU with the USA tightening  sends the dollar higher and thus commodities lower.  This causes credit deterioration in mining and oil stocks  (e.g. Freeport McMoRan,  Glencore  and major oil companies) 3, the higher USA dollar also raises the Chinese yuan  and thus causes China to act forcing a disorderly devaluation.

( zero hedge)

 

5.GLOBAL ISSUES

i) A very important commentary from zero hedge where they discuss the “Doom Loop” as countries or entities enter negative rates.  The banking sector becomes increasingly less profitable as they have to pay for excessive reserves and are also afraid to lend out in an economy that is faltering; “the death doom loop”: ( zero hedge)

ii) Michael Harnett of Bank of of America describes central banker activity as quantitative failure.

a very important read… ( Michael Harnett/Bank of America/zero hedge) 6. OIL ISSUES

i)The real reason for oil’s fall this past yr:  It is not just a supply issue. It is also a downfall in demand:( zero hedge)

 

ii)Two key ramps causes the USA stocks and Europe to rise:

a) USA//Yen rise to 12.90 or so

c) the algo driven rise in oil  (for  the phony reason of the production cut)

( zero hedge)

iii)And now the real reason for the huge volatility in the WTI crude oil contract. Again we have huge ETF liquidation.  In a nutshell this will revert back to the norm on Monday: ( zero hedge)

iv)Oil responded in a northbound trajectory once the new oil rig count was announced as it plunged by another 28 rigs:

( zero hedge)

 

 

7.PHYSICAL STORIES

 

i)A very interesting discussion from Koos Jansen as he hints that it is quite possible that London is out of gold to supply China.  With gold still in backwardation in London, he is no doubt correct

( Koos Jansen/Bullionstar)

ii)A super commentary from Craig Hemke as he states that the central banks are losing the confidence game and that is why gold is rising!  He notes that Japan has lost confidence with the introduction of NIRP and the uSA has lost confidence with their policy failure on an increase in their rates:

( Craig Hemke/TFMetals Report)

iii)Ambrose Evans Pritchard discusses Japan and how their introduction of negative rates has caused the yen to rise in value instead of falling. This has caused the world to lose confidence as they basically do not know what they are doing.

(Ambrose Evans Pritchard/GATA) iv) Rival factions developing another “Bitcoin” (London’s Financial times/GATA)

v) A story on the manipulation of the equities:

( King Report/GATA)

 

vi)The major reason for gold to be “under the weather” today.  The crooked CME raised margins on gold futures at the close of trading:

( Kitco)

 

vii Lawrie on Gold

GLD increases its holdings up to 716 tonnes

(lawrie williams/sharps pixley)

 

8.USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER

 

i)More phony figures from the USA:  the strong January retail sales was all in seasonal adjustments:

( zero hedge)

ii) You will recall that last month business inventories over sales came in at a record 1.32 to one.  January saw business inventories jump while sales tumbled.  Result the new business inventories to sales jump to 1.39 to one.

( zero hedge)

iii)Confidence tumbles!! U. of Michigan confidence index plummets/  USA citizens in a “deflationary mindset”

( zero hedge)

iv) Obama must be exited:  Carrier   (air conditioning corporation) is moving 1400 jobs to Mexico.

(courtesy zero hedge)

Let us head over to the comex:

 

The total gold comex open interest rose to 424,537  for a gain of 13,180 contracts as the price of gold was up $53.20 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order.  In February  the OI fell by 225 contracts down to 736. We had 200 notices filed on yesterday, so we lost 25 contracts or an additional 2500 oz will not stand for delivery as they were cash settled. The next non active delivery month of March saw its OI rise by 269 contracts up to 2144. After March, the active delivery month of April saw it’s OI rise by 8,269 contracts up to 302,342. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 209,633 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was huge at 393,502 contracts. The comex is in backwardation until June. 

 

Today we had 44 notices filed for 4400 oz. And now for the wild silver comex results. Silver OI rose by 6,379 contracts from 161,145 up to 167,525 as the price of silver was up by 51 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI rise by 29 contracts up to 47. We had 0 notices filed on yesterday, so we gained 29 silver contracts or an additional 145,000 oz will stand in this non active month of February. The next big active contract month is March and here the OI rose by 779 contracts up to 81,717.  The volume on the comex today (just comex) came in at 57,342 , which is excellent. The confirmed volume yesterday (comex + globex) was huge  at 114,547. Silver is not in backwardation at the comex but is in backwardation in London.   We had 41 notices filed for 205,000 oz.  

Feb contract month:

INITIAL standings for FEBRUARY

Feb 12/2016

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  nil  nil oz Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz    643.000 oz

manfra

20 kilobars No of oz served (contracts) today 44 contracts
(44,000 oz) No of oz to be served (notices) 692 contracts (69,200 oz ) Total monthly oz gold served (contracts) so far this month  1962 contracts (196,200 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 503,410.8 oz Today, we had 0 dealer transactions total deposit: nil; total withdrawals nil. We had 0  customer withdrawals we had 1 customer deposit: i) into Manfra:  643.000 oz (20 kilobars)

we had 2 adjustments.

i) Out of HSBC:

289.35 oz was adjusted out of the customer and this landed into the dealer of HSBC

ii) Out of Delaware:

482.25 0z was adjusted out of the customer and this landed into the dealer of Delaware

 

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account. ***JPMorgan now has 634,557.764 or 19.737 tonnes in its customer account. Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 44 contracts of which 0 notice was stopped (received) by JPMorgan dealer and 6 notices were stopped (received)  by JPMorgan customer account.    To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (1962) x 100 oz  or 196,200 oz , to which we  add the difference between the open interest for the front month of February (736 contracts) minus the number of notices served upon today (44) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the February. contract month: No of notices served so far (1962) x 100 oz  or ounces + {OI for the front month (736) minus the number of  notices served upon today (44) x 100 oz which equals 265,400 oz standing in this active delivery month of February ( 8.2550 tonnes)   we lost 25 contracts or an additional 2500 oz will not stand for delivery We thus have 8.2550 tonnes of gold standing and 7.5589 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing. Total dealer inventor 243,791.34 or 7.5829 Total gold inventory (dealer and customer) =6,566,999.008 or 204.26 tonnes    Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 204.26 tonnes for a loss of 99 tonnes over that period.    JPMorgan has only 21.99 tonnes of gold total (both dealer and customer) end     And now for silver FEBRUARY INITIAL standings/

feb 12/2016:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory    2,113,588.813 oz

Brinks,Scotia

CNT,Delaware

HSBC Deposits to the Dealer Inventory nil Deposits to the Customer Inventory 2,400,949.966 oz,
(JPM,CNT,
HSBC,) No of oz served today (contracts) 41 contracts 205,000 oz No of oz to be served (notices) 6  contracts (30,000 oz) Total monthly oz silver served (contracts) 161 contracts (805,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month nil oz Total accumulative withdrawal  of silver from the Customer inventory this month 8,584,838.8 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

 

we had 3 customer deposits:

i) Into JPM: 586,514.460 oz

ii) Into CNT:  1,208,620.08 oz

iii) Into HSBC: 605,815.466 oz

 

total customer deposits: 2,400,949.966 oz

We had 5 customer withdrawals: i) Out of Brinks:  760,249.04 oz ii) Out of Scotia: 700,404.580 oz iii) Out of CNT:  40,755.900 oz iv) Out of Delaware; 18954.200 v) Out of HSBC  620,225.093 oz    

total withdrawals from customer account 2,123,588.813    oz 

 we had 1 adjustment:

Out of Delaware:

4,971.21 oz was adjusted out of the customer and this landed into the dealer account of Delaware

 

 

The total number of notices filed today for the February contract month is represented by 41 contracts for 205,000 oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (161) x 5,000 oz  = 805,000 oz to which we add the difference between the open interest for the front month of February (47) and the number of notices served upon today (41) x 5000 oz equals the number of ounces standing (835,000 oz)   Thus the initial standings for silver for the February. contract month: 161 (notices served so far)x 5000 oz +(47{ OI for front month of February ) -number of notices served upon today (41)x 5000 oz   equals  835,000 oz of silver standing for the February. contract month.   we gained 145,000 oz or 29 additional silver contracts that will  stand in this non active delivery month of February. Total dealer silver:  28.909 million Total number of dealer and customer silver:   157.865 million oz Question: in a non active month why so much activity in the silver comex? end At 3:30 pm, we receive our COT report which gives position levels of our major players Let us see what we can glean from it. First the gold COT

 

Gold COT Report – Futures Large Speculators Commercial Total Long Short Spreading Long Short Long Short 201,754 103,326 45,747 121,357 226,280 368,858 375,353 Change from Prior Reporting Period 24,786 -820 -422 4,888 32,456 29,252 31,214 Traders 160 113 79 43 58 239 219   Small Speculators   Long Short Open Interest   41,975 35,480 410,833   2,396 434 31,648   non reportable positions Change from the previous reporting period COT Gold Report – Positions as of Tuesday, February 09, 2016 Our large specs: Those large specs that have been long in gold added a whopping 24,786 contracts to their long side (and this was done before yesterday’s big advance) Those large specs that have been short in gold covered 820 contracts from their short side. Our commercials: Those commercials that have been long in gold added 4888 contracts to their long side Those commercials that have been short in gold added a whopping 32,456 contracts to their short side  (and this is before the big advance on Thursday) Our small specs: those small specs that have been long in gold added 2396 contracts to their long side those small specs that have been short in gold added a tiny 434 contracts to their short side. Conclusions: the criminal bankers supplied non backed paper to the specs in ever increasing numbers and the regulators just sit there.. And now for our silver COT

 

Silver COT Report: Futures Large Speculators Commercial Long Short Spreading Long Short 78,108 25,426 17,923 44,437 106,146 7,423 -6,671 314 -3,530 12,705 Traders 96 40 55 33 44 Small Speculators Open Interest Total Long Short 164,664 Long Short 24,196 15,169 140,468 149,495 2,523 382 6,730 4,207 6,348 non reportable positions Positions as of: 152 127 Tuesday, February 09, 2016   © Silv Our large specs: Those large specs that have been long in silver added 3530 contracts to their long side Those large specs that have been short in silver covered 6671 contracts to their short side Our commercials; Those commercials that have been long in silver pitched 3530 contracts from their long side Those commercials that have been short in silver added a gigantic 12,705 contracts to their short side. Our small specs; Those small specs that have been long in silver added 2523 contracts to their long side Those small specs that have been short in silver added a tiny 382 contracts to their short side. Conclusions: same as gold..something has got to give. end The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

fEB 12/ a huge deposit of 11.98 tonnes/inventory rests at 716.01 tonnes.  With gold in severe backwardation in London, I really believe that the gold added was paper gold and not real pbhysical/

Feb 11/no change in inventory/inventory rests at 702.03 tonnes

Feb 10/ a withdrawal of 1.49 tonnes of gold from the GLD/Inventory rests at 702.03 tonnes

Feb 9./a huge addition of 5.06 tonnes of gold into the GLD/Inventory rests at 703.52 tonnes/ (no doubt that this addition is paper gold/not physical/

Feb 8/no change in inventory/inventory rests at 698.46 tonnes

FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

 

Feb 12.2016:  inventory rests at 716.01 tonnes

 

Now the SLV: FEB 12 no change in silver inventory/inventory rests this weekend at 308.380 million oz feb 11/ a withdrawal of 619,000 oz/inventory rests at 308.380 million oz/ Feb 10/no change in inventory at the SLV/rests at 308.999 million oz/ Feb 9/no change in inventory at the SLV/Inventory rests at 308.999 million oz/ Feb 8/no change in inventory at the SLV/Inventory rests at 308.999 million oz FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees Inventory rests at 309.380 million oz Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/ Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz Jan 27.2017: no changes to inventory/rests at 310.653 million oz Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz Feb 12.2016: Inventory 308.380 million oz. 1. Central Fund of Canada: traded at Negative 5.5 percent to NAV usa funds and Negative 6.4% to NAV for Cdn funds!!!! Percentage of fund in gold 63.6% Percentage of fund in silver:36.4% cash .0%( feb 12.2016). 2. Sprott silver fund (PSLV): Premium to NAV rises to  +1.88%!!!! NAV (feb 12.2016)  3. Sprott gold fund (PHYS): premium to NAV rises to- 0.15% to NAV feb 12/2016) Note: Sprott silver trust back  into positive territory at +1.88%/Sprott physical gold trust is back into negative territory at -0.15%/Central fund of Canada’s is still in jail.      

end

And now your overnight trading in gold, FRIDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe   (COURTESY MARK O”BYRNE)   Gold Surges Another 7% This Week – Largest Gain Since 2008 By Mark OByrneFebruary 12, 20160 Comments

Gold bullion jumped 4 percent yesterday to $1,244.20/oz, its biggest single-day percentage rally since 2013. For the week, gold is 7.2% higher which is its biggest weekly gain since the global financial crisis in 2008.


Asset Performance – 1 Week

Gold and silver have benefited along with high credit government bonds from a rush to safety as investors worry about the health of banks, the banking system and the risk of a global recession. Gold is now 16.7% higher year to date. Analysts and traders see more gains ahead as the weakness in equities is likely to continue.

Silver is 6.3% higher for the week bringing year to date gains to 14%. Both look over valued in the short term and are due a pullback. Prices could continue to rise, making dollar cost averaging prudent. Buyers should be getting into position to buy on the next dip.

Bullion dealers around the world, including GoldCore, have seen a surge in demand for gold and silver. Buyers, who had been waiting for signs that the market had bottomed and a clear uptrend for the precious metals, are allocating funds now. There are some first time buyers coming into the market but demand is mostly coming from bullion buyers adding to allocations.

Global demand for both metals remains robust and has increased as stocks have fallen sharply in recent days. This robust demand is seen in the latest World Gold Council report – Gold Demand Trends released yesterday.

Central banks continue to be some of the largest buyers of gold. Demand for gold bullion from central banks grew by 25% in the fourth quarter of 2015 to 167 metric tons, compared with 134 metric tons the same time last year, according to the World Gold Council’s latest report.


Via Marketwatch

We have long asserted that given the scale of foreign exchange reserves held by central banks, official diversification into gold was likely to continue until their allocations have risen from the extremely low levels of today. As a percentage of overall fx reserves, gold allocations remain extremely small.

This is particularly the case with China and Russia – the two largest buyers of gold today.

Demand for jewellery, bullion bars and coins totaled 934.9 tonnes in Q4 2015, almost matching the Q4 2014 total (938.3 tonnes) and exceeding its 5-year average (913.8 tonnes). This demand has almost certainly increased in recent weeks given concerns about the global economy and the real risks of a new global financial crisis.

Assets in the world’s biggest gold exchange-traded fund, the SPDR ETF, rose 2% yesterday, the biggest inflow in two months. Total holdings of the top eight gold ETFs have surged 3.8-million ounces so far this year, after three consecutive years of decline.

The smart money is reducing exposure to risky assets and continuing to diversify into precious metals. This trend is likely to continue given the scale of the financial and economic challenges facing investors today.

Banks, economists, brokers, financial advisers and other experts did not see the first crisis coming in 2008 and many of them are not seeing it now.

A handful of people are warning about the risks of the coming crisis and again they are largely being ignored. Investors and savers will again bear the brunt for the inability to look at the reality of the financial and economic challenges confronting us today.

Diversification and an allocation to precious metals remains vital in order to protect and preserve wealth in the coming global financial crisis.


LBMA Gold Prices

12 Feb: USD 1,239.50, EUR 1,098.65 and GBP 852.07 per ounce
11 Feb: USD 1,223.25, EUR 1,080.80 and GBP 847.33 per ounce
10 Feb: USD 1,183.40, EUR 1,052.29 and GBP 816.56 per ounce
9 Feb: USD 1,188.90, EUR 1,061.90 and GBP 822.31 per ounce
8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce

 

Gold and Silver News and Commentary

Gold Heads for the Best Week Since 2011 as ‘Fear Is in Control’ – Bloomberg

Gold eyes best week in 4 years as market turmoil boosts haven appeal – Reuters

Even Gold Bulls Underestimated 2016 Gain Now Topping Most Assets – Bloomberg

Investors ‘go bananas’ for gold bars as global stock markets tumble – Telegraph

Gold Futures Roar to One-Year High, Near Bull-Market Territory – Bloomberg

As worries mount, European banks face sell-off more savage than 2008 – Reuters

Video: Gold on the Cusp of a Bull Market – Bloomberg

This Chart Shows Just How Wrong the Gold Skeptics Were – Profit Confidential

World Gold Council Report: Central Bank Buying Up 25% From Q415 – Value Walk

Video: $102 Billion of Bank Debt That’s Making Investors Nervous – Bloomberg

Video: Dalio Thinks the Fed Can Repeat 1937 All Over Again – Bloomberg

Click here

 

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end A very interesting discussion from Koos Jansen as he hints that it is quite possible that London is out of gold to supply China.  With gold still in backwardation in London, he is no doubt correct (courtesy Koos Jansen/Bullionstar) BULLIONSTAR BLOGS Koos Jansen Posted on 11 Feb 2016 by  London Was Bleeding 184t Of Gold In December While China Imported At Least 217t

When there is no more gold left in London to export the gold price is likely to go higher on strong global demand induced by economic headwind. At the time of writing the spot gold price is $1,251.80 per ounce, up 18 % year to date, while the S&P 500 is down 9 % year to date. Is the gold price rising because of physical supply shortages? 

In December 2015 the UK has net exported 184 tonnes of gold, which is the third highest amount on record, according to data released by Eurostat. Net gold export in December was up 218 % from November and up 3,730 % from December last year.

In a year that saw strong gold demand from China, in total withdrawals from the vaults of Shanghai Gold Exchangeaccounted for 2,596 tonnes in 2015, we turn our eyes to the most obvious place for sourcing such quantities of physical gold: London, the heart of gold wholesale market. Since the gold price came down sharply in April 2013 there has been a spectacular drain from the vaults in the London Bullion Market. In 2013 the UK net exported no less than 1,424 tonnes. Whilst net gold export from the UK in 2014 decreased to 452 tonnes, in 2015 the gold exodus from London has accelerated to 573 tonnes.

In December 2015 the UK gross exported 213 tonnes of gold – the second highest number on record, which is up 127 % from November and up 315 % from December 2014. The UK’s gross import accounted for 29 tonnes in December 2015, down 20 % from November and down 38 % from December 2014.

In the chart above we can see a clear correlation between the UK’s net gold export (“Total net flow”, the black line) and China’s wholesale gold demand (measured by “SGE withdrawals”, the turquoise line), implying gold import by China is supplied, directly or indirectly, by London. In the chart below we can see the same data as in the chart above, but now I’ve inverted “SGE withdrawals” and moved its scale on the right hand side so the correlation is even more clear.

Of total export from the UK in December 29 tonnes were net exported directly to China and a “surprising” 155 tonnes were net exported to Switzerland – from where 59 tonnes were net exported to China. From what we know China net imported at least 217 tonnes in December 2015, which is the highest amount ever (computed from data by countries that export gold to China, 29 tonnes from the UK, 59 tonnes from Switzerland and 129 tonnes from Hong Kong).

Strong gold import by China in Dec is partially explained by restocking of the Shanghai Gold Exchange vaults that suffered large outflows in July, August and September due to the crashing Chinese stock market and devaluation of the renminbi.So how come the gold price has been going down from April 2013 until December 2015 while Chinese demand has been so strong? First of all, because the West has been a very willing physical gold supplier. In my view physical supply by the West and the gold price are linked. For instance, if we compare the average monthly gold price to net gold trade by the UK this interconnection becomes apparent.

We can see that whenever the UK is exporting gold the price is declining. Effectively, China can purchase huge amounts of gold by the grace of London selling the metal. But what if London is running out and there is nothing left to export? In that scenario likely the gold price would climb higher, which, coincidentally, is what we’re seeing at the time of writing. Year to date the gold price measured in US dollars has increased 18 % from $1,061 at 1 January to $1,251.80 at 11 February.

This graph is conceived with BullionStar Charts.How much gold is left in London? We can make a rough estimate, although we don’t know how much of this residual is in weak or strong hands. Research by Ronan Manly from BullionStar and Nick Laird from Sharelynx pointed out there were roughly 6,256 tonnes of gold in London in June 2015. However, of this total at least 3,779 tonnes is monetary gold owned by central banks around the world stored at the Bank Of England (BOE), which is not for sale. The remaining 2,477 tonnes in non-monetary gold was potentially for sale (note, this number included 1,116 tonnes that was allocated as ETF gold in London at the time). In any case, we know now that from June until December the UK net exported 390 tonnes of non-monetary gold, which leaves approximately 2,087 tonnes in non-monetary gold in the UK as of 31 December 2015. Assuming the People’s Bank Of China hasn’t purchased some of this gold and covertly exported it to Beijing in the past months.

As long as London is selling gold and China is buying the price can go down. However, if London stops selling (or becomes a buyer) the price can make a reversal. Possibly, we’re reaching the end of the London Bullion Market floating supply suggesting the price of gold is escalating on physical shortages.

Koos Jansen
E-mail Koos Jansen on: koos.jansen@bullionstar.com

 

end

A super commentary from Craig Hemke as he states that the central banks are losing the confidence game and that is why gold is rising!  He notes that Japan has lost confidence with the introduction of NIRP and the uSA has lost confidence with their policy failure on an increase in their rates: (courtesy Craig Hemke/TFMetals Report) HOME » DAILY DISPATCHES TF Metals Report: The confidence game is failing

Submitted by cpowell on Fri, 2016-02-12 01:09. Section: 

8:10p ET Thursday, February 11, 2016

Dear Friend of GATA and Gold:

The TF Metals Report’s Turd Ferguson attributes the launch of the monetary metals to widespread loss of confidence in central banking and sees this as a first step toward greater use of gold and silver as money. His commentary is headlined “The Confidence Game is Failing” and it’s posted here:

http://www.tfmetalsreport.com/blog/7437/confidence-game-failing

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end Ambrose Evans Pritchard discusses Japan and how their introduction of negative rates has caused the yen to rise in value instead of falling. This has caused the world to lose confidence as they basically do not know what they are doing. (courtesy Ambrose Evans Pritchard/GATA)) Bank of Japan loses control as QE hits the limits

Submitted by cpowell on Fri, 2016-02-12 01:17. Section: 

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, February 11, 2016

The Japanese yen has become the lightning rod of extreme stress in the global financial system, rocketing this week in violent moves that threaten to plunge Japan back into deep deflation and overwhelm the experiment of “Abenomics.”

The currency has appreciated by 9 percent against the US dollar since the Bank of Japan cut interest rates below zero for the first time ever at the end of January, entirely defeating the purpose.

The yen broke through Y111 in early trading on Thursday as safe-haven flows poured into the country and vast positions were unwound on the global derivative markets. This wiped out all the depreciation effects of the country’s “weak yen” policy over the past 15 months. The Nikkei index of stocks in Tokyo has fallen 22 percent since early December.

The drastic developments have been nothing less than a disaster for Governor Haruhiko Kuroda, who pushed through negative rates against strong protests by half the bank’s voting members. The chief motive for the move was counter deflation by weakening the currency.

“This is a reverse policy shock. We are reaching the limits of quantitative easing as we know it,” said David Bloom, currency chief at HSBC. “Countries are losing their ability to drive down their currencies.” …

… For the remainder of the report:

http://www.telegraph.co.uk/finance/economics/12153032/Bank-of-Japan-lose…

end (London’s Financial Times) Bitcoin’s future threatened by software schism

Submitted by cpowell on Fri, 2016-02-12 01:26. Section: 

By Richard Waters
Financial Times, London
Thursday, February 11, 2016

SAN FRANCISCO — A schism among software developers that threatens the future of bitcoin has broken into the open with Wednesday’s release of a rival version of the technology behind the digital currency.

The current version of bitcoin, which is maintained by a fractious group of volunteer developers, is at risk of hitting a wall because of a limit on the number of transactions it can handle.

But disagreements over the technology’s direction have prevented a change in the code to allow more entries to be made on blockchain, a public ledger that is at the heart of the system, leaving bitcoin facing the risk of slowed or uncompleted transactions.

In an attempt to overcome the roadblock, a group of developers claiming backing from some of the bitcoin world’s main players released a rival version of the code on Wednesday.

Known as Bitcoin Classic, it doubles the size of the “blocks,” or records of transactions, that are entered into the public ledger. The new code is meant to double the capacity of the network from its current limit of seven transactions a second.

The release represents a “hard fork” from the so-called Bitcoin Core code on which the digital currency at present relies, resulting in two rival codebases that will vie for support among users. …

… For the remainder of the report:

http://www.ft.com/intl/cms/s/0/0cbb3efe-d0ca-11e5-92a1-c5e23ef99c77.html

end

 

 

A story on the manipulation of the equities:

 

(courtesy King Report/GATA)

The King Report: Strategic buying of S&P futures is managing stock market decline

Submitted by cpowell on Fri, 2016-02-12 05:57. Section: 

By Bill King
The King Report
Arbor Research and Trading, Barrington, Illinois
Friday, February 12, 2016

http://thekingreport.com/

For six years a critical mass of investors poured into stocks as the primary hedge against wanton central bank credit creation and currency debasement. Now gold has become the hedge. Because the gold market is exponentially smaller than the globally equity market, its movements can be dramatic.

Stocks plunged on Thursday while gold soared 5.5 percent (at its high). Someone again surfaced to save stocks. After S&P 500 March futures plunged to 1804.20 at 7 a.m. ET, someone aggressively bought them. This generated a rally to 1833 by 9:58 a.m. ET. The 29-handle rally in the S&P 500 March futures kept U.S. stocks from collapsing.

Someone is managing the U.S. and global stock decline by strategically pouring into S&P 500 March futures during European trading. This type of intervention is characteristic of central bank currency intervention.

If the S&P 500 March futures buyer was a trader trying to front-run an expected rally into Federal Reserve Chairwoman Janet Yellen’s testimony at the Senate, he or she ignored what occurred to stocks after Yellen’s appearance at the House. …

We opined a few months ago that gold would reveal when central bankers lost control of the game. This dynamic is becoming increasing clear to the people of Planet Earth. …

end

Lawrie on Gold

GLD increases its holdings up to 716 tonnes

(courtesy lawrie williams/sharps pixley)

Gold cat out of the bag February 12, 2016lawrieongold

Gold Today –The New York gold price closed Thursday at $1,244.20 up from $1,196.50 up an incredible $47.70. Ahead of London’s opening, prices were being quoted at $1,244. Then the LBMA set it at $1,239.50 up from $1,223.25 up another $16.25 on top of yesterday’s $39.85 with the dollar index slightly stronger at 95.70 down from 95.51 on Thursday.

The dollar is stronger against the euro at $1.1283 down from $1.1322 on Thursday. The gold price in the euro was set at €1,098.56 up from €1,080.42 up another €18.14 on top of yesterday’s €29.44.

Ahead of New York’s opening, the gold price was trading at $1,241.65 and in the euro at €1,100.17.

Silver Today –The silver price in New York closed at $15.70 up 42 cents at Thursday’s close.  Ahead of New York’s opening, the silver price stood at $15.68.

PRICE DRIVERS

The move in the gold price yesterday did more than dumbfound the markets yesterday. It has destroyed most developed world concepts of how markets behave. A rise of this magnitude through such huge resistance, that has proved insurmountable for nearly three years, breaks all the rules. Anybody that thought it had mastered the management of the gold market or any structural isolation of the gold price to the U.S. has been thrown out in one day. We have expected this for a very long time, but the demand to do this was just not there in the U.S. As physical supplies dwindled to remarkably low levels in the U.S. it became clear that just a relatively small burst of demand would break through these concepts. But to see in one day such a breakout stunned even us. What is for sure is, the cat is out of the bag and it is unlikely that it can be put back in.

Wednesday and Thursday saw purchases of 13.98 tonnes into the SPDR gold ETF but none into the Gold Trust. The holdings of the SPDR gold ETF are now at 716.011 tonnes and at 174.78 tonnes in the Gold Trust. This is the largest amount of gold bought in two days for over three years. This institution or these institutions are now committed to the gold price rising. We see their actions alone, as driving the gold price up, at one point$58. COMEX short positions were overwhelmed and forced to close with new long positions opened. For a change, stop loss protections above the price were triggered, forcing gold prices even higher.

Meanwhile global equity markets have officially entered a bear market! What a difference between 2015 and 2016 to date. While the causes of the 2016 falls were being put in place in 2010 to 2015, the markets have only really started to factor them in now. What marks another remarkable change in 2016 is the sight of a leading JP Morgan Chief Investment Officer, Robert Michele, saying, “Today’s precious metals flight shows retail investors have more confidence in gold than paper money…..Gold at $1,200 an ounce, what does that tell you? It tells you that in a flight to quality and a safe haven, people have more confidence in gold than in bank deposits or paper money. I think things have gotten out of control.”

With frantic Friday on us now, we expect more action to finish a remarkable week. Brace yourselves!

Many may continue to say that what we are seeing in the gold market is a short-term aberration, but the evidence is that this has been coming for well over a year.

 

end

 

Best news of the day:

 

,

Dennis Gartman…

Gartman: I’m not so bullish on bullion right now – CNBC video

http://www.cnbc.com/2016/02/12/dennis-gartman-why- investors-should-wait-to-buy-gold.html

 

end

 

And now your overnight FRIDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

1 Chinese yuan vs USA dollar/yuan FLAT to 6.5710 / Shanghai bourse: CLOSED/CHINA’S NEW YEAR ALL WEEK / HANG SANG CLOSED DOWN 226 POINTS OR 1.22%

2 Nikkei closed down 760.78 or 4.84%

3. Europe stocks all in the GREEN /USA dollar index down to 95.81/Euro DOWN to 1.1274

3b Japan 10 year bond yield: rises  TO +.079    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 112.62

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI::  27.53  and Brent: 31.31

3f Gold down  /Yen down

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil up for WTI and up for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises  to 0.221%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate rise to 14.81%/: 

3j Greek 10 year bond yield rise to  : 11.40%  (yield curve deeply  inverted)

3k Gold at $1237.90/silver $15.68 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble up 73/100 in  roubles/dollar) 79.32

3m oil into the 27 dollar handle for WTI and 31 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9744 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0986 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation

3r the 8 year German bund now  in negative territory with the 10 year rises to  + .221%/German 8 year rate negative%!!!

3s The Greece ELA at  71.5 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.68% early this morning. Thirty year rate  at 2.54% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Despite Crashing Japan, European, U.S. Markets Rebound On Firmer Oil

There was some hope in early Japanese trading that after a seemingly endless rout in the USDJPY, which has seen the Yen surge the most in the past two weeks since the 1998 Asian crisis, the BOJ would intervene, if not via policy where it has botched things up beyond repair then directly by selling Yen on the tape: the reason for this is not only yesterday’s direct intervention that sent the USDJPY soaring by over 150 pips briefly, but also after a report that Finance Ministry’s FX chief Masatsugu Asakawa met deputy chief cabinet secretary to discuss market issues; this was followed by a meeting between Kuroda and Abe the news of which promptly allowed the USDJPY to rise to 113.

However, it was not meant to be, and when there was no major intervention during the BOJ’s preferred hours of 9-11, the USDJPY proceeded to tumble all the way down to 111.60, from where it has rebounded modestly and is now trading around 112.45.

As a result, the Nikkei 225 plunged another 4.8%, and following prior day losses of 2.3% and 5.4%, Japan’s stock market is now down a whopping 20% just this past week! Perhaps putting all those pensions in stocks was not such a great idea.

Elsewhere, with China still closed, the Hang Seng Index fell 1.2% to 18,319.58, its lowest close since June 2012; it has fallen 5% this week.

However, while Japan crashed and burned, the feeling of some fleeting optimism returned after oil halted its plunge after hitting a 13 year low yesterday following an out of context statement from the U.A.E. minister, who said that “everyone is ready to cooperate,” U.A.E. Oil Minister Suhail Al Mazrouei told Sky News Arabia in Arabic-language interview that was originally posted to website Feb. 10. He added that “Prices are not appropriate, I won’t say for the majority only, but for all producers” which is a far cry from the imminent OPEC supply cut he was spun as saying. Still, for now the algos are happy and his comment helped push oil about 5% higher. It won’t last.

Oil also helped Europe, where the Stoxx Europe 600 Index rallied from its lowest close since September 2013 following a Commerzbank AG (+17%) report that led financial institutions higher after saying it returned to profit, while miners and energy producers rose with commodities.

Still, few are optimistic, especially after Marko Kolanovic latest note which sees not only near-term risks, but a potential recession that could be worse than the 2008-2009 crisis.

Here is an example of the hyperbolic pessimism out there: “I’d be weary of calling anything a lasting rebound until I see it,” said Ben Kumar, an investment manager at Seven Investment Management told Bloomberg. “It’s crazy that the market is priced for recession and a complete failure of the financial system. But you wouldn’t want to call it the end of the rout quite yet. Nobody wants to be the first bull now.” Uhm, the S&P is about 15% below its all time high: you will know when the market is priced for a “complete failure of the financial system” – this is not it.

The yield on 10-year Treasuries rose after reaching the lowest since 2012 on Thursday. In Asian trading, Japanese stocks capped their worst week since 2008 and currencies from New Zealand to Thailand slumped.

Industrial metals also advanced. Nickel climbed 1.1 percent to $7,675 a metric ton, rebounding from a 13-year low. Copper rose 1 percent and aluminum added 0.6 percent.

Gold was modestly down from its highest levels in over a year, trading at $1242, and is headed for its biggest weekly gain in four years as investors sought out havens. Silver dropped 0.7 percent.

Market Wrap

  • S&P 500 futures up 1.2% to 1846
  • Stoxx 600 up 1.8% to 309
  • FTSE 100 up 1.5% to 5622
  • DAX up 1.4% to 8872
  • German 10Yr yield up 3bps to 0.21%
  • Italian 10Yr yield down 2bps to 1.69%
  • Spanish 10Yr yieldunchanged at 1.78%
  • MSCI Asia Pacific down 2.9% to 113
  • Nikkei 225 down 4.8% to 14953
  • Hang Seng down 1.2% to 18320
  • Shanghai Composite closed
  • S&P/ASX 200 down 1.2% to 4765
  • US 10-yr yield up 2bps to 1.68%
  • Dollar Index up 0.17% to 95.72
  • WTI Crude futures up 4.5% to $27.40
  • Brent Futures up 4.9% to $31.53
  • Gold spot unch at $1,242
  • Silver spot down 0.7% to $15.65

Global Top News

  • Syria Truce Set for Next Week as U.S., Russia Back Peace Bid: Munich summit of 17 nations produces accord on cease- fire
  • Cameron and Merkel Head to Hamburg as EU Deal Nears Completion: PM in final push for new U.K. membership terms
  • Euro Area Stalls Deal to Shield London Banks From EU Rules: Diplomats only make progress on technical and legal points
  • Commerzbank Said to Have Shortlist for Successor to CEO Blessing: cites note to staff obtained by Bloomberg
  • DBS, OCBC Said to Submit Bids for Barclays’s Asia Wealth Unit: The two Singapore-based cos submitted non-binding bids for the business, according to people familiar
  • Deutsche Bank Ranks Last on Capital Gauge Where Citigroup Excels: U.S. banks outrank Europe’s as regulators demand more capital
  • Templeton’s $5.9b Bet on Brazil Bonds Paying Off in 2016: Fund >doubled holdings of Brazil debt last quarter, while country’s local-currency bonds have returned 4.7% this year
  • Pandora Said to Explore Sale of Company as Losses Mount: Online radio provider’s talks are said to be preliminary
  • Goldman Sachs Bankers Said to Depart on Guidelines Breach: Two bankers in Dubai, one in London said to leave in December

Going quickly through regional markets, we start in Asia where the equity market rout continued with fuel was added to the fire with concerns rising over the health of the financial sector following yesterday’s poor earnings from SocGen. Subsequently, Nikkei 225 (-4.8%) yet again experienced another bout of heavy selling pressure amid the rampant JPY, as such,the index has now fallen over 20% YTD. ASX 200 (-0.8%) and the Hang Seng (-0.9%) were dragged lower with losses in financial names, however the latter pulled off worst levels with energy names providing some leeway following the uptick in crude prices. JGB’s fell following spill-over selling in USTs while notable underperformance had been observed in the belly of the curve.

Top Asian News

  • BOJ Seen as Toothless for Yen Bulls Boosting Currency Forecasts: Barclays sees yen climbing to 95/USD by yr end
  • Cash Crunch in India Flips Company Bond Curve as Debt Costs Rise: India’s cash squeeze flipped corporate bond yield curve, making borrowers pay more for s-t debt than they have for almost a yr
  • Asia’s Rich Urged to Buy Yen as BOJ Negative Rates Backfire: CS is advising private-banking clients to buy yen vs euro or S. Korean won
  • China Turns a Glut of Oil Into a Flood of Diesel Swamping Asia: China’s total net exports of oil products will rise 31% this yr to 25m metric tons
  • Rio Tinto Sees Mining Distress Spreading to Majors: Rio has M&A target list for mines not yet for sale, CEO says

European equities take a breather following a hectic week of huge intraday day moves as the banking sector once again comes into focus. One bank under the spotlight is Commerzbank (+16.7%), recover their intraweek losses in today’s trade, following a positively received earnings report. In turn financials outperform in Europe, improving the risk sentiment, with equities higher across the board. Energy is also among the best performing sectors with WTI Mar’16 futures up around a dollar in the session, holding onto the USD 27.00 handle.
In line with the long awaited return of risk on sentiment, fixed income products take a hit, with Bunds trading lower by some 50 ticks but still retaining the 165.0 level. Elsewhere peripheral spreads widen, with PE/GE spread wider by 0.8bps, amid concerns over the country’s budget plans

Top European News

  • PAI Partners Said to Weigh Bid for Dental Clinic Chain Vitaldent: Co. could be valued at about EU500m
  • Commerzbank Jumps After Fourth-Quarter Profit Beats Estimates: Bank expects ‘slight’ increase in profit this year from 2015
  • Whisky Makers Want a Single Market for Single Malt, Not ‘Brexit’: Diageo, Pernod Ricard among cos supporting free market
  • SocGen CIB Earnings Constrained, Cut to Neutral at Mediobanca: SocGen delivering on capital, missing on earnings, Mediobanca says
  • Thyssenkrupp Posts Net Loss on Record Chinese Steel Imports: Co. says it needs materials recovery to meet profit target

In FX, the euro declined the most in a week against the dollar, falling 0.3 percent to $1.1287. Europe’s currency slid for a third day against the yen, dropping 0.1 percent to 127.12. The yen was little changed at 112.45, set for its biggest two-week gain versus the dollar since 1998, sparking speculation that authorities will intervene to weaken it. New Zealand’s dollar lost 0.7 percent. The Thai baht slid 0.9 percent, the most since October and the South Korean won fell 0.7 percent. An index of 20 developing-nation currencies declined less than 0.1 percent Friday, taking its drop this week to 0.6 percent, the most since Jan. 15. The gauge is down 1.4 percent this year and reached a record low in January.

In commodities, Brent and WTI have managed to hold on to their modest recovery after major declines this week, following comments from the UAE oil minister saying ‘everyone is ready to cooperate’ yesterdays, and analysts pondering the thought of producers dropping production rates to bolster markets. Gold is still holding up well on the risk on sentiment we have seen in recent days which saw its largest one day rise in seven years, with the next support coming in at 1232.59/oz. Industrials are mostly trading higher with the emptions of tin that has seen a fall of 0.90%. In the European session there has been a lack of fundamental news for commodities.

Looking at the day ahead, there’s a busier calendar for data for us to
sift through today. The key release of note in Europe will be the Q4 GDP
report for the Euro area where the print came in at 0.3%, just as expected. In the US the main focus will be on the
January retail sales report. Current market expectations are for a +0.1%
mom headline and +0.3% ex auto and gas print. Remember to keep an eye
on the retail control component given it’s a direct input into GDP. Away
from this in the US we’ll also see the January import price index
reading, December business inventories and the first estimate of the
University of Michigan consumer sentiment survey for February. In terms
of Central Bank speakers the Fed’s Dudley is due to speak at 10:00am GMT.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Equities are taking a breather today after a tough week with Commerzbank leading the way higher 15%
  • GBP steaming ahead, with Cable looking to trade above the weekly highs with the next resistance around 1.4665-70
  • Looking ahead, US Import Prices and Retail Sales and comments from Fed’s Dudley
  • Long-end Treasuries underperform overnight as European equities and bank stocks rally; retail sales and U. of Mich. sentiment today.
  • Deutsche Bank’s riskiest debt was downgraded by Standard & Poor’s due to concerns that potential losses at Germany’s biggest lender could restrict its ability to pay on the obligations
  • Deutsche Bank’s co-CEO John Cryan called the company’s balance sheet “rock solid” this week after the firm’s shares and bonds tumbled but its leverage ratio still lags behind every one of its main competitors
  • Commerzbank jumped the most in more than two years after fourth-quarter profit beat analyst estimates, as the lender said it plans to wind down its unit for soured loans at a faster pace than forecast
  • Commerzbank CEO said “no specific problem” with balance sheet, in Bloomberg TV interview
  • Jamie Dimon, JPMorgan chairman and CEO, spent $26.6 million to buy shares of his bank Thursday after they tumbled to the lowest price in more than two years, bringing his total holdings to 6.75 million shares, according to a regulatory filing
  • U.K. investors are harking back to 2013 and increasing bets the Bank of England will need to do more to stimulate the economy. The last time traders were this certain the central bank would cut its benchmark rate was almost three years ago
  • Fresh doubts over the strength of the British economy emerged Friday as the building industry shrank more than previously estimated in the fourth quarter. Construction output fell 0.4% instead of the 0.1% decline estimated in GDP data last month
  • Italy’s GDP rose 0.1% in the 4Q, its slowest pace in a year, prompting concerns that the recovery from the country’s longest recession since World War II might falter in coming months
  • Germany’s GDP rose a seasonally-adjusted 0.3% in 4Q, matching the rate of the previous quarter, showing resilience amid an emerging-market slowdown that’s heightened concerns about global growth and sent equities plunging this year
  • Greece entered a recession in the fourth quarter, ending a turbulent year with its economy back in the doldrums. GDP contracted 0.6% in 4Q after shrinking a revised 1.4% in the 3Q
  • A top U.S. lawmaker questioned the Federal Reserve’s authority to cut interest rates below zero after Janet Yellen disclosed that the central bank was re-examining the tool as a policy option if the economy faltered
  • Sovereign 10Y bond yields mixed; European stocks rise, Asian markets drop; U.S. equity-index futures rise. Crude oil and copper rally, gold falls

 

DB’s Jim Reid completes the overnight wrap

It’s hard to know where to start with yesterday’s price action with markets gapping and buckling everywhere following the latest bout of huge risk aversion. The Asia session had thrown open a few warning signs as safe haven flows rolled in for Gold and the Yen. Once the European session kicked into gear however it was all about moves in Banks once again after two days of relative calm. The iTraxx Senior and Sub financials indices closed 12bps and 31bps wider at 140bps and 333bps respectively. The move for the latter in particular meaning it’s now at the widest level since October 2012. That helped Main and Xover widen 9bps and 29bps on the day. European equity markets were heavily hit too with the Stoxx 600 collapsing -3.68%, the 8th time it has closed lower in the last 9 sessions with yesterday’s move the worst single day loss since August. The banking sector fell 6% – not helped by some much weaker than expected results from Societe Generale. Peripheral bourses were again the underperformers with the IBEX and FTSE MIB -4.88% and -5.63% respectively.

Sentiment wasn’t much better in the first half of the US session with the S&P 500 falling as low as -2.30% and testing the January 20th intraday lows of 1810. Focus was also on the tumbling Oil price which was helping to exacerbate the selloff as WTI at one stage traded as low as $26.05/bbl (down over 5% on the day) and the lowest since May 2003. That said, energy prices then turned on a dime which helped the S&P 500 retrace slightly into the close, finishing the day at -1.23%. WTI is actually up nearly 6% this morning with the rebound being attributed to a headline out of the WSJ quoting the UAE energy minister as saying that OPEC stands ready to co-operate on production cuts. This isn’t the first time we’ve seen such a headline in recent weeks so it remains to be seen how credible this really is.

It was the move in Gold which was perhaps the most eye catching of all yesterday. Gold closed up a massive +4.14% yesterday (although had been up as much as 5%), smashing through the $1,200 mark to eventually close at $1,247. That move was in fact the largest single daily gain since January 2009 with the metal now up close to 17% YTD already. Given the magnitude of the risk off moves yesterday, all things considered the closing moves for Treasuries were a little more muted with the 10y yield eventually finishing 1bp lower at 1.659% (although in fairness it did trade as low as 1.529%) and 2y yields nearly 4bps lower at 0.650%. Moves in European rates were a bit more aggressive however with 10y Bunds down over 5bps to 0.185% and slowly but surely creeping in on those astonishing lows made last April.

There’s been little relief for risk assets in Asia this morning. Once again the focus has been on the sizeable declines for Japanese bourses after yesterday’s holiday with the Nikkei and Topix currently down over 4.5%. The Nikkei has in fact plummeted over 10% this week. This morning’s move comes despite the Yen being a touch weaker. In Australia the ASX is -1.2% while elsewhere the Hang Seng (-0.8%) and Kospi (-1.4%) are also lower. The South Korean small cap index was however temporarily halted after tumbling 8%. Credit markets are faring little better with iTraxx Aus and Asia indices 3bps and 2bps wider respectively. US equity market futures are however pointing towards a positive start, most probably reflecting a better morning for Oil.

NIRP is a big talking point currently and yesterday we got another flavor of how far central banks are prepared to push the boundaries after the Riksbank cut its benchmark repo rate by more than expected (15bps vs. 10bps expected) to -0.50%. It was telling also that the Bank acknowledged that policy could be made ‘even more expansionary if this is needed to safeguard the inflation target’.

Fed Chair Yellen also made an interesting acknowledgment of the potential for similar policy in her comments yesterday in the Q&A following her remarks to the Senate. While Yellen stuck to her guns in saying that she doesn’t expect the Fed to be in a position anytime soon where it is necessary to cut, she did highlight that ‘we had previously considered them and decided that they would not work well to foster accommodation back in 2010’ but that ‘in light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation’.

Wrapping up yesterday, the only data of note out was the latest weekly initial jobless claims print in the US which declined 16k last week to 269k (vs. 280k expected). That was in fact a low for the year and helped to nudge down the four-week average to 281k from 285k.

Looking at the day ahead, there’s a busier calendar for data for us to sift through today. The key release of note in Europe will be the Q4 GDP report for the Euro area where current market expectations are running for a +0.3% qoq print. We’ll also see Q4 GDP reports for Germany and Italy while in France we’ll see the latest quarterly employment indicators. Euro area industrial production for December is also expected. Over in the US this afternoon the main focus will be on the January retail sales report. Current market expectations are for a +0.1% mom headline and +0.3% ex auto and gas print. Remember to keep an eye on the retail control component given it’s a direct input into GDP. Away from this in the US we’ll also see the January import price index reading, December business inventories and the first estimate of the University of Michigan consumer sentiment survey for February. In terms of Central Bank speakers the Fed’s Dudley is due to speak at 3pm GMT.

end

Let us begin:

 

ASIAN AFFAIRS

 

Late  THURSDAY night/ FRIDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed badly by 226 points or 1.22% . The Nikkei was closed down 760.78 or 4.84%. Australia’s all ordinaires was also down. Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil gained  to 27.53 dollars per barrel for WTI and 31.31 for Brent. Stocks in Europe so far deeply in the geen . Offshore yuan trades where it finished last Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/

Japanese trading last night:  the Nikkei falters by 4.78%.  The big question is how will the citizenry react when they find that Abe put their pension funds in stocks and they are plummeting@!

 

(courtesy zero hedge)

Abewrongics – 16 Months Of Japanese Money-Printing For Nothing

Neither USDJPY nor Japanese stocks can hold a bid in the early going in Asia markets which has dragged both into the red post-QQE2. Since Kuroda took over from The Fed by doubling down on his cunning plan in October 2014, Japanese stocks are down 11.4%, USDJPY is unchanged, and only Japanese bonds have made any gains (up 3.7%).

 

So what we want to know is – how will Abe et al. explain to the Japanese people how they lost so much of their retirement funds by forcing GPIF to allocate so much to stocks?

Worst still – Japanese real household earnings have tumbled!

 

END

 

EUROPEAN AFFAIRS

Greece is again in the spotlight as their GDP drops .6% last quarter.Riots on the street as farmers refuse pension reform. Middle eastern migrants are also entering the country causing huge fiscal problems for Greek finances.  There is now renewed calls for a GREXIT:

(courtesy zero hedge)

Greece Slides Back Into Recession Amid Riots, Rewewed “Grexit” Calls

It was just over a year ago that Greece elected Alexis Tsipras and Syriza amid a flurry of anti-austerity sentiment.

Things didn’t exactly go as planned.

The new PM and his “radical” finance minister Yanis Varoufakis thought they could shake things up in Brussels and wrench Greece from the clutches of Berlin-style fiscal rectitude. As it turns out, Wolfgang Schaeuble is not a man who is easily bested at the bargaining table and after more than six months of negotiations, the imposition of capital controls, a referendum on the euro that Tsipras promptly sold down the river, Greeks ended up facing an outright depression.

In the end, Varoufakis unceremoniously resigned and Tsipras agreed to a third bailout before calling for snap elections that would ultimately see the PM re-elected albeit at the helm of a party that was completely gutted by the arduous bailout talks.

As we and quite a few others warned, the new bailout and the attached terms would do exactly nothing to turn the Greek economy around. We’re all for being responsible with the budget but you can’t very well implement fiscal retrenchment during a depression unless you intend to remain in said depression in perpetuity, but alas, that’s exactly what Brussels forced Greece to do and on Friday we learn that the country has slipped back into recession.

GDP contracted 0.6% in Q4 after shrinking 1.4% in Q3. “With opposition mounting to the government’s pension reform plan, the European Union pressuring it to stem the tide of refugees entering the country and the global market rout hastening the sell-off in Greek assets, dark clouds are gathering again,” Bloomberg writes. Ironically, capital controls appear to have helped the economy perform better than expected: “The economy fared less badly than those initial expectations in part due to a 90 percent annualized increase in cashless payments since the introduction of capital controls in June, shifting activity out of the shadow economy.” Another justification for banning cash we suppose.

Earlier this month we noted that Greek bank stocks were cut in half in just a matter of 72 hours while Greek equities as a whole had fallen to their lowest levels since 1989. Yields on the Greek 10Y had spiked back above 10%.

Greece, sources told MNI, “seems unable to deliver” on a number of measures Brussels says Athens needs to implement an effective fiscal consolidation plan. “We agreed to disagree,” one official said. “Judging from (last week’s) talks, the negotiations could drag for months. Anyway, I don’t see any real funding needs for Greece until June,” the official went on to note.

Maybe not, but things are getting dicey again. Tsipras faced the largest public revolt he’s seen since his re-election earlier this month when a massive general strike that cancelled flights, ferries and public transport, shut down schools, courts and pharmacies, and left public hospitals with emergency staff. Even the undertakers were striking.

Tens of thousands took to the streets to protest pension reforms and in relatively short order, it was 2015 all over again.

And it didn’t stop there. “Greek riot police fired tear gas at farmers protesting against pension reform plans on Friday who hurled stones at the agriculture ministry in central Athens ahead of a major demonstration outside parliament scheduled for later in the day,” Reuters reported on Friday. “Under the planned reform of the pension system demanded by Greece’s international lenders, farmers face a tripling of their social security contributions and higher income tax.” Here are some images from the scene:

So no, Greece is not “fixed.” And even as the farmers swear “they won’t make us bend,” something will have to give because as Poul Thomsen, head of the International Monetary Fund’s European Department wrote in a blog post on Thursday, “Grexit fears to resurface once again [if all sides adopt] a plan built on over-optimistic assumptions.”

In other words: the reforms are a must if Greece wants to remain in the euro and those reforms entail tough times ahead for the farmers and for everyone else living in the socialist paradise.

Throw in a couple of hundred thousand refugees that are literally arriving in boats and you’ve got a particularly precarious situation that will likely devolve into the type of chaos shown above on an increasingly frequent basis.

END

Deutsche bank states that the markets are crying out for a circuit breaker but the problem is that they do not know what that breaker is.  We basically have 3 problems in the globe: i) Japan has lost confidence with their NIRP as the yen has strengthened to 112.90 to the dollar from 123.00 to the dollar. ii) the USA has lost confidence in the market by raising rates even though their economy is faltering iii) that leaves it up to Draghi to stimulate the EU but they are already in NIRP and the banks are suffering  (see below).  Draghi cannot QE anymore as they have bought up most of the bonds already and very little left to monetize: (courtesy Deutsche bank/zero hedge) Deutsche Bank: “Markets Are Crying Out For A Circuit Breaker”, But There Is A Problem

Having been at the forefront of the recent collapse in core European bank stock prices, Deutsche Bank has – as we first reported last weekend – been ‘crying uncle’ but not in a way most would expect: instead of begging for more central bank easing, DB told the ECB (and BOJ) to stop easing as negative rates and more excess liquidity, are crushing it. This is why central banks are trapped, because they are damned if they don’t ease any more with the global economy on the edge of recession, and damned if they ease further, pushing bank default risk even higher.

Which brings us to this morning’s note from DB’s Jim Reid who puts it best: “Markets are crying out for a circuit breaker at the moment.”

There is just one problem: nobody knows what this circuit breaks would and should be, or if it would even work.

From today’s Early Morning Reid

Markets are crying out for a circuit breaker at the moment. There is lots of talk about whether the ECB could buy senior bank debt and also whether Europe might look to bring in their own version of TARP. The former brings a whole host of moral hazard, political, legal and logistical questions especially in a bank bail-in regime. Before the ECB embarked on each of their government bond purchases (from Greece in 2010 to QE in 2015) there were similar arguments so it’s not an insurmountable challenge but it’s not a policy that is likely to be conducted overnight. With regards to TARP, remember this was a government led initiative and achieving a similar one in Europe with all the different governments having to agree on it would be a challenge to say the least. It’s not as if Angela Merkel doesn’t have her work cut out dealing with the migration crisis/backlash.

 

The problem for the ECB is that there are increasing worries that another deeper cut into negative deposit rate territory will create more negative sentiment for the banks due to what it might do to their profitability. Is this just a passing concern or has the market now moved against negative deposit rates? If it is the latter then central banks had better decide on an alternative quickly. The ECB will certainly have a tough 4 weeks trying to design further stimulus / market support that hits the mark ahead of their hotly anticipated March 10th meeting.

In other words, much more important than the Fed’s March meeting (when it will certainly not hike rates), the ECB’s March meeting may be the one that makes or breaks Eurozone banks if Draghi finds no middle ground between throwing even more negatve rate kitchen sinks at the problem – which has crushed Europe’s banks – and doing nothing – which in December crushed Europe’s asset managers when the EUR soared the most since the Fed’s announcement of QE1.

Which means that in addition to the BOJ and the Fed, the ECB is the latest central banks which is now trapped.

end

 

The “death doom loop” of negative rates  (see below) is having a disastrous effect on European banks.

Below is a chart as to their performance over the past yr vs 2008:

 

(courtesy zero hedge)

 

Europe’s Most Distressing Chart: For Banks 2016 Is Already Worse Than 2008

As we have reported previously on various occasions things are bad for European banks: from DB’s record wide 5Y Sub CDS, to Credit Suisse record low stock price, to everyone else inbetween. But did you know that for most European banks, 2016 is shaping up far worse than the dreaded 2008? As the following chart from Reuters shows, the year-to-date stock price performance for most European banks is on pace to far surpass – to the downside – the dreadful for the global financial system 2008.

As Reuters puts its it, “Euro zone banks have seen their shares plummet by nearly 30 percent and yields on their bonds surge since the start of the year, as investors worried about thinning profits and uncomfortably high levels of bad loans in some countries.”

This is shown in the chart below.

 

One problem resulting from this collapse is well framed by Reuters: “A protracted selloff in the shares and bonds of euro zone banks has the potential to knock the fragile economic recovery off track by raising financing costs for banks, limiting their ability to lend. It may also undo some of what the European Central Bank has been trying to do to increase bank lending an pump up inflation via spending.

The selloff makes it more expensive for banks to raise capital on the market by selling shares or bonds.

 

If this situation were to last, it would dent banks’ capacity to grow their balance sheets by extending new loans to companies and households. This would jeopardise a tentative rebound in lending driven by the ECB’s ultra-easy monetary policy.

 

“This can have an impact on the economy, which is bank dependent in Europe,” said Sascha Steffen, professor of finance at the University of Mannheim. “And of course it puts more pressure on the ECB because it doesn’t help it bring back inflation.”

 

Bank lending in the euro zone started growing again in 2015 after shrinking for three years, but data for December data pointed to a loss of momentum.

 

* * *

 

But the sheer magnitude of the market rout shows investors are losing confidence in the sector.  A key transmission channel is the market for Additional Tier 1 (AT1) notes – bonds that can be converted into equity under certain conditions and on which the issuer can decide whether or not to make coupon payments.

 

* * *

 

“For the past year, ECB easing has been accompanied by private banks’ easing of credit conditions,” said Marco Troiano, a director at ratings agency Scope. “If market volatility reverses this, banks would tighten lending, negating some of the ECB’s efforts.”

In other words, after the BOJ’s and the Fed’s recent policy failures, unless the ECB stabilizes Europe’s banking sector, it too will have committed the gravest of central bank sins: policy error.

The problem, however, as Deutsche Bank explained very well in the post preceding this, is that there is a problem: while the market is desperately begging for a circuit breaker, nobody – certainly not the ECB – has any idea either what it should look like, or whether it could work.

 

end

VERY IMPORTANT This is not good:  An ECB leak  (trial balloon?) shows a firm support for another deeper NIRP which will cause further deterioration in banking profits: see commentary on NIRP’s Death Doom Loop Note: 1. Bond yields in Europe are lower as investors seek safe haven status as opposed to equities.  Lower bank shares make it difficult for new share offering 2. Asynchronous easing by the Bank of Japan and the EU with the USA tightening  sends the dollar higher and thus commodities lower.  This causes credit deterioration in mining and oil stocks  (e.g. Freeport McMoRan,  Glencore  and major oil companies) 3, the higher USA dollar also raises the Chinese yuan  and thus causes China to act forcing a disorderly devaluation.

(courtesy zero hedge)

More Bad News For European Banks? ECB Leaks “Firm Support For A Deposit Rate Cut”

After starting out strongly this morning, with DB stock trading just shy of $17/share, European banks have seen some weakness in the past hour following a report from Reuters, in which sources were cited as saying that there is “firm support for a deposit rate cut within the European Central Bank’s Governing Council.” While a year ago this would have sent European stocks soaring, this is no longer the case as explained by none other than Deutsche Bank last weekend:

  • Declining bond yields have been robustly associated with larger inflows into bonds at the expense of equities. Though a large over allocation to fixed income at the expense of equities already exists as a result of past Fed QEs and a lack of normalization of rates, further easing by the ECB and BOJ that lower bond yields globally will only exacerbate the over allocation to bonds;
  • Asynchronous easing by the ECB and BOJ while the Fed is on hold risks speeding up the dollar’s up cycle, pushing oil prices lower and exacerbating credit concerns in the Energy, Metals and Mining sectors. It is notable that the ECB’s adoption of negative rates in mid-2014 which prompted the large move in the dollar and collapse in oil prices, marked the beginning of the now huge outflows from High Yield. These flows out of High Yield rotated into High Grade, ironically moving up not down the risk spectrum. The downside risk to oil prices is tempered somewhat by the fact that they look cheap and look to be already pricing in the next leg of dollar strength;
  • Asynchronous easing by the ECB and BOJ that is reflected in the US dollar commensurately raises the trade-weighted RMB and increase the risk of a disorderly devaluation by China. The risk of further declines in the JPY is tempered by the fact that it is already very (-29%) cheap, but there is plenty of valuation room for the euro to fall.

This explicit warning is one additional factor why European banks have plunged by 30% in recent weeks, and as noted earlier, have suffered such an abysmal start to the year it makes 2008 seem tame by comparison.

This perhaps also explains why Reuters adds that while a rate hike is in the works, “appetite for more radical action is still limited, conversations with policymakers indicate a month before the March rate decision.

Following DB’s line of logic, one can see why Mario Draghi should be concerned: any more unconventional easing could have an increasingly more dramatic impact on bank profitability as yield curves invert ever more.

And yet the ECB has to do something (hence the problem duly noted by DB this morning): “With long-term inflation expectations falling, the ECB will probably have to act and frame the rate cut as part of broader a package, with some measures involving changes to the bank’s flagship asset-purchase program, policymakers told Reuters.

But with no consensus yet about which further measures to take and Europe’s modest economic recovery still broadly on track, some of those spoken to cautioned against radical action. They noted, however, that their view could still change if recent market turmoil proved lasting, posing a risk to the real economy.

Turmoil resulting from the ECB’s radical actions.

More from Reuters:

ECB President Mario Draghi has said the bank would review and possibly recalibrate its stance in March to fight persistently low inflation. Markets now price at least two rate cuts, taking the deposit rate to -0.55 percent by the end of the year from -0.3 percent.

Doing nothing in March is very unlikely,” the governor of one of the euro zone’s 19 central banks told Reuters. “Monetary conditions have tightened, long term inflation expectations are falling and credibility is at stake. I think a deposit rate cut is fairly undisputed.”

And herein lies the rub: conditions have tightened in large part due to the ECB’s actions, which means Draghi’s credibility is not only at stake, but will be further reduced no matter what he does.

Finally, if NIRP is off the table, will the ECB do something else? Quite possible:

But based on the current outlook, including the increased market volatility, moving the deposit rate alone does not appear to be enough for some policymakers.

 

“The chance of a rate cut is high,” said another governor, who spoke on condition of anonymity. “It wouldn’t do enough and it would be a mistake to signal that we’re relying on conventional policies when we’re going to be in the unconventional sphere for years to come.”

 

“Quantitative easing is our key policy tool and I think any package needs to have a QE component,” the policymaker added.

So, in short, now that we know that banks have a revulsive reaction to more NIRP, the question is how they will react to news of more QE from a European Central Bank which has for the past year become increasingly collateral constrained. If an announcement of more QE by Draghi leads to further selling, then central banks are truly out of ammo and only monetary paradrops remain.

end GLOBAL ISSUES A very important commentary from zero hedge where they discuss the “Doom Loop” as countries or entities enter negative rates.  The banking sector becomes increasingly less profitable as they have to pay for excessive reserves and are also afraid to lend out in an economy that is faltering; “the death doom loop”: (courtesy zero hedge) This Is The NIRP “Doom Loop” That Threatens To Wipeout Banks And The Global Economy

Remember the vicious cycle that threatened the entire European banking sector in 2012?

It went something like this: over indebted sovereigns depended on domestic banks to buy their debt, but when yields on that debt spiked, the banks took a hit, inhibiting their ability to fund the sovereign, whose yields would then rise some more, further curtailing banks’ ability to help out, and so on and so forth.

Well don’t look now, but central bankers’ headlong plunge into NIRP-dom has created another “doom loop” whereby negative rates weaken banks whose profits are already crimped by the new regulatory regime, sharply lower revenue from trading, and billions in fines. Weak banks then pull back on lending, thus weakening the economy further and compelling policy makers to take rates even lower in a self-perpetuating death spiral. Meanwhile, bank stocks plunge raising questions about the entire sector’s viability and that, in turn, raises the specter of yet another financial market meltdown.

Below, find the diagram that illustrates this dynamic followed by a bit of color from WSJ:

From WSJ:

In a way, the move below zero was a gamble. The theory went like this: Banks would take a hit, but negative rates would get the economy moving. A stronger economy would, in turn, help the banks recover.

It appears that wager isn’t working.

The consequences are deeply worrying. Weak banks may now drag the economy down further. And with the economy weak and deflation—a damaging spiral of falling wages and prices—looming, central banks that have gone negative will be loath to turn around and raise rates.

Moreover, central banks have few other levers to escape that doom loop. The ECB has instituted a bond-buying program, but President Mario Draghi last month indicated he was ready to launch additional monetary stimulus in March. Japan’s decision to implement negative rates follows three years of aggressive monetary easing, aimed at ending two decades of low inflation and stagnant growth.

The pushes into negative territory also amount to a sort of competitive currency war that no one seems willing to call off.

Major economies around the world are desperate to spur inflation; one way to do that is to cut interest rates, which typically would make their currencies less attractive. Lower currencies raise the prices of imported goods and boost the fortunes of exporters.

Switzerland, Sweden and Denmark have all used negative rates to help ward off inflows of foreign funds that push up their currencies. Economists said an aim of the Bank of Japan’s move to negative rates last month was to weaken the yen. It hasn’t worked: The yen shot up Thursday and is stronger than it was before the rate cut.

The move below zero compounds the miseries for lenders in those countries. Banks traditionally make a profit by lending at higher interest rates than the rates they pay on deposits, a difference called the net interest margin. Low rates have already squeezed that margin, and banks’ funding costs from other sources, such as bond markets, have surged this year.

German banks earn roughly 75% of their income from the margin between rates on savings accounts and the loans they make, according to statistics from the

Bundesbank, the country’s central bank. Plunging rates dragged German banks’ interest revenue down to €204 billion ($230 billion) in 2014 from €419 billion in 2007, according to the Bundesbank.

 

Negative rates cost Danish banks more than 1 billion kroner ($151 million) last year, according to a lobbying group for Denmark’s banking sector.

Consider that and then have a look at the following chart, which certainly seems to indicate that we are on step 8 in WSJ’s doom loop…

Step 9 is when things really start to go south for the real economy. So buckle up.

end Michael Harnett of Bank of of America describes central banker activity as quantitative failure. a very important read… (courtesy Michael Harnett/Bank of America/zero hedge) 637 Rate Cuts And $12.3 Trillion In Global QE Later, World Shocked To Find “Quantitative Failure”

2016 is shaping up to be the year that everyone finally comes to terms with the fact that the monetary emperors truly have no clothes.

To be sure, it’s been a long time coming. For nearly 8 years, market participants and economists convinced themselves that the answer was always “more Keynes.” Global trade still stagnant? Cut rates. Economic growth still stuck in neutral? Buy more assets.

It was almost as if everyone lost sight of the fact that if printing fiat scrip and tinkering with the cost of money were the answers, there would never be any problems. That is, policy makers can always hit ctrl+P and/or move rates around. But in order to resuscitate anemic aggregate demand and revive inflation, you need to tackle the core problems facing the global economy – not paper over them (and we mean “paper over them” in the most literal sense of the term).

Well late last month, central banks officially lost control of the narrative. Kuroda’s move into negative territory reeked of desperation and given the surging JPY and tumbling Japanese stocks, it’s pretty clear that the half-life on central bank easing has fallen dramatically.

And so, as the market wakes up from the punchbowl party with a massive hangover, everyone is suddenly left to contemplate “quantitative failure.” Below, courtesy of BofA’s Michael Hartnett is a bullet point summary of 8 years spent chasing the dragon… and a list of the disappointing results.

*  *  *

From BofA

Whether the recent tipping point was the Fed hike, negative rates in Europe & Japan, or simply the growing market dislocations and macro misallocation of resources and wealth, the deflationary theme of “Quantitative Failure” is stalking the financial markets. A multi-year period of major policy intervention & “financial repression” is ending with weak economic growth & investors rebelling against QE.

In short, monetary policies of…

  • 637 rate cuts since Bear Stearns
  • $12.3tn of asset purchases by global central banks in the past 8 years
  • $8.3tn of global government debt currently yielding 0% or less
  • 489 million people currently living in countries with official negative rates policies (i.e. Japan, Eurozone, Switzerland, Sweden, Denmark)
  • -0.92%, the most negative yield in the world (2-year Swiss government bond)

…have in 2016 led to a macro environment symbolized by…

  • BofAML’s Chief US Economist Ethan Harris cutting potential trend real GDP growth in the US to 1.75%
  • inflation expectations in both the US & Europe dropping below 2008 levels & a global profits recession
  • one of the most deflationary recoveries of all-time: in the past 26 quarters the nominal GDP of advanced economies has grown 11%

and a significant impact on Wall Street…

  • a bear market in equities (median stock in ACWI is down 28% from its highs; 45% of global stocks (1123) are down >30% from highs)
  • bear market in commodities (10-year rolling return from commodities is currently -5.1%, the worst since 1938) & credit markets
  • $686bn of market cap loss for global banks since Dec 15th – the day before the Fed hiked – and worsening global liquidity conditions, which in-turn will likely cause bank lending standards to tighten further

  • and, most conspicuously, falling bank stocks and falling bond yields suggesting that 6 years of QE has failed to arrest deflation.

*  *  *

What comes next is anyone’s guess but with China’s credit bubble about to burst in spectacular fashion, we wonder how central banks plan to combat the ensuing hit to the global economy. After all, their counter-cyclical policy room is not only exhausted, they’ve now taken the easing bias so far into the monetary twilight zone that in Japan’s case, things are starting to backfire and are becoming self referential (see the recently canceled JGB auction).

Throw in the fact that $12.3 trillion in asset purchases has impaired liquidity across markets and you have the conditions for what could turn into a truly harrowing year not only for Wall Street, but for Main Street as well. The same Main Street that was allegedly saved by a “courageous” Ben Bernanke who started us all down this road 8 long years ago.

end

 

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am

Euro/USA 1.1274 down .0042

USA/JAPAN YEN 112.62 up 0.122 (Abe’s new negative interest rate (NIRP)a total bust

GBP/USA 1.4539 up .0061

USA/CAN 1.3918 up .0001

Early this FRIDAY morning in Europe, the Euro fell by 42 basis points, trading now well above the important 1.08 level falling to 1.1274; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, crumbling bourses and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was flat in value (onshore) due to lunar holiday. The USA/CNY flat in rate at closing last night: 6.5710 / (yuan flat but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)

In Japan Abe went BESERK  with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP   . The yen now trades in a slight  southbound trajectory as IT settled down  in Japan by 12 basis points and trading now well BELOW  that all important 120 level to 112.62 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE  AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP

The pound was up this morning by 61 basis points as it now trades just above the 1.44 level at 1.4439.

The Canadian dollar is now trading DOWN 1 in basis points to 1.3918 to the dollar.

Last night, Chinese bourses were closed/Japan NIKKEI IS CLOSED DOWN 770.78 OR 4.84%, ALL ASIAN BOURSES LOWER/ AUSTRALIA IS LOWER  All European bourses ARE DEEPLY IN THE GREEN as they start their morning.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this FRIDAY morning: closed DOWN 760.78 OR 4.84%

Trading from Europe and Asia:
1. Europe stocks all in the GREEN

2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed DOWN 1.22% OR DOWN 226 POINTS ,Shanghai in the closed  Australia BOURSE IN THE RED: /Nikkei (Japan)red/India’s Sensex in the red /

Gold very early morning trading: $1238.80

silver:$15.69

Early FRIDAY morning USA 10 year bond yield: 1.68% !!! up 5 in basis points from last night  in basis points from THURSDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.54 UP 4  in basis points from THURSDAY night.  ( EXTREME policy error)

USA dollar index early FRIDAY morning: 95.81 up 21 cents from THURSDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers FRIDAY MORNING

 

OIL MARKETS

 

The real reason for oil’s fall this past yr:  It is not just a supply issue. It is also a downfall in demand:

(courtesy zero hedge)

Crushing The “Oil’s Just A Supply Issue” Meme In 1 Painful Chart

Day after day we are told that the plunge in oil prices (just like the collapse in The Baltic Dry freight index) is a “supply” issue… it’s transitory and global demand is doing fine thank you very much. Sadly, as everyone really knows deep down inside their Keynesian hearts, this is utter crap and as Barclays shows the shocking 18% YoY crash in distillates “demand” – something that has never happened outside of a recession – blows the one-sided argument of the energy complex out of the water.

 

 

Still gonna claim “it’s a supply issue?”

end

 

Two key ramps causes the USA stocks and Europe to rise:

i) USA//Yen rise to 12.90 or so

ii) the algo driven rise in oil  (for  the phony reason of the production cut)

(courtesy zero hedge)

 

 

 

Algos Panic-Buy “Stabilized” Crude Oil To Key Resistance

Another day, another OPEC Production Cut rumor, and another massive swing in WTI Crude oil prices. But having run stops to these levels, we wonder what happens next?

 

 

This 9.5% ramp is among the biggest single-day moves in oil’s history… driving realized volatility near record highs…


END Oil soars again on the redux of OPEC oil production cuts: (courtesy zero hedge) Oil Soars Most Since Feb 2009 On OPEC Production Cut Headline Redux

Another day, another OPEC Production Cut rumor, and another massive swing in WTI Crude oil prices. But having run stops to these levels, we wonder what happens next?

 

This 11.5% ramp is among the biggest single-day moves in oil’s history…

 

Driving realized volatility near record highs…

 

But sadly, stocks are not correlating…

end And now the real reason for the huge volatility in the WTI crude oil contract. Again we have huge ETF liquidation.  In a nutshell this will revert back to the norm on Monday: (courtesy zero hedge) Here Is The ETF Liquidation That Sent Shockwaves Through The Crude Oil Market

A week ago we exposed the real reason for the “crazy volatility” in crude oil markets, and specifically the driver of the immense rally (despite weak data) in crude – a massive liquidation of the triple-inverse ETF DWTI. Today we have another mysterious, even larger spike in crude oil prices (for no good reason other than ‘old’ misunderstood rumors about OPEC production cuts). The driver, it would appear, is another liquidation as the ETF trades at a huge discount to NAV. The last time this happened, it didn’t last.

We saw the same actin last week (and the delayed data exposed the liquidtaion)… it’s happening again…

 

And DWTI is trading at a dramatic discount to NAV – which suggests – given the day lag (There is a day’s lag between when redemptions and creations are ordered and when they show up in share figures) that buying pressure hits today…

On Wednesday, oil prices surged more than 8 percent to $32.28 a barrel, despite a seemingly bearish report from the U.S. Energy Information Administration showing nationwide crude inventories rose by 7.8 million barrels last week.

 

The evidence is even clearer in the sudden spike in the 1st-2nd month spread – despite no news whatsoever on the storage constraints (as ETF managers are forced to buy back futures in the front-month as the inverse ETF is liqudated)

 

So that explains the sudden squeeze carnage today… and without further liquidation in the fund why the rip won’t hold.

end Oil responded in a northbound trajectory once the new oil rig count was announced as it plunged by another 28 rigs: (courtesy zero hedge) US Oil Rig Count Plunges By Most In 10 Months

Following last week’s dramatic 31 rig decline, Baker-Hughes reports another major decline of 28 oil rigs (dropping the total oil rigs to 439 – lowest since Jan 2010 – for the 8th consecutive week). The total rig count dropped 30. On the heels of OPEC rumors overnight and then re-rumored bullshit from Venezuela, oil prices had already surged during the day and the biggest 2-week rig count decline in 10 months after initially being sold, is rallying once again.

  • *U.S. OIL RIG COUNT DOWN 28 TO 439, BAKER HUGHES SAYS
  • *U.S. TOTAL RIG COUNT DOWN 30 TO 541 , BAKER HUGHES SAYS

As the rig count continues to track almost perfectly the lagged oil price…

 

The declines were widespread with Texas dropping the most absolutely…

 

Oil did not rip on this “great” news… but minutes later pushed to new highs

 

Charts: Bloomberg

end

  And now your closing FRIDAY numbers

Portuguese 10 year bond yield:  3.73% down 37 in basis points from THURSDAY

Japanese 10 year bond yield: +.09% !! up 7 full  basis points from THURSDAY which was lowest on record!! Your closing Spanish 10 year government bond, FRIDAY down 4 in basis points Spanish 10 year bond yield: 1.74%  !!!!!! Your FRIDAY closing Italian 10 year bond yield: 1.65% down 6 in basis points on the day: Italian 10 year bond trading 9 points lower than Spain . IMPORTANT CURRENCY CLOSES FOR FRIDAY   Closing currency crosses for FRIDAY night/USA dollar index/USA 10 yr bond:  2:30 pm   Euro/USA: 1.1255 down .0061 (Euro down 61 basis points) USA/Japan: 113.27 up 0781(Yen down 78 basis points) but still a major disappointment to our yen carry traders and Kuroda’s NIRP Great Britain/USA: 1.4516 up .0039 (Pound up 39 basis points) USA/Canada: 1.3841 down .0076 (Canadian dollar up 76 basis points with oil being higher in price/wti = $29.20 ) This afternoon, the Euro fell by 61 basis points to trade at 1.1255/(with Draghi’s jawboning having no effect) The Yen fell to 113.27 for a loss of 78 basis points but NIRP is still a big failure for the Japanese central bank The pound was up 39 basis points, trading at 1.4516. The Canadian dollar rose by 76 basis points to 1.3841 as the price of oil was climbed over $2.00 today as WTI finished at 29.16 per barrel,) The USA/Yuan closed at 6.5710 the 10 yr Japanese bond yield closed at .09% Your closing 10 yr USA bond yield: up 12 in basis points from THURSDAY at 1.75%//(trading well below the resistance level of 2.27-2.32%) policy error USA 30 yr bond yield: 2.60 up 10 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)    Your closing USA dollar index: 95.95 up 35 in cents on the day  at 2:30 pm Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for FRIDAY   London: up 170.63 points or 3.08% German Dax: up 214.64 points or 2.45% Paris Cac up 98.35 points or 2.52% Spain IBEX up 174.50 or 2.55% Italian MIB: up 741.87 points or 4.70% The Dow up 313.36  or 1.91% Nasdaq:up 70.68  or 1.66% WTI Oil price; 29.12  at 3:30 pm; Brent OIl:  32.98 USA dollar vs Russian rouble dollar index:  78.28   (rouble is up 1 and  77/100 roubles per dollar from yesterday) as the price of oil rose. This ends the stock indices, oil price, currency crosses and interest rate closes for today. end     New York equity performances plus other indicators for today and the week; Gold Soars, Stocks Sink Despite Biggest Oil Rally In 7 Years

And all of this on a Dudley statement (that said nothing), an oil rumor (repeatedly uttered with no actual news) and a seasonal adjustrment (which made retail sales ‘appear positive’)…

Public Service Announcement:

 

Crude is the headline of the day…WTI RISES 12% TO $29.44/BBL, BIGGEST PCT GAIN SINCE FEB. 2009

With what appears like another major liquidation in the triple-inverse ETF DWTI… And a major compression of the roll…

 But gold is the winner on the week… The last time Gold soared this much so fast was in the middle of the Lehman collapse…

 

And while everyone crowed about Jamie Dimon’s share purchase – which had the stink of Lehman-esque time when every bank CEO trotted out his own brand of confidence inspiring headlines – and that ramped financial stocks… but once again credit wouldn’t play along… in cash markets…

 

and even less so in CDS (hedging)

 

*  *  *

Gold wins the week, bonds sencond best…

*  *  *

Today’s ripfest stalled at 1130ET when Europe closed but the incessant ramp in crude oil lifted everything as algos latched on…

 

Nasdaq desperately wanted to “get back to even” for the week in today’s ramp but only Trannies closed the week green…

 

With today’s ramp led by Jamie Dimon’s financials… (which still closed lower by 2.4% on the week – worst of all sectors)

 

But just look at the mess that is VIX in the last 2 days…

 

Does this look like financials are fixed?

 

When stocks took off at around 1300ET (as Oil spiked on rig count data), HY credit did not want to play…

 

Still could be worse… could be Japan…

 

A stunning roundtrip in US Treasury yields this week with 10Y swinging to down 30bps at Thursday’s lows befoere faxce-ripping higher by over 20bps in the last 24 hours…

 

The USD rallied modestly today as sellers reappeared in Yen and EUR weakened…

 

The USD Index collapsed 3.7% in the last 2 weeks – the biggest drop since October 2010…to 4-month lows…

 

 

Despite all the algos and liquidation-fueled craziness, crude ended the week down over 5% – the 5th losing week in the last 7; as gold had its best week since dec 08…

 

You decide if you trust this rally in crude (and thus every risk asset pinned off it)

 

Charts: Bloomberg

Bonus Chart: Meanwhile these two developed markets now have inverted yield curves…

 

end

More phony figures from the USA:  the strong January retail sales was all in seasonal adjustments: (courtesy zero hedge) The Curious Case Of The “Strong” January Retail Sales: It Was All In The Seasonal Adjustment

There was hardly a blemish in today’s retail sales report: the January numbers not only beat expectations across the board, including the all important control group which printed at 0.6% or the highest since May, but the December data was also revised notably higher. At first glance, great news for those who hope consumer spending is finally getting some traction from collapsing gasoline prices.

And yet, even a modestly deeper look below the strong retail sales headline numbers once again reveals just how this “across the board beat” was accomplished.

It was all in the seasonal adjustment, something which plagued the January non-farm payrolls report as well as numerous sellside analysts lamented.

The thing about seasonally adjusted retail sales is that while they are supposed to smooth out month-to-month changes in any given data series, they should be virtually identical to the non-seasonally adjusted retail sales on a annual, year-over-year basis. After all the same “seasonal” adjustment that was applicable this January, was applicable last January, the Januarybefore it, and so on, unless of course, something changed.

To the best of our knowledge nothing changed, even though while seasonally adjusted sales rose modestly by $800 million to $449.9 billion, on an unadjusted basis retail sales actually dropped by $112.7 billion with a “B.”

And indeed, when looking at the annual change in headline retail sales data we find that, as expected, the seasonally-adjusted (blue) and unadjusted (red)retail sales series are almost identical…

… but not quite.

If one zooms in on the most recent data, one finds something surprising: a substantial rebound in SA retail sales, which according to the Dept. of Commerce rose 3.4% – the best print since January 2015 – while unadjusted retail sales rose by just 1.4% – the worst montly print since August, and hardly inspiring confidence that what is happening on a seasonally adjusted basis is indicative of what is really happening.

 

To isolate the problem we decided to look at only the annual (YoY) change in January data. The chart below shows the surprising finding: while virtually every January in the prior 5 years saw an almost identical change in the SA and NSA data, this January, there was a major disconnect: in fact on an NSA basis, January retail sales were mathced for the lowest increase since the financial crisis at 1.4%, a far cry from the far more respectable and adjusted 3.4%.

 

To show just how much of an outlier January 2016 was compared to January in prior years, here is the seasonal “adjustment ratio” for the month of January for every year since 2010 to 2016, by which we define the ratio of “seasonally adjusted” to “unadjusted” retail sales. Spotting the outlier should be easy enough.

 

 

In other words, any “strong” rebound in January retail sales was all in the seasonal adjustment factor.

We wonder if Yellen’s “dot plot” will likewise come in unadjusted and seasonally adjusted flavors from now on to reflect both the actual underlying U.S. economy and the economy the Fed would like to see when observed through the filter of the government’s politically biased Arima-X-12 seasonal adjustment model?

end You will recall that last month business inventories over sales came in at a record 1.32 to one.  January saw business inventories jump while sales tumbled.  Result the new business inventories to sales jump to 1.39 to one. (courtesy zero hedge) Business Inventories Jump, Sales Tumble Sending Ratio To Recession-Warning Cycle Highs

After some stabilization into mid-2015, the ratio of business inventories-to-sales has surged as sales have disappointed and mal-investment-driven dreams have over-stocked. Business inventories rose 0.1% MoM in December (retail up 0.4%) and sales tumbled 0.6%.

Year-over-year, Inventories are now up 1.7% (led by retailers up 5.4%) while Sales are down 2.4% (led by Manufacturers down 5.1%)

Recession?

 

At 1.39x, the current ratio is flashing a warning that a deep de-stocking recession looms.

 end Confidence tumbles!!  USA citizens in a “deflationary mindset” (courtesy zero hedge) Americans’ “Deflationary Mindset” Has Never Been Stronger

Having already warned of a “deflationary mindset,” today’s University of Michigan Confidence data suggests Americans are falling deeper into dis-inflation territory. Today’s headline tumble in confidence to 4-month lows, with “hope” dropping to 6-month lows is dominated by the plunge in 5-10 year inflation expectations to 2.4% (from 2.7%) – a 36-year record low.

 

 

Whatever you’re doing Janet – It’s not working!

end Obama must be exited:  Carrier   (air conditioning corporation) is moving 1400 jobs to Mexico. (courtesy zero hedge) Welcome To Obama’s Recovery: Carrier Moving 1400 Jobs To Mexico

In his final state-of-the-union address, President Obama famously accused anyone who dares to question the strength of the US economic “recovery” of “peddling fiction.”

Shortly thereafter, we learned that the US economy grew at a paltry 0.69% in Q4. Below estimates.

Perhaps the most disturbing thing about the state of the economy – well, besides the fact that healthcare spending is essentially driving “growth” – is that the labor market has becoming awaiter and bartender creation machine. That’s come at the expense of manufacturing jobs, where skilled workers can actually earn a decent living.

Here’s what the disparity looks like since 2007:

No fiction “peddling” there. Just numbers.

Additionally, we’ve noted the fact that foreign born workers account for the vast majority of job creation in America since the crisis:

On Wednesday, United Technologies decided to reinforce both of these trends all at once, when the company announced it would be eliminating 1,400 jobs at a Carrier plant in Indianapolis in favor of hiring some new “foreign-born” employees – only these “foreign-born” workers will be hired in Mexico.

Two Indiana plants that make products for the heating, ventilating and air conditioning industry are shifting their manufacturing operations to Mexico, which will cost about 2,100 workers their jobs,” The Indianapolis Star reports. “Carrier is shuttering its manufacturing facility on Indianapolis’ west side, eliminating about 1,400 jobs during the next three years [and] United Technologies Electronic Controls said that it will move its Huntington manufacturing operations to a new plant in Mexico, costing the northeastern Indiana city 700 jobs by 2018.”

Watch below as 1,000 soon-to-be Donald Trump voters react to the announcement:

Economists called the move “highly unusual.” “Today’s surprise announcement was without warning,” the mayor said.

Actually, it’s neither “highly unusual” or “surprising.” Here’s why (again from The Star): “Carrier’s workers are separated into a two-tier wage system. A quarter of the workers make about $14 an hour, or about $30,000 a year. The rest make about $26 an hour, or about $55,000, but make well above $70,000 a year with overtime.”

Something tells us labor costs will be “slightly” lower south of the border.

Who’s “peddling fiction” now?

end

I will leave you tonight with this great offering from David Stockman who in point blank fashion states that NIRP is very harmful to an economy: (courtesy David Stockman/ContraCorner) Simple Janet——The Monetary Android With A Broken Flash Drive by  • February 11, 2016

This is getting just plain nuts. Here is what Janet Yellen said today about the possibility of negative interest rates:

In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.

The operative words here are “European countries” and “add accommodation”. Yet even a brief reflection on those items demonstrates that Janet is a delusional Simpleton. To adapt Jim Kunstler’s felicitous phrase about Senator Rubio’s 4-Peat incantation during the last GOP debate, our financial system is being led by a monetary android with a broken flash drive.

She says the same damn stupid thing over and over, endlessly.

Someone should tell Janet and her posse of Keynesian money printers that there is no such economic ether as “accommodation”. That’s Fed groupspeak for their utterly erroneous conceit that the US economy is everywhere and always sinking towards collapse unless it is countermanded, stimulated, supported and propped up by central bank policy intervention.

No it isn’t. Janet may prefer a dutch boy hair cut, but she’s not got her finger in the dike, nor is she warding off any other catastrophe. The deluge that is coming is actually the handiwork of the Fed and its bubble ridden Wall Street casino, not the capitalist hinterlands of main street.

There are only two tangible transmission channels through which the Fed can impact our $18 trillion main street economy, as opposed to merely subsidizing Wall Street speculators to artificially bid up the price of existing financial assets.

It can inject central bank credit conjured from thin air into the bond market in order to raise prices and lower yields. And it can falsify money market interest rates and the yield curve. Both of these effects are aimed at inducing businesses and households to borrow more than they would otherwise, and to then spend more than they produce.

That’s the old Keynesian parlor trick and, yes, it worked 50 years ago when Janet’s Keynesian professors first had their way with America’s virgin balance sheets. But now those household and business balance sheets are all used up because we are at Peak Debt, along with most of the rest of the world.

Indeed, in the case of the US household sector the massive leveraging up of wage and salary income between  the late 1960s and 2008 has now begun to slowly reverse.  The credit string that the Fed is pushing on is evident in the chart below. But apparently Janet is still in a time warp obeying the injunctions of James Tobin’s ghost wafting up from the earlier side of the red vertical.

Accordingly, the stimulative effect of low and ultra-low interest rates never really leaves the canyons of Wall Street. And when it does, it trickles its way into credit extensions to the weakest borrowers left in the land. That is, students and subprime auto borrowers.

Outside of those dubious precincts—– where the next wave of defaults or government bailouts will surely occur——there has actually beennegative growth in household debt since the financial crisis.Notwithstanding 86 months of ZIRP and its current equivalent, total household debt is still $400 billion below it pre-crisis peak, and mortgage and credit card debt are down by more than $1 trillion.

Likewise, the $2 trillion rise in total business debt outstanding has not gone into productive assets such as tangible plant, equipment and technology. It has been short-circuited into financial engineering by the false financial bubble fostered by Fed policies. That is, massive stock buybacks and M&A deal volumes have simply used the agency of the stock options obsessed C-suite to recycle newly issued business debt right back into the canyons of Wall Street.

So if 86 months of ZIRP has already proved that the old Keynesian parlor trick—–which is the say, the household and business credit channel of monetary policy transmission—-is a dead letter, why in the world would Janet think that a few more basis points through the negative side of 0.0% would make any difference?

And especially after the ECB has tried it, and to no avail!  As is evident from the bank loan data for the Eurozone, credit extensions to private business have been sinking since 2012 when Draghi issued his “anything it takes” ukase. The ECB’s move to negative deposit rates last year has not changed that trend in the slightest.

Likewise, household debt in Europe soared during the decade through 2010, but has been oscillating on the flat-line ever since. And the reason is beyond the power of the ECB or any central bank to remedy. Namely, European households are also at Peak Debt, meaning that central bank fiddling with negative deposit rates is pointless and irrational.

It might seem puzzling that Yellen, Bernanke and their camp followers have all offered the European experience as a reason to revisit NIRP when the data is this dispositive the other way. But that’s because these monetary plumbers can’t tell the difference between transient squiggles and true, lasting trends.

Here is a longer term look at bank credit extensions to households and businesses in the eurozone. You don’t need a PhD economist to explain why NIRP is a colossal failure in debt besotted Europe.

Why do our central bankers think NIRP can possibly stimulate credit growth and old-fashioned Keynesian GDP expansion in a world of Peak Debt?

Well, the truth is, they don’t think it; they assume it. Since they erroneously believe that capitalist main street is utterly dependent upon their constant ministrations, virtually any short-run development—adverse or otherwise—- is taken as evidence that more monetary policy intrusion is needed.

Indeed, this faulty frame of mind has gone so far that they now interpret the negative feedback loop from their own bubble inflation as evidence that monetary conditions are too “tight” and more policy stimulus—-such as NIRP—-is warranted in order to offset headwinds to growth.

Here is a doozy from Janet’s written testimony.

Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity…..

It does not take much expertise to read the code. Simple Janet is saying that it doesn’t matter that the Fed has spent years falsely inflating equity markets via massive liquidity injections and props and puts under risk assets.  Any correction in stock prices and any regression of ultra-tight credit spreads to normality which could cause economic and job growth to slow must be countered at all hazards.

In short, the only thing they plan to do about a bursting bubble is to reflate it. It puts you in mind of the boy who killed his parents and then threw himself on the mercy of the courts on the grounds that he was an orphan!

In fact, the absurdity of Simple Janet’s circular reasoning was on display today in real time during her Senate testimony. Even the Fed’s official court jester, Jon Hilsenrath, couldn’t help from reporting the irony:

“We are… looking very carefully at global financial market and economic developments that create risk to the economy,” she said. “We are evaluating them, recognizing that these factors may well influence the balance of risks or the trajectory of the economy, and thereby might affect the appropriate stance of monetary policy.”

Stock prices sank as Ms. Yellen spoke. In what looks like a perverse feedback loop, she worries that market conditions could pinch the economy, and her lack of confidence sends markets lower still.

At the end of the day, don’t take my word for it. Attached below is Simple Janet’s written testimony. It was indeed generated by a monetary android with a broken flash drive.

Almost every line in it consists of notations about incoming data trivia that have been repeated month after month to absolutely no avail; or it references a simple-minded bathtub model of a closed US economy——one that is later contradicted by extended jawing about headwinds from China, global oil and commodity prices and shrinking US exports.

Obviously, you can’t have it both ways. Either the Fed has total control of “aggregate demand” and can dial-up its monetary management controls until the US economy is full to the brim and all the “slack” is drained out of the labor market or there is massive leakage and interaction with the rest of the world. If it is the later—-and of course it is——then Simple Janet is truly lost in the Keynesian Puzzle Palace.

After all, why does she spend several paragraphs boasting about the Fed’s success in stimulating 13 million jobs and getting the U-3 unemployment rate down to 4.9% when by her own observation the US economy is being bludgeoned by an array of forces originating outside the bathtub of domestic GDP?

Why do these labor market metrics even matter when they are subject to being trumped by forces far outside the Fed’s remit? Or has the Eccles Building now appointed itself central banker of the world?

Although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the foreign exchange value of the renminbi have intensified uncertainty about China’s exchange-rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth. These growth concerns, along with strong supply conditions and high inventories, contributed to the recent fall in the prices of oil and other commodities. In turn, low commodity prices could trigger financial stresses in commodity-exporting economies, particularly in vulnerable emerging-market economies, and for commodity-producing firms in many countries. Should any of these downside risks materialize, foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further.”

The point is, Simple Janet is just emitting jabberwocky. The above paragraph completely negates the notion that there is a purely domestic business cycle that the Fed can manage and manipulate to the perfection of full employment.

In fact, today’s $80 trillion global economy is endowed with a plethora of stormy seas by Simple Janet’s own account. So why would you measure jobs growth from the very bottom month of the recession or even bother to reference the totally flawed U-3 unemployment rate in a world of gigs, temps and hours, not 40 hour work weeks at the Ford factory?

The fact is, 62% of the job gains cited by Yellen are “born again” jobs; only 5 million net jobs have been created since the pre-crisis peak, representing the weakest growth rate in modern history. Likewise, the employment to population ratio is still at modern lows and has recovered only a small fraction of its post-crisis loss; it renders the U-3 rate essentially meaningless.

So here’s the thing. Simple Janet and her posse are completely lost. And now they are thrashing about randomly pretending to be managing the monetary dials in the Eccles Building based on the incoming data.

No they are not. They are sliding by the seat of their pants. They have declared war on savers and are fixing to make their assault even more viscous. And their phony wealth effects doctrine is blowing-up in their face, reducing the financial markets to the status of a theme park roller coaster ride.

If Simple Janet occupied any office in the elective branches of government she would have been in the impeachment docket long ago.

Maybe The Donald will take notice of her assault on tens of millions of retirees, savers, main street business people and just plain folks. They are all being sacrificed to Simple Janet’s Keynesian lunacy and the last grasp of the Wall Street gamblers.

So after all that has gone before, it will only take one loud voice to trigger an uprising against the crime of NIRP—–and then the casino will discovery what real price discovery is all about.

end

 

Since Monday is a holiday in Canada as well as the USA, I will not be writing a commentary on Monday. I will be back on Tuesday. However, if things heat up on Sunday night/Monday morning, I will send this down to you as quickly as possible. To all our American friends:  a safe and happy President’s day To all our Canadian friends: a safe and happy family day and to everybody else:  enjoy your weekend and come back in one piece. Harvey

feb 11/Huge rise in gold of $53.20 as all bourses tumble/Deutsche bank’s credit default swaps at highest ever level/also Credit Suisse/All European sovereign debt climb in credit risk/Sweden raises into NIRP to -0.5%/Cushing OK refining set to overflow...

Thu, 02/11/2016 - 18:55

Gold:  $1,247.90 up $53.20    (comex closing time)

Silver 15.79 up 51 cents

In the access market 5:15 pm

Gold $1146.25

Silver: $15.77

 

Today was the second day of Janet Yellen’s Humphrey Hawkins testimony to the House and the Senate.  This was the first time that I can recall ever that gold/silver rose while Yellen was speaking.  Gold had its best advance in over 16 years.  Gold in 2001 advanced by over 50 dollars with the famous UK’s chancellor’s abyss story.

 

At the gold comex today, we had a good delivery day, registering 200 notices for 20,000 ounces. Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 204.24 tonnes for a loss of 99 tonnes over that period.

In silver, the open interest fell by a huge 3,519 contracts down to 161,145. In ounces, the OI is still represented by .805 billion oz or 115% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI rose by 524 contracts to 411,357 contracts despite the fact that gold was down $3.00 with yesterday’s trading.

We had no change in gold inventory at the GLD,  / thus the inventory rests tonight at 702.03 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had another withdrawal in inventory of 619,000 oz and thus/Inventory rests at 308.380 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver fall by 3519 contracts down to 161,145 as the price of silver was down 17 cents with yesterday’s trading.   The total OI for gold rose by 524 contracts to 411,357 contracts despite gold being down $3.00 in price from yesterday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

b) Gold trading from NY”

(zero hedge)

3. ASIAN AFFAIRS

 

i)  Late  WEDNESDAY night/ THURSDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed badly by 742 points or 3.85% . The Nikkei was closed. The only bourse that was up was Australia’s all ordinaries. Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil lost  to 26.47 dollars per barrel for WTI and 30.35 for Brent. Stocks in Europe so far deeply in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/

( zero hedge)

 

ii) Kyle Bass explains in simple language the problem facing China.  The country has 10 trillion USA equiv in GDP.  The country has debt (sovereign + corp+ household) of 34.5 trillion dollars.  No doubt that about 20% of that debt is non performing and with a recovery of 50%, then 3 trillion uSA will be lost and sovereign China will need to recapitalize their banks. Their entire reserves are 3.2 trillion which is made up of gold, USA dollars and Euros.

( CNBC/Kyle Bass)

 

EUROPEAN AFFAIRS

 

i) Something big is up!!  Deutsche bank’s credit default swaps are back to record highs. Credit default swaps are simply a bet on the survival of the bank itself.  Many belief that they are toast!!

( zero hedge)

ii) And then it is not just Deutsche bank, it is the entire European sovereign risk that is blowing out.  Sovereign Portugal has seen its bond yields rise over 200 basis points for the

past week. ( zero hedge)

iii) And now Credit Suisse’s credit default swaps are blowing out!!

(zero hedge)

iv) We brought this to your attention yesterday.  The EU are now probing the banks on SSA debt: how much more will  Deustche bank have to pay for their misdeeds:

( zero hedge)

v) This will be scary for many in the oil patch as one of the largest lenders to oil is BNP and they are exiting the reserve base lending oil business:

( zero hedge) RUSSIAN AND MIDDLE EASTERN AFFAIRS

i)it is getting quite dangerous in the northern section of Syria namely Aleppo. It was announced that the USA after flying in from Turkey bombed out 9 targets without discussing what they were.  It seems that two hospitals were hit. Saudi Arabia is ready to enter the fray and if they do, then prepare for World War iii.

( zero hedge)

 

ii) The rhetoric between Iran and Saudi Arabia is getting firece.  Iran is holding nothing back. If Saudi Arabia invades;  it will be suicide:

( zero hedge) iii) Turkey says no to the EU refugee plan to resettle 250,000 refugees per year directly from Turkey.  They demand that Turkey is to close off the Aegean sea route to Greece. With the siege on Aleppo now, many Syrian are fleeing that city and the situation will get far worse ( zero hedge)

 

GLOBAL ISSUES

i) Sweden upon seeing its Swedish kroner rise in value, decided that it was best to increase its NIRP further, this time to -.5%.  The Swedish bank governor stated that his nation was not experiencing any inflation and with the higher kroner, their exports were suffering. Thus currency wars at its finest as we now are in a war in a race to the bottom of the currency ladder:( zero hedge)

 

OIL MARKETS

i)Last night:

Phillips 66 dumps crude on Cushing OK refiners.  As we have been pointing out to you on several occasions, Cushing has no refining space whatsoever.  This caused WTI price to fall into the 26 dollar handle and create conditions similar to a stock bloodbath.  We now have an oil bloodbath;

( zero hedge)

 

ii) This morning:

Oil is back to the 26 dollar handle after the Saudi Headlines

(courtesy zero hedge)

iii) More and more investors believe that Cushing Oklahoma refining will overflow:

( zero hedge) iv)   a.Then late in the day: The UAE supposedly speaking on behalf of Saudi Arabia states that OPEC is ready to cooperate on a cut in production.  We will see how long this story lasts:

(courtesy zero hedge) iv  b. Then the Wall Street Journal comes out and states that the above story is bogus:

( Wall Street Journal/zero hedge) v)An OPEC production cut is unlikely until the USA production declines by at least 1 million barrels per day.  Thus if they do a production cut it will accomplish nothing except a very short term increase in price (courtesy Arthur Berman/OilPrice.com) PHYSICAL MARKETS i)Early last night, gold breaks the 1200 dollar barrier (zero hedge)

ii)Now everybody is jumping on the bangwagon to buy gold

what a joke!!  All of the banks are massively short of gold and must cover.

( zero hedge)

 

iii)I did not know that Canada had any gold reserves.  They sold half of what they held  (1.3 tonnes) and now they have only 1.7 tonnes left.  Such morons!!
( Global News/GATA)

iv)The World Gold Council on gold demand

(Chris Powell/GATA)

 v) They are lining up around the block in London by gold today: (Mike Krieger/GATA) vi )Bill Holter’s paper tonight is a good one.  It is entitled: ”

KABOOM!!! Are you ready for reality?” USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER

i)The carnage today in USA bank stocks and its bonds:

( zero hedge)

ii)Even though initial claims are now this week, Goldman warns that increases in the jobless will be forthcoming!

( zero hedge)

iii) Seems that the SEC is accusing Boeing of fraud:

( zero hedge)

iv) You will get a good laugh at the following.  Janet Yellen is the real source of the leak and everybody knows it. She has no authority whatsoever to prevent the handing over of documents from the FOMC transcripts.  This will be fun to follow in the upcoming few weeks:

(courtesy zero hedge)

Let us head over to the comex:

 

The total gold comex open interest rose to 411,357  for a gain of 524 contracts despite the fact that the price of gold was down $3.00 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order.  In February  the OI fell by 1096 contracts down to 961. We had 872 notices filed on yesterday, so we lost 224 contracts or an additional 22,400 oz will not stand for delivery as they were cash settled. The next non active delivery month of March saw its OI rise by 34 contracts up to 1855. After March, the active delivery month of April saw it’s OI rise by 480 contracts up to 294,073. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 363,572 which is huge. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 176,295 contracts. The comex is in backwardation until June. 

 

Today we had 200 notices filed for 20,000 oz. And now for the wild silver comex results. Silver OI fell by 3519 contracts from 164,664 down to 161,145 as the price of silver was down by 17 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI fall by 2 contracts down to 18. We had 4 notices filed on yesterday, so we gained 2 silver contracts or an additional 10,000 oz will stand in this non active month of February. The next big active contract month is March and here the OI fell by 9,218 contracts down to 80,938.  The volume on the comex today (just comex) came in at 93,323 , which is huge. The confirmed volume yesterday (comex + globex) was huge as well at 79,769. Silver is not in backwardation at the comex but is in backwardation in London.   We had 0 notices filed for nil oz.  

Feb contract month:

INITIAL standings for FEBRUARY

Feb 11/2016

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  nil  nil oz Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz  nil No of oz served (contracts) today 200 contracts
(20,000 oz) No of oz to be served (notices) 761 contracts (76100 oz ) Total monthly oz gold served (contracts) so far this month  1918 contracts (191,800 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 503,410.8 oz Today, we had 0 dealer transactions total deposit: nil We had 0  customer withdrawals we had 0 customer deposit:

we had 0 adjustments.

 

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account. ***JPMorgan now has 634,557.764 or 19.737 tonnes in its customer account. Today, 0 notices was issued from JPMorgan dealer account and 115 notices were issued from their client or customer account. The total of all issuance by all participants equates to 200 contract of which 0 notice was stopped (received) by JPMorgan dealer and 39 notices were stopped (received)  by JPMorgan customer account.    To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (1918) x 100 oz  or 191,800 oz , to which we  add the difference between the open interest for the front month of February (961 contracts) minus the number of notices served upon today (200) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the February. contract month: No of notices served so far (1918) x 100 oz  or ounces + {OI for the front month (961) minus the number of  notices served upon today (200) x 100 oz which equals 290,300 oz standing in this active delivery month of February ( 8.3328 tonnes)   we lost 224 contracts or an additional 22,400 oz will not stand for delivery We thus have 8.3328 tonnes of gold standing and 7.5589 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing. Total dealer inventor 243,0189.740 or 7.5589 Total gold inventory (dealer and customer) =6,566,356.008 or 204.24 tonnes    Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 204.24 tonnes for a loss of 99 tonnes over that period.    JPMorgan has only 21.99 tonnes of gold total (both dealer and customer) end     And now for silver FEBRUARY INITIAL standings/

feb 11/2016:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory   629,924.580 oz

Brinks,Scotia Deposits to the Dealer Inventory nil Deposits to the Customer Inventory 946,049.750 oz,
(JPM,Delaware,
HSBC,) No of oz served today (contracts) 0 contracts nil oz No of oz to be served (notices) 18  contracts (90,000 oz) Total monthly oz silver served (contracts) 120 contracts 600,000 Total accumulative withdrawal of silver from the Dealers inventory this month nil oz Total accumulative withdrawal  of silver from the Customer inventory this month 6,471,280.0 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 3 customer deposits:

i) Into JPM: 579,238.130 oz

ii) Into Delaware:  7046.930 oz

iii) Into HSBC: 359,764.690 oz

 

total customer deposits: 946,049.750 oz

We had 2 customer withdrawals: i) Out of Brinks:  579,238.130 oz ii) Out of Scotia: 50,686.450 oz    

total withdrawals from customer account 629,924.580   oz 

 we had 0 adjustments:

 

The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (120) x 5,000 oz  = 600,000 oz to which we add the difference between the open interest for the front month of February (18) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing   Thus the initial standings for silver for the February. contract month: 120 (notices served so far)x 5000 oz +(18{ OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals 690,000  of silver standing for the February. contract month.   we gained 10,000 oz or 2 additional silver contracts that will  stand in this non active delivery month of February. Total dealer silver:  28.904 million Total number of dealer and customer silver:   157.588 million oz end The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Feb 11/no change in inventory/inventory rests at 702.03 tonnes

Feb 10/ a withdrawal of 1.49 tonnes of gold from the GLD/Inventory rests at 702.03 tonnes

Feb 9./a huge addition of 5.06 tonnes of gold into the GLD/Inventory rests at 703.52 tonnes/ (no doubt that this addition is paper gold/not physical/

Feb 8/no change in inventory/inventory rests at 698.46 tonnes

FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

 

Feb 11.2016:  inventory rests at 702.03 tonnes

 

Now the SLV: feb 11/ a withdrawal of 619,000 oz/inventory rests at 308.380 million oz/ Feb 10/no change in inventory at the SLV/rests at 308.999 million oz/ Feb 9/no change in inventory at the SLV/Inventory rests at 308.999 million oz/ Feb 8/no change in inventory at the SLV/Inventory rests at 308.999 million oz FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees Inventory rests at 309.380 million oz Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/ Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz Jan 27.2017: no changes to inventory/rests at 310.653 million oz Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz Feb 11.2016: Inventory 308.380 million oz. 1. Central Fund of Canada: traded at Negative 5.5 percent to NAV usa funds and Negative 6.4% to NAV for Cdn funds!!!! Percentage of fund in gold 63.6% Percentage of fund in silver:36.4% cash .0%( feb 11.2016). 2. Sprott silver fund (PSLV): Premium to NAV rises to  +1.40%!!!! NAV (feb 11.2016)  3. Sprott gold fund (PHYS): premium to NAV rises to- 0.47% to NAV feb 11/2016) Note: Sprott silver trust back  into positive territory at +1.40%/Sprott physical gold trust is back into negative territory at -0.47%/Central fund of Canada’s is still in jail.      

end

And now your overnight trading in gold, THURSDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe (COURTESY MARK O”BYRNE)   Gold Surges 3.2% To $1,241/oz As Deutsche Bank And Other Stocks Fall Sharply

 

By Mark OByrneFebruary 11, 2016No Comments

Gold has surged over 3% today on increased safe haven demand as stocks and in particular bank stocks see sharp falls. German shares have nose dived again and German colossus Deutsche Bank has fallen over 8%.


Futures – 1 Day Relative Performance – Finviz.com

A host of negative factors sent investors fleeing riskier assets. Oil prices slid on inventory data and on concerns about slowing global growth as Federal Reserve Chair Janet Yellen warned of several risks facing the U.S. and Chinese economies, and the global economy.

 

Gold and Silver News and Commentary

Central banks and Chinese buyers helping to spur gold demand – Reuters

Flight to safety sends gold surging above $1,200 to 8-1/2 month highs after Yellen – Reuters

Indian gold demand to climb in 2016 as buyers seek safe haven – Reuters

Gold demand jumps as fear grips markets – Telegraph

Banks drag European shares down as investors seek safety in gold – Independent

VIDEO: JP MORGAN – Gold Rally Breaks the Bullion Downtrend – Bloomberg

VIDEO: I’ve never liked gold-but I do now: Trader – CNBC

Why Gold Has Been on a Tear in 2016 – Fortune

“It’s Probably Something” – Gold Surges Above $1200; USDJPY, Oil, Stocks Plunge – Zero Hedge

China is on a massive gold buying spree – CNN Money

Click here

 

LBMA Gold Prices

11 Feb: USD 1,223.25, EUR 1,080.80 and GBP 847.33 per ounce
10 Feb: USD 1,183.40, EUR 1,052.29 and GBP 816.56 per ounce
9 Feb: USD 1,188.90, EUR 1,061.90 and GBP 822.31 per ounce
8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce
5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce

 

GoldCore Note: Banks, economists, brokers, financial advisers and other experts did not see the first crisis coming in 2008 and they are not seeing it now.

A handful of people are warning about the risks and again they are largely being ignored. Investors and savers will again bear the brunt for the inability to look at the reality of the financial and economic challenges confronting us today.

Diversification remains the key to weathering the second global financial crisis.

Mark OByrne Published in Daily Market Update       end     Early last night:   (courtesy zero hedge)     “It’s Probably Something” – Gold Surges As $1200 Stops Taken Out; USDJPY Plunges

With US markets failing to hold on to today’s “Deutsche Bank” euphoric gains today despite, or rather due to Janet Yellen’s Congressional testimony, traders in mainland China remains locked out due to the Lunar New Year holiday, while Japan is mercifully taking a break – mercifully, because otherwise the Nikkei would be crashing. However, one market is back online as Hong Kong traders return to their desks to see carnage around the globe, and most importantly, are unable to hedge arbed exposure between China, Japan and the US.

So, with few options, they are buying the one asset that provides the best cover to central banks losing faith, demonstrated most vividly by the total failure of the BOJ, and as a result just as Yen soars above 113… with USDJPY down a stunning 10 handles from the post-NIRP highs…

 

.. and Gold has taken out the numerous $1,200 stops and is currently surging to levels not seen in almost a year.

What is causing this mad rush into gold is unclear, but… it’s probably something.

Meanwhile, as gold is soaring, its BOJ pair trade equivalent (as described in An Inside Look At The Shocking Role Of Gold In The “New Normal“) the USDJPY, just tumbled below 113 for the first time since 2014, and with no support levels until 110, this may just be the final straw not only for Kuroda but for the entire Abenomics house of hollow cards.

In any case, don’t expect the gold surge to last too long: our good friend, Benoit Gilson, manning the Bank of International Settlements’ gold and FX desk, will be on alert very shortly.

Away from currencies, WTI is also collapsing, to a $26 handle…

 

This broad-based flush has the feel of some HK hedge fund liquidation.

end

 

Now everybody is jumping on the bangwagon to buy gold

what a joke!!  All of the banks are massively short of gold and must cover.

(courtesy zero hedge)

 

Everyone Jumping On The Bandwagon: BofA Says To Stay Long Gold Until $1,375, “$1,550 A Possibility”

First it was Goldman confirming that when it comes to penning “investment theses”, all Wall Street knows how to do is jump on a momentum bandwagon, when it said overnight that  there’s scope for gold prices to “extend much higher over time.” Now it’s Bank of America’s turn.

Here is the latest chart magic from BofA’s technical strategist Paul Ciana:

Staying long gold

 

Gold prices are breaking above triple resistance forming a technical bottom and channel breakout. This projects gold higher to 1,315 and 1,375. The gap in the distribution on the left shows 1,550 is a possibility, though we are not making that our target at this point.

 

We remain long gold on a technical basis.

 

 

Normally, these recommendations would be enough to send gold plunging; however with gold soaring over $50 on the day, its biggest move since September 2013…

… despite bullish calls by not only Goldman and BofA but even Dennis Gartman, perhaps this time it’s different?

end I did not know that we had any gold reserves.  They sold half of what they held  (1.3 tonnes) and now they have only 1.7 tonnes left.  Such morons!!
(courtesy Global News/GATA)

Canada sells nearly half its gold reserves, 1.3 tonnes — 1.7 tonnes remain

Submitted by cpowell on Thu, 2016-02-11 01:38. Section: 

By Monique Muise
Global News, Burnaby, British Columbia, Canada
Wednesday, February 10, 2016

The government of Canada sold nearly half its gold reserves in recent weeks, continuing a pattern of moving away from the precious metal as a government asset.

According to the International Monetary Fund’s International Financial Statistics, Canada held 3 tonnes of gold reserves as of late 2015.

The latest data, published last week, show the total Canadian gold reserves now stand at 1.7 tonnes. That’s just 0.1 per cent of the country’s total reserves, which also include foreign currency deposits and bonds. In comparison, the U.S. holds 8,133 tonnes of gold, while the United Kingdom weighs in at 310 tonnes.

The decision to sell came from Finance Minister Bill Morneau’s office. …

… For the remainder of the report:

http://globalnews.ca/news/2508940/canada-sells-nearly-half-of-all-its-go…

end

 

The World Gold Council on gold demand

(Chris Powell/GATA)

 

World Gold Council celebrates the obvious about gold demand

Submitted by cpowell on Thu, 2016-02-11 06:48. Section: 

The world discerns easily enough where gold demand comes from. Why doesn’t the World Gold Council ever attempt a report on gold supply trends? After all, that would require putting only a few more questions to certain governments and central banks.

* * *

Central Banks and Chinese Buyers Helping to Spur Gold Demand, World Gold Council Says

By Susan Fenton
Reuters
Thursday, February 11, 2015

LONDON — Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said today.

China remained the world’s biggest consumer of gold last year, ahead of India, with economic headwinds influencing purchasing, the WGC said in its annual “Gold Demand Trends” report. The WGC’s members include the world’s leading gold mining companies.

Chinese demand for gold coins surged 25 percent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency. But stock market turmoil and a slowing economy knocked consumer sentiment and Chinese demand for gold for jewellery fell 3 percent from a year earlier, the WGC said. …

… For the remainder of the report:

http://www.reuters.com/article/gold-wgc-idUSL8N15P1WB

 

end

 

the following is music to my ears:

(courtesy Mike Krieger/GATA)

 

Lines Around The Block To Buy Gold In London; Banks Placing “Unusually Large Orders For Physical”

This is the best quarterly performance for Gold in 30 years…

 

And as Mike Krieger of Liberty Blitzkrieg blog details, physical demand is soaring…

First, let’s look at the improved fundamentals. Gold bugs will exasperatingly proclaim that fundamentals have been great for the past four years yet the price plunged anyway, so who cares about fundamentals? To this I would respond with two observations. First, large institutional investors and sovereign wealth funds have been anticipating a rate hike cycle for a very long time now. They didn’t know when, but they expected it. The fact that the gold bugs never believed this is irrelevant; what matters is that big money believed it, and it was perceived to be very gold negative. In their minds, this anticipated rate hike cycle would confirm that things were getting back to normal, and if things are normal you don’t need to own gold, right?

 

The problem is that this assumption is quickly being called into question. Sure the Fed hiked rates once, but it is starting to look more and more like a policy error. Meanwhile, other major central banks around the world are going in the opposite direction, toward negative rates. I am a huge believer in market psychology, and the psychology dominating the minds of most institutional investors over the past few years has been that things were slowly getting back to normal. This has weighed on institutional demand for gold in a big way, and been a meaningful factor in the bear market (manipulation aside). If this psychology shifts, the shift back into gold could be very meaningful.

 

While that backdrop is interesting in its own right, what may make the move into gold that much more explosive is the lack of alternative investments…

 

– From the February 3, 2016 post: GOLD – It’s Time to Pay Attention

What a difference a couple of weeks can make. The Telegraph is reporting the following:

BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.

 

Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.

 

BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.

 

“The bullion market has been building with interest since the end of last year but this morning things have gone bananas,” said Mr Halliday-Stein. “Some London banks are placing unusually large orders for physical gold.”

 

London-based ATS Bullion added it had been inundated with orders for the past week. The firm has sold 4,000 gold bars and coins since February 1, a 40pc rise on the same period a year ago when it sold 1,500.

 

“It’s been crazy – it’s been the best week since 2012. We’ve had people queuing round the block,” said Michael Cooper of ATS Bullion, a family run firm that trades online and also from an outlet in the West End.

But that’s just part of the story. As reported by the World Gold Council, the buying really started to pick up in the fourth quarter, courtesy of the Chinese and central banks. Reuters notes:

Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said on Thursday.

 

Chinese demand for gold coins surged 25 percent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency. But stock market turmoil and a slowing economy knocked consumer sentiment and Chinese demand for gold for jewelry fell 3 percent from a year earlier, WGC said.

 

Central banks have been buying gold to diversify their reserves away from the U.S. dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013, the report showed.

 

Central bank buying accelerated sharply in the second half of last year and jumped 25 percent in the fourth quarter, from a year earlier, as the need to diversify was reinforced by falling oil prices and reduced confidence in the global economy, WGC said.

 

Chinese demand for gold totaled 985 tonnes last year, followed by India on 849 tonnes. They accounted for nearly 45 percent of total global demand, with consumer demand up 2 percent and 1 percent respectively in those countries.

Think about the lack of gold buying from the U.S. relative to its global wealth and it becomes quite easy to see where the fuel for the next bull market will come from.

Meanwhile, on the supply side…

Global supply of gold fell 4 percent last year to 4,258 tonnes, partly because of slower mine production.

 

Mining companies have scaled back since 2013 in a bid to slash costs and mine production shrank in the fourth quarter of 2015, the first quarterly contraction since 2008, WGC said.

For related articles, see:

GOLD – It’s Time to Pay Attention

4 Mainstream Media Articles Mocking Gold That Should Make You Think

 

end

 

KABOOM!!! Are you ready for reality?

 

Hopefully you have read between the lines of my writings over the last few weeks and felt the urgency of the situation.  Markets all over the world are coming apart at the seams and “control” is rapidly being lost.  I would like to mention, over the years there has been one “rule” never broken.  Almost ALWAYS, whenever the president of the U.S. speaks, or whenever the Fed meets and issues a policy statement …or whenever the Chairman of the Fed speaks …”control” is at its greatest.
What have we seen this time?  Janet Yellen testified yesterday and is doing so again today.  The markets have come unglued.  In particular, gold is now up $56 dollars for the largest gain since 2009 http://www.telegraph.co.uk/finance/personalfinance/investing/gold/12151847/Market-panic-pushes-gold-buying-to-highest-level-since-financial-crisis.html  .  Mrs. Yellen is now out of her league as many of her comments are not making sense and are actually contradictory of what she may have just said.
  For example, her prepared remarks speak of tightening rates at future meetings.  She was asked “is the Fed out of bullets” and she goes into the talk about negative rates.  “Negative rates” are NOT ammunition.  Negative rates are outright panic and desperation.  I would also mention, the Fed has been at zero percent rates for 6-7 years, any lower rates (negative) are at this point the only plan B.  But Mrs. Yellen said yesterday (and probably again today) the Fed does not know the “legality” of negative rates.  How is this even possible?  They have had all these years to research negative rates …yet to this day she doesn’t know if it is even legal?  I would also add, Mrs. Yellen is so clueless she does not understand their rate hike was the spark that lit this thing up in the first place.  Please don’t get me wrong, the fire was going to start somewhere, I just didn’t think the Fed would be the one striking the match!
  Folks, let me put this into plain speak for you.  If to this day the Fed does not know if negative rates (which has been a potential topic for well over two years) are legal, does this mean there is no plan “B”?  Actually, does this mean there HAS BEEN no plan B all along???  Legal or not legal, were the Fed to move to negative rates, a “run” on everything will occur.  A run on the banks and a run on the currency and thus a RUN ON THE CENTRAL BANK ITSELF!  The big problem is this, the dollar is the lynchpin “reserve” currency for the entire world, what would it say if we had to move to negative rates …because NOTHING ELSE WORKED? 
Of course, negative rates are a hypothetical at this point.  I say “hypothetical” because the markets must be open in order to even try this “plan B”.  You can now completely forget about technical levels for anything and everything as fundamentals are trumping everything.  In case you do not understand what I am saying here, the fundamentals of “BROKE IS BROKE” will trump buying the dips, selling the rallies blah blah blah.  We are at the point where “trust” is breaking down and “get me out” at any price is beginning to take over. 
  Much of the selling is being forced.  As I wrote three or four weeks back, this is a margin call which is now self propelled in motion.  Sales to meet margin calls are further depressing asset prices and creating yet more calls in a reinforcing and now a continuous negative loop.  As I mentioned above, “control” is being broken and with it the thought process “the government will never let it happen” is also being broken.  As everything financial is “levered” or done with borrowed money, how much larger are the actual losses to “equity” and how much longer can it go until we see trading defaults?  This I believe accounts for gold’s huge move today.  Gold cannot “default” and default is exactly where the entire system is headed.  You are now getting the answer to your question of where capital will flee once REAL FEAR begins because the levers don’t work anymore! Let me finish with this, you are watching the system implode upon itself.  At a time when liquidity on a global basis is very tight, a global margin call (created by the Fed) is being issued.  They have started a process in motion that will not be stopped.  The morning will soon come when markets simply cannot meet the call and will not open.  At this point, credit of all sorts will freeze up.  The stark reality that has been hidden for so long by so many “tricks” will finally hit the world square between the eyes like a 2×4!  As we have tried to guide you for so long, the “day of reality” is arriving and the “reality” is truly ugly.  Are you ready for reality? Standing watch, Bill Holter Holter-Sinclair collaboration Comments welcome!  bholter@hotmail.com  

And now your overnight THURSDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

1 Chinese yuan vs USA dollar/yuan FLAT to 6.5710 / Shanghai bourse: CLOSED/CHINA’S NEW YEAR ALL WEEK / hang CLOSED DOWN 742 POINTS OR 3.85%

2 Nikkei closed 

3. Europe stocks all in the RED /USA dollar index down to 95.60/Euro up to 1.1319

3b Japan 10 year bond yield: rises  TO +.022    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 114.95

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI:: 26.68  and Brent: 30.34

3f Gold UP  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil down for WTI and down for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls  to 0.204%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate rise to 14.71%/: 

3j Greek 10 year bond yield rise to  : 10.75%  (yield curve deeply  inverted)

3k Gold at $1233.80/silver $15.55 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble down 47/100 in  roubles/dollar) 79.73

3m oil into the 26 dollar handle for WTI and 30 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9732 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1013 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation

3r the 8 year German bund now  in negative territory with the 10 year falls to  + .204%/German 8 year rate negative%!!!

3s The Greece ELA at  71.5 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.57% early this morning. Thirty year rate  at 2.41% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

 

Markets Around The World Are Crashing; Gold Soars

Yesterday morning, when musing on the day’s key event namely Yellen’s congressional testimony, we dismissed the most recent bout of European bank euphoria which we said “will be brief if not validated by concrete actions, because while central banks have the luxury of jawboning, commercial banks are actually burning through funds – rapidly at that – and don’t have the luxury of hoping for the best while doing nothing.” This morning DB has wiped out all of yesterday’s gain.

As for Yellen’s testimony, we said that “she can send stocks reeling with one word out of place” – the word in question being not what she said but what she didn’t say, in this case not being dovish enough and thus supportive enough of risk. And the consequence is there for all to see as soon as their trading terminal boots up: everything is crashing (with the exception of China which is on holiday, and Japan which was mercifully closed yesterday). Here are the highlights:

  • S&P 500 futures down 1.8% to 1814
  • Stoxx 600 down 3.4% to 304
  • FTSE 100 down 2.6% to 5525
  • DAX down 2.9% to 8760
  • German 10Yr yield down 7bps to 0.18%
  • MSCI Asia Pacific up 0.1% to 117
  • Hang Seng down 3.8% to 18546
  • S&P/ASX 200 up 1% to 4821
  • US 10-yr yield down 5bps to 1.62%
  • Dollar Index down 0.42% to 95.49
  • WTI Crude futures down 2.9% to $26.65
  • Brent Futures down 1.7% to $30.31
  • Gold spot up 1.9% to $1,220
  • Silver spot up 1.5% to $15.50

It all started in Hong Kong where as we reported last night, the Hang Seng Index plunged 3.9%, catching up with the week’s selloff as the market reopened from a holiday, and capping its worst Lunar New Year start since 1994.

Japan’s Nikkei Stock Average and China’s Shanghai Composite Index were both closed, but investors continued to pile into the yen, as virtually every carry trade has fallen apart in the past month. As a result, the dollar was down 1.8% against the yen at ¥111.28 after sliding below 111 briefly, a massive gain of nearly 300 pips in the past 24 hours, sending the Yen to the lowest level since October 2014 when Kuroda expanded QE.

 

In the first 9 days of this month, the Yen has risen 985 pips: That is biggest advance, in pip terms, since Oct. 1998; that month, the currency rose 1,563 pips from 130.03 to 114.40 over nine trading days ended Oct. 19. Elsewhere, the euro was up 0.4% against the dollar at $1.1325, its highest since October.

It wasn’t just FX: European stocks slid toward their lowest since September 2013 and U.S. futures indicated equities will open nearly 2% and put the recent support level of 1812 in danger of being breached.

Among the key European movers was Societe Generale which tumbled 12% after reporting that quarterly profit missed estimates as earnings at the investment bank fell and it set aside provisions for potential legal costs.  Elsewhere, Rio Tinto Group slipped 4.1% as it scrapped its progressive dividend policy and set out new spending cuts.

“Financial markets are repricing for a global growth slowdown,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “Expectations that monetary policy would be able to do much have diminished considerably.”

Just as troubling is that Swedish shares slid and the OMX Stockholm 30 Index dropped 3.% despite Sweden’s central bank going even deeper into NIRP, cutting its interest rate from -0.35% to -0.5%, lower than the expected -0.45%. The yen leaped to its highest in more than a year. Major sovereign bond markets rallied, pushing U.K. gilt yields to a record low. Gold rose beyond $1,200 an ounce, while U.S. oil traded below $27 a barrel.

This is troubling, because as Bloomberg notes, “signals by central banks from Europe to Japan that additional stimulus is at the ready are failing to ease investor concern that global growth will keep slowing.” This means that it is no longer just a joke that central banks are losing credibility: judging by the markets’ reaction it is all too real. To this point, yesterday we wondered if Yellen will make bad news good news again. She has failed:

“Over the last few years when we got bad news, equity markets would rally because they would interpret this as potential for central banks to go more dovish,” said Mohit Kumar, head of rates strategy at Credit Agricole SA’s corporate and investment bank unit in London. “Now that correlation is shifting to bad news is actually bad news. Investors are concerned over central banks’ policy options given the market is driven by factors over which they have little or no control over.”

Imagine that: investors investing without a central bank to hold their hand.

Among other things crashing: bond yields – the 10Year plunged to 1.62%, the lowest level since May 2013 as the entire treasury complex prepares for NIRP.

Not everything was crashing however: as central planners lost control, the dull, boring yellow metal known as gold was up about 4% overnight and was trading at $1240 moments ago, well above the level it hit when the Fed ended QE3, and outperforming every asset class in that time period.

Also surging are peripheral European yields, most notably in Portugal and Greece both overf 30 bps wider, as suddenly 7 years of financial dirt kicked under the rug thanks to central bank jawboning and futile actions, re-emerges for all to see, and to be reminded thatnothing was ever fixed!

In short, the market is threatening Yellen with a crash ahead of her 2nd testimony today this time before the Senate. We doubt she will comply, so the market will just have to try harder.

Here are the top news from overnight:

  • Yellen Suggests Fed May Delay Rate Rises, Not Abandon Them: Fed chair non-committal on possible use of negative rates
  • Assessing Yellen’s Warning That Markets Pose a Threat to Economy: Bear markets usually come ~9 months before recessions
  • Mylan Slumps, Meda Soars on $7.2 Billion ‘Wealth Destroying’ Bid: Price represents a 92% premium to Meda’s close on Wednesday
  • Sanders Raises $7.1 Million After New Hampshire Win: comes after Tuesday’s victory speech declaration that he was “going to hold a fundraiser right here, right now, across America”
  • Clinton Reassesses Campaign With Thursday Debate Next Test: New Hampshire margin for Sanders puts Clinton on defensive
  • Twitter Troubles Deepen as Lack of User Growth Threatens Sales: Dorsey says making product easier to use is top priority
  • Amazon to Repurchase as Much as $5 Billion of Its Own Shares: co. commented in filing yday
  • U.K. Bond Yield Drops to Record-Low as Investors Seek Safety: U.K. plans to auction 30-year securities later Thursday
  • Swedish Central Bank Unleashes More Stimulus After Krona Warning: Sees scope to cut repo rate further
  • ‘Brexit’ Vote Is Clouding U.K.’s Growth Outlook, CBI Says: Business lobby downgrades 2016 growth forecast to 2.3%
  • Gold Soars Above $1,200 as Fed Chief Signals Go-Slow on Rates: set for 9th gain in 10 days on Fed chief’s remarks
  • Oil Above $55 Is a Long-Term Inevitability, Maersk CEO Says: sees global demand pushing oil price higher over time
  • Worst Still Ahead for Mining Industry After Losing $1.4 Trillion: This year looks even worse for an industry decimated by the commodities slump
  • SocGen Slumps as Quarterly Profit Hurt by Securities Drop: Bank says ROE target for this year of 10% is ‘unconfirmed’
  • As Zika Spreads, an Unexpected Winner in Brazil’s Mosquito War: Scandal-plagued leader Rousseff seeks unity to fight virus

In today’s closer look at regional markets, we start in Asia, where equities traded broadly in negative territory amid the soft lead on Wall Street, coupled with the persistent credit risk fears adding to the risk-off sentiment. As such, the iTraxx Asia index ex Japan, an index tracking the value of CDS’s in Asia, widened by 6bps to the highest level since Aug’13. The Hang Seng (-3.9%) returned from its elongated break to play catch up with the recent global equity and oil rout, consequently energy names were the notable laggard. While South Korea had also entered the fray as the Kospi (-2.5%) slipped amid the rising geopolitical tensions with North Korea after launching a satellite into space. ASX 200 (+1.0%) bucked the trend with stocks supported by a slew of strong earnings. As a reminder, Japanese markets were closed due to National Foundation Day.

Top Asian News

  • Hong Kong Stocks Fall in Worst Start to Lunar New Year Since ’94: Global equity rout deepens during 3-day trading break
  • Bass Says China Bank Losses May Top 400% of Subprime Crisis: Hedge fund manager says 10% asset loss would cut equity by $3.5t
  • Rio Will Cut Dividend After Metals Rout Sees Profit Tumble: World’s 2nd-biggest mining co. to reduce spending by another $3b
  • Billionaire’s Fund Sees India Extending Bear-Market Losses: Hedge fund awaits further 10% drop in values to turn bullish
  • SBI’s Profit Growth Slows to Four-Year Low on Bad Loan Surge: Provisions for bad loans almost double in the December quarter
  • North Korea to Shut Industrial Park, Freeze South Korean Assets: To expel South Korean personnel from Gaeseong complex

In Europe we have so far seen the most volatile day of what has been a very rocky 2016. Risk off sentiment is extremely apparent across asset class, with equities seeing a significant sell off so far today. Euro Stoxx 50 is lower by around 3.0% this morning, with financials and energy names the most significant underperformers as has been the case throughout the last 6 weeks. Financials have been weighed on by SocGen (-12.4%) who have suffered significantly in the wake of their earnings, while Deutsche Bank’s woes have not been forgotten (-5.7%), with the iTraxx Sub Financials index widening this morning by around 36bps, suggesting a rise in financials’ CDS. The heightened fear has also seen significant gains in fixed income, with Bunds higher by around 100 ticks so far today, while UK 10-year Gilt yields dropped to a record low this morning.

European Top News

  • Glencore Copper Production Falls as Franco to Buy Metals Stream: 4Q zinc production fell 18%, coal declined 17%
  • Zurich Insurance Quarterly Loss Misses Estimates on Claims: Company expects to miss its return-on-equity target for year
  • Total’s Earnings Beat Estimates on Oil Production, Refining: Co. maintains dividend, offers payout in new stock
  • Adidas Sees Higher Profit After 2015 Earnings Beat Estimates: Raises sales, profit outlook for this year
  • BG Group Trades Final Time Before Merger: To delist from exchanges on Feb. 15 as Shell takes over; BG’s value has grown ninefold since company’s creation in 1997
  • Mediobanca Second-Quarter Profit Declines on One-Time Charges: Fiscal 2Q profit falls 24%
  • Nokia Earnings Increase on Cost Focus as Sales Fall Short: Projects 2016 “headwinds” as demand slows
  • Publicis Sales Rise on Digital, North American Business: CEO Maurice Levy forecasts ‘modest’ growth this year
  • Rio Will Cut Dividend After Metals Rout Sees Profit Tumble: To reduce spending by another $3 billion
  • Natixis Buys Stake in U.S. Boutique as CEO Seeks Advisory Growth: To acquire 51% of Peter J. Solomon

In FX, the dominant move as noted above was the USD/JPY sell off, which has impacted on all the major currency pairs. This has contributed to the risk off theme, with stock markets in Europe in the red again and US futures pointing to a 5th consecutive day of losses. From the mid 112.00’s, the spot JPY rate was slammed through the 111.00’s to print 110.99, with no sign of the MoF or BoJ. Cross/JPY rates were dragged lower, with EUR/JPY trading through the key 126.00 level, but with limited momentum through here as EUR/USD rallied to new recent highs just above 1.1350. No such tempering in GBP and AUD, though the former JPY rate held 160.00 despite a heavy turnaround in Cable. EUR/GBP posted new highs through .7850. AUD/USD losses through .7000 contributed to sub 80.00 (and 79.00) in AUD/JPY. USD/CAD has tested 1.4000, but holds off the figure as yet.

WTI and Brent crude futures have ticked lower in European trade with WTI Mar’16 futures notably breaking below the USD 27.00 level, near 12 year lows despite the headline figure released in yesterday’s DoE inventories showing a surprise drawdown . However, some analysts have noted that Cushing OK crude inventories showed a surprise build, and the market is ready to pounce on any signs that the glut is expanding.

Gold has benefited from safe haven bids in Asian and European trade and is over USD 25.00/oz higher on the session, at its highest level since May 2015. The World Gold Council have noted that the upward trend in gold looks set to continue as buying by central banks and Chinese investors will bolster prices. Analysts have noted that the following year could see a surge of M&A activity, as gold miners have plenty of liquidity with surging gold prices and diversified miners look to offload assets, due to softness in industrial metals.

Turning to the day ahead, we get the latest weekly initial jobless claims data due in the US. The focus will again be on Fed Chair Yellen when she is due to speak in front of the Senate at 10am. Her prepared remarks will mirror what she said yesterday so the focus will be on the Q&A: for the sake of the market she better be much more dovish.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Today has seen the most volatile day of what has been a very rocky 2016, risk off sentiment is extremely apparent across asset class
  • The FX markets have been dominated by the USD/JPY sell off, which has impacted on all the major currency pairs
  • Looking ahead: highlights include: Fed’s Yellen appear before Senate, weekly jobs data and earnings from PepsiCo
  • Treasuries higher in overnight trading as European equity markets plunge, WIT oil drops below $27 a barrel; Treasury to sell $15b U.S. 30Y notes, WI 2.465% vs 2.905% in January, lowest 30Y auction stop since 2.880% in August 2015.
  • Financial markets are signaling that investors have lost faith in policy makers’ ability to support the global economy. European stocks slid toward their lowest since September 2013 and U.S. futures indicated equities will open lower
  • Sweden’s central bank lowered its key interest rate even further below zero to -0.5% and said it’s prepared to use its full toolbox of measures as it battles to revive inflation and keep the krona from appreciating
  • European banks and insurers’ subordinated credit risk rose to the highest since March 2013 after disappointing earnings at Societe Generale and Zurich Insurance Group renewed concerns about financial companies’ profits; Societe Generale, France’s second-largest bank by market value, posted fourth-quarter profit that missed analysts’ estimates as earnings at the investment bank dropped and it set aside provisions for potential legal costs. The shares plunged
  • With populist and anti-EU forces surging across the region, should David Cameron leave next week’s European Union summit with a deal to overhaul the terms of Britain’s membership, many of his counterparts will dig out their own wishlists
  • Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China’s banking system may see losses of more than four times those suffered by U.S. banks during the last crisis
  • The world is so awash with crude, the boss of BP Plc said people will be filling their “swimming pools” with it by the end of the year
  • Sovereign 10Y bond yields mostly lower, Greece (+31bp), Portugal (+31bp) higher; European stocks plunge, Asian markets mostly closed for holiday, Hang Seng drops; U.S. equity-index futures fall. Crude oil drops, copper, gold rise

US Event Calendar

  • 8:30am: Initial Jobless Claims, Feb. 6., est. 280k (prior 285k); Continuing Claims, Jan. 30, est. 2.245m (prior 2.255m)
  • 8:45am: Bloomberg Feb. United States Economic Survey
  • 9:45am: Bloomberg Consumer Comfort, Feb. 7 (prior 44.2)
  • 1:00pm: U.S. to sell $15b 30Y bonds
  • Central Banks
  • 10:00am: Fed’s Yellen testifies to Senate committee
  • 5:30pm: Reserve Bank of Australia’s Stevens testifies in Parliament
 

DB’s Jim Reid concludes the overnight wrap

Looking at the latest in Asia this morning, markets in Korea and Hong Kong are open for the first time this week, although are largely playing catch up with the big falls that we’ve seen for risk assets in that time. The Hang Seng is currently down a steep -4.03% while the Kospi has dropped -2.97%. Mainland China exchanges are still closed although the Hang Seng China Enterprises Index (HSCEI) is down nearly 5%. Markets in Japan are closed for a public holiday. There’s better news in Australia where the ASX is currently +0.95%, although the Aus iTraxx index is 4bps wider as we go to print. US equity market futures are weaker while Gold has surged above $1,200.

Moving on. As we highlighted at the top, yesterday saw the 2s10s Treasury yield curve go below 100bps for first time since December 2007. After spiking as high as 1.772% in early trading, the benchmark 10y yield tumbled into the close, eventually finishing over 5bps lower on the day at 1.668% and just off the 12-month lows. 2y yields finished unchanged at 0.686% meaning the spread of 98bps is the lowest since the 6th December 2007. This is one of our favourite lead indicators of the business and default cycle and the flattening that has occurred in recent years is one of the reasons we think credit conditions have been tightening for a few quarters now and why our default models have been showing a continued pick-up in defaults into 2017-2018. To be fair the last four recessions have not started until the yield curve (2s10s) has inverted. We’re still some way off that but the fact that we’re at the flattest for over 8 years is a warning sign.

There was finally some good news to report for European equity markets yesterday as the Stoxx 600 (+1.87%) benefited from a financials-led (Banks +4.42%) rebound to close up for the first time this month. Having been heavily hit in recent days the IBEX (+2.73%) and FTSE MIB (+5.03%) finally got some much needed relief. European credit indices also had a better day although did finish well off their tights. The iTraxx senior and sub-financials indices ended up 5bps and 13bps tighter respectively which helped Main in particular close nearly 2.5bps tighter, although the index had been closer to 8bps tighter pre-Yellen.

Staying with credit, our US credit strategists published their latest note earlier this week (Chickens Come Home to Roost, 8 Feb 2016) wherein they construct a proprietary dataset to forecast expected US default rates. The team uses index transition data to capture all forms of default – bankruptcies, out-of-court restructurings and distressed exchanges – to build a robust market-based dataset that is more detailed, precise and timely than that available from ratings agencies. The most striking revelation of the data is that DM HY commodity names appear to already be in a full cycle, with issuer-weighted default rates at 15.9% (14.9% par).

Assuming that commodity defaults rise to 20% for the year ahead and that ex-commodity defaults hold steady at 4% as they forecast, the overall default rate for DM USD HY (Commodity weight: ~20%) would hit 7.2% – magnitudes higher than the 1.85% default rate seen last year! Rising credit pressures across a spectrum of non-commodity industries and downward pressure on recovery rates in energy bonds should only serve to further compound already apparent risks.

Wrapping up, yesterday’s economic data was focused on what was a pretty soft set of industrial production reports in Europe. Data for France (-1.6% mom vs. +0.3% expected), Italy (-0.7% mom vs. +0.3% expected) and the UK (-1.1% mom vs. -0.1% expected) all missed relative to expectations, while manufacturing reports for France and the UK were also soft for the month of December.

Turning to the day ahead, there’s not alot for us to report with no economic data of note due out in Europe and just the latest weekly initial jobless claims data due in the US this afternoon. Instead the focus will again be on Fed Chair Yellen when she is due to speak in front of the Senate at 3pm GMT. Her prepared remarks could mirror what she said yesterday so the focus will be on the Q&A. Away from this we’ll also get the Riksbank’s latest monetary policy announcement where current economist expectations are for another cut in the main policy rate deeper into negative territory (10bps cut to -0.45%). Earnings wise today we have 20 S&P 500 companies set to report including AIG and PepsiCo.

 

end

 

and then this from JPMorgan on events this morning throughout the globe:

(courtesy JPMorgan/Adam Crisafulli)

JPMorgan: “It’s Hard To Imagine An Uglier Morning”

Here is this morning’s market update from JPM’s Adam Crisafulli

It’s hard to imagine an uglier morning. The two things markets hate most right now (neg. central bank rates and bad bank headlines) occurred overnight as the Riksbank dropped its rate further into neg. territory and SocGen put up bad earnings/guidance.

The combination of those two events, coupled w/very fragile sentiment, extreme risk aversion(a function of enormous P&L destruction YTD), Yellen’s testimony (which wasn’t sufficiently dovish or concerned about financial market volatility from the perspective of markets), and CSCO’s cautious macro commentary, are weighing very hard on equities so far Thurs morning.

The main Eurozone indices (SX5E and SXXP) are both down “3% today, “6% WTD, and —16% YTD. The SX7P Eurozone bank index is off >5% today, —10% WTD, and nearly 30% YTD.

Ironically, some of the worst carnage in months is occurring while China is shut and the Yuan has been rallying (the CNH has been creeping higher over the last few days, albeit on very thin volumes).

Trying to divine the end of the rout is difficult given the globe is in the midst of a series of tightly intertwined, self-reinforcing, and correlated trades and narratives (i.e. oil slumps and drags inflation down with it which prompts CBs to ratchet up accommodation which sinks banks which crushes general market sentiment and the overall price declines tighten financial market conditions and scares corporate execs and actual economic activity begins to deteriorate).

A lot of the price action feels very forced and perfunctory but that doesn’t make it any less real or painful.

end

 

Let us begin:

 

ASIAN AFFAIRS

 

Late  WEDNESDAY night/ THURSDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed badly by 742 points or 3.85% . The Nikkei was closed. The only bourse that was up was Australia’s all ordinaries. Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil lost  to 26.47 dollars per barrel for WTI and 30.35 for Brent. Stocks in Europe so far deeply in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/

 

Early this morning: after the USA dollar/Japanese Yen crashed into the 110 level  (Yen screaming higher), the Bank of Japan intervened to drive the cross back to the 112 level! (courtesy zero hedge) Bank Of Japan Intervention Sends USDJPY Soaring

Just like two days ago, when for the first time since 2011 the BOJ intervened directly in the USDJPY market, moments ago Kuroda’s trading desk once again decided to sell a boatload of Yen, with the key carry pair trading at 111.25 and threatening to take out the 110 support, in the process sending the USDJPY higher by 175 pips in a matter of seconds to just above 113.

This is what the targeted move in JPY futures looked like courtesy of Nanex:

The move quickly filtered through to all other asset classes:

  • QUICK JUMP IN YEN, DOLLAR; S&P FUTURES PARE LOSS TO 32PTS

However, just like last time the BOJ’s direct intervention – seen as a last ditch effort when all else fails – the impact is already fading and traders are already counting down how long until the BOJ’s attempt to pull a PBOC is fully faded.

end

 

Kyle Bass explains in simple language the problem facing China.  The country has 10 trillion USA equiv in GDP.  The country has debt (sovereign + corp+ household) of 34.5 trillion dollars.  No doubt that about 20% of that debt is non performing and with a recovery of 50%, then 3 trillion uSA will be lost and sovereign China will need to recapitalize their banks. Their entire reserves are 3.2 trillion which is made up of gold, USA dollars and Euros.

 

(courtesy CNBC)

 

Bass: China banks may lose 5 times US banks’ subprime losses in credit crisis @LeslieShaffer1

1 Hour AgoCNBC.com

Mark Neuling | CNBC

A Chinese credit crisis would see the country’s banks rack up losses 400 percent larger than those run up by U.S. banks during the subprime mortgage crisis, storied hedge fund manager Kyle Bass said in a letter to investors.

“Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” Bass, the founder of Dallas-based Hayman Capital, wrote in the letter dated Wednesday.

“Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.”

China’s banking system has grown to $34.5 trillion in assets over the past 10 years, from a base of $3 trillion, wrote Bass, who is famed as one of the few major investors to correctly call the U.S. subprime housing collapse that kicked off the 2008 global financial crisis.

“Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10 percent of assets. Historically, China has lost far in excess of 10 percent of assets during a non-performing loan cycle,” he wrote. He noted that U.S. banks lost around $650 billion of their equity throughout the global financial crisis.

Mark Neuling | CNBC Kyle Bass

A Chinese credit crisis would see the country’s banks rack up losses 400 percent larger than those run up by U.S. banks during the subprime mortgage crisis, storied hedge fund manager Kyle Bass said in a letter to investors.

“Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” Bass, the founder of Dallas-based Hayman Capital, wrote in the letter dated Wednesday.

“Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.”

Uncut: Full interview with hedgie Kyle Bass

China’s banking system has grown to $34.5 trillion in assets over the past 10 years, from a base of $3 trillion, wrote Bass, who is famed as one of the few major investors to correctly call the U.S. subprime housing collapse that kicked off the 2008 global financial crisis.

“Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10 percent of assets. Historically, China has lost far in excess of 10 percent of assets during a non-performing loan cycle,” he wrote. He noted that U.S. banks lost around $650 billion of their equity throughout the global financial crisis.

Here is what I am shorting: Kyle Bass

The letter said that the Bank for International Settlements estimated that Chinese banking system losses from the 1998-2001 non-performing loan cycle exceeded 30 percent of gross domestic product (GDP).

“We expect losses in this cycle to exceed prior cycles. Remember, 30 percent of Chinese GDP approaches $3.6 trillion today,” he warned.

Bass wrote that he expected the massive losses to force Beijing to recapitalize Chinese banks and sharply devalue the yuan.

“China will likely have to print in excess of $10 trillion worth of yuan to recapitalize its banking system,” he said.

The hedge fund manager didn’t return an email sent outside office hours requesting comment on the investor letter, which the Wall Street Journal reported was his first in two years.

—By CNBC.Com’s Leslie Shaffer; Follow her on Twitter@LeslieShaffer1

 

end EUROPEAN AFFAIRS Something big is up!!  Deutsche bank’s credit default swaps are back to record highs. Credit default swaps are simply a bet on the survival of the bank itself.  Many belief that they are toast!! (courtesy zero hedge) Deutsche Bank Is Back: 5 Year Sub CDS Soar To Record High

“Worse than Lehman” is how one European bond market trader described the carnage this week as the brief respite that ECB monetization and debt-buyback rumors provided yesterday have morphed into utter destruction this morning. European (and US) banks are a sea of contagious red with Deutsche Bank the tip of the collapse spear. Credit risk on Deutsche has exploded this morning with Sub CDS trading up 85bps to a record high 540bps… eerily reminiscent of the pre-Lehman bankruptcy week in 2008.

Time to panic now?

 

We’ve seen this kind of stress before for a financial institution…

 

and it did not end well…

end And then it is not just Deutsche bank, it is the entire European sovereign risk that is blowing out.  Sovereign Portugal has seen its bond yields rise over 200 basis points for the past week. (courtesy zero hedge) European Sovereign Risk Soars As Systemic Fears Mount

“Whatever it takes” is not enough, it would appear as the fragility and interconnectedness forced upon the European banking/sovereign finance ponzi has rapidly come home to roost for Draghi and his followers. Peripheral bond risk has flipped from “hold your nose” buys to panic sells with Portugal risk exploding 200bps in the last week. As the European banking system’s credit risk rises 2012-crisis-like, it seems belief in a bigger bazooka is fading fast.

It’s not just Deutsche Bank…

 

Smashing European Peripheral risk higher…

end And now Credit Suisse’s credit default swaps are blowing out!! (zero hedge) It’s Not Just Deutsche Bank…

While broad-based contagion from Deustche Bank’s disintegration is clear in European, US, and Asian bank risk, there is another major financial institution whose counterparty risk concerns just went vertical…

Credit Suisse…

With the stock at 27-year lows, it appears investors are seriously questioning Chief Executive Officer Tidjane Thiam’s restructuring plans.

 end This will be scary for many in the oil patch as one of the largest lenders to oil is BNP and they are exiting the reserve base lending oil business: (courtesy zero hedge) BNP Pulls Plug On US Energy Sector, Will Exit RBL Lending

Back in 2012, BNP Paribas exited the North American reserve-based lending market, when it sold its RBL unit to Wells in an effort to shore up its balance sheet amid the turmoil generated by the eurozone debt crisis.

A little over two years later, in the fall of 2014, BNP got back into the RBL game in the US. That probably wasn’t a good idea.

Just a few months after the bank jumped back in, the Saudis moved to bankrupt the US shale complex and it’s been all downhill from there with crude plunging and America’s cash flow negative producers careening towards insolvency.

We’ve been warning since early last year that it was just a matter of time before banks start to shrink the borrowing bases of uneconomic producers’ credit facilities. In other words, with the door to the HY market now slammed shut as spreads blow out and investors panic, the last lifeline for many in the O&G space is about to be cut, as no bank wants to be caught flat-footed if things get as bad as many people think they will.

On Thursday, we learn that BNP is now set to exit the RBL market for the second time in five years.

“BNP Paribas is reining back lending to the US energy sector, potentially tightening a squeeze for cash-strapped producers struggling with the collapse in oil prices,” FT reports. “The Paris-based bank is pulling out of the business of reserve-based lending, a vital source of liquidity for many oil and gas companies with big capital needs and irregular cash flows.”

“Given the current environment in the oil and gas market and the poor outlook for future fundamentals in the short to medium term, BNP Paribas has had to make adjustments to some of its businesses and has decided to stop the redevelopment of its reserve-based lending business,” the bank said, in a statement.

BNP will continue to service existing clients, but its exit from new business is a rather inauspicious move. Indeed, it suggests that when credit lines are reassessed again in April, we’re likely to see further cuts. “During the previous round of ‘redeterminations’ last autumn, banks cut limits for most customers between 10 and 20 per cent,” FT continues. That’s likely to be the case again in two months, Wells CFO John Shrewsberry said this week at an industry conference in Florida.

As a reminder, virtually the entire sector is cash flow negative. Without access to credit lines, everyone goes belly up. Of course with crude at $27, no one wants the assets the companies have pledged as collateral. As we outlined three weeks ago, some oil and gas drillers’ assets are only fetching a fraction of what they owe at auction.

Amusingly, banks are cutting their own throats by shrinking the credit facilities. That is, you don’t necessarily want to bankrupt someone who owes you a lot of money, especially when you won’t be able to recover much by selling off the collateral.

But alas, there’s really no choice at this juncture. There’s no end in sight to the oil market malaise with Iran ramping up production and a recalcitrant Saudi Arabia dug in for a long war of attrition.

We anxiously await the next bank to pull the RBL plug and we’re even more anxious to find out just how much the banks have provisioned for the losses that are sure to pile up rapidly once the entire sector loses access to its revolvers.

As a reminder, America’s long list of cash flow negative producers are sitting on $325 billion in debt.

Average: We brought this to your attention yesterday.  The EU are now probing the banks on SSA debt: how much more will  Deustche bank have to pay for their misdeeds: (courtesy zero hedge) Agency Bond Rigging Probe Expands As Europe Grills Banks On SSA Debt

One thing that became abundantly clear in the wake of the financial crisis was that everything – and we do mean everything – was being manipulated by Wall Street’s biggest and most systemically important financial institutions.

First we learned that the most important benchmark rate on the planet was nothing more than a tool submitters used to inflate the value of their traders’ books, something we flagged way back in 2009.

Subsequently, all manner of rigging and fixing was discovered across markets from gold, to FX, to ISDAfix. Although chat logs clearly show that there are scores of people who should probably be in jail for conspiring to manipulate markets, the vast majority of those responsible got off scot-free with the notable exception of poor Tom Hayes who was sentenced to 14 years for allegedly serving as the ringleader of a group that colluded to fix LIBOR.

We even found out that banks were rigging the UST market by conspiring to keep the spread between the when issued price and the price at auction as wide as possible.

In short, if it can be manipulated, you can bet Wall Street is manipulating it – or at least they were, until they got caught.

In most cases, the fines leveled against the banks by regulators as punishment for the above are paltry and amount to slaps on the wrist, but when you’re facing a liquidity crunch, just about the last thing you need is to be forced into handing over a few more billion to the government. That’s precisely the situation facing Deutsche Bank, which late last month reported its first annual loss since the crisis along with abysmal quarterly results that have caused the market to question whether Europe’s largest lender may be in trouble.

The reason we bring all of this up is because on Wednesday, we found out that the EU Commission has opened a preliminary investigation into the $1.5 trillion SSA market.

The commission’s powerful competition department has sent questionnaires to a number of market participants as part of an early-stage probe into possible manipulation of the price of supranational, subsovereign and agency debt,” FT reports. “This market covers a diverse range of debt issuers including organisations such as the European Bank for Reconstruction and Development and regional borrowers like Germany’s Länder. A common feature is that the bonds often have a form of implicit or explicit state guarantee.”

FT goes on to note that the DOJ is also probing the SSA market and reminds us that several London-based traders at Crédit Agricole, Nomura and Credit Suisse have already been put on leave.

In a rerun of the various other cases of manipulation by the world’s foremost financial institutions, officials say a “complex cartel” of bankers acting badly may have moved to rig prices.  “The Justice Department investigation has focused on activity by London-based traders in the debt instruments,” Bloomberg writes, adding that “the U.S. prosecutor and the FCA are both looking at whether traders at different banks coordinated decisions on who would offer price quotes to potential buyers and sellers.

As a reminder, some of these bonds are eligible for the ECB’s €1.1 trillion QE program.

And while Deutsche Bank doesn’t appear to be at the top of the list when it comes to who the DOJ and Britain’s FSA are looking at in connection with the alleged rigging, don’t be at all surprised if the bank lands in the European Commission’s crosshairs.

Remember, Deutsche is expected to shell out another $3.6 billion for litigation in 2016. Stay tuned to discover whether that number will grow as a result of Europe’s SSA inquiry.

The EU dished out €1.7 billion in fines in connection with the LIBOR scandal and is still looking into banks’ role in manipulating precious metals and FX.

 

end

 

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

 

 

it is getting quite dangerous in the northern section of Syria namely Aleppo. It was announced that the USA after flying in from Turkey bombed out 9 targets without discussing what they were.  It seems that two hospitals were hit. Saudi Arabia is ready to enter the fray and if they do, then prepare for World War iii.

(courtesy zero hedge)

 

Saudi Arabia Makes “Final” Decision To Send Troops To Syria As US, Russia Spar Over Aleppo Strikes

As you might have heard, the opposition in Syria is in serious trouble.

Last summer, Bashar al-Assad’s army was on the ropes, as the SAA fought a multi-front war against a dizzying array of rebel forces including ISIS. Then Quds commander Qassem Soleimani went to Russia. After that, everything changed.

As of September 30 the Russian air force began flying combat missions from Latakia, rolling back rebel gains and paving the way for a Hezbollah ground offensive. Once Moscow had stopped the bleeding for the SAA (both figuratively and literally), Iran called up Shiite militias from Iraq who, alongside Hassan Nasrallah’s forces, pushed north towards Aleppo.

Now, the city is surrounded and the rebels are cut off from their supply line to Turkey. In short: it’s just a matter of time before the opposition is routed.

So much for President Obama’s “Russia will get itself into a quagmire” line.

The only thing that can save the rebels at this juncture is a direct intervention by the groups’ Sunni benefactors including Saudi Arabia, the UAE, Qatar, and Turkey.

That, or an intervention by the US.

Both the Saudis and the Turkey have hinted at ground invasions over the past two weeks and just this morning, a sokesman saidRiyadh’s decision to send in troops was “final.”

But direct interventions are tricky. Russia has never denied it intends to bolster Syrian government forces against the rebels, all of whom Moscow deems “terrorists.” On the other hand, Washington, Riyadh, Doha, and Ankara cling to the notion that while they don’t support Assad, they’re primary goal is to fight ISIS. Well ISIS is in Raqqa, which is nowhere near Aleppo, meaning there’s no way to help the rebels out in their fight against the Russians, Iranians, and Hezbollah under the guise of battling Islamic State.

Against that backdrop we found it interesting that Moscow and Washington are now delivering conflicting accounts of airstrikes in Aleppo on Wednesday. The Pentagon, without specifying what time the strikes allegedly took place, says Russia destroyed the city’s two main hospitals.

Defence Ministry spokesman Igor Konashenkov notes that Warren didn’t provide either hospitals’ coordinates, or the time of the airstrikes, or sources of information. “Absolutely nothing,” he said, describing Warren’s report.

The Kremlin, on the other hand, says US warplanes conducted strikes at 1355 Moscow time. “Two U.S. Air Force A-10 attack aircraft entered Syrian airspace from Turkish territory,” Konashenkov said in a statement. “Reaching Aleppo by the most direct path, they made strikes against objects in the city.”

“Only aviation of the anti-ISIS coalition flew over the city yesterday,” he added.

“When asked on Wednesday whether the U.S.-led coalition could do more to help rebels in Aleppo or improve access for humanitarian aid to the city, Pentagon spokesman Colonel Steve Warren said that the coalition’s focus remained on fighting Islamic State,” Reuters wrote on Thursday. The group is “virtually non-existent in that part of Syria,” Warren said.

Right. Which makes you wonder what two US Air Force A-10 attack planes were doing bombing in and around Aleppo. Is the US set to conduct airstrikes in support of the rebels, thus marking a fresh and exceptionally dangerous escalation of hostilities in the country?

As for what exactly it was that the US warplanes struck, Konashenkov will have to get back to us. He’s too busy winning a war to care right now:

“I’m going to be honest with you: we did not have enough time to clarify what exactly those nine objects bombed out by US planes in Aleppo yesterday were. We will look more carefully.”

*  *  *

Below, find excerpts from “Will Russian Victories In Syria Spark A Regional War?” by Yaroslav Trofimov as originally published in WSJ

Defying U.S. predictions of a quagmire in Syria, Russia is achieving strategic victories there with this month’s Aleppo offensive. The question now is whether this is a turning point that hastens the five-year war’s end or the trigger for a counter-escalation that will drag other regional countries into the conflict.

Few expect that Moscow’s main target—the moderate rebels backed by Turkey, Saudi Arabia and the U.S.—would now be forced settle the conflict on the Kremlin’s, and Syrian President Bashar al-Assad’s, terms.

“Their victory in Aleppo is not the end of the war. It’s the beginning of a new war,” said Moncef Marzouki, who served in 2011-14 as the president of Tunisia, the nation that kicked off the Arab Spring, and who recently visited the Turkish-Syrian border. “Now, everybody would intervene.”

To be sure, Turkey and Saudi Arabia have few easy options to counter Russian military might in Syria. But because of national pride—and internal politics—neither can really afford to have the rebel cause in which they have invested so much wiped out by Moscow and its Iranian allies.

While the Obama administration has long been determined to minimize U.S. involvement there, for Turkey and Saudi Arabia the prospect of Syria falling under the sway of Russia and Iran would be a national-security catastrophe.

“The whole situation, not just for Turkey but for the entire Middle East, would be reshaped. The Western influence will fade away. The question is: Can we accept Russia, and the Iranians, calling the tune in the region?” said Umit Pamir, a former Turkish ambassador to NATO and the United Nations.

 

 

end The rhetoric between Iran and Saudi Arabia is getting firece.  Iran is holding nothing back. If Saudi Arabia invades;  it will be suicide: (courtesy zero hedge) Iran Holds Nothing Back: “It’s A Suicide Mission That Will Have A Very Dark End”

Earlier today we reported that Saudi Arabia has made a “final” decision to invade Syria.

Of course they won’t use the term “invade.” They’ll say the same thing the US says, which is that they need to send in a limited number of ground troops to help fight ISIS.

The timing of the announcement quite clearly suggests that the Saudis are going to try and shore up the rebels who are facing imminent defeat at Aleppo where Hezbollah, backed by Russian airstrikes, is about to overrun the opposition.

That outcome is unacceptable for the Saudis, who have been funding and supplying the Sunni opposition in Syria for years. For Turkey, it’s pretty much the same story. How Riyadh and Ankara plan to assist the rebels while maintaining the narrative that they’re only in the country to fight Islamic State is an open question, but one thing is for sure: it’s do or die time. In the most literal sense of the phrase. “Publicly, Saudi Arabia, the UAE and Bahrain are calling for troops to be deployed as part of the US-led international coalition already ranged against Isis,” FT wrote, earlier this week. “But regional observers say the moves are cover for an intervention to help the Syrian rebels.”

“If Saudi and Turkish forces were deployed at Syria’s northwestern border crossings with Turkey, for example, they would be inside Russia’s operational theatre,” The Times continues. “This would be a total nightmare for the US,” said analyst Aaron Stein, of the Atlantic Council in Washington. “What happens if Russia kills a Turk? They would be killing a Nato member.”

Yes, a “total nightmare” for the US and to let one Iranian military source tell it, a “total nightmare” for the Saudis as well. Read below to see what Tehran thinks about Riyadh’s chances of securing a desirable outcome in Syria (note the reference to Saudi Arabia and Islamic State’s shared ideology):

*  *  *

Via Al-Monitor quoting unnamed Iranian military personnel:

It’s a joke. We couldn’t wish [for] more than that. If they can do it, then let them do it — but talking militarily, this is not easy for a country already facing defeat in another war, in Yemen, where after almost one year they have failed in achieving any real victory.”

“The Saudis might really take part in this war. Such a decision might come from the rulers of the kingdom without taking into consideration the capabilities of their troops, and here is where the tragedy would occur. They are not well-trained for such terrain. I’m not sure if they sorted out the supply routes they would use — this is assuming that they would only fight [IS] — but it’s obvious they [want to] implement their agenda, after their proxies failed.

“This would mean a regional war. Mistakes can’t be tolerated, especially with the tension mounting around the region. It’s not about Iranians, but about all troops on the ground fighting with the Syrian army. How would the Syrian army deal with a foreign country on its soil, without its permission, and maybe aiming [guns] at them? That would be an occupation force. Can the Saudis control their army? Who can guarantee that some of them might not defect and join [IS]? They have the same ideology and they hold the same beliefs, and many of them are already connected [to IS].”

The Saudis are simply putting themselves in a very weird position that might have a very dark end. The worst thing is that the implications aren’t only going to affect the region, but world peace.”

*  *  *

end Turkey says no to the EU refugee plan to resettle 250,000 refugees per year directly from Turkey.  They demand that Turkey is to close off the Aegean sea route to Greece. With the siege on Aleppo now, many Syrian are fleeing that city and the situation will get far worse (courtesy zero hedge) “Forget It”: Turkey Throws Up On EU Refugee “Plan” As NATO Sends Ships To Nab “People Smugglers”

“Forget it.”

That’s Turkish ambassador to the EU Selim Yenel’s message to Europe in response to a Dutch plan that would resettle 250,000 refugees per year directly from Turkey if Ankara can manage to close off the Aegean sea route to Greece.

Turkey is of course a key chokepoint for migrants fleeing Syria and the situation is expected to worsen materially going forward as Hezbollah and Russia advance on Aleppo, the country’s second-largest city where the opposition is making what amounts to a last stand against Moscow’s air force and Hassan Nasrallah’s advancing army. This was the scene at the border last week:

“If Turkey is not engaged, not committed and doesn’t start to deliver … it will be very difficult to manage the situation,” Dimitris Avramopoulos, the EU commissioner in charge of migration said. “If they really want, they can do the job on the ground.”

Not so, says Yenel.

It’s unacceptable and it’s not feasible,” he said, deriding the Dutch plan. Effectively, the EU wants Turkey to let in the all of the refugees fleeing Aleppo ahead of what will likely be a direct assault on the city in the coming weeks, but as The Guardian notes, Brussels is simultaneously “demanding that Ankara close the western and northern routes to Europe.”

“We’re surprised that the Europeans should say we should open the borders to Syrians from Aleppo when we’ve been doing that for five years,” Yenel said. “It is all unfolding, another tsunami. How are we going to cope?” he asked, reflecting the exasperation Turks are experiencing after sheltering some 3 million Syrians, triple the number of total refugees German took in last year.

“Avramopoulos unveiled new plans to force Turkey and Greece to take asylum seekers back from the rest of Europe,” The Guardian goes on to write. “But the scheme would not apply to Syrians, who are virtually assured of successful asylum claims in the EU, and perhaps also Iraqis and Afghans.”

Substantially all of those entering Greece via the Aegean Sea route are either Syrian, Afghan, or Iraqi. Athens has been threatened with expulsion from Schengen if it can’t bring its procedures for coping with the migrant flows in line with European “norms” – whatever that means.

All of this comes as leaked documents reveal Erdogan effectively blackmailed the EU last year by promising to “send refugees in buses” into Europe if Brussels didn’t hand over billions and as NATO sends ships to the Aegean to deter people smugglers from moving refugees from Turkey to the shores of Greece.

Obviously, the NATO mission doesn’t exactly sound like it’s compatible with the compassionate, open-door policy Europe is keen on projecting, but as Jens Stoltenberg will tell you, it’s not about “stopping or pushing back refugee boats,” it’s about obtaining “critical information and surveillance to help counter human trafficking.”

“The decision marks the security alliance’s first intervention in Europe’s migrant crisis,” BBC writes. US defence secretary Ashton Carter says it’s critical that NATO target the “criminal syndicate that is exploiting these poor people.”

Of course if Ash Carter was really concerned about those “poor people,” perhaps he should consider not bombing the countries from which they are fleeing. Say what you will about Saddam, Assad, and the Taliban, but Iraqis, Syrians, and Afghans weren’t running for their lives to Western Europe by the millions prior to American interventions in their countries’ affairs.

GLOBAL AFFAIRS

 

 

Sweden upon seeing its Swedish kroner rise in value, decided that it was best to increase its NIRP further, this time to -.5%.  The Swedish bank governor stated that his nation was not experiencing any inflation and with the higher kroner, their exports were suffering. Thus currency wars at its finest as we now are in a war in a race to the bottom of the currency ladder:

 

(courtesy zero hedge)

 

Sweden Slides Further Into NIRP, Cuts Rates To -0.50%

Ever since the BoJ took the plunge into NIRP late last month analysts and commentators alike have begun to express a high degree of skepticism about the wisdom of adopting negative interest rates.

Once seen as a kind of peculiar policy experiment confined to Switzerland, Denmark, and Sweden, NIRP has escaped the lab so to speak and now that Kuroda is negative and Draghi is contemplating another depo rate cut in March, people are starting to realize that the entire developed world might be about to go Keynesian crazy. Even the US.

Indeed it was just yesterday that we brought you the latest from JP Morgan, where analysts made the following rather shocking predictions about how low rates could go under tiered implementation system:

As we’ve explained on a number of occasions, this is becoming a never-ending race to the bottom. It’s an all-out currency war and when one central bank eases, so too must the others or risk seeing their inflation targets jeopardized. That’s especially true for Sweden where governor Stefan Ingves is concerned about what the Riksbank sees as excessive krona strength and still sluggish inflation.

On Thursday, in an effort to get out ahead of the ECB, the Riksbank cut again, taking the repo rates by 15bps to -0.50% in a move that Nordea calls “a bit more than expected.” QE will continue as planned and the Riksbank “will reinvest maturities and coupons from the government bond portfolio until further notice.”

“Uncertainty regarding global developments is still high, with low inflation and several central banks pursuing more expansionary monetary policy,” the bank continued. “Swedish monetary policy must relate to this. Otherwise the krona exchange rate is at risk of strengthening at a faster rate than in the forecast, which would make it harder to push up inflation and stabilize it around 2 percent.” Here was the move in the krona:

The bank also reiterated that it’s prepared to intervene directly in the FX market to curb krona strength if necessary and contended that there’s still more room to cut rates further. “So far, at least in this economy, these things have worked actually pretty much the way one would expect,” Ingves said, addressing the effect deeply negative rates have on Swedish banks. “When it comes to Swedish banks, their profit level is very, very good so at this level that’s not an issue.”

Analysts are divided on how things play out from here. Here’s some commentary (via Bloomberg):

From Standard Bank:

  • After Riksbank cut its key rate to -0.5%, European central banks’ dive into deeper rates will continue, Steven Barrow, analyst at Standard Bank, says in e-mailed comments.
  • Riksbankoutcome is a bit more dovish than market expected and so weighs on SEK and yields
  • This is of significance because European banks are acting as a guide to how negative rates can go
  • Should the likes ofRiksbankand SNB lower rates further, that could offer more clues as to where the real lower bound is on rates

From Nordea:

  • Interpret the comment on the operational framework as a potential move toward a tiered-rates system in Sweden, as seen in Denmark, Switzerland and Japan, Martin Enlund, analyst at Nordea writes in e-mailed comment.
  • Says comment is very dovish and could wreak havoc with Swedish money-market rates
  • ECB likely to decide how much the Riksbank will do in the rates space, and some market participants are now looking for ECB to cut 20bps in March and another 20bps in June; would almost surely pushRiksbankinto a tiered-rates system later this year
  • Overall dovish surprise; Nordea would be a bit hesitant in buying SEK until dust settles, which could take a day; the normal pattern is that EUR/SEK drops 1% in the 2 wks after a softRiksbankdecision

From Danske:

  • Swedish central bank will probably have to ease monetary policy further as inflation forecasts are still too optimistic, says Michael Grahn, an analyst at Danske Bank.
  • PredictsRiksbankwill expand government bond purchases beyond June; doesn’t exclude more repo rate cuts

From Swedbank:

  • Riksbank’s decision to cut its repo rate to -0.50% was expected but there’s now increased disagreement among board members, Anna Breman, chief economist at Swedbank AB, says by phone.
  • “Interesting” that two board members entered reservations against the rate cut and Floden against extension of FX intervention delegation mandate
  • Repo rate path indicates possible further rate cuts
  • Says that Riksbank further move into negative will lead to “big discussion”on mon. policy and the inflation target, as negative rates will remain below zero for a long period

From SEB:

  • SEB sees 40% likelihood that Riksbank will ease monetary policy further, mainly due to downside risks in world economy, says Olle Holmgren, an SEB analyst.
  • Riksbankinflation forecasts are still too optimistic
  • Further rate cut, expanded QE most likely stimulus tools
  • Still, reservations against today’s cut by two of six board members may suggest repo rate is starting to near bottom
  • FX interventions remain an option if SEK strengthens to 9-9.10 against EUR; uncertainties about scope ofRiksbank’s intervention mandate decreases likelihood of intervention

Your move Draghi.

 

END

 

 

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/THURSDAY morning 7:00 am

Euro/USA 1.1319 up .0038

USA/JAPAN YEN 111.94 down 1.312 (Abe’s new negative interest rate (NIRP)a total bust

GBP/USA 1.4402 down .01165

USA/CAN 1.3974 up .0049

Early this THURSDAY morning in Europe, the Euro rose by 38 basis points, trading now well above the important 1.08 level rising to 1.1319; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, crumbling bourses and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was flat in value (onshore) due to lunar holiday. The USA/CNY flat in rate at closing last night: 6.5710 / (yuan flat but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)

In Japan Abe went BESERK  with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP   . The yen now trades in a hugely  northbound trajectory as IT settled UP AGAIN in Japan again by 131 basis points and trading now well BELOW  that all important 120 level to 111.94 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE  AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP

The pound was down this morning by 117 basis point as it now trades just above the 1.44 level at 1.4402.

The Canadian dollar is now trading DOWN 49 in basis points to 1.3974 to the dollar.

Last night, Chinese bourses were closed/Japan NIKKEI IS CLOSED, AUSTRALIA IS HIGHER  All European bourses ARE DEEPLY IN THE RED as they start their morning.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this THURSDAY morning: closed

Trading from Europe and Asia:
1. Europe stocks all in the RED

2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed DOWN 3.85% OR DOWN 743 POINTS ,Shanghai in the closed  Australia ONLY BOURSE IN THE GREEN: /Nikkei (Japan)red/India’s Sensex in the red /

Gold very early morning trading: $1236.00

silver:$15.57

Early THURSDAY morning USA 10 year bond yield: 1.57% !!! down 15 in basis points from last night  in basis points from WEDNESDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.41 DOWN 13  in basis points from WEDNESDAY night.  ( EXTREME policy error)

USA dollar index early THURSDAY morning: 95.60 down 22 cents from WEDNESDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers THURSDAY MORNING

 

OIL MARKETS

Last night:

 

Phillips 66 dumps crude on Cushing OK refiners.  As we have been pointing out to you on several occasions, Cushing has no refining space whatsoever.  This caused WTI price to fall into the 26 dollar handle and create conditions similar to a stock bloodbath.  We now have an oil bloodbath;

 

(courtesy zero hedge)

 

“Bloodbath” In Black Gold – Buffett’s Phillips 66 Dumps Oil In Cushing, Crashes Crude Spreads To 5 Year Lows

The canary in the coalmine of an increasingly desperate energy industry just croaked. With“unusual timing” and at “distressed prices,”Reuters reports that Phillips 66 – the major US refiner owned by Warren Buffett – dumped crude oil for immediate delivery into Cushing storage tonight. This sparked heavy selling of the front-month WTI contract (to a $26 handle) and crashed the 1st-2nd month spread to 5 year lows.

It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.

 

And now with Reuters reporting on major US refiners dumping crude, sparking speculation that the move reflected advance warning of looming output cuts amid sluggish winter demand and record inventories

Front-month WTI collapsed to a $26 handle…

 

 

The unusual sales of excess oil crashed the March/April WTI futures spread… One trader described the market as a “bloodbath.”

 

 

It was unclear how many barrels one of the largest U.S. independent refiners sold, but three traders confirmed at least two deals traded at negative $2.50 and $2.75 a barrel. Two sources said a second refiner was also looking to offload barrels but transactions were not confirmed.

 

These deals drew notice among traders, who said the prices were distressed and the timing unusual… sending the cash-roll to 5 year lows…

 

 

The so-called cash roll, which allows traders to roll long positions forward, typically trades in the three days following the expiry of the prompt futures contract. The trading period for February-March contracts concluded almost three weeks ago.

 

Since then, however, oversupply has pressured refined products prices lower, and now some grades of crude are yielding negative cracking margins, traders say.

 

“Midwest margins turned negative after operating expenses last week andforward cracks suggest margins will remain in the doldrums for some time,” said Dominic Haywood, an analyst for Energy Aspects in London.

If Phillips 66 does cut refinery runs, it would be the third refiner to capitulate amid record gasoline inventories and negative margins.

Earlier on Wednesday, sources said Delta Air Lines’ Monroe Energy refinery near Philadelphia had decided to cut output by 10 percent at its 185,000 barrels per day (bpd) refinery due to economic reasons.

 

On Tuesday, sources said that Valero Energy Corp was planning to cut gasoline production at its 180,000 bpd Memphis, Tennessee, refinery by about 25 percent.

U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week – just 8 million barrels shy of its theoretical limit – stoking concerns that tanks may overflow in coming weeks.

 

And so, with the news that Phillips 66 is dumping in apparent size, it appears, as we detailed previously, that BP’s warning that storage tanks will be completely full by the end of H1

We are very bearish for the first half of the year,” Dudley said at the IP Week conference in London Wednesday. “In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in,” he added. “The market will start balancing in the second half of this year.”

May be coming true a lot sooner.

 

end This morning: back to the 26 dollar handle after the Saudi Headlines (courtesy zero hedge) WTI Crude Pumps’n’Dumps Back To $26 Handle After Saudi Headlines

In a replay of yesterday’s idiotic opening action, WTI crude spiked on Saudi troops headlines – running stops to yesterday’s close – only to dump back below $27 once again…

 

end More and more investors believe that Cushing Oklahoma refining will overflow: (courtesy zero hedge) The Most Ominous Warning That Oil Storage Is About To Overflow Has Arrived

It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.

 

And now with major US refiners dumping crude, as we detailed overnight, those fears are surging.

U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week – just 8 million barrels shy of its theoretical limit – stoking concerns that tanks may overflow in coming weeks.

 

 

 

And now, given the “super-contango” in 3-month it is extremely clear that storage concerns are at their highest in 5 years…

 

Simply put, as one trader noted, speculators are now “making the leap to Cushing storage never being more full… will actually overfill, or even stop taking crude oil deliveries outright.”

end Then late in the day:  The UAE supposedly speaking on behalf of Saudi Arabia states that OPEC is ready to cooperate on a cut in production.  We will see how long this story lasts: (courtesy zero hedge) Moments After Oil Crashes To 12 Year Lows, “OPEC Headline” Sends It Surging Again

Seconds after Oil hit the lows and NYMEX closed – and S&P broke the critical 1812 level, this hit:

  • *OPEC READY TO COOPERATE ON CUT, UAE ENERGY MIN SAYS: WSJ

Here is the source:

 

So, first it was Venezuela speaking for the Saudis, then it was Russia speaking for the Saudis, now it is the UAE.

And the reaction…

 

The last time front-month crude oil traded at these levels ($26.12) was May 2003 as WTI Crude has collapsed over 22% in the last 2 weeks – the biggest drop since Lehman in 2008. Goldman’s “teens” are getting closer…

 

 

With credit risk already at record highs – and getting higher – we suspect the moment of Chapter 7 truth is getting closer.

end Then the Wall Street Journal comes out and states that the above story is bogus: (courtesy Wall Street Journal/zero hedge) Even WSJ Admits OPEC Production Cut Story “May Be Bogus”

He hope we are not the only ones who find it oddly confusing that moments after the WSJ reported that the UAE, supposedly speaking on behalf of the Saudis, said OPEC is “ready to cooperate on a production cut”, the very same WSJ writes that the “story may be bogus.”

From the WSJ:

Look, the OPEC thing may turn out to be bogus. Lord knows we’ve heard that line too many times to count, and oil’s at $26/barrel. Even if it is bogus, though, the episode illustrates one thing: there is still a sizable contingent of operators out there just waiting for an excuse to pounce on equities.

 

In other words, we still are not near capitulation.

Yes, it may very well be bogus, and no, it has nothing to do with operators pouncing, and everything to do with the latest violent short squeeze, one which was accelerated by frontrunning algos which swept away all the offers for minutes, sending the Nasdaq briefly into the green.

 

The WSJ also adds the following walkback:

It’s not that I think somebody planted a rumor, mind you. I’m not saying the news is wrong or that it’s being misreported. I just think that we hear this kind of talk out of OPEC a lot.

 

“We’ve heard this chatter enough times over the past month so take it with a grain of salt,” said Lindsey Group’s Peter Boockvar.

 

They have a notorious history of “agreeing” on cuts and quotas, and then going behind each other’s back and doing whatever is best for individual states.

 

It’s best to wait until OPEC actually does something on this front, and then to wait and see if they honor it. In other words, we’re a long way away from anything really happening here.

We expect the Saudis to chime in momentarily and explain how everyone got punked by the latest “OPEC headline” for the 6th time.

end

 

An OPEC production cut is unlikely until the USA production declines by at least 1 million barrels per day.  Thus if they do a production cut it will accomplish nothing except a very short term increase in price (courtesy Arthur Berman/OilPrice.com) OPEC Will Not Blink First

Submitted by Arthur Berman via OilPrice.com,

An OPEC production cut is unlikely until U.S. production declines by about another million barrels per day (mmbpd). OPEC won’t cut because it would accomplish nothing beyond a short-term increase in price. Carefully placed comments by OPEC and Russian oil ministers about the possibility of production cuts achieve almost the same price increase as an actual cut.

Bad News About The Oil Over-Supply from IEA and EIA

The International Energy Agency (IEA) and U.S. Energy Information Administration (EIA) shook the markets yesterday with news that the world’s over-supply of oil has gotten worse rather than better in recent months. IEA data shows that the global liquids over-supply increased in the 4th quarter of 2015 to 2.24 million barrels per day (mmbpd) from 1.62 mmbpd in the 3rd quarter (Figure 1).

Figure 1. IEA world liquids market balance (supply minus demand). Source: IEA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

Supply increased 70,000 bpd and demand decreased 550,000 bpd for a net increase in over-supply of 620,000 bpd. The sharp decline in demand is perhaps the most troubling aspect of IEA’s report. The agency forecasts tepid demand growth of only 1.17 mmbpd in 2016 compared with 1.61 mmbpd in 2015. The weak global economy is the culprit.

EIA’s monthly data showed the same trend. Over-supply in January increased to 2.01 mmbpd from 1.35 mmbpd in December, a 650,000 bpd net change (Figure 2). Supply fell by 370,000 bpd but consumption dropped by a stunning 1.02 mmbpd.

Figure 2. EIA world liquids market balance (supply minus consumption). Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

The January 2016 Oil Price Head-Fake

Recent comments about a possible OPEC cut were largely responsible for the late January “head-fake” increase in oil prices (Figure 3). WTI futures increased 27 percent from $26.55 to $33.62 per barrel between January 20 and 29. As hopes for a production cut faded, prices fell 8 percent last week and have fallen below $28.00 as reality regains control of market expectations.

Figure 3. NYMEX WTI futures prices, October 2015-February 2016. Source: EIA, Bloomberg and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

There were, of course, other factors that boosted oil prices for that brief period. These included the usual questionably substantial suspects: a lower-than-expected build in U.S. crude oil inventories, sharp declines in U.S. land rig counts, and a weaker U.S. dollar on expectation that the Federal Reserve Board may slow planned interest-rate increases. What happens in the U.S. continues to drive oil markets.

Oil markets reflect a psychological conflict among investors between reality and hope. The reality is that the world is over-supplied with oil. The hope is that oil prices will increase without resolving that fundamental problem.

An OPEC production cut fulfills that hope. Deus ex machina.

Blame It On OPEC

Many believe that OPEC caused the global oil-price collapse by failing to rescue prices in its role as swing producer. This narrative also contends that OPEC and Saudi Arabia are producing at maximum capacity to destroy U.S. shale producers. The data do not support this narrative.

January 2016 Saudi crude oil production (9.95 mmbpd) increased slightly from December (9.90 mmbpd) but has declined since the August 2015 peak of 10.25 mmbpd (Figure 4).

Figure 4. Saudi Arabia crude oil production and change in production since January 2008. Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Total OPEC crude oil production in January production was 31.61 mmbpd, almost half-a-million barrels per day less than in July (32.09 mmbpd) and only somewhat more than its 4-year average of 31.28 mmbpd.

Figure 5. Total OPEC crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

OPEC crude oil production since the Financial Crisis in 2008 has been remarkably balanced (Figure 6). Overall, increases by Iraq (+2.35 mmbpd) and Saudi Arabia (+0.6 mmbpd) have largely offset decreases by Iran (-1.0 mmpbd due to sanctions) and Libya (-1.4 mmbpd due to civil war). Renewed export by Iran with the lifting of sanctions is part of what pulls the oil market back to reality after its flights of sentiment-based hope.

Figure 6. OPEC crude oil production compared to January 2008 production levels (minus Indonesia). Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Although it appears unlikely that Libya will resolve its civil unrest any time soon, renewed Libyan production and export is a sobering factor to ponder.

OPEC and Saudi Arabia increased production aggressively from March through August of 2015. Since then, however, production has declined to near average levels for 2012-2016.

The United States and Non-OPEC Are The Problem

OPEC did not cause the oil over-supply in early 2014. Over-production by the United States and other non-OPEC countries caused the problem. This is still the case.

The U.S. is responsible for more than 70 percent of the increase in non-OPEC liquids production since January 2014 (Figure 7). Brazil and Canada along with China and Russia account for the rest.

Figure 7. Non-OPEC liquids production compared to January 2014 production levels. Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Until the structure of non-OPEC production decreases, there is little that OPEC can do to remedy low prices. Cuts by OPEC might temporarily increase prices but this would lead to more over-production outside of OPEC that would further collapse world oil prices later on.

Why U.S. Production Has Not Declined More

U.S. crude oil production has only declined by approximately 570,000 bpd from its peak of 9.69 mmbpd in April 2014 to 9.13 mmbpd in January 2016–about 60,000 bpd each month (Figure 8).

Figure 8. U.S. crude oil production and forecast. Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

EIA forecasts that production will fall another 820,000 bpd (about 100 kbpd each month) to 8.31 mmbpd by September 2016 before increasing again. The forecast provides hope that the oil market may balance later in 2016 or in 2017 but history to date suggests that it is probably optimistic.

Tight oil production in the U.S. has not declined nearly as much as many anticipated based on falling rig counts. Most explanations invoke increases in drilling and completion efficiency but I believe the truth lies in the continued availability of external capital to fund drilling of an ever-increasing number of producing wells until quite recently.

In the Bakken, Eagle Ford and Permian basin plays, the number of producing wells has declined or flattened in the last reporting months of October or November 2015. The plays are different and so are the patterns for production decline. Nevertheless, the decrease in new producing wells suggests that either capital is less available or that companies are choosing to drill and complete fewer wells.

Reporting in the Bakken is better than in the other plays. Bakken production only declined 51,000 bpd between the December 2014 and November 2015, the last reported data from the North Dakota Department of Mineral Resources (Figure 9).

Figure 9. Bakken production and number of producing wells. Source: North Dakota Dept. of Mineral Resources and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Over the same period, the horizontal rig count fell by 111, from 173 to 62 rigs. Yet, the number of producing wells increased by 943, from 12,134 to 13,077 (the number of wells waiting on completion (WOC) increased by 219 from 750 to 969).

As long as more wells were added each month, production continued to increase. The number of producing wells only began to decline in October 2015. Each completed well cost approximately $8 million so capital spending did not decrease until then despite fairy tales about ever-increasing efficiency.

The resilience of tight oil production in the Bakken, therefore, reflected the continued availability of external capital to fund more drilling and completion. The impact of reduced capital is apparently a recent phenomenon in the Bakken.

The Eagle Ford and Permian basin plays show similar patterns of flattening rates of well completions in recent months. Eagle Ford production has declined 183,000 bpd since March 2015 while Permian basin production may just be peaking.

It is too early to draw concrete conclusions from the tight oil play data presented here but, in a way, that is the point. Production has only begun to decline because external capital was available until late 2015 despite low oil prices. If companies are forced to rely increasingly on cash flow for new drilling then, U.S. production should decline sharply. If, on the other hand, the recent $2 billion in equity raised by Permian basin operators becomes more the norm in 2016 then, production declines will be more modest.

The U.S. Crude Oil Storage Problem

There is little chance that oil prices will increase beyond the head-fakes and sentiment-driven price cycles of the past year until U.S. crude oil storage begins to decrease. Oil stocks are currently 154 million barrels more than the 5-year average and 131 million barrels more than the 5-year maximum (Figure 10).

Figure 10. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc.

(click image to enlarge)

The Cushing, Oklahoma pricing hub and nearby Gulf Coast storage facilities make up almost 70 percent of U.S. working storage capacity. These crucial storage areas are currently at 85 percent of capacity (Figure 11).

Figure 11. Cushing and Gulf Coast crude oil storage. Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Although the correlation between Gulf Coast and Cushing storage utilization, and WTI oil price is not perfect, it is as good as any single price indicator (Figure 12).

Figure 12. Cushing and Gulf Coast Storage Capacity and WTI oil price. Source: EIA and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Despite considerable hype about 3 billion barrels of oil in storage around the world, Matt Mushalik has shown that OECD storage is only about 300 million barrels above the 5-year average based on IEA data. More than half of those 300 million barrels are in U.S. storage so, again, the U.S. drives the world oil market.

As long as storage volumes remain above 80 percent of capacity, oil prices will be depressed. Until U.S. oil production declines substantially, storage will remain near capacity. No OPEC production cut will be able to offset this powerful market factor for long.

Saudi Arabia Is Not Going Broke

Euan Mearns has presented a compelling case that OPEC made a gigantic blunder by letting oil prices fall below $40 per barrel for the sake of market share. I believe, however, that there is more at stake than market share.

The capital providers who enable high-cost oil projects are the market-share target of Saudi Arabia’s gambit. Oil sands are the primary focus because these have gigantic reserves. Deep-water and tight oil are secondary objectives because their reserves are smaller and shorter lived.

OPEC’s larger objective is to postpone the end of the Oil Age as far into the future as possible. This is accomplished by an extended period of low oil prices that puts renewable energy at a price disadvantage to oil and gas, and slows the climate change-based flight from fossil energy. It is further achieved by stimulating the global economy through low energy prices that may in turn increase oil demand.

The commercial present and future for the Saudis and their Gulf State comrades depend on oil. They take the long view that near-term losses are justified by longer-term gains.

I am not defending their stratagem but merely trying to understand it.

The press has been focused on the imminent financial demise of Saudi Arabia as a result of their production and price strategy. Although the strain on the Kingdom is considerable, I do not believe that these criticisms are completely realistic.

Saudi Arabia’s year-end 2015 foreign reserve accounts totaled $636 billion, an amount almost equal to its cash reserves in 2012 when Brent prices averaged $112 per barrel (Figure 13).

Figure 13. Saudi Arabia international reserve assets. Source: Saudi Arabia Monetary Agency and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Its estimated cash reserves through 2017 of $443 billion are still above or nearly equal to levels from 2007 through 2010 and exceed the current accounts of all countries except Switzerland shown in Figure 14 (China ($3513 billion) and Japan ($1233 billion), not shown in the figure, are higher than Saudi Arabia).

Figure 14. International reserves and foreign currency liquidity. Source: International Monetary Fund and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

The Way Forward

Oil prices will not increase or stop falling until the current 2 mmbpd over-supply is consistently reduced for a period of many months. I do not expect a formal OPEC production cut until that happens. That means that U.S. production and storage inventories must fall. That may happen in 2016 if EIA’s forecast shown in Figure 8 is close to correct.

There are some considerable wild cards that might keep the world mired in over-supply and low oil prices beyond 2016. Renewed supply from Iran and Libya are the most obvious candidates. Continued supply of external capital to U.S. tight oil production is a second important wild card. The weak global economy and associated oil demand below the forecasted range of 1.2 mmbpd of annual growth represent other important uncertainties.

Without a meaningful forward reduction of U.S. oil production of around 1 mmbpd, an OPEC cut would only have a limited, short-term effect on prices. The focus going forward must be on the source of the problem. That is the United States and not OPEC.

  And now for your closing THURSDAY numbers:    

Portuguese 10 year bond yield:  4.10% up 40 in basis points from WEDNESDAY

Japanese 10 year bond yield: +.022% !! up 2/5 in  basis points from WEDNESDAY which was lowest on record!! Your closing Spanish 10 year government bond, THURSDAY up 6 in basis points Spanish 10 year bond yield: 1.78%  !!!!!! Your THURSDAY closing Italian 10 year bond yield: 1.71% up 7 in basis points on the day: Italian 10 year bond trading 7 points lower than Spain . IMPORTANT CURRENCY CLOSES FOR THURSDAY   Closing currency crosses for THURSDAY night/USA dollar index/USA 10 yr bond:  2:30 pm   Euro/USA: 1.1337 up .0053 (Euro up 53 basis points) USA/Japan: 112.21 down 1.01(Yen up 101 basis points) and a major disappointment to our yen carry traders and Kuroda’s NIRP Great Britain/USA: 1.4466 down .0054 (Pound down 54 basis points) USA/Canada: 1.3942 up .0019 (Canadian dollar down 19 basis points with oil being lower in price/wti = $26.99 ) This afternoon, the Euro rose by 53 basis points to trade at 1.1337/(with Draghi’s jawboning having no effect) The Yen rose to 112.21 for a gain of 101 basis points as NIRP is a big failure for the Japanese central bank The pound was down 54 basis points, trading at 1.4466. The Canadian dollar fell by 19 basis points to 1.3942 as the price of oil was clobbered today as WTI fell to around $26.99 per barrel/WTI,) The USA/Yuan closed at 6.5710 the 10 yr Japanese bond yield closed at .022% Your closing 10 yr USA bond yield: down 9 in basis points from WEDNESDAY at 1.63%//(trading well below the resistance level of 2.27-2.32%) policy error USA 30 yr bond yield: 2.50 down 4 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)  Major crosses at 4 pm: usa/euro: 1.1322 the all important:  usa/japan yen: 112.36 Great Britain Pound/usa:144.72 usa/canada: 1.3919    Your closing USA dollar index: 95.57 down 32 in cents on the day  at 2:30 pm USA dollar index:  95.56  down 33 cents  at 4 pm Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for THURSDAY   London: down 135.33 points or 2.39% German Dax: down 264.42 points or 2.93% Paris Cac down 164.49 points or 4.05% Spain IBEX down 397.40.10 or 4.88% Italian MIB: down 941.14 points or 5.63% The Dow down 254.56  or 1.60% Nasdaq:down 16.76  or 0.39% WTI Oil price; 26.78  at 2:30 pm; Brent OIl:  30.65 USA dollar vs Russian rouble dollar index:  80.09   (rouble is down   84/100 roubles per dollar from yesterday) despite the fall in oil This ends the stock indices, oil price, currency crosses and interest rate closes for today.     New York equity performances plus other indicators for today: Oil Headline Rescues Stocks From Bloodbath As Precious Metals Soar

Market Psychology has swung from this…

 

To this…Losing SPY Religion

 

And seemingly back.

*  *  *

Gold grabs the headlines today. After beginning to surge yesterday, Hong Kong’s reopen sparked a spike which then accelerated all day.

 

This was gold’s best day since Nov 2008 and the highest level in a year…

 

With the best quarter in 30 years…

 

Perhaps even more stunning is the collapse in USDJPY since Kuroda unleashed NIRP – this is the worst 2-week drop (Yen strength) since LTCM in 1998…

 

Damn It, Janet!

 

It seems much of today’s turmoil began as Hong Kong re-opened last night…

 

An OPEC Rumor – which struck perfectly as the S&P broke 1812 – a crucial technical level (January’s intraday low back to Feb 2014)… And just look at VIX!!! Does that look like a “normal” market?

 

Spiked stocks briefly (enabling NASDAQ to briefly get green before dropping), and the soared again…

 

Techs managed to scramble green in the last hour but financials were the biggest loser…

 

Deutsche Bank’s dead-cat-bounce died and is back to tracking Lehman’s analog…

 

And it is spreading to US banks – Sub financial credit risk is up 18% this week – the worst week since at least 2011…

 

 

Treasury yields crashed overnight – 2Y was down 10bps and 10Y down 20bps at its apex, before a miraculous bid for USDJPY appeared and rescued risk…

 

The yield curve (2s10s) collapsed even further below 100bps – to Dec 07 lows near 95bps at its lows today – leading financials lower…

 

FX markets were volatile early on (with a huge drop in USDJPY when HK opened) and the USD drifted weaker…

 

The biggest 2-week drop in USD Index in 4 years…

 

Crude and Copper slumped as Gold & Silver surged…

 

As front-month crude plunged relative to 2nd month crude to 5 year lows..

 

Charts: Bloomberg

Bonus Chart: If everything is awesome, why is USA default risk on the rise?

Average: The carnage today in USA bank stocks and its bonds: (courtesy zero hedge) The Crash In US Bank Stocks Is Only Half-Way Through

It appears by the total lack of coverage that the utter collapse of Europe’s banking system is entirely irrelevant to the “fortress-like” balance sheets of US banks… but it is not. Once again today, US financials saw bonds dumped across the senior and subordinated segments…

 

…and while US financial stocks have fallen hard year-to-date, if credit is right – and it usually is on a cyclical basis – US bank stocks have a long way to go (as believe in book values is battered).

 

Of course, the CEOs will all tell investors there is nothing to worry about – just as David Stockman warned

“in my experience is that when the crunch comes, bank CEOs lie”

end

Even though initial claims are now this week, Goldman warns that increases in the jobless will be forthcoming! (courtesy zero hedge)

 

Initial Claims Drop But Goldman Warns “Recent Jobless Increase Is More Than Just Noise”

Initial jobless claims dropped notably last week (from 285 to 269k) but the overall trend (away from the noise) appears in tact. The smoother4-week average remains near 12-month highs and as Goldman notes weakness is widespread – “there is only limited evidence that the rise in claims is due to distress in the energy sector.” Continuing claims dropped modestly to 2.239mm but, as Goldman adds, “the persistence of the recent move suggests more might be going on, and we are treating the increase as more than just noise.”

 

And finally, here is Goldman explaining why it is time to be concerned…

Initial and continuing claims for unemployment insurance benefits have moved steadily higher since late last year. After nearing their respective post-crisis lows of 256k and 2,146k this past October, initial and continuing claims are now higher by 29k and 112k, respectively. Both series can be volatile, and one should be cautious about reading too much into the week-to-week changes. But the persistence of the recent move suggests more might be going on, and we are treating the increase as more than just noise.

And moreover, Goldman warns that they find only limited evidence that the recent increase in claims directly relates to distress in the energy sector.

And looking forward, every 1k increase in claims (relative to the breakeven rate) implies a slowdown in monthly payroll growth of just over 4k. Therefore, a further rise in claims to 300-315k, if sustained, could imply payroll growth closer to a trend-like rate—assuming the benefits take-up rate and other aspects of labor market flows remain unchanged.

end Seems that the SEC is accusing Boeing of fraud: (courtesy zero hedge) Boeing Stock Nose-Dives On News Of SEC Probe

Just when you thought The BoJ would save the day with its miraculous intervention in carry trades, this happens:

  • *BOEING SAID TO FACE SEC PROBE OF DREAMLINER AND 747 ACCOUNTING

And just like that, Boeing’s stocks crashes 10% dragging the major US equity markets with it. So, just as a reminder, this is a firm which the US government (via Ex-Im Bank) lends billions of US taxpayer dollars… and now the SEC is accusing them of fraud.

 

As Bloomberg reports,

The U.S. Securities and Exchange Commission is investigating whether Boeing Co. properly accounted for the costs and expected sales of two of its best known jetliners, according to people with knowledge of the matter.

 

The probe centers on projections Boeing made about the long-term profitability for the 787 Dreamliner and the 747 jumbo aircraft, said one of the people, who asked not to be named because the investigation isn’t public. Both planes are among Boeing’s most iconic, renowned for the technological advancements they introduced, as well as the development headaches they brought the company.

 

Underlying the SEC review is a financial reporting method known as program accounting that allows Boeing to spread the enormous upfront costs of manufacturing planes over many years. While the SEC has broadly blessed its use in the aerospace industry, critics have said the system can give too much leeway to smooth earnings and obscure potential losses.

We’re gonna need more Ex-Im Bank bailouts to save this one!

end

You will get a good laugh at the following.  Janet Yellen is the real source of the leak and everybody knows it. She has no authority whatsoever to prevent the handing over of documents from the FOMC transcripts.  This will be fun to follow in the upcoming few weeks: (courtesy zero hedge) Here Is The Exchange That Left A Stunned Janet Yellen Looking Like A Deer In Headlights

Update: DJIA FUTURES AT DAY’S LOW, FALL 361PTS; S&P -38, NASDAQ -91

* * *

For nearly one year, Wisconsin Rep. Sean Duffy has been Janet Yellen’s nemesis over the ongoing  probe into Fed leakage of material inside information via Medley Global and any other undisclosed channels, one which has seen subpoeans be lobbed at the Fed which has been doing everything in its power to stall said probe, and which cost Pedro da Costa his jobwhen he dared to ask questions at a Fed presser that were not precleared by his WSJ “Fed mouthpiece” peers.

Today, during Yellen’s appearance before the House Financial Services committee, Duffy finally had enough, and in a heated exchange asked Yellen what on legal authority is the Fed exerting privilege to ignore a Congressional probe into what is clearly a criminal leak, one which has nothing to do with monetary policy and everything to do with the Fed providing material, market moving information to its favorite media and financial outlets.

The exchange highlights are below:

DUFFY: We sent a letter in the Medley investigation, in our oversight of the Fed, asking you for information regarding communication. No compliance. Then we sent you a subpoena in May, you did not comply with that.

 

We had partial compliance in October. We’re now a year after my initial letter. I’ve asked you for excerpts of the FOMC transcripts in regard to the discussion — in regard to the internal investigation on Medley. You have not provided those to me. Is it your intent today to promise that I will have those, if not this afternoon, tomorrow?

 

YELLEN: Well, congressman, I discussed this matter with Chairman Hensarling and indicated we have some concern about providing these transcripts… given their importance in monetary policy.

 

 

DUFFY: So let me just…

 

YELLEN: And I received a note back from Chairman Hensarling last night, quite late, indicating your response to that. And we will consider it and get back to you as soon as we can.

 

DUFFY: Oh no, no. I don’t want you to consider it and I think the chairman would agree with me, that this is a conversation, not about monetary policy. This is not market-moving stuff. This is about the investigation and the conversation of a leak inside of your organization. So this institution is entitled to those documents, wouldn’t you agree?

 

YELLEN: I will get back to you with the formal answer.

 

DUFFY: No, no, listen.

 

YELLEN: I believe that we have provided you with all the relevant information.

 

DUFFY: That’s not my question for you Chair Yellen. If I’m not entitled to it, can you give me the privilege that you’re going exert that’s going to let me know why I’m not entitled to those documents?

 

YELLEN: I said we received well after the close of business yesterday a letter explaining your reasoning and I will need some time to discuss this matter with my staff.

 

DUFFY: I don’t want — listen. I sent you a letter a year ago on February 5th. I had to send you a subpoena. You knew that I’m looking for these documents, you knew I was going to ask you about this today. So if you’re not going to give me the documents, exert your privilege, tell me your legal authority, why you’re not going to provide this to us.

And while a video of the exchange can be watched below (we will substitute a higher quality version when we can find one)…

 

The end result was this:

 

… which after just one more push by a few good men in authority, will be the same as another picture very familiar to regular Zero Hedge readers.

We just wonder if there are still a “few good men” left, daring to challenge the head of the Fed on what any other mere mortal would have been in prison for, long ago.

As for the “deer in headlights” look, and why Yellen is so adamantly refusing to comply with subpoenas and provide the US population and Rep. Duffy with the requested information regarding how it was that the Fed leaked critical information to Medley Global’s (founded by Richard Medley, former chief political strategist to George Soros) Regina Schleiger, the answer as Yellen explained last May

… is simple: Yellen herself was the source, only there is no definitive proof… yet, as confirmation that the Chairwoman herself leaked the information in question would be grounds for prison time.

And since we doubt that Janet would chose a legacy of being the first Fed Chairman thrown in jail, even if it is not that far below a legacy of totally mangling the Fed’s attempt at renormalizing rates at a time when the entire world was careening into a recession, we expect absolutely no cooperation by the Fed in this ongoing criminal matter.

end

see you tomorrow night

h


Feb 10/Yellen disappoints in Humphrey-Hawkins testimony/Gold and silver withstand huge attack by our bankers. Europe floats a rumour that the ECB will buy bank stocks (nonsense)/ USA/Yen cross plummets to 113.35 at the end of the day frying our yen...

Wed, 02/10/2016 - 18:53

 

 

 

Gold:  $1194.500 down $3.00    (comex closing time)

Silver 15.27 down 17 cents

In the access market 5:15 pm

Gold $1197.50

Silver: $15.27

Today, was testimony by Yellen on the state of the uSA economy (Humphrey-Hawkins) and they always whack gold and silver while she is speaking.  The bankers did not disappoint us today as they tried in earnest to whack our precious metals.  It was in vain as gold and silver took the punches and then rebounded to close at 1197.50 in the access market.

At the gold comex today, we had a good delivery day, registering 872 notices for 87,200 ounces. Silver saw 4 notices for 20,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 204.24 tonnes for a loss of 99 tonnes over that period.

In silver, the open interest fell by a huge 4776 contracts down to 164,664. In ounces, the OI is still represented by .822 billion oz or 117% of annual global silver production (ex Russia ex China).

In silver we had 4 notices served upon for 200,000 oz.

In gold, the total comex gold OI fell by 3,206 contracts to 410,833 contracts as gold was up $0.80 with yesterday’s trading.

We had another change in gold inventory at the GLD, this time a withdrawal of 1.49 tonnes / thus the inventory rests tonight at 702.03 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had no changes in inventory,  and thus/Inventory rests at 308.999 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver fall by 4,776 contracts down to 164,664 despite the fact that silver was up 3 cents with yesterday’s trading.   The total OI for gold fell by 3,206 contracts to 410,833 contracts despite gold being up $0.80 in price from yesterday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

b) Gold trading from NY”

(zero hedge)

3. ASIAN AFFAIRS

 

i) Late  TUESDAY night/ WEDNESDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei DOWN another 372.05 points or 2.31% .The Asian stock markets that were open were all down. Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil GAINED  to 28.60 dollars per barrel for WTI and 30.93 for Brent. Stocks in Europe so far all in the green . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/

We will provide a  summary of events from Japan and Australia last night:

(courtesy zero hedge)

ii)Outflows from Chinese citizens and corporates continue at an alarming rate.  In January a huge 110 billion left the nation as citizens try and beat the headwinds of a devaluation:

(courtesy London’s Financial times)

iii) central banks are losing control:

late in the morning the USA/Yen plunge into the 113 handle.  All QQE gains have now been wiped out.  Also all of our yen carry traders have been wiped out (courtesy zero hedge) EUROPEAN AFFAIRS

i)David Stockman does not trust Deutsche bank.  He states that when it is crunch time, they lie!!

a must view… ( David Stockman/ContraCorner/Bloomberg)

ii) A large increase in European exposure to oil will have a devastating effect on their banks:

( zero hedge)

iii) JPMorgan scares the daylights out of investors: they state that the ECB can cut  rates to -4.5%; the bank of Japan to -3.45% and the Fed to -1.3% as these central banks can charge banks with their huge reserves in order to stimulate the economy:

(courtesy zero hedge/JPM)

iv) Looks like Europe is going to suspend Schengen for two years:

( zero hedge)

v) Deutsche bank’s stock rises today on news of ECB QE, the false premise that the ECB will purchase bank stocks and the fact that Deutsche bank will purchase bank debt

( zero hedge)

vi) What a joke!  John Mack, former CEO states that we should not worry about Deutche bank because it will be bailed out by the German Government

( zero hedge) RUSSIAN AND MIDDLE EASTERN AFFAIRS i) Time is running out on the Ukraine as Lagarde warns of a possible bailout or bail in! ( Bloomberg) ii)Saudi Arabia and Turkey are preparing to invade Syria.  If they do, then Russia and Iran will certainly enter the fray and that may begin World War III

( zero hedge)

GLOBAL ISSUES: i)This does not bode well for Canada:  citizens in Alberta, with mortgages greater than the value of their homes are simply mailing the keys back to the banks.  The carnage will have a devastating effect on Canadian banks: ( zero hedge) ii) The world’s largest shipping company Maersk has its profit plunge by 84% on total collapsing global trade as well as sinking crude oil prices.  This should give you a good snapshot of what is going on with respect to trade throughout the globe!!

(zero hedge/Maersk)

iii)As the Maersk earnings indicate, the world finances are in turmoil.  The world is expecting no inflation but an avalache of deflation:  which is what Japan is going through right now!!

( zero hedge)

OIL MARKETS

i)Oil drops below 28 dollars on the disappointment in Yellen’s testimony this morning;

( zero hedge)

ii)According to BP and they should know:  “Every oil storage tank will be full in a few months”.  That should bring crude down in price to the low 20’s or high teens:

( BP//zero hedge)

iii) Two events:  an unexpected crude draw down helps oil but a huge Cushing build up for the 13th straight week, causes oil to fall back down

( zero hedge) iv)  All of the above events caused oil to fall to $27.77 a new cycle low/many bankruptcies will be forthcoming (zero hedge) v)Could gasoline prices drop to one dollar per gallon in the uSA? Answer:  yes (courtesy Charles Kennedy/OilPrice.com

PHYSICAL MARKETS:

i)Ronan Manly explains the failure of the London’s silver fix

(RonanManley/GATA)

ii)Strange event!!   Six members of the LBMA resign!( Reuters/GATA)

iii) Robert Appel discusses the two camps with respect to financial writers on gold.  Those that believe gold is manipulated and the other camp that refuses to talk about it

 (courtesy Robert Appel/Profit Confidential/GATA)

iv) So what else is new?:  EU probes the suspected rigging of 1.5 trillion debt markets

(London’s Financial times/GATA)

v)Central bank injection of money is failing/ gold strengthens as the bankers are losing control

( John Embry/Kingworldnews/GATA)

USA STORIES WHICH WILL INFLUENCE GOLD/SILVER

i)Yellen’s Humphrey Hawkins testimony to Congress is not as dovish as hoped. The USA/Yen cross drops  (Yen rises) on the disappointing news.  The Dow is barely up as USA markets open:

( zero hedge)

ii)Goldman Sachs take on today’s testimony:  additional hikes remain the FOMC base line:

( zero hedge)

iii) The markets are unhappy that Yellen states that NIRP if implemented in the uSA is still a legal question!  Down went the Dow!!

( zero hedge) iv)S and P downgrades mid sized USA banks, those with the highest energy exposure and they expect a huge increase in non performing assets: ( S and P/zero hedge)  v)Today the 10 yr bond yield/2 yr bond yield plunges to the flattest since 2007.  Generally means financial trouble for the USA:

( zero hedge)

Let us head over to the comex:

 

The total gold comex open interest fell to 410,833  for a loss of 3206 contracts despite the fact that the price of gold was up $0.80 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order.  In February  the OI fell by 359 contracts down to 2,057. We had only 14 notices filed on yesterday, so we lost 345 contracts or an additional 34,500 oz will stand for delivery as they were cash settled.. The next non active delivery month of March saw its OI rise by 264 contracts up to 1821. After March, the active delivery month of April saw it’s OI fall by 2442 contracts down to 293,593. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 157,790 which is poor. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 180,997 contracts. The comex is in backwardation until June. 

Today we had 872 notices filed for 87,200 oz. And now for the wild silver comex results. Silver OI fell by 4776 contracts from 169440 down to 164,664 despite the fact that the price of silver was up by 3 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI fall by 120 contracts down to 20. We had 116 notices filed on yesterday, so we lost 4 silver contracts or an additional 20,000 oz will not stand in this non active month of February. The next big active contract month is March and here the OI fell by 8,428 contracts down to 90,156.  The volume on the comex today (just comex) came in at66,227 , which is huge. The confirmed volume yesterday (comex + globex) was very good at 55,446. Silver is not in backwardation at the comex but is in backwardation in London.   We had 4 notices filed for 200,000 oz.  

Feb contract month:

INITIAL standings for FEBRUARY

Feb 10/2016

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  nil 192.90 oz
Brinks

6 kilobars Deposits to the Dealer Inventory in oz 4,000 oz Brinks??? Deposits to the Customer Inventory, in oz  nil No of oz served (contracts) today 872 contracts(87,200 oz) No of oz to be served (notices) 1185 contracts (118,500 oz ) Total monthly oz gold served (contracts) so far this month  1718 contracts (171,800 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 503,410.8 oz Today, we had 1 dealer transaction i) Into Brinks:  4,000.000 oz  ??? (this is the 3rd transaction of exactly 4,000 oz of gold into Brinks dealer or registered account. This is not divisible by 32.15 oz and therefore it is not kilobars.   How could this be? total deposit: 4,000.000 oz/total dealer withdrawals: nil We had 1  customer withdrawals ii) Out of Brinks: 192.90 oz (6 kilobars) total customer withdrawals; 192.90  oz we had 0 customer deposit:

we had 1 adjustment.

i) Out of Scotia:

9,645.000 oz was adjusted out of the customer and this landed into the dealer of Scotia

(300 kilobars)

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account. ***JPMorgan now has 634,557.764 or 19.737 tonnes in its customer account. Today, 0 notices was issued from JPMorgan dealer account and 266 notices were issued from their client or customer account. The total of all issuance by all participants equates to 872 contract of which 651 notice was stopped (received) by JPMorgan dealer and 77 notices were stopped (received)  by JPMorgan customer account.    To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (1718) x 100 oz  or 171,800 oz , to which we  add the difference between the open interest for the front month of February (2057 contracts) minus the number of notices served upon today (872) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the February. contract month: No of notices served so far (1718) x 100 oz  or ounces + {OI for the front month (2057) minus the number of  notices served upon today (872) x 100 oz which equals 290,300 oz standing in this active delivery month of February ( 9.0295 tonnes)   we lost 345 contracts or an additional 34,500 oz will not stand for delivery We thus have 9.0295 tonnes of gold standing and 7.1344 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing. Total dealer inventor 243,0189.740 or 7.5589 Total gold inventory (dealer and customer) =6,566,356.008 or 204.24 tonnes    Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 204.24 tonnes for a loss of 99 tonnes over that period.    JPMorgan has only 21.99 tonnes of gold total (both dealer and customer) end     And now for silver FEBRUARY INITIAL standings/

feb 10/2016:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory   nil oz Deposits to the Dealer Inventory nil Deposits to the Customer Inventory 667.566.47 oz,
CNT,Delaware,
HSBC,Scotia No of oz served today (contracts) 4 contracts 20,000 oz No of oz to be served (notices) 16  contracts (700,000 oz) Total monthly oz silver served (contracts) 120 contracts 600,000 Total accumulative withdrawal of silver from the Dealers inventory this month nil oz Total accumulative withdrawal  of silver from the Customer inventory this month 5,841,355.4 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 4 customer deposits:

i) Into CNT:  2024.56 oz

ii) Into Delaware:  1001.100 oz

iii) Into HSBC: 85,810.500 oz

iv) Into Scotia:  578,730.310 oz

total customer deposits: 667,566.470 oz

We had 0 customer withdrawals:    

total withdrawals from customer account nil   oz 

 we had 0 adjustments:

 

The total number of notices filed today for the February contract month is represented by 4 contracts for 20,000 oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (120) x 5,000 oz  = 600,000 oz to which we add the difference between the open interest for the front month of February (20) and the number of notices served upon today (4) x 5000 oz equals the number of ounces standing   Thus the initial standings for silver for the February. contract month: 120 (notices served so far)x 5000 oz +(20{ OI for front month of February ) -number of notices served upon today (4)x 5000 oz   equals 680,000  of silver standing for the February. contract month.   we lost 20,000 oz or 4 silver contracts that will not stand in this non active delivery month of February. Total dealer silver:  28.904 million Total number of dealer and customer silver:   157.272 million oz end The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Feb 10/ a withdrawal of 1.49 tonnes of gold from the GLD/Inventory rests at 702.03 tonnes

Feb 9./a huge addition of 5.06 tonnes of gold into the GLD/Inventory rests at 703.52 tonnes/ (no doubt that this addition is paper gold/not physical/

Feb 8/no change in inventory/inventory rests at 698.46 tonnes

FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

Feb 10.2016:  inventory rests at 702.03 tonnes

 

Now the SLV: Feb 10/no change in inventory at the SLV/rests at 308.999 million oz/ Feb 9/no change in inventory at the SLV/Inventory rests at 308.999 million oz/ Feb 8/no change in inventory at the SLV/Inventory rests at 308.999 million oz FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees Inventory rests at 309.380 million oz Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/ Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz Jan 27.2017: no changes to inventory/rests at 310.653 million oz Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz Feb 10.2016: Inventory 308.999 million oz. 1. Central Fund of Canada: traded at Negative 7.7 percent to NAV usa funds and Negative 7.5% to NAV for Cdn funds!!!! Percentage of fund in gold 63.1% Percentage of fund in silver:36.9% cash .0%( feb 10.2016). 2. Sprott silver fund (PSLV): Premium to NAV rises to  +1.24%!!!! NAV (feb 10.2016)  3. Sprott gold fund (PHYS): premium to NAV falls to- 0.81% to NAV feb 10/2016) Note: Sprott silver trust back  into positive territory at +1.24%/Sprott physical gold trust is back into negative territory at -0.81%/Central fund of Canada’s is still in jail.      

end

And now your overnight trading in gold, WEDNESDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe (COURTESY MARK O”BYRNE)   Mutual Funds, ETFs at Risk of a Run Warns David Stockman By Mark OByrneFebruary 10, 20160 Comments

In one of his starkest warnings yet, Former White House Budget Director (Office of Management and Budget, OMB), David Stockman has warned that banks and the global financial system remain vulnerable and there is likely to be another global financial crisis which will be worse than the first involving “a run on mutual funds and ETFs.”

Stockman warns in a Bloomberg interview that Deutsche Bank

“has a $2 trillion balance sheet and they have a net tangible equity of $66 billion. So that is 3% – “they are leveraged 30 to 1 in terms of net tangible equity.”

“What is whirling around in that $2 trillion nobody knows but I do think that the banks have unloaded the worst of their stuff and today it is in mutual funds and ETFs, today it is in non bank financial institutions, like all these companies that have come up over night to make auto loans by selling junk bonds as a form of capital.”

This is reminiscent of the first financial crisis and the financial collapse wrought on the world with the subprime mortgage fraud as beautifully illustrated in the must see movie ‘The Big Short’.

Regarding how ‘mom and pop’ investors and pension owners are vulnerable, Stockman says

“The dangers of a run are far more serious now than it was with banks then. Back then, main street banks did not have to mark to market most of their assets and there never was a run on mainstreet banks, it was only on a few hedge funds  … 

This time you are going to have a run of $5 trillion or $6 trillion of mutual funds. This time you are going to have a run on the ETFs. There were only $1 trillion of ETFs in existence in 2008. There is over $3 trillion now and they are an accelerator mechanism.

When everyone sells their ETFs, the managers have to go out and liquidate assets by selling the underlyings. The underlying assets are not nearly as liquid as the offer that anytime you want to sell your ETF there is a bid. Anytime you want to sell your mutual fund share, there is a bid … and I will tell you what … that is where the collision is going to come in the market.”

In another must watch Bloomberg interview, the respected Stockman warned that Deutsche Bank is in difficulty and the CEO is likely lying:

“In my experience is that when the crunch comes, bank CEOs lie.”

Stockman reminded us of the deceit and denial that emanated from Morgan Stanley, Bear Stearns and Lehman Brothers before their collapse:

“I don’t trust Deutsche Bank. I don’t trust what they’re saying. And there’s reason why the banks are being sold all across the world… because people are realizing once again that we don’t know what’s there [on bank balance sheets].”

GoldCore Note: Banks, economists, brokers, financial advisers and other experts did not see the first crisis coming in 2008 and they are not seeing it now.

A handful of people are warning about the risks and again they are largely being ignored. Investors and savers will again bear the brunt for the inability to look at the reality of the financial and economic challenges confronting us today.

Diversification remains the key to weathering the second global financial crisis.

LBMA Gold Prices

10 Feb: USD 1,183.40, EUR 1,052.29 and GBP 816.56 per ounce
9 Feb: USD 1,188.90, EUR 1,061.90 and GBP 822.31 per ounce
8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce
5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce
4 Feb: USD 1,146.25, EUR 1,027.29 and GBP 782.16 per ounce

Gold and Silver News and Commentary – Click here

Mark OByrne     end Ronan Manly explains the failure of the London’s silver fix (courtesy Ronan Manly/GATA) Ronan Manly: January smash in London silver fix arose from broken promises

Submitted by cpowell on Tue, 2016-02-09 13:05. Section: 

8a ET Tuesday, February 9, 2016

Dear Friend of GATA and Gold:

Gold researcher Ronan Manly shows today that last month’s strange smash in the new London silver price fix, which disagreed so sharply with simultaneous spot and futures prices, resulted from the failure of the fix’s managers to keep a promise made 18 months earlier to arrange wider participation in the fix and central clearing of trades based on the fix. Manly’s analysis is headlined “The LBMA Silver Price — Broken Promises on Wider Participation and Central Clearing” and it’s posted at Bullion Star here:

https://www.bullionstar.com/blogs/ronan-manly/lbma-silver-price-scandal/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

Strange event!!

(courtesy Reuters/GATA)

Six London Metal Exchange members resign, including Rio Tinto

Submitted by cpowell on Tue, 2016-02-09 15:00. Section: 

From Reuters
Friday, February 5, 2016

LONDON — Half a dozen of the lowest-ranking members on the London Metal Exchange with no trading rights, including global miner Rio Tinto, have resigned, the LME said on Friday.

A members’ notice announcing the resignations of category 5 members gave no reason behind the moves, although one of the companies has upgraded its membership. A spokeswoman declined to comment. …

… For the remainder of the report:

http://www.reuters.com/article/lme-resignations-idUSL8N15K45Q

    end Robert Appel discusses the two camps with respect to financial writers on gold.  Those that believe gold is manipulated and the other camp that refuses to talk about it (courtesy Robert Appel/Profit Confidential/GATA)   Robert Appel: The gold price secret Wall Street doesn’t want to talk about

Submitted by cpowell on Tue, 2016-02-09 22:32. Section: 

5:30p ET Tuesday, February 9, 2016

Dear Friend of GATA and Gold:

In commentary published this week by Profit Confidential, Robert Appel writes that “the entire universe of gold writers and commentators has broken into two distinct camps — those who accept gold price manipulation and those who won’t touch that topic with a 10-foot pole.” Appel adds that last Friday’s $20 smash in gold and the monetary metal’s quick recovery were evidence that the manipulation camp is right. His analysis is headlined “The Gold Price Secret Wall Street Doesn’t Want to Talk About” and it’s posted at Profit Confidential’s Internet site here:

http://www.profitconfidential.com/gold/the-gold-price-secret-wall-street…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end So what else is new:  EU probes the suspected rigging of 1.5 trillion debt markets (London’s Financial times/GATA)   EU probes suspected rigging of $1.5-trillion debt market

Submitted by cpowell on Wed, 2016-02-10 00:56. Section: 

Jim Brunsden
Financial Times, London
Tuesday, February 9, 2016

BRUSSELS, Belgium — European regulators have opened a preliminary cartel investigation into possible manipulation of the $1.5 trillion government-sponsored bond market, in the latest efforts to root out rigging involving financial traders.

The European Commission’s early-stage inquiry comes amid revelations that the US Department of Justice and the UK’s Financial Conduct Authority are also investigating the market.

The investigations are part of a campaign by antitrust regulators to root out collusion in financial markets following revelations that groups of traders worked together to manipulate Libor, a key rate that underpins the price of loans around the world. Further allegations followed that traders colluded to rig foreign exchange markets. …

… For the remainder of the report:

http://www.ft.com/intl/cms/s/0/04befd8a-cf35-11e5-92a1-c5e23ef99c77.html

end

Central bank injection of money is failing/ gold strengthens as the bankers are losing control

(courtesy John Embry/Kingworldnews/GATA)

Gold strengthens as central bank money injections fail, Embry says Submitted by cpowell on Wed, 2016-02-10 15:22. Section: 

10:22a ET Wednesday, February 10, 2016

Dear Friend of GATA and Gold:

Sprott Asset Management’s John Embry tells King World News today that money injections by central banks are having less effect on the markets, that the gold price is showing strength, and that gold mining shares have never been as undervalued. An excerpt from the interview is posted at KWN here:

http://kingworldnews.com/is-this-the-most-terrifying-danger-facing-the-w…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

 

And now your overnight WEDNESDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

1 Chinese yuan vs USA dollar/yuan FLAT to 6.5710 / Shanghai bourse: CLOSED/CHINA’S NEW YEAR ALL WEEK / hang CLOSED

2 Nikkei closed down 372.05 or down 2.31%

3. Europe stocks all in the GREEN /USA dollar index up to 96.11/Euro down to 1.1258

3b Japan 10 year bond yield: rises  TO +.01    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 114.95

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI:: 28.54  and Brent: 30.93

3f Gold down  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil up for WTI and up for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises  to 0.243%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate rise to 14.58%/: 

3j Greek 10 year bond yield rise to  : 10.58%  (yield curve deeply  inverted)

3k Gold at $1183.40/silver $15.16 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble up 94/100 in  roubles/dollar) 78.75

3m oil into the 28 dollar handle for WTI and 30 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9728 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0960 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation

3r the 8 year German bund now  in negative territory with the 10 year rises to  + .243%/German 8 year rate negative%!!!

3s The Greece ELA at  71.5 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.76% early this morning. Thirty year rate  at 2.58% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

European Banks Soar On Rumor ECB May Monetize Bank Stocks; Japan Crash Continues

While algos patiently await the only thing that matters for US stocks today which is Janet Yellen’s testimony before Congress. expected to be released at 8:30 am (and previewed here), the rest of the world this morning is a hot mess of schizophrenic highs and lows.

One look at Asia this morning and it was more of the same: another deja vu session for Japan where the relentless surge in the Yen pressured the Nikkei lower by another 2.3%, pushing it down to 15713, to the lowest close since October 2014. The MSCI Asia index was likewise down 1.4% with all 10 sectors falling.

Europe, however, was a different story entirely: following yesterday’s late afternoon FT “trial balloon” that Deutsche Bank would part with much needed liquidity to repurchase bonds in the open market (perhaps to indicate how unconcerned it is about the future), the German bank was up already over 4% in the premarket, and then proceeded to absolutely explode, soaring as much as 15% higher, up 13.15% at last check in Frankfurt, on what is likely a combination of short covering and a rumor which hit about an hour ago, when a German newsletter reported that the ECB could buy bank stocks as part of its QE.

We would be very surprised if in a world in which central bankers are being openly called out by markets that their bags of tricks are empty, the ECB were to actually do that, but we doubt the ECB has any intention of actually buying bank stocks: if anything, intention is far simpler – to slow down the relentless selling in Europe’s most systematically important bank, which between the FT trial balloon and today’s rumor, it has achieved… for now.

Also as a result, following 8 brutal days of carnage which sent European stocks to the lowest level since October 2013,Europe is solidly in the green, with the Stoxx up 2.3% the same as the Dax, however nothing compares to the European banking sector which as shown in the chart from Mark Barton below, is quite literally all green: not a single bank in Europe is in the red this morning.

We expect that today’s volatile European bank euphoria will be brief if not validated by concerted actions, because while central banks have the luxury of jawboning, commercial banks are actually burning through funds – rapidly at that – and don’t have the luxury of hoping for the best while doing nothing.

Which brings us back to Yellen’s testimony, which Jim Reid previews as follows: “Yellen can give the market hope today that the committee is acknowledging the worrying signs from both financial markets and the global economy and take a step closer to a cleaner dovish stance. That would certainly help if for no other reason than it would halt the dollar bull market (notwithstanding the recent sell-off) which has caused problems with commodities, EM, China and encouraged shrinking global dollar liquidity. However we won’t get such a turnaround in one speech. If it happens it’s likely to be a multi month story.”

Alternatively, she can just as easily send stocks reeling with one word out of place.

We will find out shortly which word she picks. For the time being, here is where markets stand right now.

  • S&P 500 futures up 1.0% to 1867
  • Stoxx 600 up 2.3% to 316.4
  • FTSE 100 up 1.3% to 5708
  • DAX up 2.4% to 9091
  • German 10Yr yield up 3bps to 0.26%
  • Italian 10Yr yield down 8bps to 1.6%
  • Spanish 10Yr yield down 7bps to 1.69%
  • MSCI Asia Pacific down 1.4% to 117
  • Nikkei 225 down 2.3% to 15713
  • S&P/ASX 200 down 1.2% to 4776
  • US 10-yr yield up 3bps to 1.76%
  • Dollar Index up 0.15% to 96.21
  • WTI Crude futures up 1.8% to $28.45
  • Brent Futures up 1.7% to $30.84
  • Gold spot down 0.5% to $1,184
  • Silver spot down 0.7% to $15.14

Top Global News

  • New Hampshire Bucks the Establishment to Back Trump and Sanders: Biggest loser of the night was Hillary Clinton, who won the state in 2008; Clinton’s Loss to Sanders Exposes Weakness of Message—and Messenger; Christie Reevaluates Bid After Poor New Hampshire Showing
  • Deutsche Bank Said in Early Stages of Mulling Bond Buyback: Shares gain most in more than 4 years
  • U.S., Russia Make Syria Cease-Fire Push as Assad Regains Ground: Kerry, Lavrov among 17 diplomats to hold talks in Munich
  • Renzi Says EU Can Dodge Titanic Disaster Following Italy’s Lead: EU leaders like band playing as doomed liner sank, Renzi says in interview
  • How Low Can Central Banks Go? JPMorgan Reckons Way, Way Lower: Says ECB could cut to -4.5% and Fed to -1.3%
  • Oil Snaps 4-Day Losing Streak as Crude Producers Cut Spending: Rebounds from lowest close in almost three weeks
  • Goldman Sachs Abandons Five of Six ‘Top Trade’ Calls for 2016: Closes bet on dollar strength versus euro, yen
  • KKR-Backed US Foods Files for Initial Public Offering: co. filed initial prospectus Tuesday with offering size of $100m
  • BTG Said to Plan Granting Equity to Traders at Commodities Unit: Deal aimed at keeping staff as bank recovers from CEO arrest
  • Disney Shares Sink as Lower ESPN Profit Overshadows ‘Star Wars’: Programming costs, subscriber losses, dollar hit sports network
  • Google’s Self-Driving Car Software Seen as Driver by U.S. Agency: NHTSA interpretation contrasts with California’s push-back
  • FTSE 100 Profits Shrink by GBP29b in 2015, Seen Falling Further: U.K. profits set to drop further 5.3% in 2016, Bloomberg data shows
  • Kim Purges North Korea’s Military Chief of Staff, Yonhap Says: Ri Yong Gil executed early this month on corruption charges

Looking at regional markets reveals two different worlds: in Asia, the plummet equities saw no respite as they extended on yesterday’s losses following the lacklustre close on Wall St, alongside concerns over the banking sector. As such, Nikkei 225 (-2.3%) continued to take a hammering, subsequently paring the entirety of its gains since the BoJ QQE expansion in Oct’14 amid the persistent JPY strength, coupled with weakness in Tech heavyweight KDDI (-7.4%) after their earnings. ASX 200 (-1.2%) showed no signs of a resurgence having entered into a bear market territory with pressure coming from energy names. Despite the risk off sentiment, JGBs slipped in Asian trade with touted profit taking after yesterday’s stellar gains, whilst 20yr JGBs continued the recent record-breaking strike as yields fell to 0.075%.

Top Asian News:

  • Nissan Profit Beats Estimates as Rogue Paces U.S. Sales Rise: U.S. sales of the Rogue crossover surged 44% last year
  • Coal Trader Seeing Rebound Hunts for Bargains in Troubled Mines: Javelin Global Commodities Holdings, run by ex- Goldman traders sees recovery in 2017
  • Yen Gains Sideline Kuroda as Volatility Sweeps Rates Shock Aside: Options protecting against yen gains cost most in over 5 yrs
  • Behind China’s $720 Million Bet on British Tech Startups: Cocoon Networks plans London incubator for tech, biotech

In Europe, on the other hand, it has been a surge from the beginning on the back of the soaring banking sector were as noted earlier, not a single bank is red today following speculation the ECB may monetize bank shares in the next QE. Sure enough, after the heavy selling seen in yesterday’s trade, this morning sees equities reside in positive territory to pare back some of the recent losses (Euro Stoxx: +2.8%). Banking names remain in focus, with Deutsche Bank (+12.7%) outperforming today after source reports suggesting the bank is considering a bond buyback. The latest Deutsche Bank news has seen a broad based recovery in credit metrics in Europe, with the exception of Credit Suisse CDS rates, which are actually higher this morning. Gains in equities have been capped by the energy sector, with energy names lagging as a result of the continued subdued oil prices, with WTI Mar’16 futures remaining firmly below USD 29.00/bbl despite a smaller than anticipated build.

European Top News:

  • Opera to Be Sold to Chinese Tech Companies for $1.2b: 71 kroner/shr cash tender offer at 46% premium to latest close
  • Maersk Profit Plunges as Oil, Container Units Both Suffer: reports 2015 net income $791m vs $5.02b in 2014; est. $3.7b
  • Heineken, Carlsberg Forecast Profit Gains as Asia Sales Rise: Vietnam, Southeast Asia growth offsetting weak China, Russia
  • Hermes Says 2016 Sales Growth May Fall Short of Mid-Term Target: Cites global economic, geopolitical, monetary uncertainties
  • James Bond, Star Wars Studio Pinewood Puts Itself Up for Sale: Rothschild hired to conduct a strategic review of company
  • Telenor Earnings Fall Short Amid Norway Wireless Competition: Margin forecast for 2016 also trails analysts’ estimates
  • Daimler Sees $384 Million Expense for Takata Air-Bag Recall: xpense cuts net income to EU8.7b for 2015
  • ARM 4Q Sales Beat Ests., Sees 2016 Revenue ‘Broadly In Line’: says enters 2016 with robust opportunity pipeline for licensing

In FX, a banking sector recovery has led to the near term relief in global stocks to lend a period of calm. The familiar FX correlations have followed through as a result, though USD/JPY looks to be lagging, but this is down to the dovish expectations of Fed Chair Yellen’s semi-annual testimony due later today. 115.00+ is proving a struggle, so positive risk sentiment preferred through Ccy/USD elsewhere, with AUD and NZD notable gainers. GBP brushed off the weak Q4 manufacturing numbers, as the ONS stated this would have less than a 0.1 % impact on GDP. Cable struggling on a 1.4500 handle, but supported for now. EUR crosses have come right back down again — including GBP — and this has pulled EUR/USD back into the mid 1.1200’s, which is also in line with the risk scenario at present. CAD well contained as Oil prices stabilise post API last night.

In commodities, WTI and Crude have steadily risen in the European session as a result of more comments from Iran about cooperating with Saudi Arabia regarding oil output. Furthermore, the latest API crude oil inventory report produced a build of 2.4mln which was below expectations of a 3.6mln build and below today’s DoE expected build of 2.85m1n.

Overnight gold traded range bound failing to benefit from further risk off sentiment in Asia. The yellow metal has enjoyed its best start to the year since 1980, but could be set to drop according to some analysts, as Chinese purchases that ramped up prior to the Lunar New Year, slow down. This comes after a rather bearish note from Goldman Sachs yesterday, who said they see prices falling to USD 1,000 by year end, citing fed rate hikes. In the short term at least, prices will be dictated by the fed, given Chair Yeliens semi-annual testimony later on today. The market has priced in a dovish testimony, with some saying she will er on the side of 2 rate hikes this year. Should she surprise to the hawkish side we could see dovish USD bets unwinding and this will ultimately drive the price gold.

Elsewhere in the metals complex, copper, which also received a bearish note from Goldman yesterday, has declined an is one of the worst performers on the LME, following the news that Freepoort McMoRan have been granted new permits from Indonesia. The company’s Grasberg mine in the country is the world second largest on terms of capacity, consequently the markets expect the glut to swell further. LME zinc outperforms, continuing to benefit from a bullish note by Goldman.

On today’s US calendar, the only thing that will matter will be Yellen’s semi-annual testimony to the House Financial Services Panel delivered at 10:00 however her speech will be out at 8:30 am. We’ll also hear from the Fed’s Williams later this evening (due at 6.30pm GMT). Earnings wise we’ve got 18 S&P 500 companies set to report including Cisco and Time Warner.

Bulletin Headline Summary from Bloomberg and RanSquawk

  • Deutsche Bank (+12.7%) are outperforming today after source reports suggesting the bank is considering a bond buyback
  • The banking sector recovery has led to the near term relief in global stocks and consequently lent a period of calm to FX markets
  • Looking ahead, the standout event through the rest of the session will be any comments from Fed’s Yellen at her semi-annual testimony to congress. Participants will also be looking out for the latest OPEC reports and DoE crude oil inventories as well as comments from ECB’s Praet and Hansson
  • Treasuries lower in overnight trading as European equities rally, led by bank stocks, ahead of Yellen’s testimony before House Financial Services Committee at 10am ET, remarks to be released at 8:30am; Treasury to sell $23b U.S. 10Y notes, WI 1.765% vs 2.09% in Jan.
  • Deutsche Bank shares jumped the most in more than four years as Germany’s biggest bank is considering a bond buyback to help ease concerns about its funds, according to a person with knowledge of the matter
  • Financial firms will have an additional year to comply with MiFID II, the overhaul of European Union market rules covering everything from derivatives trading to bond pricing. The deadline has been moved forward to Jan. 3, 2018
  • 699 officers and directors of American companies purchased their own stock in the last 30 days compared with 828 who sold, the most bullish ratio in more than four years, according to data compiled by The Washington Service and Bloomberg
  • The cost of insuring the bonds of State Bank of India is surging before the nation’s largest lender reports quarterly earnings on Thursday amid concern over worsening asset quality
  • U.K. industrial production plunged 1.1% m/m in December, more than economists forecast, capping its worst quarterly performance in almost three years, the Office for National Statistics said in London on Wednesday
  • Italian industrial production unexpectedly plunged in December, down 0.7% m/m, signaling that the recovery in the euro region’s third-biggest economy probably slowed in the last quarter of 2015 and might struggle to continue in coming months
  • Recent U.S. labor-market data shows persistent hiring, near- record job openings, and growing confidence among workers that they can quit their jobs with the prospect of easily finding another one
  • No IG corporates (YTD volume $181.575b) and no HY (YTD volume $9.275b) priced yesterday

US Event Calendar

  • 7:00am: MBA Mortgage Applications, Feb. 5 (prior -2.6%)
  • 2:00pm: Monthly Budget Statement, Jan., est. $47.5b (prior -$17.5b)
  • 8:30am: Yellen’s prepared remarks to House committee released
  • 10:00am: Fed’s Yellen testifies to House committee
  • 1:00pm: U.S. to sell $23b 10Y notes
  • 1:30pm: Fed’s Williams speaks in Los Angeles

DB’s Jim Reid concludes the overnight wrap

Can Yellen help create peace today in a market in full battle mode? She is set to deliver her semi-annual testimony to the House Financial Services Committee today at 3.00pm GMT (although her prepared remarks may be released earlier) before answering questions from lawmakers. It’s likely that much of what she says today will be repeated in her speech tomorrow at the same time to the Senate, with only the Q&A sessions different.

We clearly have long thought that any rate rise in this cycle is a policy error given our growth and financial system concerns but the Fed are probably nowhere near to acknowledging that they are now on hold for an indefinite period. Yellen can however give the market hope today that the committee is acknowledging the worrying signs from both financial markets and the global economy and take a step closer to a cleaner dovish stance. That would certainly help if for no other reason than it would halt the dollar bull market (notwithstanding the recent sell-off) which has caused problems with commodities, EM, China and encouraged shrinking global dollar liquidity. However we won’t get such a turnaround in one speech. If it happens it’s likely to be a multi month story.

Meanwhile European banks continue to feel the full force of the latest leg of this sell-off with the Stoxx 600 closing down -1.58% yesterday and to the lowest level since October 2013. Peripheral banks were the hardest hit and that saw equity markets in Italy, Spain and Greece tumble -3.21%, -2.39% and -2.89% respectively. In fairness yet another sharp leg down for Oil (WTI closing -5.89% at $27.94/bbl) also more than played its part. Interestingly it was a much better day for European credit markets. With much of the commentary suggesting that Monday’s moves were overdone yesterday we saw the iTraxx senior and sub indices tighten 5bps and 7.5bps respectively. That helped Main close 2bps tighter and Crossover finish more or less unchanged.

Whilst the profitability outlook for European financials remains highly uncertain, a personal view is that the credit risk has been exaggerated in recent days. The ECB still has numerous facilities that banks can use to prevent liquidity concerns. Having said this even if the market is wrong on this, a mistaken sell-off can lead to self fulfilling problems in a sector like financials. If stress continues then as a minimum bank lending that has recently helped European growth could easily suffer which in turn would weaken the operating environment for banks – and all because of a sell-off that was sentiment driven. Banks are often a confidence play and there isn’t much of it around at the moment. One wonders what the ECB could possibly do at their March 10th meeting to enhance such an elusive commodity. At some point soon the market will start discussing this as surely it’s not in the ECB’s interest to see such destabilising focus on what are transmitters of their policy through the economy.

Volatility was the name of the game again for US equity markets yesterday. After trading as much as 1% lower in early trading and then as high as +0.7% in late trading the index eventually finished more or less unchanged (-0.07%) although the tone for the most part felt distinctly negative with the VIX up again (+2%) and closing above 20 for the seventh consecutive session. US credit indices staged a similar roundabout performance while US Treasury yields extended their march lower. 10y Treasuries eventually closed 2.2bps lower at 1.727% but did in fact dip as low as 1.680% which was close to the testing the low print we made around this time last year (1.665%).

It’s a familiar start for markets in Asia (for those open) this morning. Equity bourses in Japan have extended yesterday’s steep losses with the Nikkei and Topix both down close to 3.5%. In Australia the ASX is currently -1.17% although it has pared earlier steep losses but still sits on the verge of dipping into bear market territory. US equity futures are down close to half a percent despite an early 2% bounce for WTI to back above $28/bbl. Much like European markets yesterday its credit markets which are outperforming. The iTraxx Australia is currently 2bps tighter and iTraxx Japan 3bps tighter.

Meanwhile, over in the US the New Hampshire primary results have started filtering through this morning. According to FT, in the Democrat race and with 60% of the ballots currently counted for Sanders has a 59%-39% lead over Clinton (who has since conceded victory in the state), while in the Republican race Trump has secured 34% of the overall vote and is leading with Ohio Governor, John Kasich, coming in second place with 16% with Cruz (12%), Rubio and Bush (both 11%) closely behind. Eyebrows may be raised at the success of these two extreme candidates yesterday but there is still a long way to go.

As expected the data out of the US JOLTS job opening report yesterday shone a positive light on the US labour market. Job openings rose a better than expected 261k in December to 5.61m (vs. 5.41m expected) and to the second highest level on record. In the details the quits rate nudged up one-tenth to 2.1% and to the highest since April 2008. The hiring rate was unchanged at 3.7%. Meanwhile the NFIB small business optimism print was down 1.3pts to 93.9 (vs. 94.5 expected) and wholesale inventories (-0.1% mom vs. -0.2% expected) and trade sales (-0.3% mom vs. -0.4% expected) were down a little less than expected in December. With markets getting smacked from all angles, just to confuse matters the Atlanta Fed upgraded their Q1 GDP forecast again yesterday following the wholesale trade report. They now forecast GDP growth of 2.5% (up from 2.2%).

The other notable dataflow yesterday was out of Germany where the most significant was an unexpected drop in industrial production in December (-1.2% mom vs. +0.5% expected and the biggest monthly decline since August 2014), which has helped to push the YoY rate now down to -2.2% from +0.1%. Also underperforming relative to expectations was the latest trade data where exports in particular slid -1.6% mom in December (relative to expectations for a +0.5% gain). A bigger than expected decline in imports however did see the trade surplus shrink. As our colleagues in Europe pointed out, the latest data clearly poses downside risks ahead for Friday’s Q4 GDP release. That said, turnover data, new orders and capacity utilization data does suggest that December data somewhat overstates the weakness and that the Q1 outlook for production is not threatened. Still, growth looks ever further tilted towards domestic demand.

In terms of the day ahead, this morning in Europe the main releases of note are the next slug of industrial production reports where we’ll get the readings for the UK, France and Italy. Datawise in the US this afternoon we’ll get the January Monthly Budget Statement but expect that to be secondary to Fed Chair Yellen’s semi-annual testimony to the House Financial Services Panel at 3.00pm GMT. We’ll also hear from the Fed’s Williams later this evening (due at 6.30pm GMT). Earnings wise we’ve got 18 S&P 500 companies set to report including Cisco and Time Warner.

end

Let us begin:

ASIAN AFFAIRS

Late  TUESDAY night/ WEDNESDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei DOWN another 372.05 points or 2.31% .The Asian stock markets that were open were all down. Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil GAINED  to 28.60 dollars per barrel for WTI and 30.93 for Brent. Stocks in Europe so far all in the green . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/

below is a summary of events from Japan and Australia last night:

(courtesy zero hedge)

Carnage Continues – Japanese Stocks Crash (Again) As Australia Enters Bear Market

Shortly after we detailed the scale of carnage in Japan – a mysterious massive panic-seller of Yen appeared… as Kuroda heads for Parliament…

But it’s not holding…

Another night, another utter bloodbath in AsiaPac. Japanese markets are plunging (NKY down 600 from US session close) along with USDJPY as Kuroda readies himself to face parliament (and Abe says he “trusts Governor Kuroda.”) Once again banks leading the pain. Australia is also in trouble, after admissions of cooked data sent stocks lower pushing the ASX 200 into bear market territory.

Kuroda has utterly failed to inspire the non-deflation that they believe threatens the world…

And markets know it… NKY is down 2200 points from post-NIRP highs

Japan is unable to hold any gains…

Then there was this…

  • *ABE: TRUSTS BOJ GOVERNOR KURODA

Which sounds like it is begging for a big “but…”

And Australia enters bear market (down 20%) territory…

end Outflows from Chinese citizens and corporates continue at an alarming rate.  In January a huge 110 billion left the nation as citizens try and beat the headwinds of a devaluation: (courtesy London’s Financial times)

http://www.ft.com/intl/cms/s/0/00c67d9a-cf92-11e5-986a-62c79fcbcead.html

February 10, 2016 1:44 am

Outflows from China top $110bn in January Chinese companies and residents sent more than $110bn out of the country in January alone, according to new estimates, as they continued to evade tightening capital controls amid another round of market turmoil. Shawn Donnan in Washington ©Bloomberg

Surging capital outflows from China have become a source of growing concern around the world and left Beijing scrambling to support its currency. Recently-released data showed the country’s foreign exchange reserves falling to their lowest level in almost four years in January.

In the first significant attempt to digest the capital flight amid January’s market turmoil in China, the Institute for International Finance estimated that $113bn had been sent out of the country in the month.

That was more than in any month bar two in 2015, when it estimated a total of $637bn left China, down slightly from the estimate of $676bn it released last month. It also marked the 22nd month in a row of net outflows.

The IIF is a Washington-based industry group that represents banks and insurers around the world. Its estimates are based on extrapolations from official Chinese data and it cautioned that its January figures amounted to only “an approximation of the magnitude of capital flows”.

But the IIF’s figures shine light on the extent of capital flight as they endeavour to capture funds leaving the country through unofficial channels, such as over-invoicing for exports and other methods used to circumvent official capital controls.

The group’s economists said that, based on recently-released official reserve data, they estimated that the Chinese government had spent $90bn intervening to prop up its currency, the renminbi, in January.

Those interventions by the People’s Bank of China represented more than a quarter of the $342bn it spent in all of last year in response to outflows, the IIF said.

end Central banks are losing control: late in the morning the USA/Yen plunge into the 113 handle.  All QQE gains have now been wiped out.  Also all of our yen carry traders have been wiped out (courtesy zero hedge) USDJPY Plunges To 113 Handle – Gives Up QQE2 Gains

Central Banks are losing control everywhere…

Or put another way…

 end EUROPEAN ISSUES David Stockman does not trust Deutsche bank.  He states that when it is crunch time, they lie!! a must view… (courtesy David Stockman/ContraCorner/Bloomberg) “I Don’t Trust Deutsche Bank” David Stockman Unleashes Truth Bomb: “When The Crunch Comes, Bank CEOs Lie”

Following this morning’s proclamation by Deutsche Bank co-CEO John Cryan that Germany’s largest bank is “rock solid,” David Stockman exposed the ugly truth that everyone appears to have forgotten from just 7 years ago…

“in my experience is that when the crunch comes, bank CEOs lie”

Stockman details the Morgan Stanley, BofA, Lehman, and Bear Stearns bullshit that occurred before exclaiming…

I don’t trust Deutsche Bank. I don’t trust what they’re saying. And there’s reason why the banks are being sold all across the world… because people are realizing once again that we don’t know what’s there [on bank balance sheets].”

Worth considering before tomorrow’s European open…

http://www.bloomberg.com/api/embed/iframe?id=gXEUFIhnQZefA5vPoxUVQA

END A large increase in European exposure to oil will have a devastating effect on their banks:

(courtesy zero hedge)

What’s Dragging Down European Banks: Oil And Commodity Exposure As High As 160% Of Tangible Book

Yesterday, when looking at the exposure of the Canadian banking sector to energy, we found something disturbing: according to an RBC analysis, local banks were woefully underreserved.

Yet while clearly overly optimistic about the severity and the duration of the commodity crunch, at least Canada’s banks do provide some information, which however is more than can be said about most European banks. As Morgan Stanley writes, “Europeans have not typically disclosed reserve levels against energy exposure, making comparison to US banks challenging. Moreover, quality of books can vary meaningfully. For example, we note that Wells Fargo has raised reserves against its US$17 billion substantially non-investment grade book, while BNP and Cred Ag have indicated a significant skew (75% and 90%, respectively) to IG within energy books. Equally we note that US mid-cap banks typically have a greater skew to higher-risk support services (~20-25%) compared to Europeans (~5-10%) and to E&P/upstream (~65% versus Europeans ~10-20%).”

Morgan Stanley then proceeds to make some assumptions about how rising reserves would impact European bank income statements as reserve builds flow through the P&L: in some cases the hit to EPS would be .

A ~2% reserve build in 2016 would impact EPS by 6-27%, we estimate:We believe noticeable differences exist between US and EU banks’ portfolios in terms of seniority and type of exposure. As such, applying the assumption of a ~2% further build in energy reserves in 2016, versus ~4% assumed for large US banks, we estimate that EPS would decline by 6-27% for European-exposed names (ex-UBS), with Standard Chartered, Barclays, Credit Agricole, Natixis and DNB most exposed.

Marking to market of high yield and lower DCM/credit trading is also likely to be an issue (and we forecast FICC down ~5% in 2016):We previously showed that CS had the biggest percentage of earnings from HY and already had the worst of peers YoY FICC in 3Q, which we fear could continue to drag, despite a vigorous focus on restructuring.

A matrix of boosting reserves would look as follows on bank EPS:

But the biggest apparent threat for European banks, at least according to MS calulcations, is the following: while in the US even a modest 2% reserve on loans equates to just 10% of Tangible Book value…

… in Europe a long overdue reserve build of 3-10% for the most exposed banks, would immediately soak up anywhere between 60 and a whopping 160% of tangible book!

Which means just one thing: as oil stays “lower for longer”, and as many more European banks are forced to first reserve and then charge off their existing oil and gas exposure, expect much more diluation. Which, incidentlaly also explains why European bank stocks have been plunging since the beginning of the year as existing equity investors dump ahead of inevitable capital raises.

And while that answers some of the “gross exposure to oil and commodities” question, another outstanding question is what is the net exposure to China. As a reminder, this is what Deutsche Bank’s credit analyst Dominic Konstam said in his explicit defense of what needs to be done to stop the European bloodletting:

The exposure issue has been downplayed but make no mistake banks are heavily exposed to Asia/MidEast and while 10% writedown might be worst case for China but too high for the whole, it is what investors shd and do worry about — whole wd include the contagion to banking hubs in Sing/HKong

Ironically, it is Deutsche Bank that has been hit the hardest as the full exposure answer, either at the German bank or elsewhere, remains elusive; it is also what has cost European banks billions (and counting) in market cap in just the past 6 weeks.

end

JPMorgan scares the daylights out of investors: they state that the ECB can cut  rates to -4.5%; the bank of Japan to -3.45% and the Fed to -1.3% as these central banks can charge banks with their huge reserves in order to stimulate the economy: (courtesy zero hedge/JPM) JPM’s Striking Forecast: ECB Could Cut Rates To -4.5%; BOJ To -3.45%; Fed To -1.3%

One week ago, in the aftermath of Japan joining the NIRP club, we wondered how low Kuroda could cut rates if he was so inclined. The answer was surprising: according to a Nomura analysis the lower bound was limited by gold storage costs. This is what the Japanese bank, whose profit was recently slammed by Japan’s ultra low rates, said:

“theoretically, negative interest rates’ lower bound depends partly on the cost of holding cash in the form of physical currency. When people hold cash out of aversion to negative interest rates, they risk losses due to theft and the like. The cost of avoiding this risk could be a key determinant of negative interest rates’ lower bound, but it is hard to directly quantify. As a proxy for the cost of holding physical currency, we estimated the cost of storing gold based on gold futures prices. This cost has averaged an annualized 2.4% over the past 20 years, though it has varied widely over this timeframe.”

Which, in conjunction with Kuroda’s promises that “Japan will cut negative rates further if needed”, raised flags: once the global race to debase accelerates, and every other NIRP bank joins in, will global rates be ultimately cut so low as to make a “gold standard” an implicit alternative to a world drowning in NIRP?

According to a just released report by JPMorgan, the answer is even scarier. In the analysis published late on Tuesday by JPM’s Malcolm Barr and Bruce Kasman, negative rates could go far lower than not only prevailing negative rates, but well below gold storage costs as well.

JPM justifies this by suggesting that the solution to a NIRP world where bank net interest margins are crushed by subzero rates, is a tiered system as already deployed by the Bank of Japan and in some places of Europe, whereby only a portion of reserves are subjected to negative rates.

Which leads to the shocker: JPM estimates that if the ECB just focused on reserves equivalent to 2% of gross domestic product it could slice the rate it charges on bank deposits to -4.5%.Alternatively, if the ECB were to concentrate on 25% of reserves, it would be able to cut as low as -4.64%.  That compares with minus 0.3% today and the minus 0.7% JPMorgan says it could reach by the middle of this year as reported yesterday.

In Japan, JPM calculates that the BOJ could go as low as -3.45% while Sweden’s is likely -3.27%.

Finally, if and when the Fed joins the monetary twilight race, it could cut to -1.3% and the Bank of England to -2.69%.

As Bloomberg adds, easing the fall is that the JPMorgan economists bet that banks are unlikely to be able to pass on the cost of the policy to borrowers, reducing potential repercussions. They also see limited pressure on bank profits or for a need to stash cash. On the other hand, DB has suggested that it is time to pass on NIRP to depositors in the most aggressive forms possible.

While Barr and Kasman still expect policy makers to tread carefully, such analysis may temper the recent fear of investors that after seven years of interest rates around zero and bumper bond-buying, central banks are now out of ammunition. Indeed, a fuller embrace of negative rates could “produce significant reductions in market rates,” said the economists.

“It appears to us there is a lot of room for central banks to probe how low rates can go,” they said. “While there are substantial constraints on policymakers, we believe it would be a mistake to underestimate their capacity to act and innovate.”

Here are the key observations by JPM:

  • Sluggish growth and low inflation is building the case for further DM monetary policy stimulus. With term premia and forward rate expectations compressed, the benefits of additional QE and forward guidance is likely to be limited.
  • The alternative of negative interest rate policy (NIRP) has been viewed as constrained as banks, corporates and households can increase holdings of zero-yielding physical currency when rates move negative.
  • Innovations by central banks in Europe and Japan have enabled central banks to push policy rates well below zero. Using a tiered deposit scheme, deposit rates have fallen as low as -0.75% in Europe with no significant signs of a move into cash.
  • Our analysis suggests that the use of these schemes could allow for considerably lower policy rates without undue pressure on bank profitability or creating a powerful incentive to move into cash.
  • Calibrations based on Swiss experience suggest that with modest changes to the reserve regime, the policy rate in the Euro area could, in principle, go as low as -4.5%.
  • Estimated bounds for the US (-1.3%) and UK (-2.5%) are higher, reflecting their larger bank reserve to asset ratios. We believe this bound is not binding and that rates could fall further in both cases.
  • To date, markets price only a small probability of sustained NIRP of -0.75% or lower in the G4. This suggests that a strong signal that policymakers are willing to actively use NIRP could produce significant reductions in market interest rates.
  • The actual transmission of NIRP is likely to be muted as we expect household deposit rates to remain sticky around zero which will limit pass-through of NIRP through the retail banking sector.
  • Central banks are also likely to move cautiously into NIRP as they are sensitive to the uncertain consequences of these policies on local markets. This suggests their response to weakness may prove slower than in the past.
  • Having put in place a three tiered deposit system and facing a significant inflation undershoot, the Bank of Japan is expected to lower its deposit rate to -0.5% alongside additional QQE this year.

Recall that JPM yesterday set the bogey on the one event that could prompt Yellen to go NIRP: a recession. Here is the latest take by JPMorgan on this:

With IOER at 0.5% and the Fed maintaining concerns about US money markets, the US is not close to considering NIRP. However, if recession risks were realized, the need for substantial additional policy support would likely push the Fed towards NIRP.

In other words, once the Fed makes up its mind, all that will be needed is for economic “data” to turn even more severely southward thus giving Yelen the required political cover to join the final lap of the global race to debase.

Finally, here is the summary table of where to look for the real negative lower bound.

 end Looks like Europe is going to suspend Schengen for two years: (courtesy zero hedge) The End Is Nigh For Europe As Officials Mull 2 Year Schengen “Suspension”

Well, no one can say the writing wasn’t on the wall.

With Europe at a complete and total loss as to how to deal with the bloc’s worst refugee crisis since World War II, countries have increasingly adopted their own, ad hoc “solutions” which include razor wire anti-migrant fences in Hungary and the suspension of Schengen in Austria, where the backlash against asylum seekers is growing more palpable by the day.

An ill-fated quota system devised by Berlin and Brussels proved more divisive than it did helpful and the wave of alleged sexual assaults that swept through the region on New Year’s Eve threatens to derail the settlement effort altogther.

“We have until March, the summer maybe, for a European solution,” one unnamed German official told Retuers last month. “Then Schengen goes down the drain.”

“There is a big risk that Germany closes,” another official said, suggesting that Angela Merkel may eventually bow to the domestic political pressure and reverse the country’s open-door policy. “From there, no Schengen … There is a risk that February could start a countdown to the end.”

Well sure enough, reports now indicate that European officials are prepared to suspend Schengen for a period of 2 years. From Reuters:

  • EU ENVOYS AGREE TO MOVE STEP CLOSER TO SUSPENDING SCHENGEN FOR TWO YEARS – SOURCE

Like a stock halted limit down on the Shenzhen, there’s a very good chance that once suspended, Schengen will never again be open for “trading”.

end

Deutsche bank’s stock rises today on news of ECB QE, the false premise that the ECB will purchase bank stocks and the fact that Deutsche bank will purchase bank debt (courtesy zero hedge) Deutsche Bank Spikes Most In 5 Years (Just Like Lehman Did)

Rumors of ECB monetization (which would be highly problematic in the new “bail-in” world) and old news of the emergency debt-buyback plan have sparked an epic ramp in Deutsche Bank’s stock this morning (+11% – the most since Oct 2011). This extreme volatility is, however, eerily reminiscent of 2007/8 when headline hockey sparked pumps and dumps on a daily basis in Lehman stock… until it was all over.

“Deutsche Bank is fixed”?

Or is it?

Things are already fading…

We suspect every bounce will be met by opportunistic selling as an inverted CDS curve has seldom if ever reverted back to life.

end What a joke!  John Mack, former CEO of Morgan Stanley states that we should not worry about Deutsche bank because it will be bailed out by the German Government (courtesy zero hedge) John Mack: Don’t Worry About Deutsche Bank, It Will Be Bailed Out By The Government

When it comes to government bail outs of insolvent banks few are as qualified to opine as John Mack who was CEO of Morgan Stanley when the bank, along with all other U.S. TBTF banks, was bailed out with a multi-trillion rescue package in the aftermath of the Lehman failure. Which is why it was illuminating, if not surprising, that during an interview with Bloomberg TV discussing the future of Deutsche Bank, John Mack said that “there’s no question in my mind, it is absolutely good for every penny.” In other words, “Deutsche Bank is fine.”

Why is he so confident? According to Mack, “this idea that I heard yesterday, the possibility of not making their interest payments, it’s just absurd. The government will not let that happen.”

Said otherwise, it will be bailed out. One wonders if Germany’s citizens were polled before John came up with this conclusion.

This is what else he said:

While German regulators at this point shouldn’t ban short-selling as U.S. authorities did in the 2008 financial crisis, the German central bank should make a statement in support of the lender, Mack said. Deutsche Bank shares jumped the most in almost seven years Wednesday, paring a decline that had exceeded 40 percent this year.

“People overreact,” Mack said. “The bank’s name is Deutsche Bank. It’s the German bank. Politically, they will stand up, if they need a safety net, and give it to them.”

Which was to be expected: after all DB had a gross notional derivative exposure of roughly $60 trillion as of 2014, several times greater than the GDP of Europe, and a net balance sheet which is a large portion of German GDP.

This is also why last thing Germany, Europe, or the world’s central bankers will allow, is DB to fail, and it has never been a question whether or not they will try to, but whether and how they can save it. And, if a political bailout is unfeasible in the current climate, whether instead of a bailout, would Deutsche Bank be the first major European bank to rely on Europe’s new “bail in” regime to stuff depositors for any capital shortfalls.

Still, without focusing on the specifics, a government (or ECB) backstop is precisely what the market is contemplating today as noted earlier, and as manifested in the stock which has soared the most in 5 years, just as Lehman did in its turbulent final days.

Mack’s full interview is below.

http://www.bloomberg.com/api/embed/iframe?id=j9tPIszhRyadBdSPx9Gsdg

end RUSSIAN AND MIDDLE EASTERN AFFAIRS Time is running out on the Ukraine as Lagarde warns of a possible bailout or bail in! (courtesy Bloomberg) Lagarde Heaps Pressure on Ukraine in Warning of Bailout Halt
  • It’s `vital’ that country’s leaders act now, IMF chief says
  • Government bonds at highest since 2015 debt restructuring
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Pressure on Ukraine’s government, already showing cracks over anti-graft efforts and the war with pro-Russian separatists, was ratcheted up further as the International Monetary Fund warned that the nation’s $17.5 billion bailout risks being halted without progress on reform.

Christine Lagarde, the fund’s managing director, said Wednesday in a statement that it’s “hard to see” how the rescue program can continue successfully without a “substantial new effort” to overhaul governance and combat corruption. Government bonds, at risk from a debt dispute with Russia that Germany’s seeking to mediate, sank after Lagarde’s remarks, the harshest to date on the prospects for Ukraine’s rescue loan.

QUICKTAKEUkraine’s Other War

The political crisis facing President Petro Poroshenko and his team is worsening as discontent at stalled reforms builds among Ukrainians who fomented a pro-democracy revolution in 2014 and ally nations who’ve pledged billions in financial aid. Frustration within the ruling coalition, which is also still tackling a pro-Russian insurgency in the nation’s east, boiled over last week when reform-minded Economy Minister Aivaras Abromavicius quit, alleging officials from Poroshenko’s party were corrupt.

Bonds Sink

“Ukraine needs Western support to stabilize and reform the country from within,” said Joerg Forbrig, senior program director at the German Marshall Fund of the U.S. in Berlin. “The leadership in Kiev is now at risk of forfeiting this support. Its infighting and opposition to true reforms will reconfirm the skepticism many in the West have.”

Ukrainian government debt reversed earlier gains after Lagarde’s comments, with the yield on notes maturing in 2023 jumping 10 basis points to 10.99 percent, the highest level since new bonds were issued in November as part of a $15 billion restructuring. Ukrainian dollar debt has handed investors an 8.2 percent loss this month, the most among 61 countries in the Bloomberg Emerging-Market Sovereign Bond Index.

Lagarde warned Ukraine, whose Orange Revolution more than a decade ago was hijacked by infighting, of “a return to the pattern of failed economic policies that’s plagued its recent history,” according to the statement. She called it “vital” that Ukraine’s leadership “acts now to put the country back on a promising path of reform.”

‘A Chance’

Ukraine must show the world that it’s helping itself, Prime Minister Arseniy Yatsenyuk said in a statement, calling the current political crisis “a chance for us.” Svyatoslav Tsegolko, a spokesman for Poroshenko, didn’t answer calls to his mobile phone.

Poroshenko has promised personnel changes in the government that could come as early as next week, when Yatsenyuk reports to parliament on his cabinet’s performance. While the ruling coalition is holding meetings to discuss the new cabinet, there’s no agreement as yet, with some parties lobbying for the premier to lose his job.

Stamping out corruption is key to the continued flow of financial aid as Ukraine’s economy recovers from an 18-month recession. Growth this year will be 1.1 percent, the central bank predicted last month, cutting its previous forecast by more than half.

Allies’ Backing

The government received $6.7 billion from the IMF last year, while a third tranche of $1.7 billion has been delayed since October over holdups in passing this year’s budget. Freezing that disbursement put related bilateral assistance on hold, including a $1 billion U.S. loan guarantee and 600 million euros ($675 million) from the European Union.

The resignation of Abromavicius, 40, a Lithuanian-born former fund manager brought in to modernize the Economy Ministry, sparked statements of concern from Group of Seven nations and the IMF. Ukraine’s efforts to stamp out corruption brought scant progress last year, according to Transparency International. The nation of 43 million people ranked 130th of 168 countries in the Berlin-based watchdog’s Corruption Perceptions Index, level with Iran and Cameroon.

Corruption isn’t the only issue concerning Ukraine’s allies.

Germany is asking Ukraine to make a new offer to resolve a dispute with Russia over a $3 billion bond default after President Vladimir Putin’s government rejected a proposal put forward last month.

Envoys from Germany and France visited Kiev in January to urge Ukraine to push ahead with constitutional changes as part of an accord sealed in 2015 to bring peace to its easternmost regions. Ukraine, backed by the U.S. and the EU over the almost two-year-old conflict, says Russia is failing to meet its own peace commitments under the deal.

end

Saudi Arabia and Turkey are preparing to invade Syria.  If they do, then Russia and Iran will certainly enter the fray and that may begin World War III

(courtesy zero hedge)

John Kerry Makes Last Ditch Effort To Avert World War III As Saudis, Turks Prepare For Syria Invasion

Tomorrow, John Kerry will meet Sergei Lavrov and several of his other counterparts from Europe and the Mid-East in Munich in a last ditch effort to revive Syrian peace talks, which fell apart amid an intense Russian air assault on rebel positions in Aleppo.

For all intents and purposes, the rebels are surrounded. Initially, it appeared that the “moderate” opposition might be able to persist and bog down the Russians and the Iranians with the help of supplies from the US, Turkey, and Saudi Arabia. Those hopes faded over the past two weeks when Hezbollah advanced on Aleppo and ultimately encircled the city, cutting the rebels off from key supply lines and triggering a mass civilian exodus.

The talks in the Bavarian capital come at what is perhaps the most crucial point in the conflict to date. With the opposition on the ropes, it’s do or die time for Riyadh, Ankara, Doha, and the UAE. Either the Gulf monarchies send in ground troops to shore up the rebels or Hezbollah and the IRGC will overrun them in a matter of weeks – or perhaps even days.

Of course the opposition’s Sunni benefactors can’t exactly say they’re going into Syria to fight Iran and the Russians. Any ground incursion will be justified by the need to “fight ISIS” even though the Islamic State presence in Aleppo is markedly less pronounced than in other besieged urban centers like Raqqa and Deir ez-Zor. Indeed, the effort is so transparent that even the mainstream media has been forced to acknowledge it. Here’s FT, for instance:

Saudi Arabia is discussing plans to deploy ground troops with regional allies, including Turkey, for a safe zone in Syria, in a last-ditch effort to keep alive a rebellion at risk of collapse as a Russian-backed offensive by Syrian regime forces encroaches on the northern province of Aleppo.

Although western officials have dismissed the plans as lacking credibility, they are a sign of the desperation that many of Syria’s opposition backers feel towards what looks like an increasingly bleak outcome in the war. Two people familiar with Saudi plans told the Financial Times that high-ranking Gulf officials are in Riyadh meeting Turkish officials to discuss options for deploying ground troops to head a coalition of fighters inside Syria.

Aleppo city, Syria’s former business hub, is the last significant urban centre controlled by the rebels. Its countryside, on the northern border with Turkey, is their lifeline.

President Bashar al-Assad’s forces, bolstered by Iranian-funded Shia militias, advanced last week into opposition-held territory in Aleppo’s northern countryside under the cover of Russian air strikes. The violence prompted thousands of civilians to flee, exacerbating the already vast humanitarian crisis.

 

Publicly, Saudi Arabia, the UAE and Bahrain are calling for troops to be deployed as part of the US-led international coalition already ranged against Isis. This comes after Washington singled out Arab countries for not doing more to fight the Islamist group. But regional observers say the moves are cover for an intervention to help the Syrian rebels.

Of course the most absurd aspect of the “fight ISIS” narrative is that the force which is most effective at combatting Islamic State – the YPG- is under attack by Turkey. That would be the same Turkey who, like everyone else, is using ISIS to justify its intervention in Syria. “Are you our side or the side of the terrorist PYD and PKK organization?” President Recep Tayyip Erdogan asked, in a speech in Ankara to provincial officials on Wednesday. He went on to say the US has caused “a sea of blood” in Turkey by supporting the YPG in Syria. “Ankara summoned the U.S. ambassador to express its displeasure after State Department spokesman John Kirby said on Monday the United States did not regard the PYD as a terrorist organization,” Reuters notes.

As for the opposition in Aleppo, the rebels are literally begging the US to intervene. “I believe he can really stop these attacks by the Russians,” Spokesman Salim al-Muslat told Reuters, referring to President Obama. If he is willing to save our children it is really the time now to say ‘no’ to these strikes in Syria. I believe he can do it but it is really strange for us that we don’t hear this from him.”

Actually it’s not at all strange. John Kerry can’t simply “ask” Sergei Lavrov to stop the bombing in Aleppo. As he told aid workers in London over the weekend, the US can’t exactly “go to war with Russia,” which is what would be required to compel the Kremlin to halt airstrikes on rebel positions.

The French are also skeptical of America’s ability to halt the Russian and Iranian offensive. “There are the ambiguities including among the actors of the coalition … I’m not going to repeat what I’ve said before about the main pilot of the coalition,” French Foreign Minister Laurent Fabius said. “But we don’t have the feeling that there is a very strong commitment that is there.”

Again though, it’s not a matter of “commitment.” It’s a matter of whether or not the US wants to challenge Russia and Iran militarily because as should be abundantly clear by now, this has nothing at all to do with ISIS and everything to do with what’s about to happen at Aleppo. “It’s seen as the heart of what’s left of the rebel movement in terms of holding a major city without being infested by Islamic State,” Julian Barnes-Dacey, a senior policy fellow at the European Council on Foreign Relations told Bloomberg. “If Assad can get that, then it’s hard to imagine the opposition surviving.”

Precisely. Which was the plan from the beginning. It’s not that Russia and Iran don’t want to fight Islamic State. They do. But unlike Washington and its regional allies, Moscow has never pretended that the fight in Syria is strictly about ISIS. Rather, the conflict is about putting down an insurgency that threatens to plunge yet another Mid-East country into failed state status and it’s also about drawing a line in the sand when it comes to the West’s persistent meddling in the affairs of sovereign states. The most effective way to turn the tide and end the insurgency is to recapture the country’s urban centers first, and Aleppo is crucial to that plan. Once it’s secured, they’ll be a push east to liberate Raqqa and relegate ISIS to the annals of jihadist history.

We suppose the most important thing to understand here is this: Saudi Arabia, Turkey, and the UAE are mulling sending ground troops to fight the Russians and Iranians who are attempting to put an end to an insurgency that’s cost the lives of hundreds of thousands of Syrians. That campaign has most assuredly aggravated the violence in the short-term, but it’s an effort to restore a sense of normalcy to a country that’s seen nothing but chaos for nearly six years. Rather than let Moscow and Hezbollah finish the job, the US and its regional Sunni allies would rather send in ground troops to prop up the rebels. So please tell us: who are the bad guys and who are the good guys here? 

end

  GLOBAL ISSUES: This does not bode well for Canada:  citizens in Alberta, with mortgages greater than the value of their homes are simply mailing the keys back to the banks.  The carnage will have a devastating effect on Canadian banks: (courtesy zero hedge) “Jingle Mail” Makes Comeback In Canada As Underwater Borrowers Mail Keys Back To Banks

We’ve spilled quite a bit of digital ink documenting the trials and travails of Alberta, the heart of Canada’s dying oil patch and ground zero for the pain inflicted by 14 months of crude carnage.

At the risk of beating a dead (or at least a “dying”) horse, you’re reminded that violent crime is soaring in the province, suicide rates are up by a third as is food bank usage, and as for unemployment, well, Alberta lost 19,600 jobs last year – the most in 34 years.

While it’s not entirely clear where things go from here, it’s a good bet that the situation will deteriorate further given that, at last check, WCS was trading just CAD1 above the marginal cost of production. In other words: Canada’s producers aren’t profitable and thanks to the plunging loonie, the BoC doesn’t look particularly likely to help them.

That means more job losses are in the cards and the prospects for the increasingly profitablerepo business look better than ever. We’ve also documented the soaring cost of homes in Canada, on the way to noting that just about the last thing you want to have is a collapsing economy, a propery bubble, and record high household debt.

That’s a recipe for disaster and sure enough, we’re starting to see the first signs that the market is beginning to crack as Albertans begin mailing the keys to their underwater homes back to the bank. “A combination of high debt and lost jobs make [jingle mail attractive] in a province going through a significant economic reckoning,” CBC writes. “It’s enough of a concern that the federal government is watching the Alberta market closely.”

As they should be. The wave of job losses occasioned by the rout in oil markets has put already leveraged households in a tough spot. Now, the pressure is apparently more than many homeowners can bear.

People [are] saying that we can’t make a go of it and mail the keys to the bank,” Don Campbell, senior analyst with the Real Estate Investment Network told CBC. “In the big cities, not so much because the average sale prices haven’t really dropped much, we haven’t seen the pain yet. But Calgary is getting pretty tight.”

Yes, it’s “getting pretty tight” in Alberta and that’s problem for banks. Here’s why (again from CBC):

Alberta is the only Canadian province to broadly offer non-recourse residential mortgages. Those are loans with at least a 20 per cent down payment and thus are not insured by the Canada Mortgage and Housing Corporation (CMHC).

If you walk away, you lose your home, but otherwise have no personal liability. Elsewhere in Canada, your lender can take you to court and seize other assets, such as RRSPs, vehicles, and even garnishee your wages.

Jingle mail was an enormous problem in Alberta in the 1980s, when mortgage rates were hovering around 20 per cent and people began leaving the province to find work elsewhere. It made a rough housing market even worse when banks were forced to sell off abandoned homes at a discount. It also played a role in the U.S. housing crash.

In the mid-eighties, around a half million people left Alberta to find work in other parts of the country and were able to walk away from their mortgages with virtually no personal consequences, not even to their credit rating.

That’s the scenario that the Finance Department is worried about now.

These non-recourse mortgages could create incentives for some homeowners facing an income shock to pursue a strategic default and thus place further downward pressure on prices,” read one of the reports obtained by CBC News.

In other words, if you’re an Albertan O&G worker who was just laid off thanks to Saudi Arabia’s war of attrition with the US shale complex, you can simply walk away from your mortgage with no consequences.

Obviously, that’s bad news for Canada’s banks and underscores the following assessment we presented just three weeks ago: “…as Canada’s depression worsens, expect overburdened households to simply fold up under the pressure. That’s when the dominos start to fall in earnest as a cascade of foreclosures bursts the nation’s housing bubble once and for all and asthe world discovers how exposed Canada’s banks are to the country’s levered up families.”

“I had four higher end sales last month, all four transactions, the values were off 20% to get a buyer to the table, in order to get a deal to stick,” Joel Semmens, a realtor in Calgary with Re/Max said.

Expect that negative sentiment to spread quickly in a market that is clearly showing signs of froth. We close with still more commentary from a CBC Op-Ed regarding Calgary’s “hollowed out” downtown:

The heart of our city is hollowing out.

Gone are thousands of downtown white collar office jobs, as oil and gas companies cut employees and slash entire departments.

To a Calgary eye, cranes symbolize good times. A darkened office floor is an economic black eye.

I think it’s tough for people to come to work every day and see empty office space. For a lot of people, particularly young people, they haven’t been through such a dramatic recession before. 

I would say the more seasoned people have probably a little bit more tolerance for it, because they have seen it before. Calgary had significant growth in the late 70’s, from a downtown office space perspective. In some ways, it was almost harder in the 80’s, because all of a sudden you have extra capacity added on in a rapid rate and then contracted very quickly. This is definitely different than 2009 where office space was threatening to be as high as it was today. 

The big buzz word these days is “diversification.” Do you think we’re capable of diversifying to the point of making up for the jobs lost, if not short term, then in the long term? If so, in what sectors?

In terms of occupancy of these buildings, do you think they may sit for vacant for years on end?

I think is going to be slower absorption that it has been, in the last five years, but I think there’s no need to panic at the stage. 

Right. There’s no need to panic.

Yet.

end

The world’s largest shipping company Maersk has its profit plunge by 84% on total collapsing global trade as well as sinking crude oil prices.  This should give you a good snapshot of what is going on with respect to trade throughout the globe!!

(zero hedge/Maersk)

Profit At World’s Largest Shipping Company Plunges On Collapsing Global Trade, Sinking Crude Prices

Back in November, Nils Smedegaard Andersen, CEO of Maersk, the world’s largest shipping company, gave the world a reality check when it comes to global growth and trade.

“The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting” Andersen told Bloomberg. “We believe that global growth is slowing down [and that] trade is currently significantly weaker than it normally would be under the growth forecasts we see.”

That amounted to a harsh indictment of the IMF’s “built in optimism bias” (to quote HSBC), a bias which leads the Fund to perpetually revise down its estimates for global growth once it’s no longer possible to deny reality. “We conduct a string of our own macro-economic forecasts and we see less growth – particularly in developing nations, but perhaps also in Europe,” Andersen added. “Also for 2016, we’re a little bit more pessimistic than most forecasters.”

His comments came on the heels of a quarter in which Maersk’s profits fell 61% Y/Y. On Wednesday, we got the latest numbers out of the shipping behemoth and the picture is most assuredly not pretty.

For 2015, profits fell a whopping 84% to $791 million from $5.02 billion in 2014. Analysts were looking for a profit of $3.7 billion.

For Q4, the net loss came in at $2.51 billion, far worse than the Street expected. Shares of Maersk fell sharply in repsonse.

Not helping matters was Maersk’s oil unit, which took a $2.5 billion impairment charge. “Given our expectation that the oil price will remain at a low level for a longer period, we have impaired the value of a number of Maersk Oil’s assets,” Andersen said. The company needs $45-55 a barrel to break even. Obviously, we’re a long way from that.

The outlook for Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year. “Freight rates in 2015 averaged a monthly $620 a container on the key Asia to Europe trade route, with the break even level at more than $1,000,” WSJ notes. “In February the cost of moving a container from Shanghai to Rotterdam fell to $431, according to the Shanghai Containerised Index, barely covering fuel costs.”

“Guidance,” Citi wrote in a note this morning, “implies no respite for 2016”:

“2016 guidance for an underlying net profit significantly below 2015 (US$3.1bn) vs. US$3.4bn consensus. Maersk Line significantly below 2015 (US$1.3bn); Maersk Oil a negative underlying result (breakeven at an oil price US$45-US$55); APMT flat and lower in other divisions. Heavy CAPEX continues at c.US$7bn. We expect consensus to reflect guidance.”

Maersk Line expects an underlying result significantly below last year as a consequence of the significantly lower freight rates going into 2016 and the continued low growth with expected global demand for seaborne container transportation to increase by 1-3%,” the company said in its annual report out Wednesday.

Here’s a look at how swings in crude and freight rates affect the company’s bottom line:

Addressing the global deflationary supply glut, the company said it’s being “severely impacted by a widening supply-demand gap”. “The demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels,” Maersk noted. “In 2015, global economic conditions remained unpredictable and our businesses and long-term assets were significantly impacted by large short-term volatility.”

Right. So as we’ve said on too many occasions to count, global growth and trade has simply flatlined and one look at the Baltic Dry certainly seems to suggest that there’s no “recovery” anywhere on the horizon. Indeed we learned last month that in November, US freight volumessuffered their first Y/Y decline since 2012 and before that, the recession.

So once again, central bankers had better learn how to print trade or else it will be time to start “liquidating” excess inventory. And we mean “liquidating” in the most literal sense of the word…

end

As the Maersk earnings indicate, the world finances are in turmoil.  The world is expecting no inflation but an avalache of deflation:  which is what Japan is going through right now!!

(courtesy zero hedge)

 

Inflation Expectations Around The Globe Just Hit Record Lows

Having seen what monetary-policy failure looks like in Japan.. and in the US, we now turn our attention to the world. Amid NIRP temptations, growth fears, and faltering faith in central banker control, market-implied inflation expectations have collapsed to record lows. Worse still, even The Fed’s own survey of consumer’s inflation expectations has slumped to record lows.

Inflation expectations are collapsing… (US and Europe at record lows – worse than the lows in the middle of the last crisis)…

As Bloomberg adds, while ECB policy makers have reiterated in recent weeks that they are committed to their mandate of boosting annual inflation rates to just under 2 percent,consumer-price growth is currently only about one-fifth of that level.

And The Fed is no better as all the money-printing, jawboning, and promises have left consumer expectations of inflation at record lows…

 

And finally – what we all have to look forward to… Japanese policy projects the impotence of the current efforts in US and Europe… it does not end well…

 

 

#PolicyFail

end

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/WEDNESDAY morning 7:00 am

Euro/USA 1.1258 down .0030

USA/JAPAN YEN 114.94 down 0.240 (Abe’s new negative interest rate (NIRP) not working

GBP/USA 1.4528 up .0068

USA/CAN 1.3837 down .0046

Early this WEDNESDAY morning in Europe, the Euro fell by 30 basis points, trading now well above the important 1.08 level rising to 1.1121; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was flat in value (onshore) due to lunar holiday. The USA/CNY flat in rate at closing last night: 6.5710 / (yuan flat but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)

In Japan Abe went BESERK  with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP   . The yen now trades in a  northbound trajectory as IT settled UP in Japan again by 24 basis points and trading now well BELOW  that all important 120 level to 114.94 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE

The pound was down this morning by 1 basis point as it now trades just above the 1.44 level at 1.4432.

The Canadian dollar is now trading up 48 in basis points to 1.3880 to the dollar.

Last night, Chinese bourses were closed/Japan down badly as was Australia.  All European bourses were in the green as they start their morning.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade also blowing up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this WEDNESDAY morning: closed down 372.05 or 2.31%

Trading from Europe and Asia:
1. Europe stocks all in the green

2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed ,Shanghai in the closed  Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red /

Gold very early morning trading: $1183.60

silver:$15.14

Early WEDNESDAY morning USA 10 year bond yield: 1.76% !!! up 3 in basis points from last night  in basis points from TUESDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.58 up 3 in basis points from TUESDAY night.  ( still policy error)

USA dollar index early WEDNESDAY morning: 96.11 up 6 cents from TUESDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers WEDNESDAY MORNING

 

OIL MARKETS

 

Oil drops below 28 dollars on the disappointment in Yellen’s testimony this morning;

(courtesy zero hedge)

WTI Crude Plunges Back Below $28 After Yellen Disappoints

WTI Crude futures are tumbling as Yellen’s prepared remarks offered little for the doves and played down growth due to “financial strains.” Back in the red after some overnight hope from Europe, WTI is back to a $27 handle once again…

end

 

According to BP and they should know:  “Every oil storage tank will be full in a few months”.  That should bring crude down in price to the low 20’s or high teens:

(courtesy BP//zero hedge)

BP’s Stunning Warning: “Every Oil Storage Tank Will Be Full In A Few Months”

It was just last week when we said that Cushing may be about to overflow in the face of an acute crude oil supply glut.

“Even the highly adaptive US storage system appears to be reaching its limits,” we wrote, before plotting Cushing capacity versus inventory levels. We also took a look at the EIA’s latest take on the subject and showed you the following chart which depicts how much higher inventory levels are today versus their five-year averages.

Finally, we went on to present two alarm bells that offer the best evidence yet that inventories are reaching nosebleed levels: 1) some counterparties are experiencing delays in delivering crude due to unspecified “terminalling and pump” issues (basically, it’s hard to move barrels around at this point because there’s so much oil sitting in storage); 2) the cash roll is negative.

On Wednesday, BP CEO Robert Dudley – who earlier this month reported the worst annual loss in company history – is out warning that storage tanks will be completely full by the end of H1. “We are very bearish for the first half of the year,” Dudley said at the IP Week conference in London Wednesday. “In the second half, every tank and swimming pool in the world is going to fill and fundamentals are going to kick in,” he added. “The market will start balancing in the second half of this year.”

Maybe. Or maybe excess supply will simply be dumped on the market once all the “swimming pools” are full.

If that happens, don’t be surprised to see crude crash into the teens as attempts to clear and dump excess inventory spread like wildfire across the market.

Earlier this week, the IEA called any respite for crude prices “a false dawn.” Here’s why (via The Guardian):

  • a deal between Opec and other oil producing countries to cut production is unlikely
  • with Iran increasing production in preparation for the lifting of sanctions, Opec’s production could rise as strongly this year as in 2015
  • there is little prospect falling prices encouraging a pick-up in the rate of demand for oil
  • the US dollar is likely to remain strong, limiting the scope for falls in the cost of imported oil
  • the predicted large fall in US shale production is taking a long time to materialise

So buckle up, because the collapse in the world’s most financialized of commodities has further to go, and once the entire US shale space goes bankrupt, it will emerge debtless only to start drilling and pumping anew prompting the Saudis to continue to ratchet up the pressure in an endless deflationary merry-go-round. We close with a quote from the IEA:

“We suggest that the surplus of supply over demand in the early part of 2016 is even greater than we said in last month’s oil market report. If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short-term risk to the downside has increased.” 

end Two events:  an unexpected crude draw down helps oil but a huge Cushing build up for the 13th straight week, causes oil to fall back down (courtesy zero hedge) Oil Pumps’n’Dumps After Unexpected Crude Inventory Draw And Cushing Build For 13th Week

Following last night’s across the board build in inventories from API, DOE reported a surprising 750k drawdown (much less than the 3.2mm build expected). However, across the rest of the complex – inventories rose: Cushing +523 build (13th week in a row), Gasoline +1.26mm build, and Distillates +1.28mm build (first in 4 weeks). Having tumbled early on from Yellen’s undovishness, crude spiked on the headline draw (back above $29) but is struggling to hold gains.

From API:

  • Crude +2.4mm
  • Cushing +715k
  • Gasoline +3.1mm

From DoE:

  • Crude -754k
  • Cushing +523k
  • Gasoline +1.26mm
  • Distillates +1.28mm

Following Yellen’s disappointment this morning, Crude had dumped, then it pumped on th eheadline DOE data only to wake up to the builds in products and Cushing…

Charts: Bloomberg

 

end and all of the above, caused oil/gas to plummet in price (courtesy zero hedge) WTI Crude Plunges To New Cycle Lows As Energy Credit Risk Hits Record Highs

The on-the-run WTI crude futures price just plunged to $27.27 (for the March contract) which is a new cycle low for black gold (below March’s previous “This is the low” lows in January.) It should not be entirely surprising since US Energy credit risk has spiked once again to new record highs.

Oil hits new cycle lows…

 

As even investment grade emergy credit risk spikes to record highs…

 

The real swarm of bankruptcies has yet to begin but CHK will be the first biggest test.

   end Could gasoline prices drop to one dollar per gallon in the uSA? Answer:  yes (courtesy Charles Kennedy/OilPrice.com Could Gasoline Drop Below $1 Per Gallon?

Submitted by Charles Kennedy via OilPrice.com,

Retail gasoline prices have dipped below $2 per gallon across the United States. But gas might drop below $1 per gallon soon in some places of the country.

Aside from the financial crisis, when gasoline prices dropped below $2 per gallon for just a few months, retail gasoline prices have not been below $2 since 2004. Gas prices are at their lowest levels in many years.

But things could soon get even crazier. GasBuddy says that gasoline supplies are rising in the Midwest, which could result in localized gluts for product, pushing prices down to $1 per gallon or even lower. With access to heavily discounted Canadian crude, Midwest refiners are churning out cheaper and cheaper gasoline. “That could trigger fire sales—very quick and low price sales,” Patrick DeHaan of GasBuddy told the WSJThere is a “strong possibility” that refiners, trying to offload excess winter fuel blends, could discount prices down to 99 cents per gallon for a brief period of time.

Oklahoma appears to be enjoying the cheapest gasoline in the country. According to GasBuddy’s website, the cheapest gas right now can be found in Oklahoma City, where one station was selling gas for $1.09 per gallon on February 9. A 7-Eleven in Norman, OK sold gas for $1.10 per gallon on the same day.

(Click to enlarge)

source: GasBuddy.com

Nationwide, retail gasoline sold for $1.87 for the week ending on February 8. For now, sub-$1 gasoline is unlikely outside of some local areas, such as Oklahoma and the Midwest. But if oil prices drop to $20 per barrel, which is something that Goldman Sachs is not ruling out, $1 gasoline could become a lot more common.

end

And now for your closing WEDNESDAY numbers:    

Portuguese 10 year bond yield:  3.71% up 4 in basis points from TUESDAY

Japanese 10 year bond yield: +.02% !! up 4  full  basis points from TUESDAY which was lowest on record!! Your closing Spanish 10 year government bond, WEDNESDAY down 3 in basis points Spanish 10 year bond yield: 1.72%  !!!!!! Your WEDNESDAY closing Italian 10 year bond yield: 1.64% down 4 in basis points on the day: Italian 10 year bond trading 8 points lower than Spain . IMPORTANT CURRENCY CLOSES FOR WEDNESDAY   Closing currency crosses for WEDNESDAY night/USA dollar index/USA 10 yr bond:  2:30 pm   Euro/USA: 1.1277 up .0045 (Euro down 12 basis points) USA/Japan: 113.65 down 1.540(Yen up 154 basis points) and a major disappointment to our yen carry traders and Kuroda’s NIRP Great Britain/USA: 1.4527 up .0067 (Pound up 67 basis points) USA/Canada: 1.3916 up .0033 (Canadian dollar down 33 basis points with oil being lower in price ) This afternoon, the Euro fell by 12 basis points to trade at 1.1277/(with Draghi’s jawboning having no effect) The Yen rose to 113.65 for a gain of 154 basis points as NIRP is a big failure for the Japanese central bank The pound was up 67 basis points, trading at 1.4527. The Canadian dollar fell by 33 basis points to 1.3916 as the price of oil was clobbered today as WTI fell to around $27.66 per barrel/WTI,) The USA/Yuan closed at 6.5710 the 10 yr Japanese bond yield closed at .02% Your closing 10 yr USA bond yield: down 1 in basis points from TUESDAY at 1.72%//(trading well below the resistance level of 2.27-2.32%) policy error USA 30 yr bond yield: 2.54 down 1 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)      Your closing USA dollar index: 95.96 down 10 in cents on the day  at 2:30 pm USA dollar index:  95.82  down 24 cents  at 5 pm At 5 pm est:  closing currencies: USA/Euro:  1.1289 USA/Yen: 1.13355  (yen up considerably blowing a gasket with our yen carry traders) Great Britain Pound vs USA 1.4528 USA dollar vs Cdn dollar:  1.3917 Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for WEDNESDAY   London: up 40.11 points or 0.71% German Dax: up 137.89 points or 1.55% Paris Cac up 63.66 points or 1.59% Spain IBEX up 216.10 or 2.73% Italian MIB: up 801.02 points or 5.03% The Dow down 99.64  or 0.62% Nasdaq: up 14.83  or 0.35% WTI Oil price; 27.66  at 2:30 pm; Brent OIl:  31.21 USA dollar vs Russian rouble dollar index:  78.48   (rouble is up 1 and  20/100 roubles per dollar from yesterday) despite the fall in oil This ends the stock indices, oil price, currency crosses and interest rate closes for today.     New York equity performances plus other indicators for today:       Credit Craters As “Not Dovish Enough” Yellen Sinks Stocks

Damn It, Janet!

Yellen’s testimony Wed. “was not dovish relative to market expectations,” and didn’t take March off table, Morgan Stanley strategists Matthew Hornbach, Chirag Mirani, Guneet Dhingra write in note.

 

She “qualified most of the downside risks to the economic outlook with a positive spin,” while implying that tighter financial conditions need to persist in order for Fed’s economic outlook to change

 

Risk mkts will struggle in absence of “positive catalysts” until Fed makes clear that “gradual” could mean only 1-2 hikes in 2016

In summary, as Rick Santelli exclaimed, Janet Yellen admitted (by her comments on NIRP legality) that there is no Plan B.. and if there was we don’t even know if it possible…

 

An undovish and NIRP-confused Yellen sparked the risk-off pain…

 

Futures show the early exuberance ran stops to Monday’s ledge (Friday’s close)…

 

On the day, Nasdaq outperformed  as The Dow underperformed…Note the sell-off stopped right as Europe closed once again and then accelerated into the US close…

 

FANG stocks managed a small bounce but TSLA tumbled – now down over 40% YTD…

 

Much of the early exuberance in stocks was based on rumors in Europe of ECB monetizing DB equity and its emergency bond buyback plan… but as is all too clear, even the sheep in stock-land were not really buying that… all technical – algos ran stops to fill the gap then yumbled (from +15% to +6%)

 

US financial stocks managed some early gains (up 2%) on the heels of European gains BUT US financial credit risk pushed another 3bps wider to 166bps – highest sicne 2012…

 

And by the close US Financials were back in the red…

 

One more thing while we are on banks and systemic risk – The Libor-OIS spread has surged in recent weeks suggesting significant funding stress in European and US money markets… probably transitory, right?

 

Treasury yields ended the day marginally lower (led by the long-end) but roundtripped from notable early selling…. 30Y Yield hits 2.51% – lowest close sicne April 1st 2015

 

With the yield curve collapsing to lows from 2007…

 

FX markets were very volatile with Yellen’s comments sparking a surge and purge in the USD – ending the day unch but down 1% on the week…

 

But USDJPY was the biggest loser as carry traders flushed it back to a 113 handle, erasing all of the “devaluation” gains since QQE2 was unleashed…

 

And for those hoping for intervention – here’s what happened after last night’s “intervention”…

 

Finally with a flat USD, gold and silver flatlined today as crude and copper presed lower…

 

Which pushed WTI to new multi-year cycle lows…

 

And at the same time, energy credit risk is spiking higher…

 

Charts: Bloomberg

end

end

Today the 10 yr bond yield/2 yr bond yield plunges to the flattest since 2007.  Generally means financial trouble for the USA:

(courtesy zero hedge)

Treasury Yield Curve Plunges To Flattest Since 2007, Financials Follow

For the first time since 2007, the spread between 2Y and 10Y US treasury yields has to 100bps. While not inverted, which the status quo maintains means there cannot be a recession, the bond market is flashing ominous signs for both the economy and the US financial system…

 

The curve has collapsed since The Fed hiked rates…

 

And financials have begun to catch down to that reality…

 

Charts: Bloomberg

end

Yellen’s Humphrey Hawkins testimony to Congress is not as dovish as hoped. The USA/Yen cross drops  (Yen rises) on the disappointing news.  The Dow is barely up as USA markets open:

(courtesy zero hedge)

Yellen Hints At Slowing Economy, Dropping Stocks, Accommodative Fed, But Does Not Go “Full Dove”

With world markets begging for moar, Janet Yellen’s prepared Humphrey-Hawkins Testimony was a disappointment:

  • *YELLEN: FED EXPECTS ECONOMY TO WARRANT ONLY GRADUAL RATE RISES (everything is fine)
  • *YELLEN: JOB, WAGE GAINS SHOULD SUPPORT INCOMES AND SPENDING (everything is awesome)
  • *FED REPORT: LEVERAGE RISKS IN FINANCIAL SECTOR `REMAIN LOW’ (so don’t worry about banks)
  • *YELLEN: FINANCIAL STRAINS COULD WEIGH ON OUTLOOK IF PERSISTENT (so, there’s chance)

The bottom line this is simply a rerhash of the Jan FOMC Statement and does not offer enouigh dovishness for the market.

As we detailed last night, Citi’s chief FX strategist Englander hinted at what would be Yellen’s “Draghi Moment”:

The dovish surprise is if she explicitly removes March from the hiking calendar(which would be Draghi-esque in front running the FOMC), broadly hints at a delay or expresses concern on downside risk to long term inflation or structural stagnation. The intention would be to show US households, business and investors that the Fed has their back.

This is not what she offered, and markets are disappointed. In fact, the most dovish Yellen went was to mention stocks and tightening financial conditions:

Yellen also admitted once more that the Fed’s engaged in policy error:

Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar… In the fourth quarter of last year, growth in the gross domestic product is reported to have slowed more sharply, to an annual rate of just 3/4 percent; again, growth was held back by weak net exports as well as by a negative contribution from inventory investment

Further headlines:

  • *YELLEN: U.S. FINANCIAL CONDITIONS HAVE BECOME LESS SUPPORTIVE
  • *YELLEN: LOWER OIL, LONG-TERM BORROWING COSTS PROVIDE OFFSET
  • *YELLEN: GLOBAL ECONOMIC GROWTH SHOULD PICK UP OVER TIME
  • *YELLEN: RECENT INDICATORS DON’T SUGGEST SHARP SLOWDOWN IN CHINA
  • *YELLEN: YUAN DROP MAKES CHINA FX POLICY, OUTLOOK MORE UNCERTAIN
  • *FED: SOME LEVERAGED LOANS STILL SHORT OF SUPERVISOR STANDARDS

And finally some hope:

  • *YELLEN: `MONETARY POLICY IS BY NO MEANS ON A PRESET COURSE’

However, this is offset by the ongoing undercurrent of optimism:

the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen

And here is why Yellen is trapped:

  • WTI CRUDE ERASES GAINS AS FED’S YELLEN WARNS OF GROWTH RISKS

In other words, assets fall on admission the economy is slowing, and assets would certainly fall if the Fed continues its hiking cycle without relent.

Indeed, if one had to summarize Yellen’s message to the S&P, it would probably look as follows: “you haven’t dropped enough for the Fed to change course.

And now we look forward to the Q&A in over an hour.

* * *

Full statement (pdf link):

end Goldman Sachs take on today’s testimony:  additional hikes remain the FOMC base line: (courtesy zero hedge) Goldman’s Take: “Additional Hikes Remain FOMC Baseline”

This is probably not what the bulls wanted to hear. Moments ago Goldman released its take on Yellen’s testimony set to begin momentarily, and contrary from a dovish take the bank which has spawned more central bankers in world history than any other, said that her prepared remarks “suggest additional hikes remain FOMC baseline ”

Goldman’s full take:

Fed Chair Yellen’s Prepared Remarks Suggest Additional Hikes Remain FOMC Baseline 

BOTTOM LINE: Chair Yellen’s prepared remarks to the House Financial Services Committee contained little new information on the monetary policy outlook, and were roughly in line with comments made by Vice Chair Fischer and New York Fed President Dudley over the past couple weeks. She continued to highlight the FOMC’s expectation for “gradual” increases in the federal funds rate.

MAIN POINTS:

1. Regarding recent turmoil in financial markets, Chair Yellen acknowledged that “Financial conditions in the United States have recently become less supportive of growth”, and that “if they prove persistent, could weigh on the outlook for economic activity and the labor market”. However, she also mentioned that “Declines in longer-term interest rates and oil prices provide some offset”.

2. There was little new information regarding the monetary policy and economic outlooks. In terms of monetary policy, she continued to note that “The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Although Chair Yellen recognized that economic activity in the fourth quarter of last year “is reported to have slowed more sharply”, she also continued emphasizing that “labor market conditions have improved substantially” although “there is still room for further sustainable improvement”.

3. Chair Yellen recognized the potential for negative spillovers from international developments, noting that “Foreign economic developments, in particular, pose risks to U.S. economic growth.” She also attributed recent market volatility to foreign developments, highlighting that “declines in the foreign exchange value of the renminbi have intensified uncertainty about China’s exchange rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth”.

4. Chair Yellen acknowledged the recent declines in measures of inflation expectations, but we did not detect a broader shift in Fed officials’ assessment of these developments. Regarding survey based measures, she noted that they are “at the low end of their recent ranges; overall, however, they have been reasonably stable”. In terms of the recent declines in breakevens, Yellen noted that “market-based measures of inflation compensation have moved down to historically low levels.” However, she continued to emphasize her belief that most of these declines reflect “changes in risk and liquidity premiums over the past year and a half”.

end The markets are unhappy that Yellen states that NIRP if implemented in the uSA is still a legal question!  Down went the Dow!! (courtesy zero hedge) Market Unhappy About Yellen’s “Is NIRP Legal” Confusion

Just as we detailed last week, and it appears Rep. Hensarling has been reading, when pressed on The Fed’s legal authority to take interest rates negative, Janet Yellen gushed that “Fed authority for negative rates is still a question.” This appears to have been taken as bad news by the market (cutting off the potential easing paths of the future in a world of NIRP), and stocks, crude, USDJPY have all tumbled.

Furthermore, she sounded a littl hawkish:

  • *YELLEN: I DON’T EXPECT THE FOMC WILL FACE RATE-CUT OPTION SOON
  • YELLEN: I DON’T THINK IT WILL BE NECESSARY TO CUT RATES

The reaction – more disappointment…

end S and P downgrades mid sized USA banks, those with the highest energy exposure and they expect a huge increase in non performing assets: (courtesy S and P/zero hedge) S&P Downgrades Banks With Highest Energy Exposure; Expects “Sharp Increase” In Non-Performing Assets

Moments ago S&P continued its downgrade cycle, this time taking the axe to the regional banks with the highest energy exposure due to “expectations for higher loan losses.” Specifically, its lowered its long-term issuer credit ratings on four U.S. regional banks by one notch: BOK Financial Corp., Comerica Inc., Cullen/Frost  Bankers Inc., and Texas Capital Bancshares. The  outlooks on these banks are negative.

It also revised the outlook on BBVA Compass Bancshares to negative from stable and affirmed the ‘BBB+/A-2’ issuer  credit ratings.

We assume the non-regional mega banks are insulated from such actions because they are the primary beneficiaries of the Fed’s generous $2.5 trillion in excess reserves which will allow banks to mask as much of O&G portfolio deterioration as is necessary to “weather the cycle.”

What is notable is that among the S&P non-sugarcoated comments are some true fire and brimstone gems, which suggest that the big picture for banks with substantial energy exposure is about to get far worse. Here is what S&P said:

These rating actions follow a review of U.S. regional banks with large energy  loan portfolios as a percentage of both total loans and Tier 1 capital. Since we revised our outlooks to negative on five regional banks in January 2015, energy prices have declined by more than one-third and the asset quality of energy loan portfolios has deteriorated materially, albeit from fairly benign levels. Throughout 2015, criticized and classified assets climbed significantly, and in the fourth quarter, several regional banks with large energy loan portfolios reported increases in loan loss provisions and energy loss reserves to varying degrees, and, in certain cases, nonperforming assets (NPAs) also rose.

Given further declines in energy prices in recent months, less hedging activity by borrowers, and potentially more difficulty for borrowers to cure (i.e., resolve) borrowing base deficiencies through capital raises or asset sales, we think troubled debt restructurings and NPAs in the energy sector will increase, possibly sharply, in coming quarters. We also think banks will increasingly emphasize the potential loss content among rising levels of NPAs that we expect to see throughout 2016. In addition, we think regulatory scrutiny of energy loan portfolios will increase in 2016, including during the upcoming Shared National Credit (SNC) exams (two will be conducted in 2016) and the annual stress tests regulators mandate, which may encourage the use of higher loss assumptions.

Many banks have been lowering their energy price assumptions (“price decks”) for exploration and production (E&P) loans throughout 2015, resulting in reduced borrowing bases (the value of a borrower’s reserves against which banks typically lend). In the next semiannual borrowing-base determination this spring, we expect that borrowing bases will decline further, mainly because of lower energy prices (i.e., valuations) and possibly lower reserve replacement,which could lead to more borrower deficiencies (i.e., loan balances that are greater than the borrowing base). Although banks typically allow borrowers as long as six months to resolve a deficiency, we think many borrowers will have fewer options to cure through debt capital issuances or asset sales and dispositions, which were more common last year. Specifically, the cost of capital has increased for many borrowers, and private equity firms may be less willing to commit additional capital to resolve deficiencies. In addition, E&P borrowers may have unsecured debt in addition to their reserve-based loans, which could pressure their overall finances and push them into default or bankruptcy.

Equally as important, we think the performance of indirect credit exposures in local energy-focused markets could deteriorate somewhat over the next two years. Although deterioration has not yet been meaningful, we still think the energy price slump could hurt commercial real estate (CRE) in these local markets, such as Houston or smaller cities in Texas, throughout 2016 and 2017. However, we recognize that lower energy prices could have a broad-based positive impact on U.S. consumers and corporations where energy is a significant input cost. We are also wary of strategies that some banks may execute to aggressively grow their loan portfolios in other loan segments, such as CRE, in order to offset contraction in their energy loan portfolios.

Although we expect that banks will likely continue to increase their loan loss provisions and reserves within their energy loan portfolios over the next several quarters, we consider that currently low NPAs, solid preprovision earnings generation, and, in some cases, high risk-adjusted capital (RAC) ratios offer the banks a cushion to absorb higher loan loss provisions. This was a key factor in our decision to limit our rating actions to one notch at this point.

In our analysis of these companies, we evaluate the potential impact of certain adverse scenarios, based on default and net loan loss assumptions for different types of energy lending. For example, we expect that E&P reserve-based lending will have lower net loss rates than energy services lending because of conservative advance rates on reserve collateral. We will continue to consider the array of possible assumptions regarding energy loan default and net loss rates, as the cycle develops. At this time, however, we do not believe that these banks’ loan loss provisions would exceed preprovision earnings under most foreseeable scenarios, and, thus, our rating actions following this review were limited to a one-notch downgrade.

The following table presents a few of the key metrics we are tracking and lists the banks that are included in today’s actions, as well as others we believe have above-average exposure to energy.

Is that the end of it? Not even close. Expect much more pain – initially among the regional lenders, many of whom have been given explicit instructions to extend and pretnd as long as possible by the Dallas Fed as reported exclusively here before – before we reach a true bottom in bank exposure.

Finally, for the full list, here is a breakdown from Raymond James laying out the US banks, both regional and national, with the highest exposure to energy: while some of these were just downgraded, this was for a reason: expect much more negative surprises from these lenders in the coming months as more shale stop servicing their debts.

end See you tomorrow night Harvey

Feb 9/Nikkei collapses by 5.4% last night/Japanese 10 yr bond yield now negative .02%/Another 5.06 tonnes of “paper gold’ added into the GLD/Deutsche bank stock continues to plummet while its credit default swaps rise/Saudi Arabia set to invade Syria/...

Tue, 02/09/2016 - 19:05

Gold:  $1198.70 up $.80    (comex closing time)

Silver 15.45 up 3 cents

In the access market 5:15 pm

Gold $11.89

Silver: $15.26

At the gold comex today, we had a poor delivery day, registering 14 notices for 1400 ounces. Silver saw 116 notices for 580,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 202.62 tonnes for a loss of 100 tonnes over that period.

In silver, the open interest rose rose by a huge 1913 contracts up to 169,490. In ounces, the OI is still represented by .847 billion oz or 121% of annual global silver production (ex Russia ex China).

In silver we had 116 notices served upon for 580,000 oz.

In gold, the total comex gold OI rose by a huge 16,532 contracts to 414,039 contracts as gold was up $40.10 with yesterday’s trading.

We had another huge change in gold inventory at the GLD, an addition of 5.06 tonnes / thus the inventory rests tonight at 703.52 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had no changes in inventory,  and thus/Inventory rests at 308.999 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver rise by 1913 contracts up to 169,490 as silver was up 65 cents with respect to yesterday’s trading.   The total OI for gold rose by 16,532 contracts to 414,039 contracts as gold was up $40.10 in price from yesterday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

b) Gold trading from NY”

(zero hedge)

3. ASIAN AFFAIRS

i)Late  MONDAY night/ TUESDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei DOWN A WHOPPING  918.86 OF 5.4% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil GAINED  to 30.15 dollars per barrel for WTI and 33.18 for Brent. Stocks in Europe so far all in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/The big STORY OF THE DAY FROM ASIA IS THE COLLAPSE ON THE NIKKEI/AND THE FALL IN THE 10 YR JAPANESE BOND YIELD TO NEGATIVE.02% (SEE BELOW)

Three commentaries:

a)Real wages fall as Abenomics fail.  The entire goal of Abenomics was to inflate wages.

( zero hedge)

b)Japanese 10 yr bond yields hit zero for the first time ever and then falls further into negative territory:  The Yen continues to rise causing massive headaches for Abe and his policy of Abenomics: During the night the 10 yr Japanese 10 yr bond yield broke into negative territory at -.02:

( zero hedge) c)Japanese stocks fall badly as the bond yields collapse!( zero hedge)

EUROPEAN AFFAIRS

i) This morning, the entire globe started focusing on Deutsche bank.  Selling resumes even after the CEO stated that the bank has lots of liquidity and is rock solid.  The problem is he did not address their off balance sheet derivative mess:

( zero hedge)

ii)A very confused Deutsche bank seeks answers to the DAX crash and yet fail to address its credit default swap rise:  (a bet on its demise)

( zero hedge)

iii) Deutsche bank stock crashes to a record low:

( zero hedge) iv) Now that the Bank of Japan has cut its rate to -.1%, JPMorgan predicts that the ECB will cut its deposit rate to -.5% next month and then in June to -.7% which should unleash an huge deflationary tsunami around the globe:

( JPMorgan/zero hedge)

v)Dave Kranzler on the possible demise of Deutsche bank:

(courtesy Dave Kranzler/IRD)

vi) As European credit markets seize as the total of non performing loans surpass 1 trillion euros, it is only a matter of time that we will witness an economic collapse

( UKTelegraph)

RUSSIAN AND MIDDLE EASTERN AFFAIRS    i)Hezbollah and Iran are decimating the Syrian rebels as Turkey and Saudi Arabia decide what to do next:

( zero hedge) ii) World tension increases as Saudi Arabia is set to send in special forces into Syria.No doubt this will cause Iran and Russia to enter the fray and potentially set off World War( zero hedge)

ii)Russia is not on high alert with respect to Syria invasion by Saudi Arabia: ( Isachenkov/Associated Press) GLOBAL ISSUES   Seven trillion out of a global 21 trillion of bond issuance is now negative. ( zero hedge) OIL MARKETS    

i) This morning WTI plunges back below 30 dollars per barrel after Goldman warns that oil may drop into the teens:

( zero hedge)

ii WTI crashes into the 27 dollar handle/credit risk spikes higher/

( zero hedge) iii) More trouble in the energy patch:  Anadarko slashes its dividend by 80% ( zero hedge) iv)Inventory builds for both crude and gas

( zero hedge)

PHYSICAL MARKETS:

i) Bloomberg discusses the probability of negative interest rates in the USA

( GATA/Bloomberg) ii)Lawrence Williams talks about Chinese official reserves and how they park their gold with commercial banks and other entities           (Courtesy Lawrence Williams/Sharp’s Pixley)

USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER:

i) Markets early this morning:

They spiked the USA/Yen higher causing the Dow to rise over 200 points from this morning: ( zero hedge)

ii) USA investment grade credit risk spikes to a 5 yr high:

( zero hedge) iii) A good visual as to what the USA’s number one problem:  huge build up of inventory and not enough sales: ( zero hedge)

Let us head over to the comex:

The total gold comex open interest rose to 414,039  for a gain o 16,532 contracts as the price of gold was up $40.10 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, only the first scenario was in order as we actually gained in amount standing in the active delivery month of February. In   February  the OI rose by 184 contracts up to 2416. We had 40 notices filed on yesterday, so we gained 224 contracts or an additional 22,400 oz will stand for delivery. The next non active delivery month of March saw its OI rise by 46 contracts up to 1554. After March, the active delivery month of April saw it’s OI rise by 12,602 contracts up to 296,035.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 180,997 which is fair to good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 268,647 contracts. The comex is in backwardation until April. 

 

Today we had 14 notices filed for 1400 oz. And now for the wild silver comex results. Silver OI rose by 1913 contracts from 167,577 up to 169,490 as  the price of silver was up by 65 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI remain constant at  140.  We had 0 notices filed on yesterday, so we neither gained nor lost any silver contracts that  will stand in this non active month of February. The next big active contract month is March and here the OI fell by 2,645 contracts down to 98,584.  The volume on the comex today (just comex) came in at 55,446 , which is huge. The confirmed volume yesterday (comex + globex) was very good at 42,421. Silver is not in backwardation at the comex but is in backwardation in London.   We had 116 notices filed for 580,000 oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 9/2016

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  nil 16,475.01 oz
500 kilobars
Scotia/Brinks Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz  64,300.000 oz
Scotia
2,000 kilobars No of oz served (contracts) today 14 contracts(1400 oz) No of oz to be served (notices) 2402 contracts (240,200 oz ) Total monthly oz gold served (contracts) so far this month 846 contracts (84,600 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 503,217.9, oz Today, we had 0 dealer transactions total deposit: nil oz/total dealer withdrawals: nil We had 2  customer withdrawals i) Out of Scotia: 16,075.000 oz (500 kilobars) ?? ii) Out of Brinks: 400.01 oz total customer withdrawals; 16,474.01  oz we had 2 customer deposits: i) Into Scotia;  64,300.000 oz  (2000 kilobars)  another of these dubious entries!! total deposits;  64,300.00 oz

we had 1 adjustment.

i) Out of Delaware:

806.695 oz was adjusted out of the customer and this landed into the dealer of Delaware

ii) Out of Brinks:

192.900 oz was adjusted out of the dealer and this landed into the customer account of Brinks

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account. ***JPMorgan now has 634,557.764 or 19.737 tonnes in its customer account. Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 14 contract of which 0 notice was stopped (received) by JPMorgan dealer and 4 notices were stopped (received)  by JPMorgan customer account.    To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (846) x 100 oz  or 84,600 oz , to which we  add the difference between the open interest for the front month of February (2416 contracts) minus the number of notices served upon today (14) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the February. contract month: No of notices served so far (846) x 100 oz  or ounces + {OI for the front month (2416) minus the number of  notices served upon today (14) x 100 oz which equals 324,800 oz standing in this active delivery month of February ( 10.102 tonnes)   we gained 224 contracts or an additional 22400 oz will stand for delivery We thus have 10.102 tonnes of gold standing and 7.1344 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing. Total dealer inventor 229,374.740 or 7.1344 Total gold inventory (dealer and customer) =6,562148.908 or 204.11 tonnes    Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 204.11 tonnes for a loss of 99 tonnes over that period.    JPMorgan has only 21.99 tonnes of gold total (both dealer and customer) end     And now for silver FEBRUARY INITIAL standings/

feb 9/2016:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory   51,445.97 oz oz

(Delaware,HSBC
Scotia) Deposits to the Dealer Inventory nil Deposits to the Customer Inventory 597,092.363 oz,
HSBC No of oz served today (contracts) 116 contracts 580,000 oz No of oz to be served (notices) 140  contracts (700,000 oz) Total monthly oz silver served (contracts) 116 contracts 580,000 Total accumulative withdrawal of silver from the Dealers inventory this month nil oz Total accumulative withdrawal  of silver from the Customer inventory this month 5,841,355.4 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 1 customer deposits:

i) Into HSBC:  597,092.363 oz

total customer deposits: 597,092.363 oz

We had 3 customer withdrawals:   i) Out of HSBC:  20,107.960  oz ii) Out of Delaware 1,031.800 oz iii) out of Scotia:  30,306.210. oz  

total withdrawals from customer account 51,445.97   oz 

 we had 1 adjustment:

i) Out of CNT  a huge 374,493.900 oz was adjusted out of the customer and this landed into the dealer account of CNT

 

The total number of notices filed today for the February contract month is represented by 116 contracts for 580,000 oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (116) x 5,000 oz  = 580,000 oz to which we add the difference between the open interest for the front month of February (140) and the number of notices served upon today (116) x 5000 oz equals the number of ounces standing   Thus the initial standings for silver for the February. contract month: 116 (notices served so far)x 5000 oz +(140 { OI for front month of February ) -number of notices served upon today (116)x 5000 oz   equals 700,000  of silver standing for the February. contract month.   we neither gained nor lost any silver ounces standing in this non active delivery month of February. Total dealer silver:  28.904 million Total number of dealer and customer silver:   156.604 million oz end The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Feb 9./a huge addition of 5.06 tonnes of gold into the GLD/Inventory rests at 703.52 tonnes/ (no doubt that this addition is paper gold/not physical/

Feb 8/no change in inventory/inventory rests at 698.46 tonnes

FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

 

Feb 9.2016:  inventory rests at 703.52 tonnes

 

Now the SLV: Feb 9/no change in inventory at the SLV/Inventory rests at 308.999 million oz/ Feb 8/no change in inventory at the SLV/Inventory rests at 308.999 million oz FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees Inventory rests at 309.380 million oz Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/ Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz Jan 27.2017: no changes to inventory/rests at 310.653 million oz Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz Feb 9.2016: Inventory 308.999 million oz. 1. Central Fund of Canada: traded at Negative 6.1 percent to NAV usa funds and Negative 6.4% to NAV for Cdn funds!!!! Percentage of fund in gold 63.8% Percentage of fund in silver:36.2% cash .0%( feb 9.2016). 2. Sprott silver fund (PSLV): Premium to NAV falls to  +0.85%!!!! NAV (feb 9.2016)  3. Sprott gold fund (PHYS): premium to NAV falls to- 0.65% to NAV feb 9/2016) Note: Sprott silver trust back  into positive territory at +0.85%/Sprott physical gold trust is back into negative territory at -0.65%/Central fund of Canada’s is still in jail.      

end

And now your overnight trading in gold, TUESDAY MORNING and also physical stories that may interest you:

 

Trading in gold and silver overnight in Asia and Europe (COURTESY MARK O”BYRNE)   “Gold’s Fundamentals and Technicals Look Better and Better” By Mark O’ByrneFebruary 9, 20160 Comments

Gold surged another 1.5% higher yesterday, and had its best closing level since mid-June as strong physical demand and concerns about the global economy, the banking sector and the risks of a new global financial crisis saw further gains.


Gold jumped $34.70, or 3%, to $1,192.40 an ounce and registered its best single-session point and percentage gain since December 2014.

“Gold was like a beach ball that had been pushed too low in the water and is now bouncing higher with a vengeance,” Mark O’Byrne, research director at GoldCore, told MarketWatch:

But prices have climbed by more than 12% higher in just 5 weeks so a “correction is quite possible and may take place when gold reaches $1,200 per ounce.”

He says a correction is likely on tap, but the “more important question is whether gold has bottomed and we are in a new bull market.”

“We believe we are and gold’s fundamentals and technicals look better and better,” said O’Byrne.

Global stock markets are facing sharp losses amid more signs that international growth is tapering, led by the world’s second-largest economy, China.

Market participants said this week’s start of the Lunar New Year—a holiday in China and many parts of Asia—was helping drive physical demand for gold.

“While the Chinese Lunar New Year is the high point for Chinese gold demand, it does not drop off significantly afterward as the steady current of growing middle classes continues to attract demand,” said Julian Phillips, a founder and contributor to GoldForecaster.com.

“This is not just a one-off purchase when they become middle class—it signals the start of a continuous purchasing pattern,” he said.

Other metals on Comex traded mostly higher. March Silver, outpaced the gains in gold to gain 55.7 cents, or 3.8%, to $15.34 an ounce.

LBMA Gold Prices

9 Feb: USD 1,188.90, EUR 1,061.90 and GBP 822.31 per ounce
8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce
5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce
4 Feb: USD 1,146.25, EUR 1,027.29 and GBP 782.16 per ounce
3 Feb: USD 1,130.00, EUR 1,034.04 and GBP 781.25 per ounce

Gold and Silver News and Commentary – Click here

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Published in Daily Market Update   Mark O’Byrne end Bloomberg discusses the probability of negative interest rates in the USA (courtesy GATA/Bloomberg) The probability of negative U.S. rates is on the rise

Submitted by cpowell on Mon, 2016-02-08 18:57. Section: 

By Alexandra Scaggs
Bloomberg News
Monday, February 8, 2016

Global central banks have opened the door to negative U.S. interest rates, in Wall Street’s view.

After the Bank of Japan cut some rates below zero last month to spur growth and inflation, strategists are weighing the Federal Reserve’s options in case of a crisis. If the world’s biggest economy weakens enough that traditional policy measures don’t help, the Fed may consider pushing rates below zero, according to Bank of America Corp. and JPMorgan Chase & Co.

That step would broaden the Fed’s toolkit beyond what was available during the financial crisis, when it slashed its overnight benchmark near zero and bought bonds to stimulate the economy. In 2012, New York Fed researchers said negative rates could prompt individuals to avoid depositing money in banks, potentially weakening the financial system. …

… For the remainder of the report:

http://www.bloomberg.com/news/articles/2016-02-08/negative-rates-seen-as…

      end     Lawrence Williams talks about Chinese official reserves and how they park their gold with commercial banks and other entities (Courtesy Lawrence Williams/Sharp’s Pixley)     LAWRIE WILLIAMS: China still building gold reserves, running down forex

Feb
09

As the Chinese New Year begins, China is continuing to build its gold reserves at a similar rate to the last six months of last year. In January it added just over 16 more tonnes to its gold reserve total bringing the official figure to 1,778 tonnes as is being reported to the IMF. Whether this is a true total or not remains open to doubt given the nation’s history of concealing its full gold reserve position. If the current rate of purchase continues, and we see no reason why it is likely to be cut back given the nation’s view on the importance of gold in the probably inevitable forthcoming global financial reboot, the country will add another 200 tonnes to its gold reserves this year.

Is this the true position? In the past China has hidden gold from it being reported to the IMF in separate accounts and only announced new total gold reserve figures when it has suited it to do so, but whether even these are the true position is obviously still open to doubt. Also, gold consultancy GFMS’s latest Quarterly update suggests that Chinese commercial banks, which are state owned, had built up internal gold holdings of some 1,900 tonnes by the first half of 2015 (and this may well have expanded to around 2,000 tonnes by the year end given the strength of Shanghai Gold Exchange withdrawals which totalled 2,596 tonnes in 2015. This SGE withdrawals figure is hugely higher than the less than 1,000 tonnes GFMS rates as Chinese gold ‘consumption’, yet this gold has to be going somewhere and commercial bank vaults could well account for much of the difference. Could this be being held on behalf of the government.so that would put China’s true gold reserve position at around 3,800 tonnes – much closer to many Western analysts’ estimates of China’s real gold holdings.

Indeed if China is also using other government accounts in which to hold some of its gold, as it has in the past, the total could be far higher. All this is pure speculation on our part – we don’t know, but it would fit in with the big gold inflows which are apparent from Western nation and Hong Kong reported gold export statistics for mainland China, plus China’s own domestic gold output estimated by GFMS at just over 450 tonnes last year. Together these known gold flows into China come to around 2,000 tonnes last year – more than double the GFMS ‘consumption’ estimates – and there are also likely direct gold imports from other sources which we don’t know about.

One other point which has arisen from China’s latest gold and forex reserve stats is that the latter fell by a further $98.46 billion in December – continuing the sharp forex reserve downtrend which has been ongoing since early 2014. Even so this is something of a drop in the ocean compared with the nation’s massive total forex reserve position of $3.23 TRILLION. Much of this drop in reserves has been due to China’s perceived need to defend the yuan parity with the dollar to preserve domestic and area confidence in China’s economic state – albeit it is also combining this with a slow managed depreciation of the yuan too. A side effect of course is that its enormous holdings of US Treasuries are also being depleted too – perhaps rather faster than the overall downturn in forex reserves might suggest.

-END-

    (courtesy Bill Holter/Holter/Sinclair collaboration)       Germans and Japanese play “rollover”!
    After my last article we received two logical questions from readers.  The first one pertaining to “gaps” and the Deutsche Bank derivative exposure, the second pertaining to Japan’s strong currency with negative yields while the debt to GDP levels are astronomical.  Below is the first question;   “In the past you have warned about derivative exposure and now gapping.   One of my worst fears as a day trader on a derivatives platform is gapping. That is why I will never have an open position when the market is closed. Even then, that is not guaranteed.   A lot of trading platforms got hammered when the Swiss franc was revalued.   Could you put out a letter for your readers explaining why for example the Deutsche Bank derivatives exposure is so dangerous in terms of gapping.”     In my opinion, this is a very astute observation.  The reader will not carry overnight positions because as he says, “the Swiss franc revaluation killed many” within less than 10 minutes of the markets opening.  That said, even if not in any overnight position and the great leveling moment comes, how does anyone know if their broker even survives the carnage …with YOUR MONEY?  But this is another topic entirely.   As for Deutsche Bank, we know they have been recently screaming about negative interest rates hurting their operations.  This very well may be so, but it is my opinion it is not so much negative interest rates killing them.  I believe it is off balance sheet derivatives.  Not only has DB denied any problem, the German finance minister has now chimed in with reassurance! http://www.zerohedge.com/news/2016-02-09/german-finance-minister-joins-db-ceo-says-not-worried-about-deutsche-bank  Where have we seen this before?  Does Bear Stearns or Lehman Bros. ring a bell?  Doth the Germans protest too much?  By the way, their credit spreads are stretching out, and stock price has now taken out the 2008 lows!    The second question regarding confusion of Japan’s 10 yr. yield hitting 0% and their currency strengthening while being the fiscal basket case of the world is also a good one but very simple to explain. http://www.zerohedge.com/news/2016-02-08/japanese-10y-yield-hits-zero-first-time-ever-yen-strongest-2014-stocks-crash   Japan has a debt to GDP ratio of 260%, if you add in corporate debt it approaches 400%, how could they not have a crashing currency and 20% (or higher) interest rates?  The simple answer is this, the global “carry trade” is unwinding.  The Japanese yen was a major tool used to create and float the carry trade which inflated assets.  Now, as asset prices are falling, this trade is being unwound (think of it as a margin call).  Previous yen that were borrowed are now being bought back to settle the trade.  This was a synthetic short similar to the dollar short being covered.  A quick question and very short answer, why would anyone in their right mind invest money for 10 years at zero percent in a currency who’s issuer publicly states their goal is to grossly debase?  Answer:  BECAUSE THEY HAVE TO!   The problem is this, as the yen strengthens from short covering it is putting more and more of these carry trades under water and actually forcing more sales of assets and more buying of yen.  This will end in one of two ways …both badly!  Either the trades get unwound with asset prices collapsing and the yen at truly stupid levels, or someone “fails” and the derivatives chain breaks.  I would personally bet the farm on option number two.     While writing this, CNBC is parading guest after guest as to whether a recession is “likely” …IDIOTS!  This is not about a “recession”, this is about whether the entire system fails or not!  Can Deutsche Bank “fail” while being counter party to over $70 trillion in derivatives?  Can even a small counter party fail without causing a cascade?  Just look at the volatility in markets, junk bonds are collapsing, credit spreads blowing out, currencies making wild swings, $7 trillion worth of sovereign debt trading at negative interest rates …not to mention stock markets moving from all time highs into bear markets within just a couple of months.  (While editing this, CNBC is actually questioning if DB is a “one off” situation?  Is this even possible?  Do they even understand what they are asking?!!!)   Do you think “someone” might have lost some money since January 1st?  Enough to bankrupt them?  THIS is the question!  The answer in my opinion is this, there are dead bodies strewn all over the place yet are hidden from view.  They are being hidden from view because if they are seen, the entire system comes into question with answers being delivered within probably a 48 hour period. The answer of course will be the biggest “gaps” in all of history …both in price AND time!  By this I am saying the re opening gaps will be larger in percentage and the time to reopen longer than ever before.   Whether you want to see it or not, the financial system is in a forced unwinding.  It took some 70 years to build this great credit edifice, when it goes it may take less than 48 hours to take it ALL down.  To finish I leave you with a short clip of what the collapse might look like …and how quickly it can get there! https://www.youtube.com/watch?v=KUsj7EdZigM Standing watch, Bill Holter Holter-Sinclair collaboration Comments welcome!  bholter@hotmail.com  end    

And now your overnight TUESDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

1 Chinese yuan vs USA dollar/yuan FLAT to 6.5710 / Shanghai bourse: CLOSED/CHINA’S NEW YEAR ALL WEEK / hang CLOSED

2 Nikkei closed down 918.86 or 5.40%

3. Europe stocks all in the RED /USA dollar index down to 96.44/Euro up to 1.1223

3b Japan 10 year bond yield: falls badly  TO -.02    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 115.01

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI:: 30.24  and Brent: 33.18 

3f Gold down  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil up for WTI and up for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls  to 0.200%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate rise to 12.74%/: 

3j Greek 10 year bond yield rise to  : 10.57%  (yield curve deeply  inverted)

3k Gold at $1192.00/silver $15.34 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble down 60/100 in  roubles/dollar) 78.58

3m oil into the 30 dollar handle for WTI and 33 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9802 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1003 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation

3r the 8 year German bund now  in negative territory with the 10 year falls to  + .200%/German 8 year rate negative%!!!

3s The Greece ELA at  71.5 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.76% early this morning. Thirty year rate  at 2.59% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Global Markets Stunned By Biggest Japan Crash Since 2013; All Eyes On Deutsche Bank

With China offline for the rest of the week, global markets have found a new Asian bogeyman in the face of Japan which as reported last night saw its markets crash, and the Yen soar, showing that less than 2 weeks after the BOJ unveiled NIRP, yet another central bank has lost control.

The Nikkei crashed 5.4%, the biggest drop since June 2013, dropping over 900 points to August 24 lows driven by crashing banks, while the Yen soared to 114.50 overnight before the BOJ desperately tried to push the Yen lower, with London dealers reported the BoJ checking rates and levels to prompt short covering through 115.

But while the BOJ failed to push up equities, it certain managed to launch a panic buying spree in JGBs, which as also reported finally slid into negative yield territory, thus boosting the global number of bonds with a negative yield to just shy 30% of total or roughly $7 trillion!

Aside from Japan, everyone is looking at the bank which we first asked if it was “the next Lehman” last June, namely Germany’s Deutsche Bank, to see if yesterday’d desperate scramble to publicly confirm it has sufficient liquidity will sufficient will stop the price from dropping and its CDS from blowing out. For now, the stock is indeed up modestly, even if the CDS has refused to tighten suggesting that whatever management did, it is not enough and it is only a matter of time before the selling returns.

As a result of this temporary stabilization in financials, the Europe 600 Index was little changed after closing Monday at its lowest level since 2014, and U.S. equity-index futures were also steady. European indexes of credit-default swaps on corporate debt fell for the first time in more than a week, Germany’s 10-year bund yield climbed the most this year and crude in New York rose above $30 a barrel. Equities in Tokyo slumped earlier by the most since August and the yield on 10-year Japanese government bonds turned negative for the first time.

“Volatility is getting very high,” Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany told BLoomberg. “Investors need to increase their cash and be careful in case they see any buying opportunities. A technical rally may easily get sold again, we won’t come back to calm waters soon.”

While oil took on secondary importance during yesterday’s financial-led rout, expect algos and even human traders to pay more attention to crude today after the latest IEA monthly reported predicted supply will exceed demand by an avg of 1.75m b/d in 1H, compared w/ fcast of 1.5m last month.  “With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short term risk to the downside has increased,” IEA says. It added that the global oil demand fcast for 2016 100k b/d lower than previous mos. report at 95.6m b/d. Elsewhere, Goldman once again warned that oil may drop into the teens as land storage capacity is exhausted.

Looking at today’s calendar, it’s another fairly quiet session for data in Europe this morning with the only releases of note being the December trade numbers out of the UK and Germany along with the latest industrial production data in the latter. Over in the US the early release is the NFIB small business optimism survey for January, followed by the December JOLTS job openings and wholesale trade sales and inventories data. As a reminder, JOLTS data is released with a one-month lag so the data will be reflecting what was a bumper month for hiring (payrolls +262k) in December and not reflective of the recent softer payrolls number. Earnings wise we’ve got 18 S&P 500 companies set to report including Walt Disney and Coca-Cola.

Market Wrap

  • S&P 500 futures down 0.4% to 1844
  • Stoxx 600 down 0.6% to 312
  • DAX down 0.5% to 8926
  • German 10Yr yield up 5bps to 0.27%
  • Italian 10Yr yield up 1bp to 1.69%
  • Spanish 10Yr yield up less than 1bp to 1.76%
  • MSCI Asia Pacific down 2.9% to 118
  • Nikkei 225 down 5.4% to 16085
  • S&P/ASX 200 down 2.9% to 4832
  • US 10-yr yield up 1bps to 1.76%
  • Dollar Index down 0.06% to 96.52
  • WTI Crude futures up 2.0% to $30.29
  • Brent Futures up 2% to $33.54
  • Gold spot down 0.1% to $1,188
  • Silver spot up less than 0.1% to $15.32

Top Global News

  • Michael Bloomberg Tells FT He’s Considering Run for President: tells FT he’s “looking at all the options”
  • IEA Raises Estimate of Surplus Oil Supply on Higher OPEC Output: Excess seen at 1.75m barrels a day in 1H
  • Japan Joins German Bond Wonderland as Yields Below Zero the Norm: Lower borrowing costs come at expense of resurgent yen
  • Renzi Is Betting on Cameron, Sees Anti-‘Brexit’ Deal Soon: Italian premier says proposed changes ‘a good compromise’
  • Google, Apple Face Kremlin Tax Fire for ‘Milking’ Russia: Google’s reach considered national security threat to Russia
  • Deutsche Bank Says It Can Pay Coupons in Sign Jitters Mount: Lender is due to pay about EU350m in April
  • AIG Said to Plan Exit From at Least Half of Hedge Fund Positions: Insurer said to limit to 50 funds or fewer, from more than 100
  • Japan Fund Said to Pitch Sharp on Plan for Smart Appliance Giant: INCJ sets aside 100b yen as acquisition war chest

A quick look at regional markets, we start in Asia where stocks picked up where global equities left off as the newly added woes triggered by Deutsche Bank has seen the financial sector deflate the Asia-Pac region. In turn, the Nikkei 225 (-5.4%) bared the brunt of the risk-off sentiment, with banks in the region feeling the squeeze, whilst a firmer JPY saw the bourse fall over 900 points. Elsewhere, ASX 200 (-2.9%) could not escape the reach of the downbeat tone as the index was also pressured by financials, which accounts for nearly half of the total composition of the bourse. JGBs were bolstered by the dampened sentiment sparking flight-to-quality trade, with yields across the curve yet again falling to record lows, additionally Japanese 10yr yields are now the first among the G7 nations to go negative.

Asian Top News

  • Yen Jumps to 2014 High as Japan 10-Year Yield Drops Below Zero: Yen rose against all 31 major peers as Topix tumbled 5.5%, 10 yr yield fell unprecedented decline below zero
  • Credit Risk Soars From Japan to Australia on Global Bank Anxiety: Credit-default swap costs in Japan, AU soared amid markets across much of Asia Pacific closed for Lunar New Year
  • Beefing Up Down Under: Aussies Find New Boom in China Demand: Aussie beef sales to China surged six-fold in 3 yrs to a record A$917m in 2015; export boom signals AU is successfully transitioning away from mining
  • India State Firms’ Valuation Discount May Trigger Rebound: Chart; Shrs of India’s state-run cos are cheapest in more than two yrs relative to stocks on nation’s benchmark index

Fears over the European banking sector linger in markets this morning and European equity markets have seen choppy price action since the open. Initially led lower by the Nikkei 225 closing lower by over 5%, equities have since trended higher after in vogue Deutsche Bank stated that that their 2016 payment capacity is enough to finance their AT1 payment. As a result, the German heavyweight provided some reprieve for Europe, with the iTraxx Sub Financial index, an index tracking the value of CDS’s, moving in sympathy with Deutsche and tightening by 19bps. The same cannot be said for Credit Suisse (-3.7%) however, the Swiss bank is continuing to suffer from its poor earnings reported last week and questions surrounding the banks’ ability to a large fine.

European Top News

  • Primonial-Led Group Buys Gecina Health Assets for $1.51b: Deal to be completed mid-2016
  • Swedbank CEO Ousted by Board as Permanent Replacement Sought: Michael Wolf, 52, will be replaced by Birgitte Bonnesen as acting CEO
  • TUI Turkish Bookings Plunge as Vacationers Seek Safer Spain: Turkey summer reservations tumble 40% after January attack
  • Vestas Wind Raises Dividend Predicting Record Sales After Boom: sees EU9b of sales in 2016, 11% margin
  • Vestas CEO Says He Has ‘No Intention’ of Bidding for Gamesa
  • Pound Seen Tumbling Whether U.K. Stays in EU or Seeks ‘Brexit’: Biggest bears’ forecasts aren’t contingent on U.K. quitting
  • Sanofi Says Profit Won’t Grow as Bestseller Lantus Fades: Lantus sales drop amid biosimilar competition in Europe
  • Tesco Sales Drop Eases as U.K. Grocery Leader Begins Turnaround: Kantar data suggests customers may be returning
  • Pandora Forecasts Slower Sales Growth on Trimmed Expansion Plans: Sales this year will rise at least 14% to 19b kroner in 2016, vs growth rate of 40% last year
  • Securitas 4Q EPS Misses Ests.; Dividend Raised: 4Q EPS SEK1.83 vs est. SEK1.98
  • Handelsbanken Profit Rose Less Than Estimated in Fourth Quarter: Loan losses greater than expected, increased costs

In FX, Once again it was an early London session left to provide some stability in the markets, and in FX improved liquidity levels naturally help. USD/JPY lows in Asia bottomed out at 114.22, but dealers reported the BoJ checking rates and levels to prompt short covering through 115.00, though 115.50 has proved an obstacle since. EUR/USD continues to trade in the opposite direction, but it is a little too early to suggest the 1.1236 highs are the top of the move. The commodity currencies take a back seat as Oil stabilises and Gold now a safe haven. USD/CAD is still holding off 1.4000, while AUD is propped up ahead of .7000. GBP posted fresh 1 year lows against the EUR ahead of .7800, but has retraced in line with EUR/USD. Cable pivoting on 1.4400 for now. EUR/CHF now just under 1.1000 as CHF naturally benefitting in current climate.

Looking at commodities, oil took a back seat in yesterday’s trade, however has quietly ticked higher in Europe, with WTI Mar’16 futures comfortably holding the USD 30.00 handle and as such the energy sector is one of the better performers in Europe. However a note from Goldman Sachs saying that oil could oil prices ‘go into the teens’, may cause oil bulls some anxiety.

As North American participants come to their desks the yellow metal has dipped below the USD 1900/oz level, finding a tight range following yesterday’s stock-market rout inspired gains. Of note, Goldman Sachs have said they are not buying into the recent rally, as they still foresee three fed hikes this year, driving the price of gold down to around USD 1000/oz by year end

Bulletin Headline Summary From RanSquawk and Bloomberg

  • In a choppy session, Deutsche Bank (+1.3%) trades higher in Europe after stating stated that that their 2016 payment capacity is enough to finance their AT1 payment
  • Once again it was an early London session left to provide some stability in the markets, and in FX improved liquidity levels naturally help
  • Today’s highlights include: US JOLTS job openings and Wholesale inventories, as well as comments from ECB’s Linde
  • Treasuries lower in overnight trading before week’s note auctions begin with $24b 3Y notes, WI 0.845% vs 1.174% in Jan., was first 3Y to stop through by more than 1bp since Aug. 2011.
  • Deutsche Bank, under pressure over its ability to pay coupons on the riskiest debt, reassured investors that it has sufficient funds after the shares plunged the most in almost seven years, eroding almost €2 billion ($2.2 billion) in market value
  • European banks have “ample liquidity,” with deposits flowing in and higher capital buffers, reducing the risk of repeating the financial crisis, according to Goldman Sachs
  • Central banks’ ultra-loose monetary policy is putting the world economy at risk, said William White, a senior adviser to the Organization for Economic Cooperation and Development
  • The yield on Japan’s benchmark 10Y bond fell below zero for the first time, an unprecedented level for a G7 economy, as global financial turmoil and the Bank of Japan’s adoption of negative interest rates drive demand for the notes
  • The Federal Reserve may not have the legal authority to set negative interest rates in the U.S., according to a 2010 staff memo that was posted late last month on the central bank’s website
  • Oil could drop below $20 a barrel as the search for a level that brings supply and demand back into balance makes prices even more volatile, Goldman Sachs predicted
  • The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, as OPEC members Iran and Iraq bolster production while demand growth slows, according to the IEA
  • German industrial production unexpectedly fell for a second month in December, a sign that a slowdown in major export markets is holding back factory activity despite strong domestic demand
  • President Obama will send a fiscal 2017 budget of ~$4 trillion to the Republican-controlled Congress on Tuesday representing his aspirations for the future of the U.S. Little of it, as the Obama administration acknowledges, will become law anytime soon
  • No IG corporates (YTD volume $181.575b) and no HY (YTD volume $9.015b) priced Friday
  • BofAML Corporate Master Index OAS 4bp higher yesterday at +213 (highest since July 2012), +11bp MTD, +40bp YTD; T1Y range 213/129
  • BofAML High Yield Master II OAS 41bp higher yesterday at +851 (highest since Oct. 2011), +74bp MTD, +156bp YTD; T1Y range 851/438
  • Sovereign 10Y bond yields mixed with Greece +27bp, Portugal +13bp. European stocks mixed, Asian stocks lower (China closed for holiday); U.S. equity-index futures drop. Crude oil rises, copper, gold fall

DB’s Jim Reid concludes the overnight wrap

Onto the latest in Asia this morning now where bourses in Japan and Australia are extending much of yesterday’s turmoil. It’s the moves in Japan which have been more eye-catching with the Topix and Nikkei currently -5.71% and – 5.58% and moving lower as we go to print. In Australia the ASX is -2.88%. Credit markets have taken a big hit in the region with iTraxx Japan and Australia indices both +10bps wider. Meanwhile 10y JGB’s have crossed into negative territory this morning and plummeted to fresh record lows. The benchmark maturity is down over 3bps in early trading and currently sitting at -0.022%. That’s despite another strong performance for the Yen, currently up over 1% and in the process reaching a 15-month high and extending the incredible run since the BoJ cut rates to negative. Oil is hovering around the $30/bbl mark while US equity futures are down around 1% as we refresh our screens.

Moving on. The latest DB TheHouseView titled “Still deep in the woods” came out overnight. The team notes that in addition to the initial concerns about China and energy, two new issues are further weighing on risk sentiment: the slowdown in US growth momentum and the tightening of financial conditions especially in European financial credit. Their macro outlook for 2016 is broadly unchanged so far, uninspiring but not a disaster, but they note that downside risks have risen both in the US and in Europe. Until US growth, European financial conditions, China and oil concerns are put aside, markets will remain volatile and a sustained change in risk appetite is difficult.

In truth yesterday was dominated by the moves for European financials with very little newsflow or data elsewhere to drive markets. The latter was largely secondary in nature. In Europe we saw the Sentix investor confidence reading for the Euro area decline 3.6pts this month to 6.0 (vs. 7.4 expected). Meanwhile in the US the labour market conditions index was softer than expected last month at 0.4 (vs. 2.0 expected), a fall of 1.9pts relative to December.

Unsurprisingly safe-havens dominated the few asset classes which actually saw gains yesterday. Of particular note was the move for Gold which finished up +1.35% for its fourth consecutive daily gain of at least 1%, with the metal at one stage trading up through $1200/oz for the first time since June last year. Meanwhile core sovereign bond yields marched lower. 10y Bunds finished just shy of 8bps lower at 0.216% and the lowest since April last year when the yield closed at a record low 7.4bps at one stage. Other core European bond markets saw similar moves while the peripherals sold off with Italy, Spain and Portugal +12.3bps, +10.7bps and +25.3bps wider respectively. 10y Treasury yields (-8.7bps) closed at the lowest in 12-months meanwhile at 1.749% (and have marched lower this morning, testing 1.7% to the downside) while the probability of the one Fed rate hike this year has quickly plummeted back towards 30%.

Before we move onto today’s calendar, one interesting highlight from the ECB’s Coeure yesterday was the reference to potential coordination on emerging market currencies. In an interview with French press, Coeure suggested that a further depreciation for EM currencies is possible and that ‘that’s an issue for global coordination’ which will be discussed at the G20 finance ministers meeting in Shanghai in 10 days time.

Looking at the day ahead now, it’s another fairly quiet session for data in Europe this morning with the only releases of note being the December trade numbers out of the UK and Germany along with the latest industrial production data in the latter. Over in the US the early release is the NFIB small business optimism survey for January, followed by the December JOLTS job openings and wholesale trade sales and inventories data. As a reminder, JOLTS data is released with a one-month lag so the data will be reflecting what was a bumper month for hiring (payrolls +262k) in December and not reflective of the recent softer payrolls number. Earnings wise we’ve got 18 S&P 500 companies set to report including Walt Disney and Coca-Cola.

end

Let us begin:

ASIAN AFFAIRS

Late  MONDAY night/ TUESDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei DOWN A WHOPPING  918.86 OF 5.4% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil GAINED  to 30.15 dollars per barrel for WTI and 33.18 for Brent. Stocks in Europe so far all in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/The big STORY OF THE DAY FROM ASIA IS THE COLLAPSE ON THE NIKKEI/AND THE FALL IN THE 10 YR JAPANESE BOND YIELD TO NEGATIVE.02% (SEE BELOW)

Three commentaries:

Real wages fall as abenomics fail.  The entire goal of Abenomics was to inflate wages.

(courtesy zero hedge)

Abenomics Fails Miserably As Japan’s Workers “Get Nothing” In 2015

Late last month, in what amounted to a tacit admission that nothing is working when it comes to pulling Japan out of its decades’ long stint in the deflationary doldrums, the BoJ adopted negative rates.

Haruhiko Kuroda’s move to plunge Japan into the NIRP twilight zone (where it joins Denmark, Sweden, Switzerland, and the whole of Europe) comes just as the BoJ effectively runs out of room when it comes to implementing further QE. The central bank is already monetizing the entirety of gross JGB issuance and is on pace to own nearly the entire Japanese ETF market.

In short, there’s nothing left to buy. Everything that can be monetized without completely breaking/distorting markets has been monetized and yet inflation remains stubbornly low.

So, in a last ditch effort to provide the spark Japan needs to hit the elusive 2% inflation target, Kuroda went NIRP. Subsequently, he promised to take rates even further into negative territory if necessary, a declaration which a year ago would have been good for a sharp equity and USDJPY rally but which now, much like other central banker jawboning, has a market half-life of about an hour.

Of course it’s not just the deflationary impulse that Japan is struggling to combat. There’s also a persistent lack of wage growth. “Wages need to rise at a 3 percent annual pace to achieve stable 2 percent inflation,” Bloomberg reminds us.

In short, Japan is nowhere near 3% when it comes to rising worker pay. In fact, data out on Monday shows that wage growth for 2015 was just 0.1%, down from an already abysmal 0.4% in 2014.

In other words: wages have flatlined.

For December, real wages fell 0.1% Y/Y. That’s the second straight month of decline. “Total wages in Japan haven’t risen more than 1 percent in any year since 1997 and they fell for the past four years once inflation is accounted for,” Bloomberg adds, in an extremely amusing indictment of the country’s complete failure to put the “lost decade” behind it.

Here’s the complete breakdown from Goldman:

Preliminary data show winter special wages down 0.4% yoy: Nominal cash wages in December came in at +0.1% yoy, a slight increase from 0.0% in November. Basic wages continued the uptrend, coming in at +0.7% yoy (November: +0.3%), but overtime wages slowed to +0.8% (+1.2%). Special wages, which include winter bonuses and can account for around 50% of nominal cash wages, were down in December, coming in at -0.4% (preliminary data basis).

Over 2015, nominal cash wages rose 0.1% yoy, a slowdown from growth of 0.4% in 2014. Basic wages improved a sharp 0.3% (2014: -0.4%), but special wages were down 0.8%, and overtime wages also slowed.

Real wages negative for second straight month: December real wages fell 0.1% yoy, for the second straight month of decline, reflecting the small increase in total nominal cash wages of only 0.1%, and a rise of 0.2% yoy in the CPI excluding imputed rent (which is used in the calculation of real wages) in December. While basic wages remain on a growth path, albeit modestly, wage conditions in general, including bonuses and overtime wages, have deteriorated.

Obviously, none of that bodes particularly well for the Japanese consumer. Domestic consumption is expected to have shrunk in Q4, marking the second quarter of contraction for the year.

“The pace of wage gains has been very slow when you think about how much labor shortage there is,” Hisashi Yamada, chief economist at the Japan Research Institute in Tokyo lamented on Monday.

Perhaps Japan’s beleaguered workerkers should take a page out of Abenomics architect Akira Amari’s book and just resort to taking bribes when they need a few extrra yen.

Unfortunately for Japan, Kuroda has very nearly reached the Keynesian endgame. That is, the BoJ’s counter-cyclical capacity is exhausted. Expanding QE any further risks seriously impairing liquidity and market function and taking rates further into negative territory risks more cancelled JGB auctions which in turn inhibit QE. There’s simply nothing else the central bank can do.

With Abenomics having thus failed miserably, we’ll sit back and wait for the day when Abe and Kuroda finally take a long bow and fall (figuratively speaking we hope) on their swords.

end

Japanese 10 yr bond yields hit zero for the first time ever and then falls further into negative territory:  The Yen continues to rise causing massive headaches for Abe and his policy of Abenomics: During the night the 10 yr Japanese 10 yr bond yield broke into negative territory at -.02:

(courtesy zero hedge)

Japanese 10Y Yield Hits Zero For First Time Ever, Yen Strongest Since 2014, Stocks Crash

Following earlier comments from yet another Japanese talking head that deflation will be fixed any day now, the Japanese bond curve continues to collapse with yields hitting record lows across the entire spectrum. Most notably, 10Y JGBs – which were trading 24bps before BoJ NIRP – just traded with a 0bp handle for the first time ever, ready to join Switzerland as the only nations with negative  rates at 10Y. As bonds rally, and JPY surges to strongest since 2014, so Japanese stocks are crashing (NKY down 1000 points from intraday highs).

Bond yields are plunging…

  • *JAPAN 10-YEAR GOVERNMENT BOND YIELD FALLS TO ZERO FOR 1ST TIME
  • *JAPAN’S 5-YEAR YIELD FALLS TO RECORD -0.205%

And stocks are crashing as USDJPY tumbles…

  • *YEN CLIMBS PAST 115 PER DOLLAR TO STRONGEST SINCE 2014

Jose Canseco will not be happy.

end

Japanese stocks fall badly as the bond yields collapse!

(courtesy zero hedge)

Japan In Turmoil: Stocks, USDJPY, Bond Yields Collapse

The total and utter failure of The BoJ continues to accelerate…

  • *JAPAN 10-YEAR GOVERNMENT BOND YIELD FALLS BELOW ZERO FIRST TIME

Stocks have crashed the most since Black Monday erasing all QQE2 gains..

With Japanese Bank stocks  leading the way, now down 25% since NIRP was unleashed (and 32% since the start of the year)…

  • *NOMURA EXTENDS DECLINE, FALLS AS MUCH AS 12%

And USDJPY is in freefall…

*  *  *

As we detailed earlier..

Following earlier comments from yet another Japanese talking head that deflation will be fixed any day now, the Japanese bond curve continues to collapse with yields hitting record lows across the entire spectrum. Most notably, 10Y JGBs – which were trading 24bps before BoJ NIRP – just traded with a 0bp handle for the first time ever, ready to join Switzerland as the only nations with negative  rates at 10Y. As bonds rally, and JPY surges to strongest since 2014, so Japanese stocks are crashing (NKY down 1000 points from intraday highs).

Bond yields are plunging…

  • *JAPAN 10-YEAR GOVERNMENT BOND YIELD FALLS TO ZERO FOR 1ST TIME
  • *JAPAN’S 5-YEAR YIELD FALLS TO RECORD -0.205%

And stocks are crashing as USDJPY tumbles…

  • *YEN CLIMBS PAST 115 PER DOLLAR TO STRONGEST SINCE 2014

Jose Canseco will not be happy.

end

 

EUROPEAN AFFAIRS

 

This morning, the entire globe started focusing on Deutsche bank.  Selling resumes even after the CEO stated that the bank has lots of liquidity and is rock solid.  The problem is he did not address their off balance sheet derivative mess:

(courtesy zero hedge)

Deutsche Bank Selling Resumes After CEO Assures Employees Bank Is “Absolutely Rock Solid”

Yesterday’s desperate scramble by Deutsche Bank to comfort markets about its liquidity position worked, for about three hours. And then, the bank which really should just keep its mouth shut, did the opposite and reminded an already panicked market just how “serious” things are, in the parlance of Jean-Claude Junkcer, when in an internal memo, the CEO assured his workers that:

  • DEUTSCHE BANK CEO: CAP STRENGTH, RISK POSITIONS ’ROCK SOLID’

That was the good news. The bad news:

  • DEUTSCHE BANK TO INFORM STAFF IN COMING WEEKS ABOUT COST CUTS

More details from Bloomberg:

Deutsche Bank AG is “absolutely rock-solid,” Co-Chief Executive Officer John Cryan wrote in a letter to employees, seeking to reassure markets after a plunge in the shares.

Cryan said he isn’t concerned about the Frankfurt-based lender’s ability to meet legal costs, he wrote in the memo published on Tuesday. While Deutsche Bank will “almost certainly” have to add to its provisions for legal costs this year, the firm has already accounted for it in its financial planning, according to Cryan.

“I am personally investing time to resolve successfully and speedily open regulatory and legal cases,” he wrote. “I want to remove the uncertainty among staff and in the market that these cases cause. A small group of senior people, led by me, will focus on this. For everyone else, we ask you to continue to focus on our clients and on the implementation of our strategy.”

Or, said otherwise, “Deutsche Bank is fine.”

However, with numerous analogies being made between the German bank with the soaring default risk and Lehman or at least Bear, that may have been the absolutely worst thing for the bank to note at a time when the market is perfectly happy to interpret any assurance of ongoing solvency and viability as a desperate attempt to boost confidence, and resume selling the stock and buying even more default protection, which is what it has done, and as of last check DB stock just turned negative in German trading.

END

A very confused Deutsche bank seeks answers to the DAX crash and yet fail to address its credit default swap rise:  (a bet on its demise)

(courtesy zero hedge)

A Confused Deutsche Bank Takes To Twitter Seeking Answers For Market Crash

Just when we said DB should probably keep its mouth shut, the bank that everyone is suddenly very focused on decided to take to Twitter with the following rhetorical question:

Well, judging by this…

… the markets are probably underreacting.

 

end Deutsche bank stock crashes to a record low: (courtesy zero hedge) Deutsche Bank Stock Crashes To Record Low

Moments ago, in response to DB’s open querry on Twitter whether the Dax is “overreacting”, we highlighted DB’s soaring CDS and asked if perhaps the market was not underreacting.

Minutes later the market opined, by sending DB stock to new all time lows.

“Worse than Lehman…”

And that has crushed the entire Geman stock market…

end

Dave Kranzler on the possible demise of Deutsche bank:

(courtesy Dave Kranzler/IRD)

Will Deutsche Bank Be Saved From Collapse?

Deutsche Bank  stock is down over 8% today.  It’s trading at $15.53.  This is 20% lower than the previous low it hit at the apex of the great financial crisis (de facto collapse) in 2008/2009.

 

With rumors flying because of DB’s stock performance this year, management issued a statement defending the bank’s liquidity position:  LINK   “Additional Tier 1 coupons” references the debt that was issued as part of a transaction to raise Tier 1 regulatory capital by Deustche Banks.  The accounting behind the scheme – yes, it’s a scheme – is complicated but the regulators permitted DB is issue a security that behaves like debt but is treated as Tier 1 capital for the purposes of measuring the bank’s ability to withstand hits to its asset base.

Suffice it to say that historically, when a bank has been forced to issue a statement defending its solvency, insolvency is not far behind.  We saw this with Bear Stearns and Lehman.  Denial of a catastrophic problem is affirmation that the problem is very real.

Typically the credit markets sniff out a very real problem before the equity market “catches up.”   Deutsche Bank has emerged as one of the most recklessly managed “Too Big To Fail” banks.  Under Anshu Jain’s “leadership,”  DB became a financial nuclear weapon bloated on derivatives, exceedingly risky assets and highly corrupt upper management.  It’s a literal cesspool of financial fraud and Ponzi scheme banking activity.  The graph of the spread on DB 5-yr credit default swaps shows how quickly the market has determined that DB’s financial risk of insolvency is quickly accelerating:

Currently DB has roughly $2 trillion assets supported by $68 billion of book value.  The problem is that many of its assets are highly overstated in value and have yet to be written down.  The financial world shuddered at the $7 billion of admitted write-offs DB took in 2015.  The problem is that over 85% of the charges taken by DB were attributed to legal costs.  We know its “on-balance-sheet” assets are being reported at a significantly overvalued stated level.  DB has big loans to the energy sector, Glencore, Volkswagon/Audi and other sundry highly risky businesses.   It would only take a 3.5% write-down of its asset base to wipe out its book value.  

THEN there’s the derivatives.  DB has $58 trillion of notional amount in OTC derivatives hidden off its balance sheet.  The bank will claims most of that is hedged out and the “netted” amount is a sliver of the notional amount.  But ask AIG and Goldman Sachs how hedging / netting works out in the long run.   “Netting” is only relevant when counterparties are prevented by Central Banks from defaulting.  Once the defaults start, “net” becomes “notional” in a hurry.

I did an analysis of several of the big banks in early 2008, including JP Morgan, Wash Mutual, and Lehman.  I took their identifiable assets and wrote down the identifiable home equity loan exposure and some other risky asset classes to levels I thought were conservative.  I had concluded that those banks were technically insolvent.    Eight months later it turned out I my analysis was quite accurate.  Wash Mutual and Lehman collapsed and JP Morgan would have collapsed if it had not been bailed out by the Taxpayers.

The current era’s first big bank casualty will likely be Deutsche Bank, unless the German Government and the EU and U.S. Central Banks determine that a DB collapse would collapse the west, which it likely would.  To put this in perspective, DB’s stated assets are $2 trillion. Germany’s GDP is just under $4 trillion.   Then there’s the derivatives…

end

As European credit markets seize as the total of non performing loans surprass 1 trillion euros, it is only a matter of time that we will witness an

economic collapse

(courtesy UKTelegraph and special thanks to Robert H for sending this to us)

http://www.telegraph.co.uk/finance/economics/12149114/Europes-doom-loop-returns-as-credit-markets-seize-up.html

Europe’s ‘doom-loop’ returns as credit markets seize up

Credit stress in the European banking system has suddenly turned virulent and begun spreading to Italian, Spanish and Portuguese government debt, reviving fears of the sovereign “doom-loop” that ravaged the region four years ago.

“People are scared. This is very close to a potentially self-fulfilling credit crisis,” said Antonio Guglielmi, head of European banking research at Italy’s Mediobanca.

“We have a major dislocation in the credit markets. Liquidity is totally drained and it is very difficult to exit trades. You can’t find a buyer,” he said.

The perverse result is that investors are “shorting” the equity of bank stocks in order to hedge their positions, making matters worse.

Marc Ostwald, a credit expert at ADM, said the ominous new development is that bank stress has suddenly begun to drive up yields in the former crisis states of southern Europe.

Advertisement

“The doom-loop is rearing its ugly head again,” he said, referring to the vicious cycle in 2011 and 2012 when eurozone banks and states engulfed in each other in a destructive vortex.

It comes just as sovereign wealth funds from the commodity bloc and emerging markets are forced to liquidate foreign assets on a grand scale, either to defend their currencies or to cover spending crises at home.

Mr Ostwald said the Bank of Japan’s failure to gain any traction by cutting interest rates below zero last month was the trigger for the latest crisis, undermining faith in the magic of global central banks. “That was unquestionably the straw that broke the camel’s back. It has created havoc,” he said.
source: tradingeconomics.com

Yield spreads on Italian and Spanish 10-year bonds have jumped to almost 150 basis points over German Bunds, up from 90 last year. Portuguese spreads have surged to 235 as the country’s Left-wing government clashes with Brussels on austerity policies.

While these levels are low by crisis standards, they are rising even though the European Central Bank is buying the debt of these countries in large volumes under quantitative easing. The yield spike is a foretaste of what could happen if and when the ECB ever steps back.

Mr Guglielmi said a key cause of the latest credit seizure is the imposition of a tough new “bail-in” regime for eurozone bank bonds without the crucial elements of an EMU banking union needed make it viable.

“The markets are taking their revenge. They have been over-regulated and now are demanding a sacrificial lamb from the politicians,” he said.
source: tradingeconomics.com

Mr Guglielmi said there is a gnawing fear among global investors that these draconian “bail-ins” may be crystallised as European banks grapple with €1 trillion of non-performing loans. Declared bad debts make up 6.4pc of total loans, compared with 3pc in the US and 2.8pc in the UK.

The bail-in rules were first imposed in Cyprus after the island’s debt crisis, stripping European bank debt of its hallowed status as a pillar of financial stability, and of its implicit guarantee by states. The regime came into force for the whole currency bloc in January. Both senior and junior debt must now face wipeout before taxpayers have to contribute money.

While this makes sense on one level, the eurozone banking structure is now dangerously deformed. Individual eurozone states cannot easily recapitalize their own banking systems because that breaches EU state-aid rules, but there is no functioning European body to replace them.

“The root cause of this debacle is the way the eurozone is designed. We don’t have a mutualisation of the risks. That is why this is escalating,” said Mr Guglielmi.

Europe’s leaders agreed in June 2012 to break the “vicious circle between banks and sovereigns” but Germany, Holland, Austria and Finland later walked away from this crucial pledge. The chief cost of rescuing banks still falls on the shoulders of each sovereign state. The Sword of Damocles still hangs over the weakest countries.

Peter Schaffrik, from RBC Capital Markets, said there is a nagging concern among investors that the ECB is running low on ammunition.

“How much further can the ECB go before it becomes outright harmful?”

Peter Schaffrik, from RBC Capital Markets

It cannot usefully cut interest rates any deeper into negative territory since the current level of -0.3pc is already burning up the “net interest margin’ of lenders and eroding bank profits. “How much further can the ECB go before it becomes outright harmful?” he asked.

A string of dire results from banks have set off a firesale on “Cocos“, bonds that allow lenders to miss a coupon payment and switch the debt to equity. A Unicredit issue of €1bn of Coco bonds has crashed to 72 cents on the euro.

The iTraxx Senior Financial index measuring default risk for bank debt in Europe soared to 137 on Tuesday, from 68 as recently as early December.

Mr Guglielmi said the mood is starting to feel like the panic in the summer of 2012, just before Mario Draghi vowed to do “whatever it takes” to save the euro – a shift made possible when Berlin lifted its veto on emergency action to backstop Italian and Spanish bonds.

Mario Draghi

Mr Draghi is running out of tricks for an encore but there is still scope for “QE2” at the next ECB meeting in March, if he can secure German acquiescence.

He could legally purchase parastatal bonds such as those of Italy’s power group ENEL or Infraestucturas de Portugal, or purchase Italian bad debt packaged as asset-backed securities. “He can buy Italian subprime. That is the low-hanging fruit,” said Mr Guglielmi.

“We all know that QE2 is not really going to work but the feeling in the market is ‘I’m a smoker, I know it kills me, but so long as I can get cigarettes, I’m happy,’” he said. \

 

end

 

Now that the Bank of Japan has cut its rate to -.1%, JPMorgan predicts that the ECB will cut its deposit rate to -.5% next month and then in June to -.7% which should unleash an huge deflationary tsunami around the globe:

(courtesy JPMorgan/zero hedge)

Race To Bottom Enters Final Lap: ECB Will Cut To -0.7% In June, JPM Predicts

Here is how global currency warfare and the global “race to debase” works: ECB cuts rates to -0.3%, the BOJ cuts to -0.1%, then the ECB cuts to -0.7% next. At least that’s JPMorgan’s most recent forecast, which now see Mario Draghi going full NIRPtard, and cutting the ECB’s -0.3% deposit rate to -0.5% next month, and then to -0.7% in June, unleashing an epic deflationary tsunami around the globe, one which will send the USD soaring, will force more retaliation by the BOJ, will force more devaluation by the PBOC, will lead to more angry complaing by Deutsche Bank how easing is killing the bank, and so on.

When does it end? When fiat and modern neo-Keynesian economics are thoroughly discredited and when the world’s central bankers end up with fast food worker jobs.

From JPMorgan:

ECB to ease even more and cut the deposit rate to -0.7%

  • We now expect the March package to include a larger deposit rate cut of 20bp, taking it to -0.5%
  • We now expect another package after that, possibly as early as June
  • We expect this second package to take the deposit rate to -0.7% and to extent QE until end-2017
  • Our forecast change is motivated by risk management amidst low inflation, rather than a macro forecast change

Until now, our expectation has been that the ECB would announce another policy package in March, comprising a 10bp cut of the deposit rate to -0.4%, an increase in the monthly pace of QE purchases by €10bn to €70bn/month, a three-month extension of the QE programme to mid-2017 and two additional TLTROs during 2H16. Beyond that, we have not been expecting any further easing, but we have been expecting the ECB to maintain a very accommodative stance for a long time, with the first hike only towards the end of 2019.

Today, we are changing this call. First, we now expect the March package to include a larger deposit rate cut of 20bp, taking it to -0.5%. Our expectations for QE and the TLTROs are unchanged. Second, we now expect further easing, possibly as early as June, with another 20bp deposit rate cut to -0.7% and another six month extension of QE at €70bn/month, taking QE through to the end of 2017. It is possible that the ECB will adopt a tiered deposit rate system as soon as March. But, even if it does not, we would expect a clear signal already in March that it will be considered later on; for example, the Governing Council could task the ECB’s technical committees to look into it. And in any case, we would expect the ECB to adopt a tiered system by the time it cuts the deposit rate to -0.7%. As we have argued before, the ECB would be sending a strong signal by adopting a tiered system, which can be designed in a way that minimises some potential side-effects.

This forecast change is motivated by two factors. First, we continue to think that inflation will rise towards the ECB’s target more slowly than its staff expects. Second, the ECB will be more sensitive to this in an environment of persistent downside risk. Hence, our new call is mainly about risk management, as we are not making any changes to our macro forecasts. Admittedly, GDP has grown at a sluggish pace in 2H15, but the underlying pace was likely firmer. And, while the January business surveys raise some concern about the underlying pace, we are not currently convinced that there has been a real change in underlying economic conditions. But, from an ECB perspective, uncertainty about the global economy has increased even further, while recent financial market developments are surely uncomfortable (e.g., in terms of the trade-weighted currency, inflation expectations, potential pressures on banks, etc).

Hence, even if the ECB staff publishes the new inflation forecast for 2018 in early March, which we think could be at 1.8%, we believe the Governing Council will remain nervous about the outlook and respond quickly to gradual disappointments on inflation.

end

RUSSIAN AND MIDDLE EASTERN AFFAIRS Hezbollah and Iran are decimating the Syrian rebels as Turkey and Saudi Arabia decide what to do next: (courtesy zero hedge) Turkey, Saudi Arabia Mull Syria Ground Invasion As Russia, Hezbollah Decimate Rebels

“What’s going on in Syria can only go on for so long. At some point it has to change,” Turkish President Recep Tayyip Erdogan told reporters on a plane back to Turkey from Latin America over the weekend.

As we’ve documented extensively over the past several days, Ankara, Riyadh, and Doha have their backs against the wall when it comes to the effort to oust Bashar al-Assad and perpetuate Sunni hegemony in the Arabian Peninsula.

Hezbollah has surrounded Aleppo and their advance is backed by what’s been described as an unrelenting Russian air campaign. The rebels’ supply lines to Turkey have been cut and without a direct intervention by either the US or the Gulf states, the battle for Syria will have been lost for the opposition which pulled out of peace talks in Geneva citing the ongoing aerial bombardment by Moscow.

Now, with time running out, both Saudi Arabia and Turkey are weighing ground invasions.

“You don’t talk about these things. When necessary, you do what’s needed,” Erdogan said, when asked if Ankara was considering sending troops into Syria. “Right now our security forces are prepared for all possibilities,” he added.

For Erdogan, there’s only one acceptable outcome: Sunni militants oust Assad and take control of Damascus. Assad’s ouster is the desired outcome for the Saudis as well, but Erdogan has a secondary agenda in Syria: preventing the conflict from strengthening the Kurds. That means he’s against any support for the YPG – even if such support would help facilitate regime change.

Over the weekend Erdogan blasted both Russia and the US.

What are you doing in Syria? You’re essentially an occupier,” he said, in a message to Vladimir Putin. “How can we trust you? Is your partner me, or is it those terrorists in Kobani?” he asked Obama’s envoy for the international coalition against Islamic State. By the “terrorists in Kobani”, Erdogan is referring to the YPG.

Erdogan’s frustration reflects the fact that the various groups fighting to take control of Syria are now virtually guaranteed to lose. As we said from the time Russia first flew combat missions from Latakia on September 30, the opposition has virtually no chance of winning a war with Hezbollah and the IRGC as long as Moscow is providing air cover. The rebels have no air presence whatsoever and no anti-aircraft capability and on top of that, there’s no advantage to be had in fighting an asymmetric battle with Hezbollah. Hassan Nasrallah’s army practically invented urban warfare.

The only option now is a coordinated ground invasion by the rebels’ Sunni benefactors.

“With rebels losing ground, Gulf states said they would be prepared to send in ground troops as part of an international coalition battling Islamic State,” Bloomberg reportedon Sunday.

Please note: that quote makes no sense. The rebels aren’t losing ground to ISIS, so why should their battlefield losses trigger international calls for ground troops to “battle Islamic State”?

This is a ridiculously transparent attempt to fabricate an excuse to shore up Sunni militants who are about to be relegated to the annals of sectarian history by the combined military prowess of Hezbollah and Russia.

Sure, there’s an ISIS presence in Aleppo, but if anyone was actually interested in eradicating the group, they’d be talking about Raqqa and Deir ez-Zor, not Latakia nand Aleppo.

Underscoring just how close the world is to careening into World War III, various reports out over the weekend indicated that the Saudis may be preparing to stage 150,000 troops in Turkey. That comes on the heels of reports out of Russia which indicate that Moscow believes Erdogan is on the verge of sending in troops to prop up the rebels. And then there was this, out earlier today from Reuters:

  • U.S KIRBY SAYS WELCOME SAUDI, UAE OFFER FOR TROOPS IN SYRIA 

Saudi foreign minister Adel al-Jubeir confirmed that Washington would support Riyadh if the Saudis did indeed decide to invade Syria just as they have Yemen.

For what it’s worth, AA denied the Saudi troop reports.

Anadolu Agency: Twitter

‘150,000 [Saudi] soldiers will enter Syria from Turkey’ are not true, say Turkish prime ministry sources: report

2:58 PM – 8 Feb 2016

While that particular “rumor” may be unfounded, Turkey and the rest of the Sunni world will need to make a decision in the next few days as to just how they plan to proceed, because as is abundantly clear from the following first-hand account from a rebel fighter, this war is just about over.

Our whole existence is now threatened, not just losing more ground. They are advancing and we are pulling back because in the face of such heavy aerial bombing [by Russia] we must minimize our losses.”

*  *  *

Or, for those who need a visual summary of the above:

end

 

World tension increases as Saudi Arabia is set to send in special forces into Syria.No doubt this will cause Iran and Russia to enter the fray and potentially set off World War iii:

(courtesy zero hedge)_

Saudi Arabia Prepares To Send Special Forces To Syria; Will Fight As Part Of “US-Led Coalition”

As we reported yesterday, in one of the most surprising developments involving the Syrian proxy war, Saudi Arabia and U.S. presence on the ground, the latest twist is that both Turkey and Saudi Arabia are now mulling a full-scale invasion while Russia and the Syrian government continue their progress in wiping out the US and Saudi-funded rebellion. To be sure, there was confusion when CNN Arabia reported first that the Saudis may send as much as 150,000 troops into Saudi Arabia, by way of Turkey, something which Anadolu news promptly denied.

However, the denial itself was softly denied by the Saudi Press Agency, which further stirred the water earlier today when it reported that not only is Saudi Arabia ready to send a special force to fight in Syria, but that this deployment was proposed by the US, which would oversee the Saudi troops as part of the US-led coalition in Syria. To wit:

  • AL JUBEIR SAYS U.S. PROPOSED GROUND FORCE DEPLOYMENT: SPA
  • SAUDI FORCE WOULD FIGHT AS PART OF U.S.-LED COALITION: SPA
  • SAUDI MINISTER SAYS SENDING GROUND FORCE UNDER DISCUSSION: SPA
  • SAUDI ARABIA READY TO SEND SPECIAL FORCE TO FIGHT IS IN SYRIA

And so, what was until recently purely an air campaign involving all the major global powers (except China, for for the time being), is about to become a full-blown land war, involving not only Suunis and Shi’ites (especially once Iran joins the fray), but also Russian troops on one side and US and Saudis on the other.

Most notably, oil has refused to budge even an inch on what is rapidly shaping up as a precursor to World War III.

end Russia is not on high alert with respect to Syria invasion by Saudi Arabia: (courtesy Isachenkov/Associated Press)

RUSSIAN TROOPS PUT ON HIGH ALERT AS PART OF MASSIVE DRILLS

BY VLADIMIR ISACHENKOV
ASSOCIATED PRESS

MOSCOW (AP) — President Vladimir Putin has scrambled thousands of troops and hundreds of warplanes across southwestern Russia for large-scale military drills intended to test the troops’ readiness amid continuing tensions with the West.

Defense Minister Sergei Shoigu said that military units were put on combat alert early Monday, marking the launch of the exercise that involves troops of the Southern Military District.

The district includes troops stationed in Crimea, the Black Sea peninsula that Russia annexed from Ukraine in 2014, as well as forces in the North Caucasus and southwestern regions near the border with Ukraine.

Shoigu said the maneuvers will also engage airborne troops and military transport aviation, as well as the navy. He noted that the drills are intended to check the troops’ ability to respond to extremist threats and other challenges.

According to Shoigu, who spoke at a meeting with the top military brass, the war games would include redeployment of air force units to advance air bases and bombing runs at shooting ranges. The maneuvers will test the troops’ mobility, with some being deployed to areas up to 3,000 kilometers (1,860 miles) away, the military said.

Deputy Defense Minister Anatoly Antonov said in a statement that up to 8,500 troops, 900 ground weapons, 200 warplanes and about 50 warships will be involved in the drills.

The exercises are the latest in a series of major drills intended to strengthen the military’s readiness. They have continued despite the nation’s economic downturn.

Even though a drop in global oil prices has drained the government’s coffers and helped drive the economy into recessions, the Kremlin has continued to spend big on the military, funding the purchase of hundreds of new aircraft, tanks and missiles.

Russia has demonstrated its resurgent military might with its air campaign in Syria, which helped President Bashar Assad’s military win a series of victories in recent weeks. The military used the Syrian operation to test new types of weapons in actual combat for the first time, including long-range air- and sea-launched cruise missiles.

The air blitz in Syria has badly strained Russia’s relations with Turkey, which shot down a Russian warplane at the border with Syria in November. The latest drills could be part of muscle flexing amid the tensions with Ankara.

They also come at a time when a peace deal intended to end fighting between Ukrainian government troops and Russia-backed rebels in eastern Ukraine appears to be in jeopardy amid increasingly frequent clashes in recent weeks.

© 2016 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policyand Terms of Use.

 

end

GLOBAL ISSUES Seven trillion out of a global 21 trillion of bond issuance is now negative. (courtesy zero hedge) $7 Trillion In Bonds Now Have Negative Yields

Just ten days ago, in the aftermath of the BOJ’s -0.1% NIRP announcement, we reported that after more than one year after the ECB unleashed NIRP, the total number of government bonds with negative yields to a staggering $3 trillion, a number which nearly doubled overnight to $5.5 trillion.

Overnight in a historic event, the latest consequence of the BOJ losing control, the yield on Japan’s 10Y JGB dropped below zero for the first time, in the process joining Switzerland as the only other country (for now) with a NIRPing benchmark 10Y treasury.

And, as Bloomberg calculates, this means that as of this moment, $7 trillion or about 30% of all sovereign bonds, are yielding negative rates, implying “investors” have to pay governments for the privilege of holding their money. It also means that in the past 10 days a record $1.5 trillion in global treasurys have gone from having a plus to a minus sign in front of their yield.

END

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/TUESDAY morning 7:00 am

Euro/USA 1.1223 up .0035

USA/JAPAN YEN 115.01 down 0.649 (Abe’s new negative interest rate (NIRP) not working

GBP/USA 1.4432 down .0001

USA/CAN 1.3880 down .0048

Early this TUESDAY morning in Europe, the Euro rose by 35 basis points, trading now well above the important 1.08 level rising to 1.1121; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was flat in value (onshore) due to lunar holiday. The USA/CNY flat in rate at closing last night: 6.5710 / (yuan flat but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)

In Japan Abe went BESERK  with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP   . The yen now trades in a  northbound trajectory as IT settled UP in Japan again by 65 basis points and trading now well BELOW  that all important 120 level to 116.12 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE

The pound was down this morning by 1 basis point as it now trades just above the 1.44 level at 1.4432.

The Canadian dollar is now trading up 48 in basis points to 1.3880 to the dollar.

Last night, Chinese bourses were closed/Japan down badly as was Australia.  All European bourses were deeply in the red  as they start their morning.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade also blowing up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this TUESDAY morning: closed down 918.86 or 5.40%

Trading from Europe and Asia:
1. Europe stocks all in the red

2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed ,Shanghai in the closed  Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red /

Gold very early morning trading: $1191.30

silver:$15.33

Early TUESDAY morning USA 10 year bond yield: 1.76% !!! up 2 in basis points from last night  in basis points from MONDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.59 up 3 in basis points from MONDAY night.  ( still policy error)

USA dollar index early TUESDAY morning: 96.44 down 24 cents from MONDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers TUESDAY MORNING

 

OIL MARKETS

 

This morning WTI plunges back below 30 dollars per barrel after Goldman warns that oil may drop into the teens:

 

(courtesy zero hedge)

WTI Plunges Back Below $30 After Goldman “Teens” & IEA Excess-Supply Warning

WTI keeps dead-cat-bouncing thanks to the algos and crashing thanks to reality. This morning’s reality check on the overnight ramp comes courtesy of a double-whammy from Goldman (“wouldn’t be surprised to see WTI in the teens”) and The IEA which increased its estimate of excess-supply drastically. This has dragged WTI back below $30 once again and where oil goes, stocks go…

Goldman Sachs Says No Surprise If Oil Price Drops Below $20/Bbl

“I wouldn’t be surprised if this market goes into the teens,” Head of Commodities Research Jeff Currie says in interview on Bloomberg TV.

“Once you breach storage capacity, prices have to spike below cash costs”

And IEA piled on…

The global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses, as OPEC members Iran and Iraq bolster production while demand growth slows, according to the International Energy Agency.

Supply may exceed consumption by an average of 1.75 million barrels a day in the period, compared with an estimate of 1.5 million last month, and the excess could swell if OPEC adds more output, the IEA said. Iran raised production in January following the removal of international sanctions, Iraqi volumes reached a record and Saudi Arabia also ramped up output. The agency trimmed estimates for global oil demand.

Oil volatility remains extremely elevated.

end WTI crashes into the 27 dollar handle/credit risk spikes higher/ (courtesy zero hedge) WTI Crashes To $27 Handle As US Energy Credit Risk Spikes Above 1500bps To Record Highs

Because nothing says stability like record high credit risk…

And the effective yield on US HY Energy credits has broken above 20% – 400bps above 2008 crisis highs…

end More trouble in the energy patch:  Anadarko slashes its dividend by 80% (courtesy zero hedge) Anadarko Slashes Dividend By Over 80%

Just days after ConocoPhilips became the first major to slash its dividend, moments ago Anadarco followed suit and announced, just one week after it reported earnings that, it too would virtually halt distribution to shareholders, when it said that it would cut its dividend – the first such action in decades – from 27 cents to just 5 cents per share, an 81% cut, and far above the more modest expected reduction of 14 cents.

The Board of Directors of Anadarko Petroleum Corporation (APC) today declared a quarterly cash dividend on the company’s common stock of 5 cents per share, payable March 23, 2016, to stockholders of record at the close of business on March 9, 2016. The quarterly dividend represents a 22-cent reduction from the prior level of 27 cents per share.

 

“We believe this adjustment to our dividend is the appropriate action to take in the current environment,” said Al Walker, Anadarko Chairman, President and CEO. “On an annualized basis, this action provides approximately $450 million of additional cash available to enhance our operations and financial flexibility. Our Board will continue to evaluate the appropriate dividend on a quarterly basis.”

Expect most other energy companies to follow suit, citing the “current environment” as the reason for halting distributions to shareholders.

end

Inventory builds for both crude and gas

(courtesy zero hedge)

Crude Confused After API Reports Across-The-Board Inventory Builds

WTI crude had tanked into the NYMEX close (by the most in 5 months) but managed to get back above $28 before fading into inventory data. Against expectations of a 3.6mm build, API reported a 2.4mm barrel crude build (the 5th weekly build in a row). Even more critically, API reported a 3.1mm Gasoline build (notably above the expected +400k build) and Cushing saw a 2nd weekly build of 715k. WTI ignored it initially but then decided to rally modestly before fading to unch.

 

Builds across the complex..

 

The reaction… lower…

 

Charts: Bloomberg

end

And now for your closing TUESDAY numbers:    

Portuguese 10 year bond yield:  3.67% up 50 in basis points from MONDAY

Japanese 10 year bond yield: -.025% !! down 4  full  basis points from MONDAY which was lowest on record!! Your closing Spanish 10 year government bond, TUESDAY par in basis points Spanish 10 year bond yield: 1.75%  !!!!!! Your TUESDAY closing Italian 10 year bond yield: 1.68% par in basis points on the day: Italian 10 year bond trading 7 points lower than Spain. IMPORTANT CURRENCY CLOSES FOR TUESDAY   Closing currency crosses for TUESDAY night/USA dollar index/USA 10 yr bond:  2:30 pm   Euro/USA: 1.1286 up .0045 (Euro up 97 basis points) USA/Japan: 114.99 down 0.673(Yen up 67 basis points) and a major disappointment to our yen carry traders and Kuroda’s NIRP Great Britain/USA: 1.4452 up .0019 (Pound yo 19 basis points) USA/Canada: 1.3892 down .0035 (Canadian dollar up 35 basis points with oil being lower in price ) This afternoon, the Euro rose by 97 basis points to trade at 1.1286.(with Draghi’s jawboning not doing much) The Yen fell to 114.99 for a gain of 67 basis points as NIRP is a big failure for the Japanese central bank The pound was up 19 basis points, trading at 1.4452. The Canadian dollar rose by 35 basis points to 1.3892 despite the price of oil price being clobbered today as WTI fell to around $28.06 per barrel/WTI,) The USA/Yuan closed at 6.5710 the 10 yr Japanese bond yield closed at a record low of negative .025% Your closing 10 yr USA bond yield: down 1 in basis points from MONDAY at 1.73%//(trading well below the resistance level of 2.27-2.32%) policy error USA 30 yr bond yield: 2.55 down 1 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)      Your closing USA dollar index: 96.07 down 60 in cents on the day  at 2:30 pm Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for TUESDAY   London: down 57.17 points or 1.00% German Dax: down 99.96 points or 1.11% Paris Cac down 68.77 points or 1.69% Spain IBEX down 194.50 or 2.39% Italian MIB: down 528.08 points or 3.21% The Dow down 12.67  or 0.08% Nasdaq: down 14.99  or 0.36% WTI Oil price; 28.06  at 2:30 pm; Brent OIl:  30.60 USA dollar vs Russian rouble dollar index:  79.58   (rouble is down 1 and  60/100 roubles per dollar from yesterday) with the fall in oil This ends the stock indices, oil price, currency crosses and interest rate closes for today.     New York equity performances plus other indicators for today:       Deutsche Desperation & Twist Talk Save Stock Sheep From Slaughter  

hat a day… this seemed appropriate…

Dow futures show the utter craziness of the intraday swings today as Japanese collapse led to panic-buying on “Rock Solid” Deutsche comments which led to dumping on oil’s collapse after IEA supply glut issues which led to panic buying at the open (amid chatter of Operation Twist 2 by The Fed) followed by panic-selling as oil careened lower only to see stocks ripped higher again as DB unveiled a desperate bond buyback plan… which ran stops and then utterly gailed…

Small Caps were worst on the day… and Trannies ended green…

Much of the day’s late-day exuberance was after Deutsche announced a half-hearted desperation play – buying back its “cheap” debt with its scarce liquidity… It failed to even get the stock green on the day…

As we detail here...Deutsche Bank may very well be in trouble.

Late last month, Europe’s most systemically important bank reported a truly epic loss of $7 billion, the first annual loss since the crisis and since then, its CDS spreads have been blowing out as the market begins to contemplate the unthinkable.

 

Meanwhile, the stock is trading near all-time lows and as we said when John Cryan announced the official results for Q4 and 2015, don’t be surprised to see the equity trading in the single digits by year end.

 

Even as the likes of Wolfgang Schauble proclaim there’s nothing to worry about, the bank’s own actions tell a different story. As FT reports, the bank is now set to buy back billions in senior bonds to shore up confidence. “After European banks suffered a second consecutive day of sharp falls, Deutsche Bank is expected to focus its emergency buyback plan on senior bonds, of which it has about €50bn in issue,” FT reported in Tuesday afternoon. “

 

“The bank’s shares still fell 4 per cent, taking the decline since the start of the year to 40 per cent.”

 

The plan doesn’t involve Deutsche’s CoCos, which have come under heavy pressure over the last several days with yields soaring as the market increasingly doubts the bank’s ability to make good on its subordinate debt. Deutsche will need to make coupon payments in April.

 

“Deutsche Bank has plenty of scope for a bond buyback, with €220bn of liquidity reserves,” FT notes. Of course the bank’s  liquidity  position will be diminished thanks to the buyback and the buyback is only necessary because the market is concerned about the bank’s liquidity. So there’s a bit of a chicken-egg scenario going on with this truly absurd attempt to calm markets by reducing debt

 

In any event, we seriously doubt this will do anything to restore some semblance of confidence in the bank which, you’re reminded, is sitting on a derivatives book equivalent to 20 times Germany’s GDP.

Bargain?…

The collapse of credit risk continues to signal more pain to come for US equities – especially the more credit-sensitive small caps..

Oil’s collapse weighed energy stocks down… with financials managing to get back to unch on DB’s news…

Financial credit risk spiked to its highest since 2012…

And Energy credit risk hit record highs…

Bonds weren’t buying the equity craziness…

Treasury yields were mixed with a weak 2Y auction (after Twist 2 rumors) pushing front-end yields higher and long-end lower…

The Dollar limped lower once again, with early JPY weakness fading and Swissy strength leading the way…

Despite USD weakness, commodities were lower across the board but it was crude and copper that were clubbed…

Charts: Bloomberg

end

They spiked the USA/Yen higher causing the Dow to rise over 200 points from this morning: (courtesy zero hedge) Panic-Buyers Spike Dow Over 200 Points At Open

Manic.. or Panic?

We suspect this won’t end well.

end

A good visual as to what the USA’s number one problem:  huge build up of inventory and not enough sales: (courtesy zero hedge) The US Economy’s Problem Summed Up In 1 Simple Chart

Too much mal-invested, Fed-fueled, hope-driven “if we build it, they will buy it” inventory… and not enough actual demand. This has never, ever, ended well in the past – so why is this time different?

At 1.32x, the December inventories/sales ratio is drasticallyhigher than at year-end 2014 and is back at levels that have always coincided with recessions…

And just in case you needed more convincing that all is not well – the current spread between sales and inventories is now at a record absolute high…

As Sales tumble and inventories soar…

because The Fed and Government are breathing life into Zombies when they should be dead and gone.

end USA investment grade credit risk spikes to a 5 yr high: (courtesy zero hedge)   US Investment Grade Credit Risk Spikes To 5-Year Highs

When it rains it pours…

The market has taken over The Fed’s role – forget above 25bps here or there, the cost of funding for even the highest quality US Corporates is exploding…

Simply put, the credit cycle has turned and is accelerating rapidly – crushing any hopes for debt-funded shareholder-friendliness.

end seee you tomorrow night. h

Feb 8/Feb 8/Bourses around the globe collapse/gold and silver skyrocket today/ Deutsche bank seems to have derivative problems/In China 100 billion USA leaves the country/The USA/Yen falters to 115 handle bringing down many yen carry traders/Venezuela...

Mon, 02/08/2016 - 19:10

Gold:  $1197.80 up $40.10    (comex closing time)

Silver 15.42 up 65 cents

In the access market 5:15 pm

Gold $1190.95

Silver: $15.35

At the gold comex today, we had a poor delivery day, registering 40 notices for 4000 ounces. Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 202.62 tonnes for a loss of 100 tonnes over that period.

In silver, the open interest rose fell by a tiny 6 contracts down to 167,557. In ounces, the OI is still represented by .838 billion oz or 120% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI rose by a huge 5,608 contracts to 37,507 contracts as gold was up $0.20 with Friday’s trading.

We had no changes in gold inventory at the GLD / thus the inventory rests tonight at 698.46 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had no changes in inventory,  and thus/Inventory rests at 308.999 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver fall by 6 contracts down to 167,557 as silver was down 8 cents with respect to Friday’s trading.   The total OI for gold rose by 5,608 contracts to 397,507 contracts as gold was up $0.20 in price from Friday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

b) Gold trading from NY”

(zero hedge)

3. ASIAN AFFAIRS

iLate  SUNDAY night/ MONDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei up 184.71 or 1.10% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil lost  to 30.04 dollars per barrel for WTI and 33.35 for Brent. Stocks in Europe so far all in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/The big report on USA dollars leaving China amounted to 100 billion USA a little lower than thought. (see commentary on 100 billion USA leaving China))

 ii)What is the big worry for the Chinese government?:  It is most fearful of a revolt by the people!( zero hedge)

EUROPEAN AFFAIRS

i) Seems that our friends over at Deutsche bank are in serious trouble: they cannot stand the constant easing by central banks??????: SOMETHING BIG IS HAPPENING BEHIND THE SCENES!!

( zero hedge)

ii) Wow!! this is interesting:  BAFIN shuts down a Canadian Bank of German origin on grounds of money laundering and Libor malfeasance:

( zero hedge) iii)  A, Credit default swaps on Deutsche bank and all European banks blow wider this morning( zero hedge/very early in the morning)

iii)  B. Late in the morning:  the bloodbath continues:  bonds crash as does stock markets:

( zero hedge) iv)Sexual assaults continue unabated: Austrian 10 yr boy sexually assaulted by 20yr old Muslim
( zero hedge) iv)

Looks like the Greeks are going to war with the EU boys over pension reforms and debts due in June.  Bank stocks are plummeting as are other Greek equities.  The 10 yr Greek bond is also blowing higher in yield/lower in price ( zero hedge) v) At 12:00 noon our time, Europe closed as Deutsche bank plunged 11% and is at 7 year lows:

(zero hedge) vi) Your humour story of the day but it is true:

credit default swaps on Deutsche bank rising exponentially/Alpha Bank (Greek bank) falling: (courtesy zero hedge vii) At the end of the day, Deutsche bank had to defend itself as to whether it has enough cash. On the balance sheet, they do, the question is off balance sheet! (courtesy zero hedge) RUSSIAN AND MIDDLE EASTERN AFFAIRS i)After Venezuela these guys are next! Ukrainian bonds crash after their economy minister resigns over high level corruption:
( zero hedge) ii)Rhetoric between Iran, Syria and the Saudi/Turks become fierce:
( zero hedge) iii) John Kerry just threw in the towel as Syrian forces along with Hezbollah surround Aleppo. It looks like their 5 yr battle for control over Syria is over in defeat:
( zero hedge) iv) We knew this would happen:  Iran states that their oil will be priced in euros.  The huge dagger into the heart of the USA dollar/USA hegemony!
( zero hedge) GLOBAL ISSUES OIL MARKETS i) Early this money the large USA oil/gas operation Chesapeake plummets over 20% as it has hired bankruptcy attorneys:

( zero hedge)

PHYSICAL MARKETS

i) Absolute doorknobs:  Venezuela prepares to liquidate all of its remaining gold holdings to pay or debt maturities:

( zero hedge)

Market watch omits Hunsader’s most important work:

(MarketWatch/ GATA

iii) Chris Powell will speak at both Hong Kong and Singapore conferences in April:

( Chris powell/GATA)

iv)Glencore announces a streaming gold deal with Franco Nevada as it tries to deleverage. It’s huge derivative mess could very easily blow up the entire world’s finances:

( London’s Financial Times/GATA)

v)Bill Murphy interviewed by Future Money Trends:

( GATA)

vi)  Bill Holter delivers two extremely important paper tonight entitled:

“You are watching it!”

and

“YOU KNOW IT WHEN YOU SEE IT”

USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER

i)Looks like the boys are getting the procedures ready for negative interest rates and then they will go cashless:

Two commentaries ( zero hedge) ii) To our stock players (ex gold/silver equities) :  trouble ahead as our quant boys at JPM confirm the tech bubble has burst again!!

( JPM/zero hedge) iii) All treasury yields plummet.  The 10 yr pushed below 1.80% signalling the huge downfall in world finances.  However it is the 5 yr rate that has everybody worried:

it is now at 1.17%.  What is most amazing is that the short interest at the treasury yield is held by speculators and the commercials are net long the bonds. trouble ahead… ( zero hedge) iv)An excellent commentary over the weekend from David Stockman on the phony jobs report on Friday.

( David Stockman/ContraCorner)

 

Let us head over to the comex:

The total gold comex open interest rose to 397,507  for a gain of 5608 contracts as the price of gold was up $0.20 in price with respect to Friday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order as the drop in gold ounces standing for delivery is contracting due to cash settlements.  We now enter the big active delivery month is February and here the OI fell by 158 contracts down to 2232. We had 5 notices filed on Friday, so we lost 153 contracts or an additional 15,300 oz will not stand for delivery. The next non active delivery month of March saw its OI rise by 102 contracts up to 1508. After March, the active delivery month of April saw it’s OI rise by 2,976 contracts up to 283,433.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 201,127 which is fair to good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair to good at 228,614 contracts. The comex is in backwardation until June. 

Today we had 40 notices filed for 4000 oz. And now for the wild silver comex results. Silver OI fell by 6 contracts from 167,563 down to 167,557 as  the price of silver was down by 8 cents with respect to Friday’s trading. The next non active delivery month of February saw its OI rose by 3 contracts up to 140.  We had 0 notices filed on yesterday, so we  gained 3 silver contracts or an additional 15,000 oz  will stand in this non active month of February. The next big active contract month is March and here the OI fell by 3,464 contracts down to 101,229.  The volume on the comex today (just comex) came in at 42,421 , which is very good. The confirmed volume yesterday (comex + globex) was excellent at 65,131. Silver is not in backwardation at the comex but is in backwardation in London.  We had 0 notices filed for nil oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 8/2016

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  nil 6430.000 oz
200 kilobars
Scotia Deposits to the Dealer Inventory in oz 5001.000 oz???
Brinks Deposits to the Customer Inventory, in oz  nil No of oz served (contracts) today 40 contracts( 4000 oz) No of oz to be served (notices) 2192 contracts (219,200 oz ) Total monthly oz gold served (contracts) so far this month 832 contracts (83,200 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 486,742.9 oz Today, we had 1 dealer transactions We had one dealer deposit: Into Brinks:  5,001.000 oz?? total deposit: 5,001.000 oz We had 1  customer withdrawals i) Out of Scotia: 6430.000 oz (200 kilobars) ?? total customer withdrawals; 6430.000  oz we had 0 customer deposits: total deposits;  nil oz

we had 1 adjustment.

i) Out of JPMorgan:

64,664.791 oz was adjusted out of the customer and this landed into the dealer of JPM

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account. ***JPMorgan now has 634,557.764 or 19.737 tonnes in its customer account. Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 40 contract of which 0 notice was stopped (received) by JPMorgan dealer and 16 notices were stopped (received)  by JPMorgan customer account.    To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (832) x 100 oz  or 83,200 oz , to which we  add the difference between the open interest for the front month of February (2232 contracts) minus the number of notices served upon today (40) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the February. contract month: No of notices served so far (832) x 100 oz  or ounces + {OI for the front month (2232) minus the number of  notices served upon today (40) x 100 oz which equals 302,400 oz standing in this active delivery month of February ( 9.405 tonnes) we lost 153 contracts or 153,000 oz will not stand for delivery and were cash settled. We thus have 9.4059 tonnes of gold standing and 4.948 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing. Total dealer inventor 228,760.945 or 7.1153 Total gold inventory (dealer and customer) =6,514,323.918 or 202.66 tonnes  Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 202.62 tonnes for a loss of 100 tonnes over that period.  JPMorgan has only 21.99 tonnes of gold total (both dealer and customer) end And now for silver FEBRUARY INITIAL standings/

feb 8/2016:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory   1,684,431.15 oz

jpm,cnt Deposits to the Dealer Inventory nil Deposits to the Customer Inventory 891,901.115 oz

cnt,delaware,scotia No of oz served today (contracts) 0 contracts nil oz No of oz to be served (notices) 140  contracts (700,000 oz) Total monthly oz silver served (contracts) 0 contracts nil Total accumulative withdrawal of silver from the Dealers inventory this month nil oz Total accumulative withdrawal  of silver from the Customer inventory this month 5,789,909.4 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 2 customer deposits:

i) Into CNT:  572,685.100 oz

ii) Into JPM: 618,692.065  oz

total customer deposits: 1,191,377.165 oz

We had 2 customer withdrawal: i) Out of CNT:  270,186.400 oz ii) Out of Delaware 3022.65 oz iii) out of Scotia:  618,692.065. oz  

total withdrawals from customer account 891,891.115   oz 

 we had 0 adjustments:

 

The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (0) x 5,000 oz  = nil oz to which we add the difference between the open interest for the front month of February (140) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing Thus the initial standings for silver for the February. contract month: 0 (notices served so far)x 5000 oz +(140) { OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals 700,000  of silver standing for the February. contract month. we gained 15,000 additional silver ounces standing in this non active delivery month of February. Total dealer silver:  28.53 million Total number of dealer and customer silver:   156.059 million oz end The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

Feb 8/no change in inventory/inventory rests at 698.46 tonnes

FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

Feb 8.2016:  inventory rests at 698.46 tonnes

Now the SLV: Feb 8/no change in inventory at the SLV/Inventory rests at 308.999 million oz FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees Inventory rests at 309.380 million oz Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/ Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz Jan 27.2017: no changes to inventory/rests at 310.653 million oz Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz Feb 8.2016: Inventory 308.999 million oz. 1. Central Fund of Canada: traded at Negative 6.1 percent to NAV usa funds and Negative 6.4% to NAV for Cdn funds!!!! Percentage of fund in gold 63.8% Percentage of fund in silver:36.2% cash .0%( feb 8.2016). 2. Sprott silver fund (PSLV): Premium to NAV rises to  +1.10%!!!! NAV (feb 8.2016)  3. Sprott gold fund (PHYS): premium to NAV rises to- 0.40% to NAV feb 8/2016) Note: Sprott silver trust back  into positive territory at +1.10%/Sprott physical gold trust is back into negative territory at -0.40%/Central fund of Canada’s is still in jail.

end

And now your overnight trading in gold, MONDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe (COURTESY MARK O”BYRNE) Gold and Silver Up 5% Last Week As Stocks Fall Sharply By Mark O’ByrneFebruary 8, 20160 Comments

Gold and silver surged over 5% last week as concerns about the U.S. and global economy saw more sharp stock market falls and reduced expectations of the Fed increasing interest rates.

Gold finished the week at $1,173.40 an ounce and has built on those gains today rising another 0.4% to $1,178.10 an ounce – taking its year-to-date gain to 11 per cent.

Stocks has another torrid week with the S&P 500 falling 3.1% and the Nasdaq down 5.4% while gold had its best week since July 2013.

Technically, gold is looking better and better and the gains last week were the third consecutive week of gains. The weekly higher close above the 200 day moving average ($1,129/oz) is leading to increasing conviction that gold prices have bottomed and we are in the early stages of a new bull market.

Momentum buyers and trend following funds are again making the “trend their friend.” This is seen in the increase in gold ETF holdings which have increased now for 15 consecutive days as retail and institutional investors diversify into gold to protect from increasing market volatility and concerns of new bear markets in stocks.

Gold has seen similar gains in euro and larger gains in sterling terms (+13% year to date) again showing gold’s currency hedging properties.


LBMA Gold Prices

8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce
5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce
4 Feb: USD 1,146.25, EUR 1,027.29 and GBP 782.16 per ounce
3 Feb: USD 1,130.00, EUR 1,034.04 and GBP 781.25 per ounce
2 Feb: USD 1,123.60, EUR 1,029.65 and GBP 780.01 per ounce

Gold and Silver News and Commentary – Click here

Mark O’Byrne Published in Weekly Market Update

end

Gold trading from NY:

(courtesy zero hedge)

Gold Spikes To 8-Month Highs, Silver Breaks Key Technical Level

The bid for precious metals is accelerating. Gold just broke above its October 2015 highs to 8-month highs. Silver is also bursting higher, soaring above its 200-day moving-average.

Gold at 8-month lows…

Silver breaks 200DMA…

As Gold continues to suggest The Fed screwed up…

end

Absolute doorknobs:  Venezuela prepares to liquidate all of its remaining gold holdings to pay or debt maturities:

(courtesy zero hedge)

Venezuela Prepares To Liquidate Its Remaining Gold Holdings To Pay Coming Debt Maturities

Last Thursday when we recounted the story of how Venezuela is now literally flying in paper money (using three dozen cargo Boeing 747s), we wrote that “Venezuela’s hyperinflation, already tentatively estimated at 720%, will likely add on a few (hundred) zeroes by this time next year. It is also quite likely that Venezuela the country, as we know it now, will no longer exist because once any nation is swept up in hyperinflationary rapids two things occur like clockwork: social uprisings and political coups.

But before it gets there, Venezuela’s president Maduro will be busy liquidating the nation’s roughly $12 billion in gold reserves, which his late predecessor fought hard in 2011 to repatriate back to Caracas. Sadly that gold was never meant to stay in Venezuela after all.

And sure enough, just a day later, Reuters writes that Venezuela’s central bank has begun negotiations with the suddenly troubled Deutsche Bank to carry out gold swaps “to improve the liquidity of its foreign reserves as it faces heavy debt payments this year”, payments which it won’t be able to fund unless it manages to “liquify” its gold.

One look at Venezuela’s CDS which imply a 78% probability of default in the next year reflect the $9.5 billion in debt service costs this year.

The problem is that around 64% 15.4% of Venezuela’s $15.4 billion in foreign reserves, or around $10 billion, are held in gold bars, “which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.”

As Reuters reminds us, in December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year.

Technically, gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.

The problem is that a swap when arranged with a technically insolvent nation is the equivalent of pledging gold for cash, which is precisely what Venezuela will do. Said pledge implies that once Venezuela has to fund the unwind of the swap, which will itself cost billions of dollars Maduro will not have, it will effectively hand over the gold to the counterparty, in this case Deutsche Bank.

Reuters also adds that according to its sources “Venezuela in recent years had been carrying out gold swaps with the Switzerland-based Bank for International Settlements (BIS) in operations ranging in duration from a week to a year. One source said Venezuela conducted a total of seven such transactions. BIS halted these operations last year, both sources said, as a result of concerns about the associated risks. BIS declined to comment.”

Meanwhile Venezuela has been burning down its gold reserves:

Under the rule of late socialist leader Hugo Chavez, the central bank used billions of dollars in cash reserves to finance social programs and off-budget investment funds. This meant that gold became a larger percentage of reserves.

The value of Venezuela’s monetary gold has declined by $3.5 billion in the 12 months ended in November to reach $10.9 billion, central bank data shows. This appears to reflect swap operations and a 10 percent decline in the price of gold. It was not immediately evident if the central bank has also been selling gold.

The central bank in 2015 carried out a swap with Citigroup Inc’s (C.N) Citibank, according to one of the sources. Citi declined to comment in 2015.

And here is the punchline: “One of the sources said the central bank has taken an unspecified amount of gold out of the country so that it can be certified, which is required for gold that is used in such swaps. The gold lost its “certificate of good delivery” in 2011 when Chavez transferred it from foreign banks to central bank coffers, one of the sources said.

In other words, after Maduro’s predecessor Chavez worked hard to repatriate the nation’s gold in 2011, Maduro is already doing his best to unwind all such actions, which while proving that gold is indeed money contrary to popular misconceptions by U.S. central bankers, will likely leave a bitter taste in the mouth of Venezuela citizens who will soon realize that their ruler sold off the country’s last remaining assets just to avert debt defaults for a few months.

Finally for those interested when the gold may officially change ownership, if only on paper for the time being, they should just keep track of Venezuela’s upcoming bond maturities, which include $1.5 billion 2016 Global Bond comes due at the end of February, while state oil company PDVSA faces payments of $2.3 billion on its 2017N bond in October and $435 million on its 2016 bond in November.

end

Market watch omits Hunsader’s most important work:

(MarketWatch/ GATA

MarketWatch profile of Nanex’s Hunsader omits his most important work Submitted by cpowell on Sat, 2016-02-06 16:34. Section: 

11:34a ET Saturday, February 6, 2016

Dear Friend of GATA and Gold:

MarketWatch this week published a profile of market data analyst Eric Scott Hunsader of Nanex in Winnetka, Illinois, who may have done more than anyone to expose the crookedness of high-frequency trading, quote stuffing, and spoofing on U.S. exchanges and whose work has been crucially publicized by Zero Hedge. While it’s great that Hunsader should get such recognition of his service to the restoration of free and transparent markets, the MarketWatch profile unfortunately omits what may be his greatest service, his disclosure of U.S. Securities and Exchange Commission and Commodity Futures Trading Commission documents showing that central banks and governments are secretly trading all major U.S. futures markets:

http://www.gata.org/node/14385

http://www.gata.org/node/14411

No major mainstream financial news organization in the world is yet prepared to acknowledge that there are no markets anymore, just interventions.

The MarketWatch profile of Hunsader, written by Anora Mahmudova, is headlined “This Man Wants to Upend the World of High-Frequency Trading” and it’s posted here:

http://www.marketwatch.com/story/this-man-wants-to-upend-the-world-of-hi…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

Chris Powell will speak at both Hong Kong and Singapore conferences in April:

(courtesy Chris powell/GATA)

GATA secretary will speak at Hong Kong and Singapore conferences in April Submitted by cpowell on Sun, 2016-02-07 15:52. Section: 

10:51a ET Sunday, February 7, 2016

Dear Friend of GATA and Gold:

Your secretary/treasurer will speak in April at the Mines and Money conference in Hong Kong and the Mining Investment Asia conference in Singapore.

Other speakers at the Mines and Money conference well known to GATA’s followers include Grant Williams, editor of the “Things that Make You Go Hmmm” newsletter and founder of Real Vision TV; Perth Mint research director Bron Suchecki; and Dutch fund manager Willem Middelkoop, author of “The Big Reset.”

The Mines and Money conference will be held from Tuesday to Thursday, April 5 to 7, at the Hong Kong Convention and Exhibition Centre. Details about the conference are here:

http://asia.minesandmoney.com/

Speakers at the Mining Investment Asia conference who are well known to GATA’s followers include GoldMoney founder and GATA consultant James Turk and gold forecasting newsletter editor Bo Polny. Suchecki is schedule to speak at the Mining Investment Asia conference too.

The Mining Investment Asia conference will be held from Wednesday to Friday, April 13 to 15, at the Marina Bay Sands conference and hotel center in Singapore. Details about the conference are here:

http://www.mininginvestmentasia.com/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATa.org

end

Glencore announces a streaming gold deal with Franco Nevada as it tries to deleverage. It’s huge derivative mess could very easily blow up the entire world’s finances: (courtesy London’s Financial Times/GATA) To cut debt, Glencore will assign future Chilean gold production to Franco-Nevada Submitted by cpowell on Sun, 2016-02-07 17:21. Section: 

Glencore’s Streaming Plan Aims to Slash Debt

By Danny Fortson
The Times, London
Sunday, February 7, 2016

http://www.theaustralian.com.au/business/companies/glencores-streaming-p…

Glencore is set to unveil a deal to bring in at least $500 million as part of its frantic efforts to slash its debt.

The commodities giant is in advanced talks on a “streaming” deal under which it would hand future precious metal production from a mine in Chile to American gold specialist Franco-Nevada in exchange for an upfront payment. The agreement could be unveiled as early as this week.

It is part of a $13 billion fundraising campaign that Glencore launched last year to scotch concerns over its $30 billion net debt.

Glencore shares plunged 70 percent last year, making it the worst-performing stock in London’s FTSE 100 after rival Anglo American.

Miners and oil companies have been hit hard by the collapse in global raw material prices after a decade-long commodities boom came to a halt.

end

Bill Murphy interviewed by Future Money Trends:

(courtesy GATA)

GATA Chairman Murphy interviewed by Future Money Trends Submitted by cpowell on Sun, 2016-02-07 19:14. Section: 

2:13p ET Sunday, February 7, 2016

Dear Friend of GATA and Gold:

GATA Chairman Bill Murphy, interviewed last week by Dan Ameduri of Future Money Trends, discussed indications that central banks are losing control of the gold market, the possibility of defaults in the Comex gold and silver contracts, and the increasing difficulties governments are having in propping up stock markets. The interview is 18 minutes long and can be heard at You Tube here:

https://www.youtube.com/watch?v=Bpl3LpZZ9t0

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

Bill Holter delivers an extremely important paper tonight

(courtesy Bill Holter/Holter Sinclair collaboration:

You are watching it! The most common question I hear is “when”.  When does the system collapse?  When will we experience a re set?  I think this is a very odd question.  Odd because if you stand back far enough you should be able to see “you are watching it”!  We are all so close and watching day by day movements, we are missing the big picture.  Don’t get me wrong, many know systemically we are a bust but the daily watch for the lights out moment goes on.  My point is this, the collapse is happening right before your eyes, “when” is a process and you are watching history!
The real global economy is in serious decline.  You need no more evidence than declining trade and oil prices.  If you would more evidence, Michael Snyder created a recent list http://theeconomiccollapseblog.com/archives/22-signs-that-the-global-economic-turmoil-we-have-seen-so-far-in-2016-is-just-the-beginning for you.  What is and has already happened is unprecedented.  Again, why ask “when” if you can already see it happening?
From a financial standpoint, we are also watching the collapse unfold.  Earnings are collapsing across many diverse industries.  Just as we saw leading up to the 1987 crash, 2000 and again in 2008 …we witness the “slaughter of the day” after the release of poor earnings or future guidance.  Credit default swaps are blowing out across many industries, the most obvious and probably most important is in the energy and banking sectors.  The global credit markets are seeing various corporate bonds collapse 5 and 10%  on a regular basis …and not industry specific!  Here again, you are watching the collapse unfold right before your eyes but question is still “when?”.
We of course arrived at this financial/economic point in history with the central banks driving the bus so to speak.  Looking back to 1987, 2000 and 2008 we can see each time the reaction was “easing”.  Each episode was more serious than the last and took more and more liquidity to keep the system together.  The last episode in 2008 took well more than $20 trillion to keep the system from seizing up.  Since then, central banks across the world and sovereign treasuries have overextended themselves to the point of insolvency yet many expect them to save the day again.  The only tool left is the only tool they have ever really had, “press the accelerator” further.   The problem is now the “further” part.  “Further” can only mean negative interest rates which will render the system bankrupt by individual parts and then ultimately collectively.  There is no logical way to either understand negative interest rates or to expect them to work in any fashion.  Investors are screaming for negative rates and as evidenced by Japan’s announcement, negative rates are briefly cheered.  The reality however is quite different.  Zero percent interest rates and now negative interest rates have and are damaging the banking sector.   A Badly Wounded Deutsche Bank Lashes Out At Central Bankers: Stop Easing, You Are Crushing Us  Please understand, Deutsche Bank is sitting on $75 trillion worth of derivatives (AND their CDS rates are beginning to elevate rapidly!), they are telling the central banks to not use the only tool they have!   I have said all along, derivatives would be a reason for the lights out moment.  We now have volatility and decline resembling the precursor to the Lehman moment in 2008 …only this time with more debt, more derivatives and more interconnectedness within the system.  Can any different result than what happened in 2008 be expected?  The only difference I can see is the ability to reflate the system no longer exists in any fashion anywhere in the world.  The largest derivatives player screaming they are being crushed with low to negative interest rates is simply part of the default process …and you are watching it unfold!   Before finishing I do want to point out the activity in gold and the mining shares.  Gold is up close to 10% this year and the shares are up a crazy 45% in just two weeks!  Something very big has changed.  Many are saying it is because negative interest rates are coming, I am not so sure this is why.  I believe big money and those running the clown markets understand where we are.  I believe they understand no effort at reflation can work this time as we’ve passed that point now.  It is my belief we are seeing gold move higher because it cannot “default” when the entire system defaults.  What I am saying is this, the deflationary event of derivatives blowing up and taking the financial system with it will also destroy the currencies.   The recent announcement http://www.reuters.com/article/us-oil-iran-exclusive-idUSKCN0VE21S  by Iran regarding their non acceptance of dollars for current and past oil is also in the running as a “cause” for a “currency event”.  The question must be asked, where does this leave Saudi Arabia?  Can they afford to be the last oil producer who accepts dollars and only dollars for oil?  Add to this, the military failure by the U.S. in Syria An Exasperated John Kerry Throws In Towel On Syria: “What Do You Want Me To Do, Go To War With The Russians?!” , how does this bode for the support of a global petro dollar?  Call this deflation or hyper inflation, it really doesn’t matter what you call it as long as you understand that all currencies including the dollar are credit based.  They will collectively collapse along with credit and derivatives.  Gold will be the last man standing as “money will trump credit currency” and will be seen as the only lifeboat available.   As for “when”, this is really not important because once the derivatives blow, there will not be a “dollar price” for gold as it will ultimately go no offer.  No one will be willing to sell their metal until the dust clears.  Once it does clear, new currencies will be issued.  I do not believe gold will appear for sale until some new currency is brought forth that can be trusted.   You are watching the collapse firsthand on a daily basis and in real time.  It doesn’t make sense to ask “when?” if you understand you are living through it each day.  Your only job, if you understand what is happening is to be prepared.  Be prepared to the best of your ability, being just one second too late might as well mean forever! Standing watch, Bill Holter Holter-Sinclair collaboration Comments welcome!  bholter@hotmail.com end You’ll know it when you see it! A topic written about before, “GAPS”.  This is no acronym, simply a description of what is going to happen, probably quite soon!  If you don’t now what a gap is now, you will know it when you see it!  In technical terms, a “gap” opening is when a market opens either higher than the previous day’s high and does not trade down to that previous high …or, trades below the previous low and does not trade back up to that low.  On a chart this action will leave a “gap” of emptiness signifying no trading took place in the gap area.
  One place we are already seeing “gaps”, many in fact, are the gold and silver mining stocks.  Since the beginning of the year there have been four or five instances where these gaps have occurred.  Under “normal” circumstances, almost all gaps get “filled”.  Meaning the asset in question will ultimately trade back to the gap levels and “fill” in the chart.  We in my opinion are in no way living in “normal” times and the current and coming gap openings will be huge and never be filled.  “Never” is a very long time, in this case it will be a generation or more in many asset classes.    As you know, I believe we are in the process of a financial meltdown that will alter the landscape on such a grand scale, history will call it something more severe than “the greatest depression”.  In fact, I believe many currencies will go away and be replaced by new currencies.  Credit will cease for a time and business will need to adjust to a new paradigm with far less credit but I digress.  
  The coming gaps will do some serious damage to psychology, let me explain.  From a psychological standpoint, gaps cause investors a “deer in the headlights” moment.  Meaning, when something trades at a new level, many investors are frozen.  The psychology of “I will buy on a pullback, or sell on a bounce” comes into play.  The only problem is the bounce or back never comes …which means neither does the purchase or the sale!  Just like Pavlov’s dog training, the filling of gaps always happens …until they don’t!  It has been my (and others) contention we currently live in a “controlled” financial world.  When saying controlled I am talking about the thought process “don’t worry, the government won’t ever let it happen”.  Gaps in the “wrong directions” will do serious damage to this prevailing psychology!

  You must also understand, market makers try their hardest to prevent gaps because it displays a serious mismatch between supply/demand dynamics.  But this is where we are today.  Our markets have been managed for such a long time and in such severe distortions, gaps will be Mother Nature’s natural way of restoration.  What has taken years to create will be “righted” in a small fraction of the time.
  In many past writings we talked about “holidays”.  A “financial holiday” will be the ULTIMATE GAP!  Any banking or market holiday will be a function of supply or demand that cannot be met.  In other words, market forces so large a “clearing price” cannot be found.  We saw a precursor to this back in the summer in the Chinese markets where they simply closed until order could be found …(they pulled the plug!).  
  Think of gaps as mini tremors leading to the massive tectonic shift.  Gaps will display the coming psychology where demand cannot meet supply in any fashion (or vice versa).  The final “gap” will be the closure of the markets for days or even weeks.  The reopening of markets in my opinion will be unrecognizable pricing.  In other words the “re set” will have occurred!  If the re set of asset cross pricing has not gone far enough, another closure will occur and the process continued until supply and demand finally come into balance with a true clearing price.  Governments and central banks will be totally overwhelmed in their efforts at “showing” you how things are.  It will then become apparent to everyone how things REALLY ARE!
  Please don’t tell me this cannot happen because the process has already started.  The “process” meaning a LOSS OF CONTROL!  This is exactly what is happening.  The “control” used to fool the masses that everything is OK is being lost because everything is NOT OK!  The Ponzi scheme grew too large and can no longer be funded as liquidity has and is drying up.  The use of negative interest rates being the most obvious tell.
  It is my opinion we will see huge resets where most financial assets collapse in purchasing power.  This will be a double whammy so to speak as currencies collapse versus everything from food to gold.  I would caution regarding stocks, particularly of companies that actually “make a product”.  The coming hyperinflation may (will) take these stocks higher after the collapse.  We have seen this many times.  Stock markets collapse and get bid higher versus the collapsing currency.  This does not happen however when measured in gold.  This leads me to finish with the question “why not just own gold now as it will be the measuring stick”?  You see, gold will not “go up”.  An ounce of gold will still be an ounce of gold.  The only thing that will change is the amount of gold necessary to “exchange” for a product.  What took an ounce prior to the “gap” (re set) may only take 1/10th or even 1/100th afterwards!   I am sure there are those laughing at the above.  I would ask you this, what if oil producers (including the Saudis) took Iran’s lead and did not accept dollars for oil?  (As a side note, didn’t John Kerry just tell us the petrodollar would end if we did not sigh the Iran deal?  Maybe he had it backwards?)  Or what if China set a “price” for their currency in gold …and followed with an audited announcement of how much gold they have accumulated in a “we have shown you ours, now you show us yours” fashion? 
What sort of “gap, holiday or reset” would this cause?  
 
Standing watch,
 
Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com

 

 

And now your overnight MONDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

1 Chinese yuan vs USA dollar/yuan FLAT to 6.5710 / Shanghai bourse: CLOSED/CHINA’S NEW YEAR ALL WEEK / hang CLOSED

2 Nikkei closed UP 184.71 or 1.10%

3. Europe stocks all in the RED /USA dollar index UP to 97.17/Euro DOWN to 1.1121

3b Japan 10 year bond yield: slightly rises TO .045    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 116.83

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI:: 30.03  and Brent: 33.21 

3f Gold up  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil down for WTI and down for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls  to 0.294%   German bunds in negative yields from 7 years out

 Greece  sees its 2 year rate rise to 12.72%/: 

3j Greek 10 year bond yield rise to  : 9.55%  (yield curve deeply  inverted)

3k Gold at $1181.00/silver $14.01 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble up 33/100 in  roubles/dollar) 77.20

3m oil into the 30 dollar handle for WTI and 33 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9939 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1055 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation

3r the 7 year German bund now  in negative territory with the 10 year falls to  + .294%/German 7 year rate negative%!!!

3s The Greece ELA at  71.5 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.81% early this morning. Thirty year rate  at 2.65% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Futures, Global Stocks Tumble As Europe Bank, Periphery Carnage Unfolds

The biggest event of the weekend, if not the month, was China’s FX reserve outflow update, which at $100BN was slightly better than the $120BN expected (it pushed China’s reserves to the lowest in nearly 4 years) but it was in the “no man’s land” between the BofA best case scenario ($37.5BN), and the GS worst case ($197BN). And while there was some hope this number, together with China being offline for the next week could lead to some stability across markets, this is what we said yesterday about this indecisive number: “for markets, what this means is that the next month will likely be market by more of the same sharp, illiquid volatility that has characterized 2016 so far.”

So far this prediction has proven to be spot on, because while there was some initial risk on sentiment in the Asian ex-China session, where the Nikkei rose 1.1% on the back of an early ramp in the USDJPY (following the latest abysmal wage data out of Japan), everything went from bad to worse once Europe opened, and things started going “bump in the morning” across the European banking sector, where not only has it been more of the same with CDS spreads for major banks – most notably Deutsche Bank – continuing their surge wider, but also EM spreads to Bunds all following, with the Portugal-Germany Yield spread blowing out above 300 bps for the first time since 2014 and other peripheral nations following, such as Italy shown in the chart below:

Here is a brief summary of the European carnage so far:

  • European banks decline, SX7P close to session low as of 11:52am CET (declines 2.6%, previously down as much as 3.3%).
  • Greek banks Eurobank Ergasias, Alpha Bank at record low; Monte Paschi follows as 3-worst performer today
    • Eurobank Ergasias sinks ~20% (as much as 21%)
    • Alpha Bank plummets 14% (as much as 18%)
    • Monte Paschi retreats 5.9% (as much as 8%)
  • AXIA Ventures notes first round of talks between Greek govt and heads of creditors’ representatives ended on Feb. 5; says all major issues still open, unclear when they’ll return to Athens to continue discussions
  • NOTE: Greek Bank Mgmt Review to Start End-Feb: Xenofos in Naftemporiki
  • Separately, Italian 10-yr spread with bunds widens for 3rd session; Currently at highest since July

Why the dramatic shift in European risk, where things were relatively stable for months on the heel of Europe’s QE? Perhaps Morgan Stanley’s note flagged last night had something to do with it. To wit:

One noteworthy aspect in the current risk-off environment is the lack of peripheral spread widening in Europe; this is unusual based on performance patterns during this cycle and most likely reflects the ECB’s substantial QE programme. While the region is often perceived as a relative consensus overweight among equity investors, we are more downbeat and prefer the US and Japan instead. Our European caution primarily reflects the prospect of further earnings disappointment across the region, but we are also wary of any resumption of geopolitical concerns.

Recent investor caution tends to focus on fears of excess USD strength, low oil prices and/or China, but we think it is quite plausible that Europe moves back up the pecking order (to its more usual place some would say!) as we move through 2016. The UK’s forthcoming referendum on EU membership, likely to take place in June, may appear the most plausible catalyst in the short term to raise regional risk premia, but the ongoing migrant issue risks eroding political cohesion over the medium term and political uncertainty is rising in the periphery. Greece has a daunting debt repayment due this summer, Spain is currently without a government, new European regulations are preventing Italy from adopting an effective ‘bad bank’ solution and the recently elected socialist government in Portugal is reversing course on prior austerity and competitiveness improvements. During a cyclical upswing, markets are prone to overlook such concerns, but the opposite would be true if growth starts to relapse.

Whatever the reason, one look at DB CDS which continue their relentless march into “something is very wrong with this counterparty” territory suggests that things are going from bad to worse for Europe’s banking sector.

It is not just DB: as we have been warning for the past month, and especially last Friday, the blow out across the entire European bank sector is starting to resemble Lehman levels:

To be sure, DB appealing to both the BOJ and ECB to stop their easing, as we noted over the weekend, will hardly help things, and if anything will prompt more questions just how bad DB truly is.

And with Germany’s biggest bank once again on the ropes, and some even starting to casually throw out the “bailout” word, Germany’s stocks fared no better:

  • DAX FALLS BELOW 200-WMA
  • DAX RSI FALLS INTO OVERSOLD TERRITORY BELOW 3O

Worst of all, there are no near-term catalysts that can help Europe: the slow-motion trainwreck will continue until somehow confidence in eurobank solvency is restored, and now that neither QE nor NIRP can prop up the financial system suddenly Mario Draghi and his Davos “peer-pressuring” company have their jobs cut out for them.

So while the markets stress about the future, and whether Janet Yellen’s semi-annual congressional testimony mid week can achieve anything to shift risk sentiment, here is where we stand now.

Market Wrap:

  • S&P 500 futures down 1.1% to 1855
  • Stoxx 600 down 2.2% to 318.7
  • MSCI Asia Pacific up 0.3% to 121
  • US 10-yr yield down 2bps to 1.82%
  • Dollar Index down 0.18% to 96.86
  • WTI Crude futures down 1.9% to $30.31
  • Brent Futures down 2.2% to $33.31
  • Gold spot up less than 0.1% to $1,174
  • Silver spot down 0.3% to $14.97

Top Global News

  • Negative Rates Seen as Option for Fed as BOJ, ECB Pave the Way: probability of negative Fed rate climbs to about 13%
  • Casino Says to Sell Big C Stake for EU3.1b to TCC Holding: comments in statement yday
  • Qube Group Makes Sweetened A$9b Offer for Asciano: target says revised offer is higher than Brookfield’s bid
  • INCJ Said to Argue Its $8.5 Billion Sharp Bid Tops Foxconn’s: Sharp has until Feb. 29 to decide on Foxconn bailout plan
  • VW Trucks Chief Open to IPO, Deals in Expansion Strategy: unit eyes growth options, may include acquisitions, IPO
  • World’s Largest Energy Trader Sees a Decade of Low Oil Prices: Vitol CEO says crude to stay $40-$60 for 10 years

A quick look at regional markets, we begin in Asian where equities started the week on the front-foot in holiday-thinned trade, despite the sell off on Wall Street after the latest mixed NFP release. As participants digested the US jobs report, the ASX 200 (-0.02%) and the Nikkei 225 (+1.1%) pared initial losses amid a turnaround in sentiment, while the latter had pulled off worst levels amid a softening JPY across the board. JGBs slipped amid spill over selling in USTs with yields rising across the curve, as such notable underperformance in the belly of the curve. As a reminder, markets in China are closed due to the Lunar New Year.  

Asian Top News

  • Consumption Seen Dropping as Japan’s Workers Eke Out 0.1% Rise: Total wages haven’t risen more than 1% in any yr since 1997, labor ministry said
  • Gold Road Says Major Producers Interested in Gruyere Stake: AU gold explorer is prepared to discuss partnering on gold asset
  • Modi Budget Resolve Tested as Bonds Have Worst Start Since 2011: Investors confidence in PM Modi’s ability to meet budget targets dwindling as bonds and stocks posted steepest Jan. losses since 2011
  • China Venture Firm Raises $648 Million From Princeton, Duke: Qiming Venture Partners saw largest fund since it was founded in 2006, brings AUM to $2.5b

With much of Asia away from their desks this week for the Lunar New Year, European trade failed to find sentiment early on in the session, before equities began to selloff by mid-morning (Euro Stoxx: -2.4%). However, despite the weakness seen in equities, many of the ‘usual suspects are among the best performers today, with the materials the best performing on a sector breakdown, while the worst performing major European index YTD, the FTSE MIB (-1.9%) the best performing index of the day.

European Top News

  • Assa Abloy Profit Meets Estimates Amid Growth in U.S., Europe: Says growth in U.S. offset China sales decline
  • Randgold’s 4Q Profit Falls 10% as Gold Prices Drop: Aims to mine 1.25m-1.3m ounces of gold in 2016
  • Anglo Platinum Sees More Price Pain as It Halts New Projects: Impairments of 14b rand represents 30% of book value
  • BT Confirms Search Process for CFO Successor; No Decision Taken: Co. responds to press speculation
  • Linde Says Reitzle Proposed as Chairman of Supervisory Board: Proposes to elect Wolfgang Reitzle as of May 21
  • Millicom to Sell its Democratic Republic of Congo Business: Sells 100% of Oasis for total cash of $160m to Orange
  • Amundi, Primonial in Talks to Buy EU1.3b Gecina Assets, Figaro says: In exclusive talks to buy 74 clinics, medicalized retirement homes from Gecina for EU1.3b
  • Areva CEO to Discuss Possible Gamesa Stake Sale With Govt Echos says: Newspaper cites interview with Areva CEO
  • Pimco Sees Biggest Flows in Europe From Yield-Hungry Insurers: Insurance asset management ‘one of the main opportunities’

In FX, a largely consolidative market in FX this morning, with this widely anticipated given the absence of China this week. However, in recent trade, USD/JPY has slipped back under 117.00 with stocks and Oil prices leading the way, and having the inverse impact on EUR/USD which is some 40-45 ticks higher to tip 1.1180. AUD saw some modest catch up play on the upside, but this has been tempered by the broader mood. CAD poised for fresh weakness also, and eyeing a return through 1.3900. EM currencies on the softer side, but only off better levels despite concerns over funding/investment levels highlighted by the BIS numbers. GBP on the soft side, as EU fears starting to bubble up once again — EUR/GBP through .7700.

WTI and Brent crude futures have sold off heading into the North American crossover, with Brent Apr’16 and WTI Mar’16 futures breaking below the USD 34.00 and USD 31.00 levels respectively. This comes in spite of news over the weekend that the Venezuelan and Saudi Oil Ministers had positive discussion in regards to OPEC/non-OPEC cooperation to stabilize oil markets. Such news may have moved oil markets previously, but now the level of scepticism around the chances of such a meeting happening seems to have increased significantly. Furthermore, speculators cut bullish bets on US crude oil in the week to, according to the CFTC.

Gold prices fell over USD 7 shortly after the reopen of the week’s electronic trade amid touted profit taking having posted its best weekly gain since July’13 last week. However there has been strong inflows into gold ETF’s and CFTC says COMEX gold speculators increased their bullish bets in the yellow metal to 3 month highs.

There is no macro news in the US today.

Bulletin Headline Summary from RanSquawk and Bloomberg:

  • A largely consolidative market in FX this morning – widely anticipated given the absence of China this week
  • WTI and Brent crude futures have sold off heading into the North American crossover, with Brent  Apr’16 and WTI Mar’16 futures breaking below the USD 34.00 and USD 31.00 levels respectively
  • Today’s calendar is very quiet in terms of data, however highlights include: Canadian housing  starts and building permits as well as possible comments from BoC Deputy Governor Lane
  • Treasuries higher in overnight trading as European equities drop (China closed for holiday) ahead of this week’s Yellen testimony before Congress on Wednesday and Thursday.
  • China’s foreign-exchange reserves shrank to $3.23 trillion, the smallest since 2012, indicating that the central bank sold dollars as the yuan’s retreat to a five-year low exacerbated depreciation pressure
  • Federal Reserve Chair Yellen is preparing to walk a tightrope when she addresses lawmakers in Washington; she will have to strike a balance between sounding confident on the domestic economy and acknowledging increased risks from abroad
  • Signs of distress in financial markets are gathering force as concern over the state of the global economy deepens. European stocks are down for a sixth day, the cost of protecting European banks’ and insurers’ senior debt is on its worst run since March 2013 and yields on Germany’s 10- year bunds are the lowest since April
  • Core EGBs bull flatten as credit-spreads widen and stocks selloff; peripherals underperform sharply, wider by 9bps-18bps vs 10Y bunds
  • Goldman Sachs is betting “Mr. Market” is wrong in its recession warnings. While sliding stocks, declining long- term bond rates and higher credit yields are sounding the alert, the bank’s economics team is more confident about the outlook for the developed world
  • Societe General has turned to the U.K.’s finance regulator as it tries to loosen rivals’ grip on European junk-bond issuance. A lack of competition is harming both issuers and investors by reducing market efficiency, according to the bank
  • The investment banking downsizing has been hard on foreign- exchange desks; there were 2,300 people working in currency- market front-office jobs at the world’s biggest banks in 2014, down 23% from 2010
  • While investors pulled funds from Pimco in the wake of co- founder Bill Gross’s departure, yield-hungry insurance companies kept faith with the company
  • Sovereign 10Y bond yields mixed with Greece +38bp, Portugal +14bp. European stocks lower, Asian stocks mixed (China closed for holiday); U.S. equity-index futures drop. Crude oil and copper lower, gold rises

DB’s Jim Reid concludes the overnight wrap

So after what can only be described as a pretty noisy US employment report on Friday in which a disappointing headline payrolls number was shrugged off in favour of some unexpected improvement in the details, economists and investors will get another opportunity to sharpen (or blunt) Fed expectations this week when Fed Chair Yellen addresses the House Financial Services Committee on Wednesday and the Senate on Thursday at her semi-annual testimony (also formerly known as the ‘Humphrey-Hawkins Testimony’). While Friday’s data has seen futures markets since price in a slightly better than 50% chance of a hike this year (currently 53%), that put in the perspective of the four hikes implied by the dot plots and the huge gap still between the two means Yellen will have to choose her words wisely. The last couple of weeks have seen more evidence of a dovish leaning from Fed officials, including Fischer and Dudley and we’d expect Yellen to echo a similar acknowledgement of recent tightening in financial conditions and increased global growth concerns.

It’s likely that this will be somewhat balanced with upbeat commentary around the labour market in particular despite that below-market January payroll number (151k vs. 190k expected). In fairness this was about in line with the whisper number while much was made of the three-month moving average being at a still robust 231k. It was the details in the report which got most talking however. After expectations had been for no change, the unemployment rate declined one-tenth last month to 4.9% and a post-recession low. The broader U-6 measure held steady at 9.9%. Meanwhile average hourly earnings rose an impressive +0.5% mom (vs. +0.3% expected) meaning on a YoY rate earnings are +2.5%.

A short-lived sharp drop aside, the Dollar index closed up +0.58% on Friday following the data and helped to slightly dampen what was a rough week for the Greenback with the five-day fall for the index (-2.59%) the most since October 2011. Treasury yields initially jumped higher but then pared that entire move into the close. 10y Treasury yields were up as high as 1.894% (+5bps on the day) before falling back to 1.840% by the finish. The data was less kind to risk assets however although a weak day for tech stocks didn’t help (LinkedIn in particular tumbling 40% following some much softer than expected management guidance for Q1) with the S&P 500 eventually closing down -1.85% and the Nasdaq down a steep -3.25%. In credit markets CDX IG finished over 5bps wider. Oil resumed its downward march with WTI eventually finishing -2.62% and back below $31/bbl although Gold continued its strong run of late, closing up +1.54% for its sixth consecutive daily gain and at $1173/oz is now at the highest since the end of October.

Over the weekend the main news of note is out of China where the latest FX reserves data is in. Reserves declined $99.5bn in the month of January to $3.23tn (vs. $3.21tn) – the third consecutive month that reserves have fallen and the second most on record. With Chinese New Year kicking off today and markets there subsequently closed (as well as in a number of other Asia economies), markets are a bit more muted in Asia this morning. In Japan we’ve seen the Nikkei (+0.77%) pare some early steep losses to trade higher, while in Australia the ASX (-0.03%) is back to near unchanged. WTI is up 1% after a meeting between Oil Ministers from Saudi Arabia and Venezuela on the weekend was said to be ‘productive’ but seemingly yielded nothing more. US equity market futures are signaling some small gains.

Moving on. In the wake of Friday’s data, DB’s Chief US Economist Joe Lavorgna has revised down 2016 growth and inflation forecasts, while at the same time has altered his Fed rate call to just one hike this year which he expects to be in December. Highlighting tighter financials conditions, elevated inventories, weak global growth and depressed energy-related capital spending, Joe has reduced his estimates of Q1, Q2 and Q3 real GDP growth in 2016 to 0.5%, 1.0% and 1.2% from 1.5%, 2.2% and 2.1% respectively. Consequently, he expects full-year 2016 real GDP growth, as measured on a Q4-over-Q4 basis to now be 1.3% (from 2.0%). With regards to core CPI, Joe is forecasting 1.9% yoy in Q1, followed by 1.8% in Q2-Q4.

In terms of the rest of Friday’s data, the December US trade balance revealed a modest widening in the deficit by just over $1bn to $43.4bn (vs. $43.2bn expected). Post the market close we got the latest consumer credit data covering December which was much higher than expected at $21.3bn (vs. $16.0bn expected). Reflecting the latest forecast for real consumer spending growth post Friday’s employment report and also for real gross private domestic investment growth, the Atlanta Fed upgraded their Q1 2016 real GDP growth forecast to 2.2% from 1.2% on February 1st.

European risk assets succumbed to much of the post-payrolls weakness on Friday too with the likes of the Stoxx 600 (-0.87%) and DAX (-1.14%) closing lower following a fairly choppy session. It’s been the moves in credit however and specifically financials which are starting to take up more attention. Main closed +5.5bps on Friday, while Crossover finished +17bps, but it was the moves for senior (+13bps) and sub-financials (+28bps) which were more eye catching. In fact, YTD the sub-fins index is +122bps wider, which compares to Crossover which is +107bps wider. Senior financials are now +44bps wider while Main is +33bps wider. A lot of this reflects what’s been a particularly disappointing quarter for earnings in the sector which is adding to the energy and global growth related worries, but the concern is that it could be something more and is certainly something else for Draghi to consider ahead of next month. It’s noticeable also that there are a number of bank share prices now approaching or even slightly below 2008/09 levels.

That takes us to the latest in earnings season which in the US has now passed the half way mark. There wasn’t much to report from Friday’s reporters, but with 315 S&P 500 companies having now reported, we’ve seen 244 (77%) beat on earnings but just 146 (46%) beat at the sales line. A reminder of how that compares to previous quarters. From Q1 to Q3 last year we saw 73%, 75% and 74% beat at the earnings line, but just 48%, 49% and 44% report beats at the top line. So a fairly mixed bag this quarter. European earnings season is still to get going properly and so far we’ve seen 199 Stoxx 600 companies report with 50% beating earnings guidance and 64% sales guidance. It’s worth highlighting that the data for European earnings is a lot more inconsistent however.

Onto the week ahead now. It’s a fairly quiet start to proceedings this week with the only data of note in Europe being German industrial production for December and confidence indicators for the Euro area and France. The usual post-payrolls lull in the US means there’s no data due across the pond today. Tuesday’s highlights include trade reports covering the December month out of both Germany and the UK, while across the pond the January NFIB small business optimism reading is due out, along with the December JOLTS report and wholesale inventories and trade sales data for the same month. Turning to Wednesday we’re starting in Japan where the latest January PPI numbers are due out. In Europe we’ll get regional industrial production reports for Italy, France and the UK while the sole release in the US in the afternoon is the January Monthly Budget Statement. It’s a particularly quiet day for data on Thursday with nothing of note in Europe and just initial jobless claims data due in the US. It looks like we’ll have a busy end to the week on Friday with Euro area Q4 GDP and industrial production, French employment data and German Q4 GDP and CPI all due out. In the US the big focus will be on the January retail sales data along with the first reading for the University of Michigan consumer sentiment print for February and December business inventories data.

Arguably the focus of the week will be away from the data and instead reserved for the aforementioned Fed Chair Yellen’s semi-annual testimony to the House Financial Services on Wednesday and the Senate on Thursday. Also due to speak will be the Fed’s Williams on Wednesday and Dudley on Friday. Meanwhile we’ll also see the attention for the US presidential election move to New Hampshire which is due to hold the first-in-the-nation primary on Tuesday.

Elsewhere, earnings season rumbles on and we’ve got 64 S&P 500 companies set to report including Coca-Cola, Walt Disney and Cisco. In Europe we’ve got 80 Stoxx 600 companies reporting including Total, L’Oreal, Heineken and Nokia.

end

Let us begin:

ASIAN AFFAIRS

Late  SUNDAY night/ MONDAY morning: Shanghai closed for the Chinese New Year (all week)  / Hang Sang closed . The Nikkei up 184.71 or 1.10% . Chinese yuan (ONSHORE) closed 6.5710  and yet they still desire further devaluation throughout this year.   Oil lost  to 30.04 dollars per barrel for WTI and 33.35 for Brent. Stocks in Europe so far all in the red . Offshore yuan trades where it finished on Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/The big report on USA dollars leaving China amounted to 100 billion USA a little lower than thought. (see below)

The Number Everyone’s Been Waiting For: Chinese Reserves Plunge By $100BN – What Does It Mean For Markets?

As we previewed on Thursday, the biggest event of the week, and perhaps of the month, was not Friday’s nonfarm payroll report, but the January update of China’s FX reserves, which the PBOC released last night. The number came out at $3.2309 trillion, down $99.5 billion from the prior month, and $8 billion less than the December outflow of $107.6 billion.

And even as China added $3.4 billion to its gold reserves, which rose to $63.6 billion or an increase of half a million ounces to 56.66 million, this reduced the total amount of Chinese foreign reserves to the lowest level since May 2012, and down from the $4 trillion peak in the summer of 2014 when the US Dollar started its rapid appreciation on rate hike concerns, and led to nearly a trillion dollars in Chinese capital outflows.

Recently, an important question that has emerged is for how much longer can China sustain its FX intervention before tapping out and letting the hedge funds win with their short Yuan bets once total reserves drop below the critical redline of approximately $2.7 trillion as calculated by the IMF – the answer is between 5 months and 10 months assuming monthly reserve burn rates of $130BN to $60BN.

That, however, is a bridge we will cross some time in the summer of 2016.

For now  the real question is what does the January Chinese FX outflow mean for risk come Monday’s open, and how will it affect markets when they start opening tonight, if not in China which is closed for the week for its new year celebrations.

Recall that in our Thursday preview we warned that according to one of the more prominent bears from BofA, Michael Hartnett, had the reserve outflow come in well below expected, it would unleash a “vicious bear market rally.

This is what we said:

According to consensus estimates, China will report that its total FX reserves declined to $3.2125 trillion from $3.33 trillion: a drop of $118 billion, or modestly higher than the massive December $108 billion outflow.

In other words, a reported number below, and certainly substantially below, $118 billion for the January outflow and it would be off to the races as a massive short squeeze will grip all the commodity and materials-linked sectors.

That said, keep in mind that BofA itself had a far more optimistic forecast than consensus:

We forecast China FX reserve changes and estimate a USD37.5bn fall in January – (USD29.1bn decline adjusting for a negative FX valuation effect). Note that the standard error of the forecast is large at USD24.5bn, which would give us a downside of USD84.5bn fall. We caution that this is guidance and we attempt to be as transparent as possible so investors can gauge the odds in what is a key release for the markets. Note too this is based on onshore CNY FX volumes and our estimate maybe biased down as there are no real time volumes for offshore CNH.

And then there was Goldman, because just as a far smaller than expected number would be very bullish, so a far greater outflow would be bearish. According to estimates by Goldman Sachs, not only did outflows not slow down as dramatically as BofA believes, but they in fact soared to an all time high $185 billion in January.

This is what Goldman said: “There has been around $USD 185bn of intervention (with the recent intervention predominantly taking place in the onshore market)” split roughly $143 billion on the domestic side and $42 billion on the offshore Yuan side.” In the last few days, Goldman actually bumped up this forecast to $197 billion to account for valuation adjustments.

This is how we concluded:

So there is your bogey, one which will set the mood for risk over the next month: this weekend, China will announce its January reserve outflows which are expected to decline by about $120 billion. Should the number be far less (ostensibly closer to BofA’ estimate of $37.5 billion) expect a whopper of a bear market rally coupled with a huge short squeeze. If Goldman is right, however, with its record ~$200 billion in FX intervention and implied outflows, then all bets are off.

The actual number (whether it is fabricated or not, and since this is China, all bets are on the former) came in at $100 billion, modestly below the consensus estimate of $120 billion, well below the Goldman worst case scenario of $197 billion, and well above the BofA “best case” of 37.5 billion.

Or smack in the middle of a Goldilocksian no man’s land.

What does it mean for markets? Ironically, this may have been the most unfavorable outcome, because had China admitted the true severity of its outflows, there would have been a downward flush in asset prices, after which the market could focus more on fundamentals and rise from there with the Chinese capital outflow threat no longer dangling overhead; alternatively, a shockingly small number would have crushed the shorts only to let them re-establish bearish positions after the initial spike higher.

As it stands now, however, what is really happening with the biggest risk factor to commodity, credit and capital markets, remains a mystery, and instead of getting some much needed clarity from China’s January reserve number, the world’s traders and investors will now have to wait for the February reserve update one month from now to learn if China has managed to slay its capital outflow demons, or if these were just getting started.

For markets, what this means is that the next month will likely be market by more of the same sharp, illiquid volatility that has characterized 2016 so far.

 

end

The USA/Yen plunges to the 115 handle blowing up more of our yen carry traders;

(courtesy zero hedge)

Peter Pan(ic) Policy Plunges USDJPY To 17-Month Lows

USDJPY has tested down to 115.00 this morning as the blowback from Kuroda’s “Peter Pan” policymove into NIRP continues to ripple through the world’s largest carry trade. Most troubling is last week’s jawboning  of “no limits” made the situation worse as desperation was clear, erasing all of USDJPY’s gains since it unleashed QQE2 after The Fed ended QE3.

And as goes USDJPY, so goes the world’s over-inflated risk asset classes.

end

What is the big worry for the Chinese government:  It is most fearful of a revolt by the people!

(courtesy zero hedge)

Chinese Factory Worker Explains What “The Government Is Most Fearful Of”

No it is not, a slowing economy crippled by 346% in debt/GDP; it’s not the artificially high exchange rate (which was pegged to a dollar when it was plunging during QE1-3 and is now soaring) yet which China can’t aggressively lower either as that would mean a disorderly flight of capital from the mainland; it’s not the feedback loop of plunging commodity prices and highly levered domestic corporation which can not pay their annual interest expense payments; it’s not the recently burst housing bubble; nor is it the burst stock market bubble which recently popped, or the bond bubble which is about to blow; nor is it the country’s non-performing loans, which may be as high $4 trillion.

According to ordinary Chinese workers, i.e., those who know best, what the local government is most fearful of is precisely what we said three months ago is the “biggest and most under reported risk facing China.” From Reuters:

At a printing factory in the western city of Chongqing, a Reuters reporter was present when a local official visited last week to make sure the boss paid his workers before the Year of the Monkey begins.

The official declined to speak with Reuters, although the boss later said it was an attempt to prevent unrest.

“That’s what the government is most fearful of,” said the factory owner, who did not want to be named.

Indeed it is, and all those economic and financial factors, while ultimately leading to social unrest, are secondary: what Beijing is most terrified about is an accelerating to the recent surge in worker anger and increasing incidents of violence.

According to Reuters laborer Fan Fu and 20 or so colleagues working on the Zixia Garden apartment complex in Hebei province have not joined China’s legion of migrant workers returning home to celebrate new year with their families.

Instead, they have camped in the offices of the property developer’s subcontractor, demanding almost a year’s unpaid wages and too angry and proud to go back to native towns and villages empty-handed.

As we warned in November, “with China’s economy growing at its slowest in 25 years, more workers face Fan’s predicament and labor unrest is on the rise, a concern for Beijing as it seeks to avoid social unrest even as financial pressures build.

“The developer has kept using the fact that they have no money as an excuse. As of now they haven’t paid us a single penny,” said Fan, who brought others from his home town in the western province of Sichuan to work on the apartments.

“We really don’t have any other options,” he told Reuters in the subcontractor’s offices, crowded with bedding and personal possessions.

The group had earlier petitioned local authorities for redress and staged protests outside government offices in Qian’an, a city in Hebei in China’s north.

However, while the government will do almost anything to cool tempers, it won’t do what is critical: provide the underpaid workers with what they are owed for the simple reason that China, unlike western nations, simply does not have an established welfare state with features comparable to unemployment insurance. Fan and about 530 other workers on the apartment project are owed paychecks of between 20,000 and 50,000 yuan ($3,000-$7,500). They said the government had offered each non-local laborer 2,000 yuan in cash if they left for the holidays. It was unclear if they would get some extra cash if they never came back.

One thing is certain: worker anger is building at a torrid pace, and it is only a matter of time before the fury of of millions of angry recently unemployed or unpaid workers spills over on the streets.

As travel ramped up ahead of the holiday, beginning on Sunday, it was not only construction workers who prepared to celebrate with less money in their pockets.

An online survey by the job recruitment company Zhilian Zhaopin said two-thirds of more than 10,000 white-collar workers it surveyed were not expecting Lunar New Year bonuses.

In Dongguan, a city in the southern province of Guangdong known as a manufacturing hub, some factories sit idle behind locked, rusty gates, with advertisements pasted on their walls seeking new tenants.

Some of those still in business were withholding bonuses until after the Lunar New Year, workers, factory owners and recruiters interviewed by Reuters said.

Brothers Zhang Guantian, 23, and Zhang Guanzhou, 21, quit temporary, hourly paid jobs at two plants, one making earphones, the other computer cables, to go home for the holiday.

“It’s hard to find a permanent job now,” said the elder Zhang, while waiting for a bus with two large suitcases.

Still, he is hopeful of finding another job when he comes back to Dongguan in mid-February. “My aim is to find a permanent job after Chinese New Year, something I like. But it will be difficult.”

It will be almost impossible, and soon even those with temporary jobs will be considered lucky.

Finally, Reuters uses a data set first presented on this website, one showing the record surge in labor strikes. Its data show that in December and January, there were 774 labor strikes across China, from 529 in the previous two months, most of them over wage arrears.

Finally, here is why what as recently as three months ago was the “most underreproted risk facing China” is suddenly the most popular topic of coverage among the mainstream press:

end

EUROPEAN AFFAIRS

Seems that our friends over at Deutsche bank are in serious trouble: they cannot stand the constant easing by central banks:

(courtesy zero hedge)

A Badly Wounded Deutsche Bank Lashes Out At Central Bankers: Stop Easing, You Are Crushing Us

Ten days ago, when Deutsche Bank stock was about 10% higher, the biggest German commercial bank declared war on Mario Draghi, as we put it, warning him that any further easing by the ECB would only push stocks (with an emphasis on DB stock which has gotten pummeled over the past few months) lower. What it got, instead, was a slap in the face in the form of a major new easing program when the Bank of Japan announced it is unveiling negative rates just three days later.

Which is why overnight a badly wounded Deutsche Bank has expanded its war against the ECB to include the BOJ as well, and in a note titled “The Risks From Further ECB and BOJ Easing” it wants that with the Zero Lower Bound already breached in nearly a third of global markets, the benefits to risk assets from further easing no longer exist, and in fact it says that while central banks have hoped that such measures would “push investors out the risk spectrum” the “impact has been exactly the opposite.”

In other words, we have reached that fork in the road within the monetary twilight zone,where Europe’s largest bank is openly defying central bank policy and demanding an end to easy money. Alas, since tighter monetary policy assures just as much if not more pain, one can’t help but wonder just how the central banks get themselves out of this particular trap they set up for themselves.

Here is DB’s Parag Thatte explaining the “The risks from further ECB and BOJ easing”

The BOJ surprised with a move to negative rates last week, while ECB rhetoric suggests additional easing measures forthcoming in March. While a fundamental tenet of these measures, in particular negative rates, has been to push investors out the risk spectrum, we remind that arguably the impact has been exactly the opposite:

  • Declining bond yields have been robustly associated with larger inflows into bonds at the expense of equities. Though a large over allocation to fixed income at the expense of equities already exists as a result of past Fed QEs and a lack of normalization of rates, further easing by the ECB and BOJ that lower bond yields globally will only exacerbate the over allocation to bonds;
  • Asynchronous easing by the ECB and BOJ while the Fed is on hold risks speeding up the dollar’s up cycle, pushing oil prices lower and exacerbating credit concerns in the Energy, Metals and Mining sectors. It is notable that the ECB’s adoption of negative rates in mid-2014 which prompted the large move in the dollar and collapse in oil prices, marked the beginning of the now huge outflows from High Yield. These flows out of High Yield rotated into High Grade, ironically moving up not down the risk spectrum. The downside risk to oil prices is tempered somewhat by the fact that they look cheap and look to be already pricing in the next leg of dollar strength;
  • Asynchronous easing by the ECB and BOJ that is reflected in the US dollar commensurately raises the trade-weighted RMB and increase the risk of a disorderly devaluation by China. The risk of further declines in the JPY is tempered by the fact that it is already very (-29%) cheap, but there is plenty of valuation room for the euro to fall.

Broad-based move across asset classes towards neutral amidst uncertainties

  • US equity fund positioning inched closer to neutral; as anticipated the returning buyback bid is being offset by large persistent outflows (-$42bn ytd);
  • European equity positioning is also close to neutral amidst slowing inflows; Japanese funds trimmed exposure from very overweight levels while flows turned negative for the first time in 2 months;
  • The large short in US bond futures has started to be cut; 2y bond shorts were cut by half this week while short-dated rates futures are already long. Robust inflows into government bond funds which began this year have continued while the pace of outflows from HY and EM funds has slowed;
  • A move toward neutral was also evident in FX positions. The surprise BoJ cut to negative rates caught yen longs by surprise, with the large initial subsequent depreciation in the yen partly reflecting a paring of positions. Meanwhile, the euro rose to a 3 month high as crowded leveraged fund shorts were being covered despite the ECB’s dovish rhetoric;
  • As the dollar fell, net speculative long positions in oil rose, reflecting mainly an increase in gross longs while shorts remain at record highs; copper shorts continue to edge back from extremes; gold longs are rising.

Declining bond yields mean larger inflows into bonds at the expense of equities

  • A fundamental tenet of central bank easing has been to push investors out the risk spectrum. The impact has arguably been exactly the opposite
  • Beyond any negative signal further monetary easing sends on underlying growth prospects, historically falling bond yields with the attendant capital gains on bonds have seen inflows rotate into bonds at the expense of equities. The correlation between equities and bond yields remains strongly positive. Notably, the best period of inflows for equities was after the taper announcement in 2013 when bond yields rose sharply

Large over-allocation to fixed income already

  • Past Fed QEs, a lack of normalization of Fed rates and easing by other central banks means that a large over-allocation already exists in fixed income while the underallocation in equities remains massive
  • Additional easing by the ECB and BoJ by encouraging inflows into bonds will only exacerbate the over allocation to fixed income

Asynchronous easing behind decline in oil and flight from HY

  • Asynchronous monetary easing by the ECB or BoJ while the Fed is on hold puts upward pressure on the dollar, downward pressure on oil prices and heightens credit concerns in the Energy, Metals and Mining sectors
  • It is notable that the huge outflows from HY began to the day with the ECB’s adoption of negative rates in Jun 2014. Those outflows from HY moved into HG, ironically moving up not down the risk spectrum
  • The risk to oil prices is somewhat tempered by the fact that oil prices are cheap to fair value and look to be pricing in the next leg of dollar strength

Asynchronous easing that is reflected in a higher dollar is reflected commensurately in the trade-weighted RMB

  • By virtue of the near-peg to the US dollar, by early 2015 the trade-weighted RMB had risen along with the US dollar by 32% in trade-weighted terms and has been in a relatively narrow range since
  • A variety of Chinese economic indicators have been strongly negatively correlated with the US dollar: Chinese data surprises (-42%); IP (-65%); and retail sales (-59%)

Further dollar strength raises the risk of a disorderly Chinese devaluation

  • Asynchronous easing by the ECB and BOJ reflected in the US dollar and in turn the trade-weighted RMB increases the risk of a disorderly devaluation by China
  • The risk of further declines in the JPY is tempered by the fact that it is already very cheap (-29%), but there is plenty of valuation room for the euro to fall
  • The surprise BoJ easing in January prompted a paring of longs, while investors are unwinding short positions in the euro despite dovish rhetoric by the ECB

* * *

A few last words. Since DB, whose CDS has soared to very dangerous levels in recent days suggesting the market is suddenly concerned about its counterparty status, is effectively the Bundesbank, one can make the argument that any incremental easing by the jawboning Mario Draghi during the ECB’s next meeting suddenly looks very precarious.

On the other hand if Draghi once again isolates Weidmann and does cut rates to -0.40% as the market has largely priced in, because the ECB head fulfills the desires of his former employer Goldman Sachs first and foremost, one would wonder if as we speculated last summer Deutsche Bank is not indeed the next Lehman, if for no other reason than Goldman has decided the German financial behemoth should be the next bank to fail, and unleash the next global taxpayer-funded bailout episode.

end

Wow!! this is interesting:  BAFIN shuts down a Canadian Bank of German origin on grounds of money laundering and Libor malfeasance: (courtesy zero hedge)

Germany Shuts Down Canadian Bank Tied To Money Laundering

For the first time since 2012, Bafin – Germany’s banking regulator, which for a minute looked like it might actually accuse Anshu Jain of lying about LIBOR – has closed a bank.

All financial transactions by Maple Bank of Canada’s German subsidiary have been halted on the grounds the operation has too much debt or, as BaFin put it, there’s “a prohibition on transfer of ownership and payment, due to imminent over indebtedness.”

Maple – which describes itself as having expertise in “equity and fixed income trading, repos and securities lending, deposits, structured products and institutional sale” – has obligations of around €2.6 billion and assets of €5 billion meaning it “has no systemic relevance” – to quote BaFin again.

It is however, “relevant” for National Bank – Canada’s sixth largest financial institution which has a 24.9% stake in Maple. National will now take a full reserve against that stake, the carrying value of which is CAD165 million. “That means National Bank’s CET 1 capital ratio will take a 13-basis-point hit,” WSJ notes, adding that “this isn’t the first time that National Bank has seen its regulatory capital level dented in recent months.”

No, it’s not, and this “isn’t the first time” that Maple Bank has been under the microscope.

As The New York Times reminds usMaple “played a prominent role in attempts by the Porsche family to take over Volkswagen several years ago [by] helping Porsche lock up Volkswagen shares using a complex combination of derivatives.”

Former Porsche CEO Wendelin Wiedeking and former CFO Holger Härter are on trial in Stuttgart, where the pair face allegations that they purposefully lied to investors in 2008 to inflate VW shares. “Porsche was threatened financially at the time, according to prosecutors, because a sharp decline in Volkswagen shares forced it to post cash to protect Maple Bank from losses,” The Times adds.

In other words, Maple Bank was the institution at the center of the infamous short squeeze that caused VW shares to soar in October of 2008 when the automaker briefly became the most valuable company on the planet. At the time, the company’s market cap was greater than Apple, Philip Morris, and Intel combined.

Maple Bank is also under investigation for tax “irregularities.” Last September, German prosecutors raided the bank’s offices and homes tied to its employees in what Reuters called“a probe of serious tax evasion and money laundering connected to dividend stripping.” Prosecutors alleged that at least 11 people illegally claimed some €100 million in tax paid using an illegal dividend arb. “Previous cases of dividend stripping in Germany have involved buying a stock just before losing rights to a dividend, then selling it, taking advantage of a now-closed legal loophole that allowed both buyer and seller to reclaim capital gains tax,” Reuters said, outlining the circumstances behind the infraction.

Apparently, once Maple Bank made the government mandated provisions for taxes, its financial situation deteriorated meaningfuly. In other words, Germany effectively put the bank out of business. “Frankfurt prosecutors allege that Maple Bank and its business partners have bilked the taxpayer of some 450 million euros,” Reuters added on Sunday. “The bank has an equity capital of just 300 million euros.”

As for National Bank, the lender said on Sunday that it “has advised the German authorities that if it is determined portions of dividends received from Maple Financial Group Inc. could be reasonably attributable to tax fraud by Maple Bank, arrangements will be made to repay those amounts to the relevant authority.” CEO Louis Vachon is “surprised” at the developments, but says his bank’s results will not be materially affected by developments in Germany.

Now if only BaFin would get serious about investigating Europe’s largest bank which, unlike Maple, has quite a bit of “systemic relevance,” we might be able to take the regulator seriously.

end

Credit default swaps on Deutsche bank and all European banks blow wider this morning

(courtesy zero hedge)

Very early this morning:  6 am

Is This The Reason For Europe’s Sudden Bloodbath

While the ongoing slaughter in European bank credit, and mostly counterparty risk, is troubling, it is nothing new: we have been showing it for over a month, most recently on Friday in “European Bank Risk Soars To 3 Year Highs, US Risk Rising.”

And yet there is a new element to the latest European selloff, one which turned vicious just minutes after Europe opened for trading this morning with not just commercial banks (who are now all subject to bail-ins courtesy of the BRRD) being dumped with the Deutsche Bank water, but peripheral spreads and equity markets have all joined in.

Case in point: Spanish, Portuguese and Italian yields and spreads to Germany are blowing out…

… while the Athens stock market just dropped to the lowest level since 1990, as the Greek banking index just crashed over 21% to a new all time low.

Why the sudden and broad revulsion to everything European? Isn’t China’s devaluation and capital outflow enough worries for the shaky stock market? Or does China being offline for the next week demand that the market find something else to obsess over?

Perhaps the reason for the shift in market sentiment, which appears to have realized once more that Europe is not at all fixed, had to do with the following note out of Morgan Stanely’s equity strategist, Graham Secker, which we highlighted yesterday, and which admitted that in addition to everything else, it is time to once again panic about Europe.

One noteworthy aspect in the current risk-off environment is the lack of peripheral spread widening in Europe; this is unusual based on performance patterns during this cycle and most likely reflects the ECB’s substantial QE programme. While the region is often perceived as a relative consensus overweight among equity investors, we are more downbeat and prefer the US and Japan instead. Our European caution primarily reflects the prospect of further earnings disappointment across the region, but we are also wary of any resumption of geopolitical concerns.

Recent investor caution tends to focus on fears of excess USD strength, low oil prices and/or China, but we think it is quite plausible that Europe moves back up the pecking order (to its more usual place some would say!) as we move through 2016. The UK’s forthcoming referendum on EU membership, likely to take place in June, may appear the most plausible catalyst in the short term to raise regional risk premia, but the ongoing migrant issue risks eroding political cohesion over the medium term and political uncertainty is rising in the periphery. Greece has a daunting debt repayment due this summer, Spain is currently without a government, new European regulations are preventing Italy from adopting an effective ‘bad bank’ solution and the recently elected socialist government in Portugal is reversing course on prior austerity and competitiveness improvements. During a cyclical upswing, markets are prone to overlook such concerns, but the opposite would be true if growth starts to relapse.

Yesterday, we promptly thanked Mr. Secker for the reminder…

from zero hedge

MS: “One noteworthy aspect in the current risk-off environment is the lack of peripheral spread widening in Europe”. thanks for the reminder

10:11 AM – 7 Feb 2016

… and, judging by today’s action where Europe is once again not only not fixed, but suddenly very much broken once more, so are all other capital markets.

end Late in the morning:  the bloodbath continues:  bonds crash as does stock markets: (courtesy zero hedge) European Bank Bloodbath Crashes Bond, Stock Markets

Just as we warned, not only is it time to panic but the panic is ‘contagion’-ing over into the sovereign risk market. European banks are in freefall, down over 4.3% broadly, crashing to 2012’s “whatever it takes” lows.

European bank risk has gone vertical… Today’s spike is the largest since April 2010

TBTF banks are all seeing credit risk explode – to 52-week highs and beyond…

Slamming European bank stocks back to near “whatever it takes” lows…

Dragging the entire European stock market down 24% from its highs to 16-month lows…

And that risk is syetmically crushing peripheral sovereign bond markets…

Time to panic? You betcha! All eyes are focused on the synthetic run on Deutsche Bank…

So since Europe unleashed their “Bail-In” regulations, European banks have utterly imploded with Deustche most systemically affected as it seems more than one person is betting that Deutsche will be unable to raise enough capital and will be forced to haircut depositors on up in the capital structure.

Finally – for those desperate dip-buyers hoping for another move from Draghi – don’t hold your breath… As Deutsche Bank itself warned, any more easing by The ECB or BOJ will only hurt banks (and certainly Deutsche). In other words, they are all officially trapped now.

end Your humour story of the day but it is true: credit default swaps on Deutsche bank rising exponentially/Alpha Bank (Greek bank) falling: (courtesy zero hedge) Don’t Show Wolfgang Schaeuble This Chart

At this rate, Germany will be asking Greece for a bailout…

Germany’s largest bank’s credit risk is accelerating unbelievably… as Greek banks improve.

Is it time to panic yet?

end At the end of the day, Deutsche bank had to defend itself as to whether it has enough cash. On the balance sheet, they do, the question is off balance sheet! (courtesy zero hedge) After Crashing, Deutsche Bank Is Forced To Issue Statement Defending Its Liquidity

The echoes of both Bear and Lehman are growing louder with every passing day.

Just hours after Deutsche Bank stock crashed by 10% to levels not seen since the financial crisis, the German behemoth with over $50 trillion in gross notional derivative found itself in the very deja vuish, not to mention unpleasant, situation of having to defend its liquidity and specifically assuring investors that it has enough cash (about €1 billion in 2016 payment capacity), to pay the €350 million in maturing Tier 1 coupons due in April, which among many other reasons have seen billions in value wiped out from both DB’s stock price and its contingent convertible bonds which are looking increasingly more like equity with every passing day.

DB did not stop there, but also laid out that for 2017 it was about €4.3BN in payment capacity, however before the impact of 2016 results, which if recent record loss history is any indication, will severely reduce the full cash capacity of the German bank.

From the just issued press release:

Ad-hoc: Deutsche Bank publishes updated information about AT1 payment capacity

 

Frankfurt am Main, 8 February 2016 – Today Deutsche Bank published updated information related to its 2016 and 2017 payment capacity for Additional Tier 1 (AT1) coupons based on preliminary and unaudited figures.

 

The 2016 payment capacity is estimated to be approximately EUR 1 billion, sufficient to pay AT1 coupons of approximately EUR 0.35 billion on 30 April 2016.

 

The estimated pro-forma 2017 payment capacity is approximately EUR 4.3 billion before impact from 2016 operating results. This is driven in part by an expected positive impact of approximately EUR 1.6 billion from the completion of the sale of 19.99% stake in Hua Xia Bank and further HGB 340e/g reserves of approximately EUR 1.9 billion available to offset future losses.

 

The final AT1 payment capacity will depend on 2016 operating results under German GAAP (HGB) and movements in other reserves.

The updated information in question:

As a reminder, the last time serious “developed market” banks had to publicly defend their liquidity, the result was a multi-trillion taxpayer bailout.

However, there is probably some time before that happens: first German regulator Bafin will likely ban short selling in Deutsche Bank shares. That always is the first step in the endgame.

For now, however, the market is no longer asking questions but merely selling: Deutsche CDS has entered the dreaded “viagra” formation at 245 bps and going vertical.

  end Looks like the Greeks are going to war with the EU boys over pension reforms and debts due in June.  Bank stocks are plummeting as are other Greek equities.  The 10 yr Greek bond is also blowing higher in yield/lower in price (courtesy zero hedge) Greek Tragedy: Pension Pandemonium Sparks Bank Crash, Stocks At 26 Year Lows

And you thought Greece was “fixed”…

The last 3 days have seen Greek bank stocks cut in half…

Which has slammed Greek stocks to their lowest since December 1989…breaking below Draghi’s “Whatever it takes” lows…

And Greek bond yields are back above 10% – the highest since last year’s crisis…

Greece is no longer “fixed” as it appears the troubled nation is once again facing a funding crisis (looming in June) unable to meet “Europe”‘s demands on its pension reform and refugee aceptance. As MNI reports,

Greece’s negotiations with international creditors could take months if Athens does not cooperate fully on its fiscal consolidation plan and officials are not expected to return to Athens before they receive concrete and acceptable proposals, Eurozone officials told MNI Monday.

Furthermore, the officials warn that any attempt by the Greek government to politicise the negotiations in order to get relaxation will not be tolerated by the majority of the currency area member states.

One high-ranking official said that “the talks carried out last week were just exploratory” and that the institutions “did not make specific demands” as they lack hard data, despite leaks from the Greek government on potential taxation increases and pension cuts.

“There is still a big gap between what we ask and what the Greek government has submitted so far. We have not defined yet the fiscal gap for this year, which is a crucial component for the evaluation,” the source said.

Another source said that despite the goodwill expressed by Greece’s European creditors – the European Commission, the European Central Bank and the European Stability Mechanism – to discuss counter-measures to offset certain unpopular ones such as cutting further primary pensions and the minimum wage, “Greece seems unable to deliver such measures.”

“There is a lot work to be done. We agreed to disagree. Judging from (last week’s) talks, the negotiations could drag for months. Anyway, I don’t see any real funding needs for Greece until June,” the official claimed.

The comments come amid massive reaction in Greece by farmers protesting potential tax increases and social unrest for the formation of immigration camps in certain islands and the north of Greece.

In other words – prepare for another ATM-halting, crisis-confronting Spring and Summer in Europe as Schaeuble goes to war with Tspiras once again… obver pension reforms and refugee concessions.

end At 12:00 noon our time, Europe closed as Deutsche bank plunged 11% and is at 7 year lows: (courtesy zero hedge) Europe Closes “On The Lows”: Deutsche Bank Plunges 11% To 7 Year Lows

BTFD? Deutsche Bank stock crashed over 11% today (the most since July 2009) to its lowest since January 2009 record lows. We have detailed at length why this is a major systemic problem and we wonder how anyone can view this chart and not question their full faith in central planners engineering of the ‘recovery’. Nothing is fixed and it’s starting to become very obvious!

Does this look like a buying opportunity? At EUR13.465 today, DB is within pennies of the all-time record lows of EUR13.385…

As we explained earlier, since Europe unleashed their “Bail-In” regulations, European banks have utterly imploded with Deustche most systemically affected as it seems more than one person is betting that Deutsche will be unable to raise enough capital and will be forced to haircut depositors on up in the capital structure.

Finally – for those desperate dip-buyers hoping for another move from Draghi – don’t hold your breath… As Deutsche Bank itself warned, any more easing by The ECB or BOJ will only hurt banks (and certainly Deutsche). In other words, they are all officially trapped now.

Average:

5

Sexual assaults continue unabated:
(courtesy zero hedge)

10-Year Old Austrian Boy Raped By Iraqi Refugee Due To “Sexual Emergency”

Someone didn’t read the refugee pool rules cartoon.

As you might have heard, quite a few of the millions of asylum seekers that have inundated Western Europe are having a rather difficult time adjusting. Specifically, there seems to be some confusion about pool etiquette.

Last month, Bornheim – a town of 48,000 some 30 km south of Cologne, Germany – banned adult male asylum seekers from the public swimming pool after numerous reports of sexual harassment and “chatting up” – whatever that means.

“There have been complaints of sexual harassment and chatting-up going on in this swimming pool … by groups of young men, and this has prompted some women to leave (the premises),” deputy mayor Markus Schnapka told Reuters. “This led to my decision that adult males from our asylum shelters may not enter the swimming pool until further notice.”

Bornheim’s decree came two weeks after “gangs” of “Arabs” allegedly assaulted scores of women amid New Year’s Eve festivities in Cologne and other cities across Europe.

This weekend, we learn that on December 2, a 20-year-old Iraqi migrant apparently raped a 10-year-old boy at the Resienbad pool in Vienna.

The attack wasn’t reported to the press at the time in order to protect the victim who ran crying to a lifeguard after the assault which took place in a “cubicle.”

The refugee – who at that point had gone back to swimming and diving – was arrested on the spot and taken into custody where he told police that he was experiencing a “sexual emergency.”

“I followed my desires,” the man said, adding that he “hadn’t had sex in four months.” He went on to say that although he was fully aware that his actions were “forbidden in any country in the world,” he had “a marked surplus of sexual energy.”

The man said he had a wife and a daughter in Iraq.

Asked if information about the attack was deliberately withheld from the public in order to avoid sparking a backlash against asylum seekers, Thomas Keiblinger, spokesman for the state police in Vienna said that the fact the man was Iraqi had nothing to do with the decision not to publicize the crime. “It played no role whatsoever,” he told Kronen Zeitung.

Needless to say, that seems like a dubious proposition. The anti-migrant sentiment is palpable in Austria (the country has suspended Schengen) and Iraqis raping 10-year-old boys at swimming pools likely wouldn’t reflect all that well on officials who have agreed to take in asylum seekers.

In any event, we’re reasonably sure that the perpetrator’s “sexual emergency” excuse isn’t going to fly with the Austrian public, so you can expect this rather unfortunate event to add fuel to a fire that, as evidenced by Saturday’s bloc-wide PEGIDA rallies, is already burning brightly.

end

RUSSIAN AND MIDDLE EASTERN AFFAIRS

After Venezuela these guys are next! Ukrainian bonds crash after their economy minister resigns over high level corruption:
(courtesy zero hedge)

Ukraine Bonds Crash After Economy Minister Resigns Over “High-Level Corruption”

While the rest of the world’s bond yields are collapsing and prices soaring (as NIRP sweeps the globe), Ukraine’s ‘young’ implicitly-US-taxpayer-backed bonds have plunged to record lows. The reason – aside from simply disturbing economics…

…is, as The FT reports, the dramatic resignation of the economy minister accusing a senior presidential ally of blocking his attempts to root out graft and stymieing his plans for reform. Abromavicius exclaimed, of the Washington-installed elite at Kiev’s heart, “I realised there is an intention to unwind the process of making all of this transparent.”

Speaking in Kiev, Aivaras Abromavicius said he had no desire “to serve as a cover-up for covert corruption, or become puppets for those who, very much like the old government, are trying to exercise control over the flow of public funds”.

Ukraine already ranked dismal last among European nations for Corruption (rubbing off from its Washington overlords?)

As The FT details, Mr Abromavicius also made an acid reference to his presentation on behalf of Ukraine at the annual gathering of economic and business luminaries at the world economic forum in Switzerland, saying:

“I am not willing to travel to Davos and talk about our successes to international investors and partners, all the while knowing that certain individuals are scheming to pursue their own interests behind my back.”

Mr Abromavicius is the highest-profile departure so far from Ukraine’s governing coalition, which is struggling to deliver on the promise of the pro-European Maidan revolution that brought it to power two years ago.

As the government has floundered, many Ukrainians have come to fear a repeat of the Orange revolution a decade earlier, when infighting and corruption dashed similar hopes.

Widespread anger at entrenched corruption and the slow pace of reform is sparking calls for early elections — yet the results could jeopardise attempts to implement reforms agreed under the country’s $40bn rescue package, led by the International Monetary Fund.

The upheaval is also threatening the peace process in eastern Ukraine, which also requires Petro Poroshenko, the president, to push unpopular measures through a hostile parliament.

Mr Abromavicius told the Financial Times he decided to resign after his attempts to restructure Ukraine’s state-owned companies ran into resistance from powerful figures with vested interests.

“We just hit a wall recently,” Mr Abromavicius said. “We have come to a point where, unfortunately, the technocrats within the government are simply no longer needed.”

And the result is a further loss of faith in the Washington-installed elite as the youngest bonds plunge to record lows…

And as The FT concludes, Abromavicius’ allegations are already reverberating among the western allies on whom Ukraine depends to avoid default and stave off Russian pressure.

A group of ambassadors, including those representing the G7 nations, released a joint statement echoing his concerns, saying: “It is important that Ukraine’s leaders set aside their parochial differences, put the vested interests that have hindered the country’s progress for decades squarely in the past, and press forward on vital reforms.”

Mr Poroshenko’s reticence has particularly worried Washington, which has asked him to fire the prosecutor-general several times and threatened to make further financial support conditional on progress against corruption.

But a senior Ukrainian official said the allegations of Mr Abromavicius were likely to lead to a broader government reshuffling rather than early elections, despite constant political infighting.

“At the very least, Poroshenko is deaf to information about corruption. He will only act when society forces him to do it,” said Serhii Leshchenko, a critical MP in his party.

Balazs Jarabik, a visiting fellow at the Carnegie Endowment for International Peace, said western policymakers were also likely to back Ukraine’s coalition due to fears over Russian pressure and the country’s economic fragility. “If you push too hard, this country may not stand,” he said.

end

Rhetoric between Iran, Syria and the Saudi/Turks become fierce:
(courtesy zero hedge)

“They’ll Return To Their Countries In A Wooden Coffin”: Iran, Syria Warn Saudis, Turks Against Ground Troops

Two days ago, a Saudi military spokesperson told AP that the kingdom is ready to send ground troops to Syria “to fight ISIS.”

That served as confirmation of what we’ve been saying for months and represented an affirmative answer to the following question that we posed in December: “Did Saudi Arabia just clear the way for an invasion of Syria?

Four months ago, we previewed the “promised” battle for Aleppo, Syria’s second largest city, which is controlled by a mishmash of rebels and is one of the hardest hit urban centers in Syria. In October, Iran called up Shiite militias from Iraq, rallied thousands of Hezbollah troops, and coordinated with the Russian air force on the way to planning an assault on the city. Victory would mean effectively restoring Assad’s grip on power. So important was the battle, that Iran sent Quds commander Qassem Soleimani to the frontlines to spearhead a kind of pep rally prior to the assault.

Fast forward four months and Russia, Iran, and Hezbollah are on the verge of routing the Syrian opposition. After an arduous push north from Russia’s air field in Latakia, Aleppo is now encircled. Rebels and terrorists alike (assuming there’s a difference) are cut off from their supply lines in Turkey and Moscow’s warplanes are bearing down. Tens of thousands of people are fleeing the city ahead of what promises to be a truly epic battle.

Put simply: this is it. It’s almost over for the opposition.

That’s not to say ISIS isn’t still operating in the east. That, as we’ve said on a number of occasions, is another fight.

But the “moderate” opposition backed by the West and its regional allies is on the ropes. That’s why Saudi Arabia is floating the ground troop trial balloon. It has nothing to do with Islamic State and everything to do with making a last ditch effort to keep arch rival Iran from restoring the Alawite government in Damascus on the way to preserving the Shiite crescent and the supply line to Hezbollah in neighboring Lebanon.

Now, it’s do or die time. Either the Saudis and the Turks invade or it’s all over for the rebels.

And Iran knows it.

I think Saudi Arabia is desperate to do something in Syria,” Andreas Krieg of the Department of Defence Studies at King’s College London, told AFP. He also notes that “the ‘moderate’ opposition is in danger of being routed if Aleppo falls to the regime.”

“Turkey is enthusiastic about the ground troop option since the Russians started their air operation and tried to push Turkey outside the equation,” Mustafa Alani of the independent Gulf Research Centre added, underscoring Russia’s warning that Turkey may be preparing a ground assault.

On Saturday, Tehran openly mocked the Saudis. “They claim they will send troops (to Syria), but I don’t think they will dare do so,” Maj. Gen. Ali Jafari told reporters. “They have a classic army and history tells us such armies stand no chance in fighting irregular resistance forces.”

In other words, Iran just said the Saudis are useless when it comes to asymmetric warfare.

Readers will recall what we said back in October: “… it’s worth noting that using Hezbollah and Shiite militias to fight the ground war decreases the odds of Moscow getting mired in asymmetric warfare with an enemy they don’t fully understand.”

In other words, Hezbollah has no problem engaging in urban warfare – they practically invented it.

The Saudis – not so much. “This will be like a coup de grace for them,” Jafari continued. “Apparently, they see no other way but this, and if this is the case, then their fate is sealed.”

Yes, “their fate will be sealed,” or, as Syrian Foreign Minister Walid al-Moualem said on Saturday, “I assure you any aggressor will return to their country in a wooden coffin, whether they be Saudis or Turks.”

end

John Kerry just threw in the towel as Syrian forces along with Hezbollah surround Aleppo. It looks like their 5 yr battle for control over Syria is over in defeat:
(courtesy zero hedge)

An Exasperated John Kerry Throws In Towel On Syria: “What Do You Want Me To Do, Go To War With The Russians?!”

“Russian and Syrian forces intensified their campaign on rebel-held areas around Aleppo that are still home to around 350,000 people and aid workers have said the city – Syria’s largest before the war – could soon fall.”

Can you spot what’s wrong with that quote, from a Reuters piece out today? Here’s the problem: “could soon fall” implies that Aleppo is on the verge of succumbing to enemy forces. It’s not. It’s already in enemy hands and has been for quite some time. What Reuters should have said is this: “…could soon be liberated.”

While we’ll be the first to admit that Bashar al-Assad isn’t exactly the most benevolent leader in the history of statecraft, you can bet most Syrians wish this war had never started and if you were to ask those stranded in Aleppo what their quality of life is like now, versus what it was like in 2009, we’re fairly certain you’ll discover that residents aren’t particularly enamored with life under the mishmash of rebels that now control the city.

In any event, Russia and Iran have encircled Aleppo and once it “falls” (to quote Reuters) that’s pretty much it for the opposition. Or at least for the “moderate” opposition. And the Saudis and Turks know it.

So does John Kerry, who is desperate to restart stalled peace negotiations in Geneva. The problem for the US and its regional allies is simple: if Russia and Iran wipe out the opposition on the battlefield, there’s no need for peace talks. The Assad government will have been restored and that will be that. ISIS will still be operating in the east, but that’s a problem Moscow and Tehran will solve in short order once the country’s major urban centers are secured.

As we noted on Saturday, Riyadh and Ankara are extremely concerned that the five-year-old effort to oust Assad is about to collapse and indeed, the ground troop trial balloons have already been floated both in Saudi Arabia and in Turkey.For their part, the Russians and the Iranians have indicated their willingness to discuss a ceasefire but according to John Kerry himself, the opposition is now unwilling to come to the table.

Don’t blame me – go and blame your opposition,’” an exasperated Kerry told aid workers on the sidelines of the Syria donor conference in London this week.

America’s top diplomat also said that the country should expect another three months of bombing that would “decimate” the oppositionaccording to Middle East Eye who also says that Kerry left the aid workers with “the distinct impression” that the US is abandoning efforts to support rebel fighters.

In other words, Washington has come to terms with the fact that there’s only one way out of this now. It’s either go to war with Russia and Iran or admit that this particular effort to bring about regime change in the Mid-East simply isn’t salvageable.

“He said that basically, it was the opposition that didn’t want to negotiate and didn’t want a ceasefire, and they walked away,” a second aid worker told MEE.

“‘What do you want me to do? Go to war with Russia? Is that what you want?’” the aid worker said Kerry told her.

MEE also says the US has completely abandoned the idea that Assad should step down. Now, apparently, Washington just wants Assad to stop using barrel bombs so the US can “sell the story to the public.” “A third source who claims to have served as a liaison between the Syrian and American governments over the past six months said Kerry had passed the message on to Syrian President Bashar al-Assad in October that the US did not want him to be removed,” MEE says. “The source claimed that Kerry said if Assad stopped the barrel bombs, Kerry could ‘sell the story’ to the public, the source said.”

Of course Kerry won’t be able to “sell” that story to the Saudis and the Turks, or to Qatar all of whom are now weighing their oppositions as the US throws in the towel. “Kerry’s mixed messages after the collapse of the Geneva process have put more pressure on Turkey and Saudi Arabia,” MEE concludes. “Both feel extreme unease at the potential collapse of the opposition US-recognised Free Syrian Army.”

And so, as we said earlier this week, it’s do or die time for Riyadh, Ankara, and Doha. Either this proxy war morphs into a real world war in the next two weeks, or Aleppo “falls” to Assad marking a truly humiliating defeat for US foreign policy and, more importantly, for the Saudis’ goal of establishing Sunni hegemony in the Arabian Peninsula.

The only other option is for John Kerry to face the Russians in battle. As is evident from the sources quoted above, Washington clearly does not have the nerve for that.

 

end

We knew this would happen:  Iran states that their oil will be priced in euros.  The huge dagger into the heart of the USA dollar/USA hegemony!
(courtesy zero hedge)

Iran Says No Thanks To Dollars; Demands Euro Payment For Oil Sales

Iran enjoys trolling the United States. In fact, it’s something of hobby for the Ayatollah, who has maintained the country’s semi-official “death to America” slogan even as President Rouhani plays good cop with Obama and Kerry.

The ink was barely dry on the nuclear accord when Tehran test-fired a next-gen surface-to-surface ballistic missile with the range to hit archrival Israel, a move that most certainly violated the spirit of the deal if not the letter. Two months later, the IRGC conducted live rocket drills in close proximity to an American aircraft carrier and then, on the eve of President Obama’s final state-of-the-union address, Iran essentially kidnapped 10 American sailors in what amounted to a truly epic publicity stunt.

All of this raises serious questions about just how committed Tehran is to nurturing the newfound relationship with America, a state which for years sought to impoverish Iran as “punishment” for what the West swears was an illegitimate effort to build a nuclear weapon.

As regular readers are no doubt aware, Iran is now set to ramp up crude production by some 500,000 b/d in H1 and by 1 million b/d by the end of the year now that international sanctions have been lifted. In the latest humiliation for Washington, Tehran now says it wants to be paid for its oil in euros, not dollars.

Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month’s sanctions relief,”Reuters reports. “In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery,” an National Iranian Oil Co. said. Here’s more:

Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars, said the person, who has direct knowledge of the matter.

Iran was allowed to recover some of the funds frozen under U.S.-led sanctions in currencies other than dollars, such as the Omani rial and UAE dhiram.

Switching oil sales to euros makes sense as Europe is now one of Iran’s biggest trading partners.

“Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros,” said Robin Mills, chief executive of Dubai-based Qamar Energy.

Iran’s insistence on being paid in euros rather than dollars is also a sign of an uneasy truce between Tehran and Washington even after last month’s lifting of most sanctions.

U.S. officials estimate about $100 billion (69 billion pound) of Iranian assets were frozen abroad, around half of which Tehran could access as a result of sanctions relief.

It is not clear how much of those funds are oil dues that Iran would want back in euros.

India owes Tehran about $6 billion for oil delivered during the sanctions years.

Last month, NIOC’s director general for international affairs told Reuters that Iran“would prefer to receive (oil money owed) in some foreign currency, which for the time being is going to be euro.”

Indian government sources confirmed Iran is looking to be paid in euros.

Iran has pushed for years to have the euro replace the dollar as the currency for international oil trade. In 2007, Tehran failed to persuade OPEC members to switch away from the dollar, which its then President Mahmoud Ahmadinejad called a “worthless piece of paper“.

Of course all fiat money amounts to “worthless pieces of paper” and as things currently stand, the USD is the least “worthless” of the lot which means that Iran’s insistence on being paid in a currency that Mario Draghi is hell bent on devaluing might seem strange to anyone who knows nothing about geopolitics.

Put simply, this has very little to do with economics and a whole lot to do with sending a message. “Iran shifted to the euro and canceled trade in dollars because of political reasons,” the same NOIC source told Reuters.

Right. So basically, Iran is looking to punish the US for instituting years of economic tyranny by de-dollarizing the oil trade.

This comes at a time when the petrodollar is under tremendous pressure. Russia and China are already settling oil sales in yuan and “lower for longer” crude has broken the virtuous circle whereby producing countries were net exporters of capital, recycling their USD proceeds into USD assets thus underwriting decades of dollar dominance.

The question, we suppose, is whether other producers move away from the dollar just as Russia and Iran have. If there’s a wholesale shift away from settling oil sales in greenbacks, another instrument of US hegemony will be dismantled and Washington’s leverage over “unfriendly” producers will have been broken.

The irony is this: if Iran follows through on its promises to flood an already oversupplied market, crude might not fetch any “worthless pieces of paper” at all – dollars or euros.

END

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/MONDAY morning 7:00 am

Euro/USA 1.1121 down .0032

USA/JAPAN YEN 116.12 down 0.657 (Abe’s new negative interest rate (NIRP) not working

GBP/USA 1.4419 down .0083

USA/CAN 1.3915 up .0006

Early this MONDAY morning in Europe, the Euro fell by 32 basis points, trading now well above the important 1.08 level rising to 1.1121; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was flat in value (onshore). The USA/CNY flat in rate at closing last night: 6.5710 / (yuan flat but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)

In Japan Abe went BESERK  with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP   . The yen now trades in a  northbound trajectory as IT settled UP in Japan again by 66 basis points and trading now well BELOW  that all important 120 level to 116.12 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE

The pound was down this morning by 83 basis point as it now trades just above the 1.44 level at 1.4419.

The Canadian dollar is now trading DOWN 6 in basis points to 1.3915 to the dollar.

Last night, Chinese bourses were closed  All European bourses were mixed  as they start their morning.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade also blowing up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this MONDAY morning: closed up 184.71 or 1.10%

Trading from Europe and Asia:
1. Europe stocks all in the red

2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed ,Shanghai in the closed  Australia in the red: /Nikkei (Japan)green/India’s Sensex in the red /

Gold very early morning trading: $1177.30

silver:$14.95

Early MONDAY morning USA 10 year bond yield: 1.81% !!! down 2 in basis points from last night  in basis points from FRIDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.65 down 3 in basis points from FRIDAY night.  ( still policy error)

USA dollar index early MONDAY morning: 97.17 up 12 cents from FRIDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers MONDAY MORNING

OIL MARKETS

Early this money the large USA oil/gas operation Chesapeake plummets over 20% as it has hired bankruptcy attorneys:

(courtesy zero hedge)

Chesapeake Plummets Over 20% On Report It Has Hired Bankruptcy Attorneys

The saga of the gas giant Aubrey McClendon’s built, Chesapeake Energy, enters its endgame, when moments ago following a Debtwire report that the company has hired Kirkland and Ellis as its restructuring/bankruptcy attorney – typically a step taken just weeks ahead of a formal Chapter 11 filing – the stock has plunged 22% to $2.40, the lowest price in the 21st century, and for all intents and purposes, ever.

In a few weeks we will see just how many banks were properly “provisioned” for this now imminent bankruptcy that may just unleash the default wave so many have been waiting for.

end And now for your closing MONDAY numbers:

Portuguese 10 year bond yield:  3.13% up 10 in basis points from FRIDAY

Japanese 10 year bond yield: .045% !! up 2 full  basis points from FRIDAY which was lowest on record!! Your closing Spanish 10 year government bond, MONDAY up 11 in basis points Spanish 10 year bond yield: 1.75%  !!!!!! Your MONDAY closing Italian 10 year bond yield: 1.68% up 12 in basis points on the day: Italian 10 year bond trading 7 points lower than Spain. IMPORTANT CURRENCY CLOSES FOR MONDAY Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond:  2:30 pm   Euro/USA: 1.1199 up .0045 (Euro up 45 basis points) USA/Japan: 115.38 down 1.390(Yen up 139 basis points) and a major disappointment to our yen carry traders and Kuroda’s NIRP Great Britain/USA: 1.4428 down .0071 (Pound down 71 basis points) USA/Canada: 1.3942 up .0031 (Canadian dollar down 31 basis points with oil being lower in price ) This afternoon, the Euro rose by 45 basis points to trade at 1.1199.(with Draghi’s jawboning not doing much) The Yen fell to 115.38 for a gain of 139 basis points as NIRP is a big failure for the Japanese central bank The pound was down 71 basis points, trading at 1.4428. The Canadian dollar fell by 31 basis points to 1.3942 as the price of oil price fell to around $31.25 per barrel/WTI, down 47 cents). The USA/Yuan closed at 6.5710 the 10 yr Japanese bond yield closed at a record low of .045% Your closing 10 yr USA bond yield: down 10 in basis points from FRIDAY at 1.74%//(trading well below the resistance level of 2.27-2.32%) policy error USA 30 yr bond yield: 2.56 down 12 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error) and did not buy the USA rally today.  Your closing USA dollar index: 96.57 down 48 in cents on the day  at 2:30 pm Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for MONDAY London: down 158.70 points or 2.71% German Dax: down 306.87 points or 3.30% Paris Cac down 134.36 points or 3.20% Spain IBEX up 377.40 or 3.20% Italian MIB: down 809.06 points or 4.44% The Dow down 177.10  or 1.10% Nasdaq: down 79.39  or 1.42% WTI Oil price; 31.29  at 2:30 pm;  31.03 at 5 pm. Brent OIl:  33.91 USA dollar vs Russian rouble dollar index:  78.29   (rouble is down 1 and  26/100 roubles per dollar from yesterday) with the fall in oil This ends the stock indices, oil price, currency crosses and interest rate closes for today.     New York equity performances plus other indicators for today:   Dead-Cat-Bounce Saves Stocks From Bankmageddon

Are the “fiction peddlers” winning?

 

Since the “great” jobs report, stocks are tanking, the dollar has roundtripped, and bonds & bullion are surging…

 

On the day, Nasdaq was the worst with FANGs FUBAR. Note that Stocks bounced off the European Close and the NYMEX Close…and Trannies made it green

 

Dow Futures dropped almost 500 points from overnight highs before a 250 point ramp in an hour shaved half the losses…

 

The almost standard buying panic was back in the last hour as USDJPY spiked but bonds were not buying it…

 

AAPL was mega-ramped to run friday’s VWAP levels…

 

Financials (and homebuilders) are collapsing year-to-date…

 

As US bank risk continues to surge (yes contagiously)…

 

With energy stocks plunging after Chesapeake denied bankruptcy (while its bonds didn’t)…

 

As FANGs have crashed over 13% in the last 4 days – worse than August’s Black Friday plunge and the most on record…

 

As “Most Shorted” has collapsed since The Fed ended QE3 to 2009 lows…

 

Credit contionues to crumble to 2009 levels and the QE3 overvaluation is being unwound…

 

Treasury yields collapsed today…

 

With 5Y breaking below its 3-year channel… the lowest close in 5Y since June 2013

 

The USD was dumped again led by Swissy (intervention) and JPY strength…

 

Gold and Silver soared today as Copper and Crude faded…

 

With WTI ending back below $30…

 

And Gold pushing above $1200.. to six month highs…Today was gold’s biggest single-day rise since Dec 2014…and the biggest 6-day gain since Oct 2011.

 

Finally, for anyone “hoping” that this is nearly over… it’s not! There is no signs of capitulation or panic – the S&P 500 SKEW index (tracking bets on extreme outlier moves) has plunged back towards 8-month lows as it is increasingly clear that investors are derisking, unwinding actual exposure as opposed to hedging for a short-term dip (Equity weakness and SKEW collapse implies lifting hedges and reducing exposure overall)..

 

On the other side of the coin Gold 1M skew has flattened significantly in recent weeks due to strong call buying, and skew is now near its most inverted in almost 5-years…

 

 

Charts: Bloomberg

Bonus Chart: It seems US banks have collapsed far more than CAD banks – we suspect this will revert

end

5 end And now for USA stories: Looks like the boys are getting the procedures ready for negative interest rates and then they will go cashless: Two commentaries (courtesy zero hedge) 1. And Now “Some Important News About JPMorgan’s New Cash Policies”

Want to deposit cash at JPMorgan Chase? Then prepare to be treated if not like a criminal, then certainly a suspect of a very serious crime. The charge: being in possession of that “barbarous relic” known as cash.

Soon, as cash becomes increasingly frowned upon, cash deposits will be slowly but surely phased out in their entirety forcing those few savers left in Obama’s grand economic “recovery” experiment, to engage in commerce only in a way that allows the government to keep track of every single transaction.

end 2. JPMorgan Unveils The “Bogey” For NIRP In The US

Ever since early 2015, we have repeated that with the world caught in a negative rate “race to the bottom”, which even S&P now admits, it is inevitable that the US will join the rest of the DM central banks, especially after the flawed and much delayed attempt to hike rates into what is at least a quasi recession.

Now, with sellside chatter that it is only a matter of time before the Fed will likewise join the fray despite stern warnings by the likes of Deutsche Bank that more easing will only exacerbate conditions for global financial firms, JPM’s Michael Feroli has set the “bogey” or the catalyst for what will be needed for the Fed to finally admit defeat and go not only back to zero but below it. To wit:

While we earlier mentioned that negative nominal rates should affect the economy no differently than ordinary policy easing, there is some evidence that the exchange rate channel is particularly pronounced in the case of NIRP. The leadership role of the Federal Reserve in the global monetary system may lead to some hesitancy to engage in what may be uncomfortably close to a skirmish in the currency wars. Lastly, there is the political issue. To be sure, political concerns about NIRP are not unique to the Fed; presumably one reason central bankers abroad sought to limit the pass-through to retail depositors was to avoid pushback from the political establishment. Even so, it seems reasonable to judge that the Fed’s current political situation is more parlous than is the case among its overseas counterparts. For all of the above reasons, we believe the hurdle for NIRP in the US is quite high, and we would need to see recession-like conditions before the Fed seriously considered this option.

So the “hurdle is quite high”, but all that will be needed for Yellen and co. to surpass this hurdle is for “recession-like” conditions to emerge.

Which means be on the lookout for “recession-like” conditions because a few more days of stocks crashing and wiping out years of the Fed’s carefully planned out “wealth effect” and the Fed will have no choice but to beg the Department of Commerce to come up with quadruple seasonal adjustments that make every data release as bad as during the depth of the credit crisis, something which will be urgently needed to provide the Fed with the much needed “political cover” to admit the latest central bank defeat.

end To our stock players (ex gold/silver equities) :  trouble ahead as our quant boys at JPM confirm the tech bubble has burst again!! (courtesy JPM/zero hedge) Momo Bad News: JPM’s Quant Guru Kolanovic Confirms Tech Bubble Has Burst… Again

Just over two weeks ago, JPM’s Marko Kolanovic, whose unprecedented ability to predict short-term market moves is starting to seem a little bizarre, warned that the next “significant risk for the S&P500” was the bursting of the “macro momentum bubble.” Specifically, he said that there is an emerging negative feedback loop that is “becoming a significant risk for the S&P 500” adding that “as some assets are near the top and others near the bottom of their historical ranges, we are obviously not experiencing an asset bubble of all risky assets, but rather a bubble in relative performance: we call it a Macro-Momentum bubble.”

In retrospect, following tremendous valuation repricings of several tech stocks, last week’s LinkedIn devastation being the most notable, he was once again right. And over the weekend, he did what he has every right to do: take another well-deserved victory lap.

This is what he said in his February Market Commentary: “Tech Bubble Burst?”

In our 2016 outlook and recent reports, we identified a macro momentum bubble that developed over the past years. We explained its drivers (central banks, passive assets/momentum strategies, etc.) and called for value to outperform momentum assets. We also highlighted the risk of a bear market and recommended increasing exposure to gold and cash as well as increasing exposure to nondollar assets relative to the S&P 500 (EM Equities, Commodities, Value Stocks, etc.). Our view was that a likely catalyst would be the Fed converging toward ECB/BOJ (rather than proceed with planned ~12 rate hikes by end of 2018). In line with these published forecasts, the best performing assets YTD have been Gold (+9%) and VIX (+20%) while S&P 500 and DXY are down (-7%, and -2%, respectively). Momentum stocks are down more than 10% with an acceleration of the selloff in last days. Emerging Market and Energy stocks are starting to outperform the S&P 500 (MSCI Latin America by +5% and Energy by +1% vs. S&P 500 YTD). This specific pattern of asset moves is consistent with a Value-Momentum convergence. We think the outperformance of value assets over momentum assets is likely to continue.

Investors often ask us how significant are distortions and risks in equity sectors that are related to a “macro momentum bubble.” Specifically, the question is that of valuations in the Technology sector, i.e., “is there a Tech bubble”? Before we share our views, let’s first review how passive investing and momentum strategies may have impacted performance of various equity sectors.

Imagine a world in which most of the assets are passively managed and investors are focused on liquidity and short-term risk/reward. Companies that increased in size recently would keep on increasing, and those that got smaller would see further outflows. Past winners would also be considered low-risk holdings compared to past losers. The most successful managers would be those that replace fundamental valuation with a simple rule: buy what went up yesterday and sell what went down. Passive funds would do the same. It is hard to imagine this makes economic sense long term, but it is close to what equity markets experienced over the past several years. In 2013, the Sharpe ratio of the S&P 500 was ~2.7. Assuming a normal distribution of active asset returns, one could (incorrectly) conclude that being just an average (passive) investor one will outperform ~95% of all active investors. In 2014 and 2015, various momentum strategies delivered Sharpe ratios >2. The winning strategy was not just to go with the crowd, but to do what the crowd did yesterday. This type of trend following does not only apply to extrapolating price trends, but also extrapolating trends in fundamental stock data such as growth and earnings. Beyond a certain point, passive investing and trend following are bound to result in distorted equity valuations and misallocation of capital.

While some parts of the Technology sector certainly have reasonable and even low valuations (see our US equity strategy outlook), segments of the Tech sector disproportionally benefited from momentum investing as well as investing based on extrapolation of past growth rates. For instance, a popular group of stocks held by investors is known by the abbreviation “FANG” (Facebook, Amazon, Netflix, Google). We use these stocks as an illustration for a broader group of similar stocks that have the highest rankings according to momentum and growth metrics (and surprisingly in some cases even low volatility metrics). Given that traditional value metrics look expensive when applied to this group, one can compare these momentum/growth companies on a new set of metrics. For instance, one  can look at the ratio of current price to earnings that the company delivered over all of its lifetime (instead of just the past year). Another metric could be a ratio of CEO or founder’s net worth to total company earnings delivered during its lifetime (see below):

Aggregating all FANG earnings since these companies were listed, one arrives at a ratio of current price to all earnings since inception of ~16x. This can be contrasted to a ratio of price to last years’ earnings for all other S&P 500 companies also at ~16x. We think this is extraordinary given that FANGs are neither small nor new companies. In fact, these are some of the largest companies in the S&P 500 and among the largest holdings of US retirees. Given that the three largest FANG stocks are now twice more valuable than the entire US S&P small-cap universe (600 companies), a legitimate question to ask would be “is such a high allocation by long-term investors to these stocks prudent?” Statistically, over a long period of time smaller companies outperform mega-caps ~75% of times. Note also that the current size ratio of mega-cap stocks to small-cap stocks is at highest level since the tech bubble of 2000.Furthermore, such allocation is also questionable from a risk angle. For example, the idiosyncratic risk of holding three stocks in one sector is certainly much higher than the risk of owning, e.g., ~1,000 medium- or small-cap companies diversified across all sectors and industries.

Investors in high-growth stocks expect innovations to drive growth and sustain high valuation. They may even put their hopes in moonshot projects such as cars built by electronics makers, car makers building spaceships, or internet companies building drones. While many of these could result in important technological breakthroughs, they may also be signs of excess and destruction of shareholders’ capital in the future. Recent examples of capital impairment in the tech sector are illustrated here and here, and more peculiar examples of past excess can be found here and here. In addition to extrapolated and often optimistic growth forecasts, some of the tech sub-industries have high idiosyncratic risks that are likely underappreciated by the market. Standard valuations models incorporate revenue, growth, and profit forecasts but often do not discount for the lifecycle risk of a business. To illustrate: while we are still traveling in aircraft designed over 40 years ago, social network users’ preferences have changed drastically over the past decade (e.g., Friendster and Myspace). A shorter lifecycle is related to low barriers to entry and rapid changes in what is deemed fashionable by young generations (e.g., one cannot build a jetliner in a dorm room, and they don’t go out of fashion as apps do).

In summary, we think that the biases of momentum investing and passive indexation have resulted in valuation distortions across assets as well as equity segments including Technology. Over the past years this trend has picked winning assets, sectors, and stocks often with less regard to fundamental valuation and more regard to momentum and extrapolated growth. We believe that2016 may result in a reversion of this trend that will give an opportunity to active and value investors to outperform passive indices and momentum investorsEven if this rebalancing comes as a result of market volatility and broader equity declines, long term it will benefit capital markets and the efficient allocation of capital.

* * *

Only problem is that this capital reallocation will means countless momentum chasers ‘smart money managers’ will be out of a job in very short notice.

Then again, judging by some initial reactions, even formerly steadfast believers in the FANGs are starting to bail: moments ago CNBC reported that Mark Cuban announced that he purchased options to sell against his entire stake in Netflix, to wit: “For those of following my stock moves, I just bought puts against my entire Netflix position.

Cuban posted comments on Cyber Dust social media platform on Friday. Result: NFLX already down -4%, with FB and other tech momos hot on its heels.

end All treasury yields plummet.  The 10 yr pushed below 1.80% signalling the huge downfall in world finances.  However it is the 5 yr rate that has everybody worried: it is now at 1.17%.  What is most amazing is that the short interest at the treasury yield is held by speculators and the commercials are net long the bonds. trouble ahead… (courtesy zero hedge) Treasury Yield Collapse Leaves 5Y At Crucial Cliff US Treasury yields are collapsing across the entire curve, down  9-10bps from their pre-opening highs this morning. While 10Y pushed below 1.80% (to one-year lows), it is 5Y yields that have traders the most anxious as they look to break out below three-year channel lows…

What happens next? We suspect more of the same as Net Shorts remain near record highs…

In the 5-Yr part of the curve, since large speculators are typically trend followers and commercial hedgers typically build positions against the trend, it is incredibly odd to see large speculators now holding their shortest position ever, while commercial hedger net-long positions are sitting just shy of historic levels (99.6 %ile).

end

An excellent commentary over the weekend from David Stockman on the phony jobs report on Friday. (courtesy David Stockman/ContraCorner) STOCKMAN’S CORNER Why The Bulls Will Get Slaughtered by  • February 6, 2016

Well, they got that right. Detecting that “parts of the U.S. jobs report for January seem fishy” MarketWatch offered this pictorial summary:

Needless to say, none of that stink was detected by Steve Liesman and his band of Jobs Friday half-wits who bloviate on bubblevision after each release. This time the BLS report actually showed the US economy lost 2.989 million jobs between December and January. Yet Moody’s Keynesian pitchman, Mark Zandi described it as “perfect”

Yes, the BLS always uses a big seasonal adjustment (SA) in January——so that’s how they got the positive headline number. But the point is that the seasonal adjustment factor for the month is so huge that the resulting month-over-month delta is inherently just plain noise.

To wit, the seasonal adjustment factor for the month was 2.165 million. That means the headline jobs gain of 151k reported on Friday amounted to only7% of the adjustment amount!

Any economist with a modicum of common sense would recognize that even a tiny change in the seasonal adjustment factor would mean a giant variance in the headline figure. So the January SA jobs number cannot possibly reveal any kind of trend whatsoever—-good, bad or indifferent.

But that didn’t stop Beth Ann Bovino, US chief economist at Standard & Poor’s Rating Services, from dispatching the usual all is swell hopium:

“Today’s numbers are about momentum, so while 151,000 new jobs in January is below expectations and off pace from prior months, the data shows America’s recovery is continuing. Amid all the global economic turmoil and domestic market gyrations, positive job growth, the drop in the unemployment rate to 4.9%, and the uptick in wages show the U.S. is heading in the right direction.”

Actually, it proves none of those things. For one thing, the January NSA (non-seasonally adjusted) job loss this year of just under 3 million was173,000 bigger than last January—-suggesting that things are getting worse, not better. In fact, this was the largest January job decline since the 3.69 million job loss in January 2009 at the very bottom months of the Great Recession.

So are we really “heading in the right direction” as claimed by Bovino, Zandi and the rest of the Cool-Aid crowd?

Well, just consider two alternative seasonal adjustment factors for January that have been used by the BLS in the last five years. Had they used the January 2013 adjustment factor this time, the headline gain would have been 171,000 jobs; and had they used the 2010 adjustment factor there would have been a headline loss of 183,000 jobs.

We could say in a variant of the Fox News motto—–we report, you decide. But believe me, you can look at years of seasonal adjustment factors for January (or any other month) and not find any formula. They make it up, as needed.

Likewise, you would think anyone paying half attention would realize by now that the 4.9% official unemployment rate (U-3) is equally meaningless due to the vast number of workers who have exited the “labor force”. In a nearby post, Jeff Snider puts this in perspective by juxtaposing the bottom dwelling trend of the adult employment-to-population rate with the U-3 headline.

His graph makes plain as day that when the U-3 unemployment rate dropped in the past, it was logically correlated with a rising share of the civilian population being employed; and that 5% or better unemployment usually meant a 63-64% employment ratio for the civilian population.

Since the financial crisis of 2008, however, that correlation has broken down completely, and the ratio still has not broken 59.5%. Yet given the 250 million adult population today, it would take about 10 million more jobs than reported on Friday to achieve the reported 4.9% unemployment rate at the historic 63.5% employment ratio.

The larger point is that the monthly jobs report has now become the essential vehicle for propagating a false recovery narrative that serves the interest of Wall Street and Washington alike. Month after month the artificially concocted and misleading headline jobs number is used to drive home the meme that the nightmare of the financial crisis and recession is fading into the rearview mirror; that the Fed and Washington have fixed the underlying ills, for instance, via Dodd-Frank; and that the soaring value of stocks and other financial assets since the March 2009 bottom are real, sustainable and deserved.

In that context, Obama’s crowing about the alleged success of his economic policies, as evidenced by the 4.9% unemployment rate reported on Friday, was especially annoying. You might have thought that the former community organizer would have noticed that notwithstanding the unfailing appearance of improvement in the BLS charts that prosperity does not seem to be trickling down.

Food stamp participation rates are the still the highest in history, and bear no resemblance to where these ratios stood at early points of so-called full employment in the business cycle. In a word, 4.9% unemployment can’t be true in a setting were the food stamp participation rate is nearly 15%.

Nor did he mention that “good jobs” aspect of the usual Washington blather about employment. The chart below is the reason why. There has been no recovery in the number of full-time, full-pay jobs since the pre-crisis peak.

On the margin, the US economy swapped-out 1.4 million manufacturing jobs for only a slightly higher number of waiters and bar-tenders. Never mind the fact that the average manufacturing job pays $55,000 on an annualized basis compared to less than $20,000 for gigs in restaurants and bars.

We have called this the bread and circuses economy in the past, and the January numbers once again did not disappoint. Nearly one-third of the 151,000 gain for January was in this category alone. Moreover, the 1.83 million job gain since the December 2007 pre-crisis peak accounts for 38% of all the net new jobs generated by the entire US economy during that period.

Another large—–and aberrant chunk of the January job gain was in retail. Consist with normal post-holiday patterns the NSA count of retail sector jobs dropped from 16.3 million in December to 15.7 million in January, representing a loss of nearly 600,000 jobs. By in defiance of all logic, the BLS seasonally adjusted the number to a gain of 58,000 or more than one-third of the total.

(To be continued)

see you Tuesday night


Feb 5/GLD adds another 4.8 tonnes of gold into its inventory/Gold rises to $1174.00 in access market reacting to European and Chinese bank huge widening of credit risks and huge rise in their credit default swaps/Another Ponzi scheme in China on top of...

Fri, 02/05/2016 - 19:18

Gold:  $1157.80 up $0.20    (comex closing time)

Silver 14.76 down 8 cents

In the access market 5:15 pm

Gold $1174.00

Silver: $14.97

The jobs report saw the bankers knock gold and silver down early in the New York session, but this time, investors were witnessing smoke emanating from European and Chinese banks.  They decided it was about time to buy both gold and silver as a safe haven for global economic chaos. By closing time the access market had gold at $1174.00 and silver finished at $14.97.

At the gold comex today, we had a poor delivery day, registering 5 notices for 500 ounces. Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 202.66 tonnes for a loss of 100 tonnes over that period.

In silver, the open interest rose by a gigantic 2,788 contracts up to 167,563. In ounces, the OI is still represented by .838 billion oz or 120% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI rose by a huge 5,732 contracts to 391,899 contracts as gold was up $16.30 with yesterday’s trading.

We had another huge change in gold inventory at the GLD, another  deposit of 4.84 tonnes of gold   / thus the inventory rests tonight at 698.46 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had no changes in inventory,  and thus/Inventory rests at 308.999 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver rise by 2,788 contracts up to 167,563 as silver was up 12 cents with respect to yesterday’s trading.   The total OI for gold rose by 5,732 contracts to 391,899 contracts as gold was up $16.30 in price from yesterday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

b) COT report

(Harvey)

3. ASIAN AFFAIRS

i)Late  THURSDAY night FRIDAY morning: Shanghai down 0.63%  / Hang Sang UP . The Nikkei DOWN . Chinese yuan (ONSHORE) UP  and yet they still desire further devaluation throughout this year.   Oil gained  to 32.09 dollars per barrel for WTI and 34.75 for Brent. Stocks in Europe so far mostly the green with the DAX only one in the red . Offshore yuan trades at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan AS THE SPREAD NARROWS WITH HUGE GOVERNMENT INTERVENTION / no doubt huge amounts of USA dollars left the country to support the offshore yuan/ Also the increase in credit default swaps are a problem for China and this huge volatility in the Chinese markets screams of credit problems; a leaked document suggests that China will not use the lowering of the RRR reserves but instead provide direct yuan injections into the market/JAPAN INITIATES NIRP(one week ago) CREATING HAVOC AROUND THE GLOBE)

ii)The rise in the yen is causing massive problems for Japan and the many yen carry traders.

(courtesy zero hedge) iii)Looks like we have another Ponzi blowup in China;  Bocum halts payments to lenders.More on the Ezubo fraud!

(courtesy zero hedge)

iv) An extremely important discussion on China from Kyle Bass.  He explains that China now has 34 trillion USA assets in their banking system.  Even though they run a huge surplus in the trade account, they have a massive banking problem.  China’s GDP is 10 trillion uSA and thus they have a banking/sovereign GDP of 3.4 x, identical to what brought Europe to its knees in 2008.  China has a huge problem with non performing loans probably in excess of 20%, plus fraudulent Ponzi schemes. The total USA equivalent reserves are 3.3 trillion and thus a banking bailout is in order which will wipe out its reserves.  This is why Bass is betting against the yuan.

(Kyle Bass/zero hedge)

4.EUROPEAN AFFAIRS

European bank shares have plummeted badly since the beginning of the year

(Robert H)

5.RUSSIAN AND MIDDLE EASTERN AFFAIRS

thousands are massing at the Turkish border ready to enter the fight.  Iran, Hezbollah and the Syrian army are now closing in on Aleppo.  Will Turkey enter the fray?

( zero hedge)

6. GLOBAL ISSUES

1)Mass Layoffs are returning to the USA and the rest of the world and all the layoffs are in the high income category ( Adam Taggart/Peak Prosperity.com) ii) These large global banks is where the market is most concerned with their high level of credit default swaps. Note that the no 1 concern is Deutche bank, the largest derivative player in the world.  As zero hedge staes, a failure by Deutsche bank, Credit Suisse or the Bank of China will no doubt bring the entire paper financial system to its knees:

( zero hedge) 7.EMERGING MARKETS

Venezuela is hyperinflating to the tune of 720%.  They now need 36 boeing 747 cargo planes to deliver fiat paper money (bolivars)

(courtesy zero hedge)

8.OIL MARKETS

i) The following is quite something.  four days after predicting oil will double, T Boone Pickens sells all of his oil holdings. This is big!!

(courtesy zero hedge)

ii) It sure looks like the non OPEC sector will see oil production collapse in 2016:

( Patterson/OilPrice.com)

iii) Oil Rig count plunges by 31 down to 467 and this should cause production to slow down. Texas saw a drop of 19.  Total rig count (oil and gas) crashed by 48 to 571

( zero hedge) iv)North Dakota’s economy is completely devastated due to oil’s collapse

( zero hedge) v) The following is a huge story:  the first warning that Cushing Oklahoma’s refining capacity may be about to overflow:( zero hedge)

9. PHYSICAL MARKETS

i) London is now gearing towards a physical future and not a paper future:

(courtesy London’s Financial times/Sanderson)

ii)Ambrose Evans Pritchard now believes that the run on the uSA dollar is over. This will be true, if the uSA signals no more rate hikes;

( Ambrose Evans Pritchard/UKTelegraph)

iii)It seems now that the SGE is publishing withdrawals (equals gold demand)

For the month of January:  225 tonnes or 52.3 tonnes per week.  Good demand from China!!

( Koos Jansen)

iv) Maduro is one complete moron: Venezuela is engaging in more gold swaps with Deutche bank

(courtesy Reuters)

10.USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER

i) First:  the official numbers from the job report:  a big miss!! yet unemployment slides to 4.9%.  Hourly wages jump suggesting wage inflation which will be troubling to the Fed.

( BLS/zero hedge)

ii) Initial reaction:  sell everything as believe it or not they believe more rate hikes in 2016:

( zero hedge)

iii)What a joke!!  Of the jobs added,  151,000 a huge 70% or  58,000 was in the minimum wage category and the bulk was in waiters and bartenders at 47,000.  The USA must have more waiters and bartenders than the rest of the world combined:

( zero hedge) iv) Can the BLS explain the manufacturing data? USA PMI and ISM down badly, yet BLS manufacturing shows an increase number of wage earners? ( zero hedge)

v)  a. Since 2007, all of the uSA job gains were the lower paying foreign born workers:

( zero hedge)

 v  b. as is our custom:  your update on our waiter and bartender job recovery from 207 to now:

(courtesy zero hedge)

vi) The mouthpiece for the Fed shows how confused the Fed is:

 (Hilsenrath/Wall Street Journal/zerohedge) vii)  Last night, huge number of firms guide lower earnings: If the USA earnings are OK then let the pundits explain the following: ( zero hedge)

viii) We still have 45.5 million USA people on food stamps.  And this is a recovery?

(Mike Krieger/Liberty Blizkrieg Blog)

ix) Linked In collapses to below its IPO price: trading at 117.00 dollars.

( zero hedge) x) And now Amazon crashes (zero hedge)

Let us head over to the comex:

The total gold comex open interest rose to 391,899 for a gain of5,732 contracts as the price of gold was up $16.30 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order as the drop in gold ounces standing for delivery is contracting due to cash settlements.  We now enter the big active delivery month is February and here the OI fell by 301 contracts down to 2390. We had 1 notice filed yesterday, so we lost 300 contracts or an additional 30,000 oz will not stand for delivery. The next non active delivery month of March saw its OI rise by 66 contracts up to 1406. After March, the active delivery month of April saw it’s OI rise by 4113 contracts up to 280,451.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 222,956 which is fair to good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair to good at 196,186 contracts. The comex is in backwardation until June. 

Today we had 5 notices filed for 500 oz. And now for the wild silver comex results. Silver OI rose by 2788 contracts from 164,775 up to 167,563 as  the price of silver was up by 12 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI rose by 18 contracts up to 137.  We had 0 notices filed on yesterday, so we  gained 18 silver contracts or an additional 90,000 oz  will stand in this non active month of February. The next big active contract month is March and here the OI fell by 826 contracts down to 104,693.  The volume on the comex today (just comex) came in at 49,034 , which is very good. The confirmed volume yesterday (comex + globex) was excellent at 62,630. Silver is not in backwardation at the comex but is in backwardation in London.  We had 0 notices filed for nil oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 5/2016

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  nil nil Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz  nil No of oz served (contracts) today 5 contracts

( 500 oz) No of oz to be served (notices) 2385 contracts (238,500 oz ) Total monthly oz gold served (contracts) so far this month 792 contracts (79,200 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 480,312.9 oz Today, we had 0 dealer transactions We had 0  customer withdrawals total customer withdrawals; nil  oz We had 0 customer deposits:

Total customer deposits  nil   oz

we had 0 adjustments.

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 7774.663 oz or 0.2418 tonnes in its dealer or registered account. ***JPMorgan now has 699,222.555 or 21.74 tonnes in its customer account. Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 5 contract of which 0 notice was stopped (received) by JPMorgan dealer and 2 notices were stopped (received)  by JPMorgan customer account.    To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (792) x 100 oz  or 79,200 oz , to which we  add the difference between the open interest for the front month of February (2390 contracts) minus the number of notices served upon today (5) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the February. contract month: No of notices served so far (792) x 100 oz  or ounces + {OI for the front month (2390) minus the number of  notices served upon today (5) x 100 oz which equals 316,700 oz standing in this active delivery month of February ( 9.8506 tonnes) we lost 300 contracts or 30,000 oz will not stand for delivery and were cash settled. We thus have 9.8506 tonnes of gold standing and 4.948 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing. Total dealer inventor 159,095.154 or 4.948 Total gold inventory (dealer and customer) =6,515,752.918 or 202.66 tonnes  Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 202.66 tonnes for a loss of 100 tonnes over that period.  JPMorgan has only 21.99 tonnes of gold total (both dealer and customer) end And now for silver FEBRUARY INITIAL standings/

feb 5/2016:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory   1,684,431.15 oz

JPM,Brinks,CNT

HSBC,Scotia Deposits to the Dealer Inventory nil Deposits to the Customer Inventory 1,166,803.550 oz

jpm,scotia No of oz served today (contracts) 0 contracts nil oz No of oz to be served (notices) 137  contracts (685,000 oz) Total monthly oz silver served (contracts) 0 contracts nil Total accumulative withdrawal of silver from the Dealers inventory this month nil oz Total accumulative withdrawal  of silver from the Customer inventory this month 4,897,192.3 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 2 customer deposits:

i) Into Scotia:  556,394.700 oz

ii) Into JPM: 610,409.850 oz

total customer deposits: 1,684,431.15 oz

We had 5 customer withdrawal: i)Out of Scotia:  610,408.850 oz ii) Out of JPM: 300,514.800 oz iii) Out of Brinks; 172,041.530 oz iv) Out of HSBC; 600,463.09 oz v) Out of CNT: 1002.78 oz  

total withdrawals from customer account 1,684,431.15   oz 

 we had 0 adjustments:

 

The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (0) x 5,000 oz  = nil oz to which we add the difference between the open interest for the front month of February (137) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing Thus the initial standings for silver for the February. contract month: 0 (notices served so far)x 5000 oz +(137) { OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals 685,000  of silver standing for the February. contract month. we gained 90,000 additional silver ounces standing in this non active delivery month of February. Total dealer silver:  28.53 million Total number of dealer and customer silver:   156.277 million oz end The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

Feb 5.2016:  inventory rests at 698.46 tonnes

Now the SLV: FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees Inventory rests at 309.380 million oz Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/ Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz Jan 27.2017: no changes to inventory/rests at 310.653 million oz Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz Feb 5.2016: Inventory 308.999 million oz. 1. Central Fund of Canada: traded at Negative 5.8 percent to NAV usa funds and Negative 5.6% to NAV for Cdn funds!!!! Percentage of fund in gold 62.9% Percentage of fund in silver:37.1% cash .0%( feb 5.2016). 2. Sprott silver fund (PSLV): Premium to NAV rises to  +.45%!!!! NAV (feb 5.2016)  3. Sprott gold fund (PHYS): premium to NAV rises to- 0.60% to NAV feb 5/2016) Note: Sprott silver trust back  into positive territory at +.45%/Sprott physical gold trust is back into negative territory at -0.60%/Central fund of Canada’s is still in jail. end At 3:30 pm we receive the COT report which gives us position levels of our major players. It is going to be interesting to see what the bankers are doing with respect to gold and silver Let us first head over to the Gold COT: Gold COT Report – Futures Large Speculators Commercial Total Long Short Spreading Long Short Long Short 176,968 104,146 46,169 116,469 193,824 339,606 344,139 Change from Prior Reporting Period 6,497 -7,285 -14,824 1,126 18,648 -7,201 -3,461 Traders 143 103 77 50 58 226 209   Small Speculators   Long Short Open Interest   39,579 35,046 379,185   1,036 -2,704 -6,165   non reportable positions Change from the previous reporting period COT Gold Report – Positions as of Tuesday, February 02, 2016 Our large specs: Those large specs that have been long in gold added a large 6497 contracts to their long side (this was to expected) Those large specs that have been short in gold covered a large 7,285 contracts from their short side.  (this was to be expected) Our commercials; those commercials who are long in gold added a tiny 1126 contracts to their long side. those commercials who are short in gold, added a monstrous 18,668 contracts to their short side  (such criminals) Our small specs: those small specs that have been long in gold added 1036 contracts to their long side those small specs that have been short in gold covered 2704 contracts from their short side. Conclusions: Are we looking at the potential for a commercial failure or will the crooks another of their famous raids.  The commercials went net short by over 17,000 contracts which would be construed as bearish. And now for our silver COT Silver COT Report: Futures Large Speculators Commercial Long Short Spreading Long Short 70,685 32,097 17,609 47,967 93,441 1,765 763 860 1,739 2,089 Traders 87 45 48 33 44 Small Speculators Open Interest Total Long Short 157,934 Long Short 21,673 14,787 136,261 143,147 -1,164 -512 3,200 4,364 3,712 non reportable positions Positions as of: 141 126 Tuesday, February 02, 2016   © SilverSeek.com Our large specs; Those large specs that have been long in silver added 1765 contracts to their long side Those large specs that have been short in silver added 763 contracts to their short side.

 

Our commercials;

those commercials that have been long in silver added 1739 contracts to their long side

those commercials that have been short in silver added only 2089 contracts to their short side.

Our small specs:

those small specs that have been long in silver pitched 1164 contracts from their long side

those small specs that have been short in silver covered 512 contracts from their short side.

Conclusions;

It seems that our banker friends are rather timid to supply the paper silver comex contracts.  Is somebody big standing for all that silver and that is why they are reticient to supply the paper?

 

end

And now your overnight trading in gold, FRIDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe (COURTESY MARK O”BYRNE) Gold And Silver Best Performing Assets – Up 9% and 8% YTD

By Mark O’ByrneFebruary 5, 20160 Comments

Gold is 3.6% higher this week and is now over 9% higher year to date. The dollar saw sharp falls this week on growing doubts that the Federal Reserve will be able to raise interest rates. The gains this week were due to increasing concerns about the U.S. and global economy.


GoldCore and Finviz.com

The increasingly uncertain U.S. and global economic outlook has led to an increase in demand for gold and silver bullion. Sharp falls in stock markets globally (S&P down 6% and DAX down over 12% ytd), the Chinese slowdown and the collapse in oil prices (-0.9%), has seen safe haven demand for the precious metals.

Gold rose 5.3% in January and has now seen a further 3.6% gain in the first week of February. This has led to the precious metals being the best performing assets year-to-date, with gains of over 9 percent and 8% for gold and silver respectively.

Silver is 4% higher this week and silver buyers continue to accumulate silver in the belief that it remains great value at less than $15 per ounce. We share this view given the fact that silver remains nearly 70% below the nominal high near $50 per ounce in 1980 and again in 2011.

Also, the gold-silver ratio at 77 ($1,160/$15 per ounce) shows that silver remains great value at less than $15 per ounce.


Silver In USD – 10 Years (GoldCore)

Recent economic news has been poor with the U.S. Unemployment Claims disappointing after it climbed to 285,000. Manufacturing numbers were mixed, as Preliminary Unit Labor Costs posted a gain of 4.5%, well above the forecast. However, U.S. Factory Orders posted a decline of 2.9%, badly missing expectations.

In the heady days following the Fed’s rate hike, there was bullish talk of up to four rate hikes in 2016. We said this was highly unlikely and recent data and deteriorating economic conditions confirms this. We have been contending in recent months that the U.S. economy is much weaker than believed. Recent data has confirmed this weakness.

We continue to see a sharp recession as inevitable – both in the U.S. and globally. The question is more regarding the severity of the recession and the nature of the recession and whether it will be deflationary or stagflationary. Deflation remains the primary risk given the $200 trillion debt laden global economy.

Gold prices have been moving higher for most of the week, and have climbed above the $1150 line for the first time since the end of October.

All eyes are now on the Nonfarm Payrolls report later today. The markets are now expecting a drop compared to the previous reading and markets could react negatively and send gold prices even higher. However, a lower unemployment number may already be priced into gold and we may see a “buy the rumour, sell the news” reaction from gold.

Gold has broken above the 200-day moving average (1,129/oz) and is set to close above this important level on a weekly basis today. This is bullish from a technical perspective. Were it to close above this level this week, it would suggest we may see further gains in February.

At the same time, the scale of gold’s gains in a short period of time, could mean a correction and retracement in the short term. Weakness will allow value buyers to accumulate on the dip. Those seeking to allocate funds to precious metals should geometrically cost average into position by front loading their initial allocation.


LBMA Gold Prices

5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce
4 Feb: USD 1,146.25, EUR 1,027.29 and GBP 782.16 per ounce
3 Feb: USD 1,130.00, EUR 1,034.04 and GBP 781.25 per ounce
2 Feb: USD 1,123.60, EUR 1,029.65 and GBP 780.01 per ounce
1 Feb: USD 1,122.00, EUR 1,032.86 and GBP 785.60 per ounce

Gold and Silver News and Commentary – Click here

Mark O’Byrne Published in Daily Market Update

end

 

Gold trading in NY:

(courtesy zero hedge)

 

Gold Surges Back Into The Green After $1.2 Billion Morning Plunge

After someone decided to dump $1.2 billion notional in gold futures this morning as the jobs data hit – sparking a $20 tumble in the precious metal – it appears stock sellers are greatly rotating to the safety of bullion (over bonds)…

end

London is now gearing towards a physical future and not a paper future:

(courtesy London’s Financial times/Sanderson)

London gold market wrestles over future: ‘People want the physical, not paper’

Submitted by cpowell on Thu, 2016-02-04 13:35. Section:

By Henry Sanderson
Financial Times, London
Thursday, February 4, 2016

http://www.ft.com/intl/cms/s/0/a4390aba-c9d4-11e5-a8ef-ea66e967dd44.html

There aren’t many places in the UK where you can walk in off the street and buy gold as a retail customer. A new store in London’s St James’s Street a stone’s throw from the Ritz wants shoppers.

“There is unquestionably a physical renaissance going on,” says Ross Norman, of Sharps Pixley, flanked by cabinets showing gold roses and gold watches under a large chandelier. “People want the physical [gold], they don’t want the paper. It’s suggestive of an environment where trust is less than it used to be.”

Guests drinking champagne at the opening party last week included some of the most influential names in London’s gold market. But while retail demand for gold is surging, the market is wrestling with a bigger issue: how bankers and traders set the price they will pay.

London’s 250-year-old gold market faces a fundamental question: should the city remain a market where gold is traded between buyers and sellers directly, as it has been for decades, or move on to an electronic gold exchange. How that is resolved will ultimately affect the price for a customer when they walk in and buy a gold bar in the Sharps Pixley store.

In a first step, on Thursday, the body that oversees the London gold market, the London Bullion Market Association, plans to issue a tender for proposals to build an electronic hub where all trades will be recorded.

That’s set to open the door to further ideas for changes to the market. A few companies are lobbying for gold to move towards a blockchain-based solution, based on the network behind the digital currency bitcoin.

Other exchange operators are eyeing a London-based gold exchange. Garry Jones, head of the London Metal Exchange, who attended the party in St James’s Street, wants to launch a gold futures contract that could be settled based on the delivery of physical gold bars.

The LME is talking with five banks on a project backed by the World Gold Council, according to a person familiar with the matter. The banks involved are ICBC Standard Bank, Citigroup, Morgan Stanley, Goldman Sachs and Societe Generale SA, the person said.

In a world where many areas of finance are being transformed by high-speed computerised trading, London gold transactions are mainly conducted via telephone or through banks’ own individual systems. There is no data on how much gold is actually traded in the city every day, though it is estimated that roughly three-quarters of the world’s bullion dealing takes place in London.

The lack of a unified system has led to liquidity — the amount of trading on any one venue — becoming fractured, a point made by some banks to the LBMA, according to a person familiar with the process under way at the association. “The liquidity providers think there is enough liquidity and don’t need to aggregate everything — others think it could be more simplified,” says the person.

Currently the LBMA has 14 market maker banks which quote two-way or buy and sell prices in both gold and silver. But other banks have withdrawn from trading gold in recent years.

The two largest bullion banks, HSBC and JPMorgan, are not currently involved in the LME project.

Having a platform to collect trade data would make the London gold market more transparent. That in turn would provide a greater defence against regulators who are wary of any financial market where the price is set between banks, say market participants. It would also help in negotiations over proposed tighter capital requirements for banks.

“There has been discussion about moving to a centrally cleared model but there isn’t an example where any market has done that without a regulatory push — because it levels the playing field in terms of pricing,” says Seamus Donoghue, chief executive of Allocated Bullion Solutions in Singapore.

The LME would not comment on any plans for a gold futures contract. The exchange’s clearing house, LME Clear, is already approved to deal with gold.

Analysts warn that any newly launched futures contract will need to receive the backing of all London bullion banks. It is also a competitive market: there are already popularly traded gold futures contracts on the Comex exchange in the US, the Shanghai Futures Exchange and the Tokyo Commodities Exchange.

“People feel comfortable where they’ve already been and Comex has already got such a footfall in terms of people using those exchanges,” says Sharps Pixley’s Norman, who started off his career trading precious metals at Rothschild, at the sidelines of the opening party. “The question is whether you’ll get participants. My personal view is they may struggle. I don’t think there’s unmet demand.”

Whatever format it takes, one thing is clear: London’s gold market faces a change.

* * *

 end

Ambrose Evans Pritchard now believes that the run on the uSA dollar is over. This will be true, if the uSA signals no more rate hikes;

(courtesy Ambrose Evans Pritchard/UKTelegraph)

Ambrose Evans-Pritchard: Dollar tumbles as Fed rescues China in the nick of time

Submitted by cpowell on Fri, 2016-02-05 01:33. Section:

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, February 4, 2016

The US dollar has suffered one of the sharpest drops in 20 years as the Federal Reserve signals a retreat from monetary tightening, igniting a powerful rally for commodities and easing a ferocious squeeze on dollar debtors in China and emerging markets.

The closely-watched dollar index (DXY) has fallen 3 percent this week to 96.44 and given up all its gains since late October. This has instant effects on the world’s inter-connected financial system, today more geared to the US exchange rate and Fed policy than at any time in modern history.

David Bloom from HSBC said the blistering dollar rally of the past three years is largely over and may go into reverse as weak economic figures in the US force the Fed to pare back four rate rises loosely planned for this year.

A more dovish Fed and a weaker dollar is a bittersweet turn for the Bank of Japan and the European Central Bank as they try to push down their currencies to stave off deflation. Their task has become even harder. …

… For the remainder of the report:

http://www.telegraph.co.uk/finance/economics/12141369/Dollar-tumbles-as-…

end

A very interesting Alasdair Macleod commentary tonight.  He states that the shorting of the yuan may be dangerous to the crowd such as Kyle Bass and George Soros.  He claims that it is not necessarily the high yuan that is the problem but the high value of the dollar. China is doing everything possible to have goods priced in yuan so as to put a dagger into the heart of the USA dollar and USA hegemony. He states that the Chinese may be dishoarding massive dollars not because it wishes to defend its yuan but because it knows the dollar is overvalued and they wish to use other basket currencies  as reserves including gold.

Alasdair is quite correct in everything he states.  However he excludes China’s number one problem:  huge non performing loans on its books.

(courtesy Alasdair Macleod/)

Alasdair Macleod: Shorting the yuan is dangerous

Submitted by cpowell on Fri, 2016-02-05 05:16. Section:

12:16a ET Friday, February 5, 2016

Dear Friend of GATA and Gold:

China doesn’t need to devalue its currency, the yuan, GoldMoney research director Alasdair Macleod writes this week. Rather, Macleod writes, China’s objective is to weaken the yuan’s primary competitor, the U.S. dollar.

“With dollar reserves accumulating at a record rate because of the trade surplus, China should have no problem maintaining a yuan rate of her choosing,” Macleod argues. “If anything she will seek to dispose of dollars on the basis they are overvalued relative to the commodities she needs for the future. China will sell her dollars not to protect the yuan but to dispose of an overvalued currency.”

Macleod’s analysis is headlined “Shorting the Yuan Is Dangerous” and it’s posted at GoldMoney here:

https://www.goldmoney.com/shorting-the-yuan-is-dangerous?gmrefcode=gata

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATa.org

end

Maduro is one complete moron:

(courtesy Reuters)

Reuters
Fri Feb 5, 2016 1:08pm GMT

Exclusive: Venezuela central bank in talks with Deutsche Bank on gold swap

CARACAS | BY CORINA PON

Venezuela’s central bank has begun negotiations with Deutsche Bank AG (DBKGn.DE) to carry out gold swaps to improve the liquidity of its foreign reserves as it faces heavy debt payments this year, according to two sources familiar with the talks.

Low oil prices and a decaying state-led economic model have weakened the OPEC nation’s currency reserves and spurred concerns that it could default on bonds as it struggles to pay $9.5 billion in debt service costs this year.

Around 64 percent of Venezuela’s $15.4 billion in foreign reserves are held in gold bars, which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.

In December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year, the sources said. The sources did not confirm the volume of the operation in discussion. Neither Deutsche nor the central bank responded to requests for comment.

Gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.

Venezuela is suffering from a severe recession, triple- digit inflation and chronic product shortages. The government’s currency control system has slashed approval of dollars for product imports, leading to empty store shelves and snaking supermarket lines.

The situation helped the opposition win a crushing two- thirds majority in the Congress in December. President Maduro says his socialist government is under “economic war” and dismisses default rumors as a smear campaign by adversaries.

Credit default swaps show that traders see a 78 percent chance of default in the next year, according to Thomson Reuters data.

The sources said Venezuela in recent years had been carrying out gold swaps with the Switzerland-based Bank for International Settlements (BIS) in operations ranging in duration from a week to a year. One source said Venezuela conducted a total of seven such transactions.

BIS halted these operations last year, both sources said, as a result of concerns about the associated risks.

BIS declined to comment.

Under the rule of late socialist leader Hugo Chavez, the central bank used billions of dollars in cash reserves to finance social programs and off-budget investment funds. This meant that gold became a larger percentage of reserves.

The value of Venezuela’s monetary gold has declined by $3.5 billion in the 12 months ended in November to reach $10.9 billion, central bank data shows. This appears to reflect swap operations and a 10 percent decline in the price of gold. It was not immediately evident if the central bank has also been selling gold.

The central bank in 2015 carried out a swap with Citigroup Inc’s (C.N) Citibank, according to one of the sources. Citi declined to comment in 2015.

One of the sources said the central bank has taken an unspecified amount of gold out of the country so that it can be certified, which is required for gold that is used in such swaps. The gold lost its “certificate of good delivery” in 2011 when Chavez transferred it from foreign banks to central bank coffers, one of the sources said.

Venezuela’s $1.5 billion 2016 Global Bond VE260216=RR comes due at the end of February, while state oil company PDVSA faces payments of $2.3 billion on its 2017N bond VE055409692= in October and $435 million on its 2016 bond VE046054679= in November.

-END-

It seems now that the SGE is publishing withdrawals (equals gold demand)

For the month of January:  225 tonnes or 52.3 tonnes per week.  Good demand from China

(courtesy Koos Jansen)

SGE Continues To Publish Withdrawals Figures?

It seems the Shanghai Gold Exchange (SGE) is continuing to publish the amount of gold withdrawn from the vaults on a monthly basis. For the month of January “SGE withdrawals” accounted for 225 tonnes, down 1 % from December. After the first weekly SGE reports in 2016 did not disclose SGE withdrawal data and phone calls to the bourse in Shanghai answered these numbers would not be published anymore we can wonder why the Chinese have changed their stance.

It’s advised to have read The Chinese Gold Market Essentials Guide before you continue.

The SGE releases reports with trading data in several intervals in either English or Chinese. Until the last week of 2015 SGE withdrawals, a measure for Chinese wholesale gold demand, were published in the Chinese weekly and monthly reports. Then, an announcement published on the English website of the SGE on 11 January 2016 stated the “the Exchange has adjusted some terms in the Delivery Reports”…

https://www.bullionstar.com/blogs/koos-jansen/sge- continues-to-publish-withdrawals-figures/

end

And now your overnight FRIDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

1 Chinese yuan vs USA dollar/yuan RISES to 6.5710 / Shanghai bourse: in the RED by 0.63 % / hang sang: GREEN

2 Nikkei closed down 225.40 or 1.32%

3. Europe stocks all in the green /USA dollar index UP to 96.66/Euro DOWN to 1.1190

3b Japan 10 year bond yield: FALLS TO .043    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 116.83

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI:: 32.09  and Brent: 34.75 

3f Gold up  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil UP for WTI and UP for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls  to 0.290%   German bunds in negative yields from 7 years out

 Greece  sees its 2 year rate rise to 11.82%/: 

3j Greek 10 year bond yield rise to  : 9.44%  (yield curve deeply  inverted)

3k Gold at $1158.50/silver $14.88 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble down 2/100 in  roubles/dollar) 76.87

3m oil into the 32 dollar handle for WTI and 34 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9924 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1104 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/arrests 10 traders for Euribor manipulation

3r the 7 year German bund now  in negative territory with the 10 year falls to  + .290%/German 7 year rate negative%!!!

3s The Greece ELA at  71.5 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.84% early this morning. Thirty year rate  at 2.69% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Futures Unchanged, Global Stock Algos Anemic Ahead Of U.S. Payrolls Report

US futures were largely unchanged overnight, with a modest bounce after the European close driven by a feeble attempt to push oil higher, faded quickly and as of this moment the E-mini was hugging the flatline ahead of today’s main event – the January payrolls, expected to print at 190K and 5.0% unemployment, however the whisper number – that required to push stocks higher – is well lower, at 150K (according to DB), as only a bad (in fact very bad) jobs number today will cement the Fed’s relent and assure no more rate hikes in 2016 as the market now largely expects.

The two main drivers of risk, crude and the USD, were both also unchanged as if the server farms housing the trading algos had been put in sleep mode ahead of what may be a turbulent session.

The Dollar Index was little changed after slumping 3.1% this week, the most since 2009, as traders realized the Fed is about to admit it was wrong once again. Fixed-income securities across the world have rallied in the past five days as policy makers painted a gloomy picture of the world economy. Gold climbed, extending a third weekly gain.

European stocks rose, led by automakers. Energy stocks set for third daily gain as crude advances. Spanish, Italian bourses outperformed. Pound extends drop as traders push back timing of BOE rate boost. Spanish and Italian government bonds led an advance among euro-area sovereign securities.

Explaining the cautious tone, William Hobbs, head of investment strategy at Barclays Plc’s wealth- management unit in London, told Bloomberg that “people are seeing the negative effects of the lower prices and still waiting to see the positive. Until we see evidence of better consumption it’s likely equity markets will be correlated with the oil price and that suggests volatility. Earnings aren’t confirming people’s worst fears, but they are a bit choppy.”

Asian stocks fell, with the regional benchmark index heading for a weekly loss, after Japanese shares declined as the strengthening yen pressured major exporters: indeed, the biggest moves have again come in Japan where the Nikkei has tumbled for a fourth consecutive dayand is now down -1.3% from this time last week when the BoJ announced negative rates. “The Bank of Japan has done what they should, but what they could do had its limits,” Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo, said by phone. “Until now, the view on the U.S. economy was that it was recovering, but the pace wasn’t as fast as hoped. Now there’s some concern in the market that it may actually be contracting.”

As a reminder, the main risk event for February is not the jobs report but this weekend’s Chinese official January update of its FX reserve level: a greater than expected drop will be a major hit to risk, and vice versa.

In advance of today’s most important event due out in less than 2 hours, this is where key risk levels stand:

  • S&P 500 futures up 0.1% to 1909
  • Stoxx 600 unchanged at 329
  • FTSE 100 up 0.6% to 5931
  • DAX up 0.4% to 9427
  • German 10Yr yield down less than 1bp to 0.3%
  • Italian 10Yr yield down 2bps to 1.51%
  • Spanish 10Yr yield down 3bps to 1.61%
  • MSCI Asia Pacific down 0.2% to 121
  • Nikkei 225 down 1.3% to 16820
  • Hang Seng up 0.5% to 19288
  • Shanghai Composite down 0.6% to 2763
  • US 10-yr yield up 1bp to 1.85%
  • Dollar Index up 0.18% to 96.65
  • WTI Crude futures up 0.8% to $3.01
  • Brent Futures up 0.5% to $34.63
  • Gold spot up 0.2% to $1,158
  • Silver spot up 0.2% to $14.88

Here are the global top news this morning via BBG:

  • LinkedIn Shares Plummet After Sales Outlook Trails Estimates: Sees 1Q rev. $820m, est. $867.1m; sees 2016 rev. $3.60b-$3.65b, est. $3.9b; fell as much as 30% in extended trading
  • ArcelorMittal Asks Investors for $3 Billion Amid Steel Rout: CEO Lakshmi Mittal, who owns ~37%, committed to maintain stake and his family will take up ~$1.1b; co. to sell a $1b stake in Spanish auto-parts maker Gestamp; 2015 Ebitda fell 28% to $5.2b
  • Toyota Stays on Track to Report 3 Trillion Yen in Annual Profit: Stayed on track to become first Japanese co. to top 3t yen ($25.7b) in annual oper. profit; raises full-yr net income target 0.9% to 2.27t yen; analyst est. 2.39t yen
  • Platt’s BlueCrest Said to Be Probed by SEC Over Employee Fund: Being investigated by over possible conflicts posed by an internal fund that manages money for the firm’s partners, according to people with knowledge of the matter
  • Linn Exploring Options During Worst Oil Downturn in 30 Years: Using all of $3.6b credit facility loan; Lazard and Kirkland & Ellis hired for advice during review
  • News Corp. Profit Trails Estimates as Ad Revenue Declines: 2Q adj. EPS 20c, est. 21c; rev. $2.16b, est. $2.13b.
  • Genworth Halts Life, Annuity Sales After Loss; Shares Fall: Suspended sales of traditional life insurance and fixed annuity products to focus on stabilizing unit that provides L-T care coverage; reports $292m loss for 4Q
  • State Street Said Near Deal to Buy GE Asset Management, Reuters Says: State Street prevailed over other bidders incl. Goldman; Goldman declined to comment to Reuters
  • Obama $10-Per-Barrel Oil Tax Lands With Thud in Congress: President says he will propose tax in 2017 budget plan
  • Mattel, Hasbro Would Face Rising Antitrust Worry Over Mega Deals: Hasbro, Mattel Said to Have Held Talks on Possible Merger
  • Bond Rally Defies Bear Pack as Record Low Yields Keep On Coming: U.S. 10-yr yield will end 2016 at 2.68%: Bloomberg survey
  • Dollar Peaking for Principal Even Seeing Two Fed Rate Increases: Dollar probably peaking against euro, yen as 18- month rally tempers U.S. economic growth, means Fed will be slower to raise rates, according to Principal Global Investors
  • Elliott Management Said to Take Large Stake in Symantec: WSJ
  • Yahoo Loses Mobile Entrepreneur Arjun Sethi to Venture Firm: WSJ

Taking a closer look at regional markets we find Asian equities traded mixed, shrugging off the positive lead on Wall Street (S&P 500 +0.15 %). The Shanghai Comp (-0.6%) oscillated between gains and losses in what was a rather subdued session with trading volumes 26% below the 30-day average, while the PBoC conducted further OMO injections ahead of the Lunar New Year. ASX 200 (-0.1 %) fell amid weakness in consumer discretionary, while the Nikkei 225 (-1.3%) continues to flounder with JPY weighing on exports, with the currency set to post its best week of gains in 6-years. JGBs rose amid spill over buying in USTs with once again yields in the 10-yr dropping to record lows having fallen to 0.035%.

Top Asian News

  • China Foreign Reserves Head for Record Drop on Yuan Defense: $513b plunge in 2015 was first annual slide since 1992
  • Foxconn’s Gou Pressures Sharp to Accept $5.6 Billion Bailout: Sharp says it will continue talking with Foxconn, INCJ
  • BOJ Roils Money Market Industry as Nomura Halts Fund Orders: Daiwa, Mitsubishi UFJ among providers with similar plans
  • Sumitomo Warns on Commodity Prices as Writedowns Mount: Swung to a net loss in 3Q and cut its full-year profit target by more than half due to mounting impairments
  • Noble Group Bank Debt Prices Signal Concern Worst Isn’t Over: Credit facility parcel said to have traded at ~75 cents
  • Frozen Bank Accounts Sow Doubts on Malaysia Transparency Bid: Swiss, Singapore investigations continue into govt fund

A relatively quiet session in European markets today, with volatility quelled by the looming spectre of the US non-farms payrolls report, later on in the session. Furthermore, oil prices have been subdued in today’s session helping calm markets. In terms of stock specifics, BNP is the latest of the major European banks to report, and the story looked familiar at first with a large miss on headline net income. However, the saving grace for the French bank was a boost in dividend, culminating in BNP trading nearly 5% in the green.

Top European News

  • BNP Paribas Surges as Lender Targets Investment-Bank Cost Cuts: Targets EU1b in savings at investment bank by 2019; 4Q net income EU665m, est. EU864.2m
  • Blackstone, Onex Said to Advance With Philips Lighting Bids: Philips has selected buyout firms including Blackstone, Onex and Apollo Global and U.K. investment company Melrose Industries to advance to the second round of bidding for its lighting division, according to people familiar with the matter
  • German Factory Orders Fall as Export Slowdown Cools Confidence: Dec. orders drop 0.7% on month vs estimate for 0.5% decrease; orders dropped 2.7% from a year earlier
  • Volvo AB to Cut Production on Lower North American Truck Demand: Sees N. America h/d truck mkt 260k units; prior 280k; 4Q net income (Gaap) SEK2.59b vs est. SEK3.17b; sees SEK10b cost cuts complete by year-end
  • U.K. Poll Shows ‘Out’ Campaign Leads by 9 Points After Deal: 45% of respondents were in favor of leaving the EU and 36% wanted to remain inside, with 19% undecided, YouGov said

Ahead of the week’s key US jobs report, FX markets have calmed down, though the key USD rates remain well placed to extend levels against the greenback. Standout is USD/JPY, which has held below 117.00 through the early European session, having found support at 116.50 in NY yesterday. Asia retested this, but unsuccessfully. Large exotic triggers noted in 115.50-115.00 area. GBP sellers were back in after the latest YouGov poll on EU showed the ‘leave’ camp up to 45% vs 36% choosing to stay in. Cable found support ahead of 1.4500 though, but EUR/GBP made a clean break through .7700. Oil prices slipped again to pull CAD off better levels, with a tight correlation now seen here. EUR/USD settles around 1.1200 for now — over 2 yards rolling off here today.

As we head into the North American session, WTI and Brent have seen an uptick with WTI Mar’16 futures retaking the USD 32.00 handle, although there is no new fundamental news to drive price action. With nothing new on the OPEC front, prices continue to be dictated to by the USD, and the key risk event come in the form of NFP report later today.

Gold traded has seen a bid n recent trade, extending upon the October 29th highs reached in yesterday’s session, following the weakening of the USD. Of note we are entering a level of key resistance territory, with the late August high of 1166.57 coming into focus.

Looking ahead to today’s calendar, the main event this afternoon in the US will be the January employment report where along with payrolls we’ll also get the latest payrolls report (exp. +190,000), unemployment rate (no change expected at 5%), average hourly earnings (expected at +0.3% mom and +2.2% yoy) and labour force participation rate (expected to nudge up one-tenth to 62.7%). Away from the employment data, we’ll also get the December trade balance data where a slight widening in the deficit is expected, along with the December consumer credit print. There’s little in the way of Central Bank speak and it’s a lot quieter on the earnings front too with just 7 S&P 500 companies set to report.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • A relatively quiet session in European markets today, with volatility quelled by the looming spectre of the US non-farms payrolls report later on in the session
  • FX markets have calmed right down, though the key USD rates remain well placed to extend levels against the greenback
  • Looking ahead, highlights include US Nonfarm Payrolls Report, Canadian Unemployment, comments from ECB’s Mersch
  • Treasuries slightly lower ahead of today’s U.S. non-farm payroll report (est. +190k) while the USD index rises overnight after closing lower each day this week.
  • Hints of investor optimism in Europe were snuffed out this week and sent stocks and credit markets sliding as companies reported dismal earnings, and policy makers and institutions lined up to cut economic forecasts and warn of further risks
  • BNP Paribas jumped as the French lender raised its dividend to the highest in eight years and pledged to cut costs at the investment bank to help free up capital
  • Nomura Asset Management stopped accepting investments into some money-market funds, joining 10 other managers in suspending such accounts as the $14.1 billion industry grapples with the negative interest rates introduced by the BOJ
  • China’s foreign-exchange reserves, already at a three-year low, are poised to post a second consecutive record monthly drop as policy makers intervene to support the yuan. The central bank will say Sunday that the currency hoard fell by $118 billion to $3.2 trillion in January, according to economists’ estimates in a Bloomberg survey
  • Economists are deviating even more from the Federal Reserve in forecasting how high interest rates will rise, joining bond and futures traders in doubting the central bank’s projected policy-tightening path
  • The dollar is headed for its biggest weekly decline since 2009 amid signs traders are starting to pull back from a policy divergence trade that proved a winner for much of the past year and a half
  • After a year of low oil prices, only 0.1% of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience
  • When Bill Gross left Pacific Investment Management Co. in 2014, it wasn’t surprising that investors bolted. But now customers are deserting another Pimco star manager who’s still in his seat
  • Sovereign 10Y bond yields mostly steady, though Greece +9bp. European stocks higher, Asian stocks mixed; U.S. equity- index futures rise. Crude oil mixed, copper drops, gold rises

US Event Calendar

  • 8:30am: Trade Balance, Dec., est. -$43.2b (prior – $42.37b)
  • 8:30am: Change in Non-farm Payrolls, Jan., est. 190k (prior 292k)
    • Change in Private Payrolls, Jan., est. 180k (prior 275k)
    • Change in Manufacturing Payrolls, Jan., est. -2k (prior 8k)
    • Unemployment Rate, Jan., est. 5% (prior 5%)
    • Average Hourly Earnings m/m, Jan., est. 0.3% (prior 0%)
    • Average Hourly Earnings y/y, Jan., est. 2.2% (prior 2.5%)
    • Average Weekly Hours All Employees, Jan., est. 34.5 (prior 34.5)
    • Change in Household Employment, Jan. (prior 485)
    • Labor Force Participation Rate, Jan., est. 62.7% (prior 62.6%)
    • Underemployment Rate, Jan. (prior 9.9%)
  • 3:00pm: Consumer Credit, Dec., est. $16b (prior $13.951b)

DB’s Jim Reid concludes the overnight wrap

All things considered it’s felt like markets have taken a bit of a pause for breath over the last 24 hours or so, something we’ve rarely said in 2016. A lull in newsflow combined with a relatively calm day for Oil yesterday (WTI closing down ‘just’ -1.73% at $31.72/bbl and hovering around those levels this morning) resulted in US equities in particular trading with fairly little conviction. In fact it took for the S&P 500 to swing between gains and losses an impressive 21 times to finally close with a fairly modest +0.15% gain. Moves in currency markets have been a bit more eye-catching as the US Dollar continued its downward march yesterday with the Dollar index eventually finishing with a -0.84% loss. That means the index is now down -3.1% in the four days this week which as it stands makes it the worst weekly performance since 2009.

This of course coming before the main event of the week today in the January US employment report, including the all-important nonfarm payrolls data. After the robust 292k print we got in December, market expectations are currently for a 190k gain, while our US economists are slightly more cautious and are forecasting a 175k gain (along with no change to the unemployment rate at 5%). Post the soft employment components from ISM readings we got earlier this week, it seems like the whisper number is probably closer to 150k however. As is standard practice at this time of year we’ll also get the revisions for five years of payrolls data today. Futures markets continue to price a less than 50% chance of a hike this year and given the relatively low expectations ahead of today’s data it would have to take a bumper number for that to change materially. Remember that before the FOMC meeting in March we will also get the February employment report along with a number of other important releases, while Fed Chair Yellen’s semi-annual testimony next week will be a huge focus for markets.

Ahead of the data then, equity markets in Asia are demonstrating a similar lack of direction in early trading. The Hang Seng (+0.57%) and Kospi (+0.14%) are holding in with gains, while bourses in China are a smidgen lower at the break (Shanghai Comp -0.11%) along with the ASX is -0.11%. The main moves have again come in Japan where the Nikkei (-1.76%) has tumbled for a fourth consecutive day and is now down -1.3% from this time last week when the BoJ announced negative rates. The same goes for the Yen which is slightly firmer this morning and has in fact now appreciated 1.7% post BoJ. Credit indices are underperforming this morning with iTraxx indices for Asia, Japan and Australia +2bps, +4.5bps and +6bps wider respectively.

Back to yesterday. European risk assets put in a bit of a mixed performance with corporate earnings dictating a lot of the moves. The Stoxx 600 (-0.20%) and DAX (-0.44%) ebbed and flowed before finishing with modest losses, although there was a decent rally for peripheral bourses with the likes of the IBEX and FTSE MIB up +1.85% and +1.23% respectively. While miners staged a notable rebound, Credit Suisse saw its share price fall by double figures after announcing its biggest quarterly loss since 2009. Sub-financials spreads were hit hard as a result with the sub-financials index now underperforming Crossover both this week and YTD now.

US credit was a bit of an underperformer too yesterday with CDX IG eventually closing a couple of basis points wider as consumer names in particular came under pressure on the back of some weaker than expected earnings reports. In fact, yesterday also saw a couple of big US energy names report with ConocoPhillips and Occidental failing to meet analyst expectations for both earnings and revenues. The former in fact also announced a 66% cut in the quarterly dividend and decent slash to capex. All told yesterday we had 33 S&P companies report their latest quarterly numbers with 21 beating earnings expectations (64%) but just 12 (36%) beating revenue forecasts. That’s a fair bit weaker than the overall trend so far at 78% and 46% respectively.

From the micro to the macro where yesterday comments from the Dallas Fed’s Kaplan echoed a similar tone to Brainard and Dudley in recent days. Kaplan emphasized the need for being ‘very patient’ in assessing the outlook for US growth while also acknowledging that ‘global financial conditions have tightened’ and that ‘non-US conditions have weakened’. Post the market close we also heard from Cleveland Fed President Mester who, while acknowledging the recent market turbulence and ‘soft patch’ for the US economy, continued to emphasise the belief that the US economy will work through this and ‘regain its footing for moderate growth’.

Earlier in the day we had also heard from ECB President Draghi although there wasn’t a whole lot of new information in his comments. Draghi insisted once again that ‘the risks of acting too late outweigh the risks of acting too early’ before pledging not to give in to low inflation. Meanwhile fellow ECB official, Mersch, reiterated that the ECB’s toolbox is not yet exhausted and that the ECB will make a decision once data is available in March.

Also of note yesterday was the Bank of England MPC meeting. While there was no change to current policy as widely expected, it was interesting to see a now unanimous vote with Ian McCafferty having retracted his previous call for tightening. Medium term inflation forecasts were little changed but we did see the Bank downgrade its growth forecasts with 2016 growth now expected to be 2.2% (cut from 2.5%) and 2017 growth downgraded to 2.4% from 2.7% previously. The minutes showed that the MPC judges the risks to the central projection to be skewed a little to the downside in the near term and it was noted that ‘low realized inflation will continue to moderate the increase in wage pressure in the near term’. In the post statement conference, Governor Carney didn’t sound too overly-bearish and made mention to the fact that the down-ward pull on inflation from overseas will be countered by more sustainable cost pressures at home.

Before we take a look at the day ahead, yesterday’s economic data in the US was generally a little softer than expected. Q4 nonfarm productivity was weak at -3.0% qoq (vs. -2.0% expected). Unit labour costs rose a little bit more than expected at +4.5% qoq (vs. +4.3%) while initial jobless claims rose 8k last week to 285k (vs. 278k expected) which resulted in the four-week average nudging up to 285k and continuing the upward trend. Factory orders were down -2.9% mom in December (vs. -2.8% expected), while the already soft durable goods orders were revised down further in December at the final revision by five-tenths to -5.0% mom.

Looking ahead to today’s calendar, it’s a pretty quiet start to proceedings this morning in Europe with just German factory orders data for December due out. The main event this afternoon in the US will of course be the aforementioned January employment report where along with payrolls we’ll also get the latest unemployment rate (no change expected at 5%), average hourly earnings (expected at +0.3% mom and +2.2% yoy) and labour force participation rate (expected to nudge up one-tenth to 62.7%). Away from the employment data, we’ll also get the December trade balance data where a slight widening in the deficit is expected, along with the December consumer credit print. There’s little in the way of Central Bank speak and it’s a lot quieter on the earnings front too with just 7 S&P 500 companies set to report.

Meanwhile it’s worth highlighting that over the weekend we’ll get the latest China FX reserves data for January which we’ll be keeping a close eye on ahead of the Asia open on Monday.

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Let us begin:

ASIAN AFFAIRS

Late  THURSDAY night FRIDAY morning: Shanghai down 0.63%  / Hang Sang UP . The Nikkei DOWN . Chinese yuan (ONSHORE) UP  and yet they still desire further devaluation throughout this year.   Oil gained  to 32.09 dollars per barrel for WTI and 34.75 for Brent. Stocks in Europe so far mostly the green with the DAX only one in the red . Offshore yuan trades at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan AS THE SPREAD NARROWS WITH HUGE GOVERNMENT INTERVENTION / no doubt huge amounts of USA dollars left the country to support the offshore yuan/ Also the increase in credit default swaps are a problem for China and this huge volatility in the Chinese markets screams of credit problems; a leaked document suggests that China will not use the lowering of the RRR reserves but instead provide direct yuan injections into the market/JAPAN INITIATES NIRP(one week ago) CREATING HAVOC AROUND THE GLOBE)

PBOC Wins The Battle: Yuan Surges To Highest In 2016, Currency War Not Over

With China now closed for all intent and purpose for a week as Golden Week arrives, it appears The PBOC wanted to leave the market a message. Clear and direct intervention in offshore Yuan has ripped it 800 pips higher in the last 2 days to its highest since mid-December and stronger than onshore Yuan. However, while PBOC may have won this battle, surging CDS suggest the currency war is far from over.

Offshore Yuan has ripped higher (just as it did in early Jan)…

This is the strongest offshore Yuan against onshore Yuan since September…

But out of the reach of PBOC direct intervention, CDS markets are still implying a dramatic devaluation looms…

So while PBOC may have won this brief battle into Golden Week, the speculative war on their currency is far from over.

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The rise in the yen is causing massive problems for Japan and the many yen carry traders. (courtesy zero hedge) USDJPY Entirely Ignores Yet More Jawboning From Japanese Offcials

Peter Pan(ic) policy has apparently reached its limit. USDJPY continues to slide despite Kuroda unleashing NIRP, dropping the “whatever it takes” and “no limits” tape bombs, and today’s Abe advisor Honda headlining with BoJ’s next steps may include more NIRP and more QQE… It’s over!

Every time they open their mouths USDJPY drops further…

How do you say “impotent” in Japanese?

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Looks like we have another Ponzi blowup in China;  Bocum halts payments to lenders.More on the Ezubo fraud!

(courtesy zero hedge)

More “P”onzi-2-“P”onzi Blowups “Just A Matter Of Time” In China, Experts Warn

In early December, Ding Ning and his girlfriend Zhang Min were planning to make a run for it.

The couple had come to the end of the road with the massive fraud they were running through P2P lender Ezubo, which bilked some 900,000 people out money making it the largest ponzi scheme by number of victims in history.

Ultimately, the amount of money coming in was no longer sufficient to cover interest payments to existing clients. The pair attempted to bury the evidence in the backyard (literally) but police, using two excavators, managed to dig up 80 bags of documents buried 20 feet underground.

As a reminder, the company lured investors in with the promise of returns between 9% and 14%. In the end, nearly all of the “projects” featured on the site turned out to be fictitious.

We documented the story on Monday when we warned that this was just the type of event that could serve as the straw that breaks the camel’s back for a populace that’s already on edge thanks to a horrendous equity market meltdown and worries about the prospects for China’s currency and economy. Sure enough, the very next day, a bulletin began to make the rounds on Chinese social media calling for defrauded Chinese to “rise up” and stage nationwide protests until their money is refunded. The demonstrations would be called the “rights protection movement.”

“So stay tuned, because judging from the tone of the ‘rights protection movement’ bulletin the villagers are restless in China,” we said, before noting that Ezubo is probably just one of many P2P frauds in the country given that by November, there were over 3,600 such platforms in operation.

Bloomberg is out with a bit of color on China’s internet financing industry which was apparently allowed to flourish as Beijing attempted to figure out how to rein in shadow banking without choking off credit growth as the economy decelerated.

China’s plan in allowing online lenders to flourish was to allow additional ways for small business to get financing rather than turn to back-alley shadow bankers — a shady world that was flourishing outside of government control when P2P lending began taking off in China in 2012 and only 3 percent of China’s 42 million small business owners could get bank loans,” Bloomberg wrote on Wednesday. “Online lending was a way for the government to encourage further economic stimulus in an economy growing at the slowest rate in a quarter century, and in theory it should be more transparent to regulators because it uses a real-time digital ledger of accounts.”

Yes, “in theory.” But in reality, these outfits are just as opaque as WMPs, trusts, channel loans, and the laundry list of other vehicles China uses to keep the credit impulse alive.

I think the government allowed this all to happen because it was desperate to pump money into the private economy as all the other slowdowns started to happen,” Steve Dickinson, a Qingdao-based lawyer for Seattle firm Harris Moure PLLC, told Bloomberg by e-mail. “It is likely that the regulators at the top simply turned a blind eye to the risks in the desperate hope that this kind of lending vehicle would get them through a rough patch.”

It was just a matter of time before we saw something this big keel over,” Zennon Kapron, managing director of Kapronasia, remarked.

And that means it’s “just a matter of time” before it happens again. Indeed, out of the 3,600 P2P operations in China, around 1,000 of them are deemed “problematic,” the China Banking Regulatory Commission says.

According to Xinhua, transactions on Chinese P2P sites topped $150 billion in 2015 up nearly 300% from the previous year. Sensing trouble, the CBRC published draft rules in December designed to control risk. “Due to the lack of necessary regulation, many P2P platforms play in the area between legal and illegal, using Internet concepts to brand themselves, fraudulent advertising and illegal deposit-taking to hurt public interest,” the body said.

“The harm is obvious. It’s going to damage financial reforms, cause social unrest and destabilize the regime to some extent,” Yang Dong, vice-dean at Renmin Law School and an expert on finance and securities law told Reuters this week.

We close with the following rather inauspicious headline from Bloomberg which hit the wires Thursday afternoon:

Bocom Halts Payments From Clients to Chinese P2P Lender

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An extremely important discussion on China from Kyle Bass.  He explains that China now has 34 trillion USA assets in their banking system.  Even though they run a huge surplus in the trade account, they have a massive banking problem.  China’s GDP is 10 trillion uSA and thus they have a banking/sovereign GDP of 3.4 x, identical to what brought Europe to its knees in 2008.  China has a huge problem with non performing loans probably in excess of 20%, plus fraudulent Ponzi schemes. The total USA equivalent reserves are 3.3 trillion and thus a banking bailout is in order which will wipe out its reserves.  This is why Bass is betting against the yuan.

(Kyle Bass/zero hedge)

I encourage you to see the tape at zero hedge

Kyle Bass Asks If China Is Fine, Why Are They So Worried About “Some Hedge Fund Manager In Texas”

If there’s one thing China hates, it’s a nefarious “manipulator” spreading innuendo, and fear in an already nervous market.

When these evildoers are Chinese citizens, the problem is easily solved. Beijing simply arrests them and beats a confession out them or else simply locks them away in the bowels of the Politburo for the remainder of their days. This is what we saw late last summer when Xi moved to crackdown on what the government claimed were multiple bad actors creating volatility and exacerbating the stock market rout.

However, when the “manipulators” aren’t Chinese citizens and don’t reside within the country’s borders, officials have fewer options. Now that a bevy of well known fund managers have the yuan in their crosshairs, China is using the only tool is has to combat foreign “speculators” intent on spreading “information that does not conform to the facts”: the captive press.

China is particularly keen on using the Party’s various media mouthpieces to counter perceived threats to the country and to calm the masses whose nerves are increasingly frayed amid the equity market collapse and the decelerating economy.

Last month for instance, a hilariously absurd “op-ed” appeared in People’s Daily carrying the title “Declaring war on China’s currency? Ha ha.” In it, Beijing calls George Soros – who said at Davos that he’s betting against Asian currencies and that China is experiencing a hard landing – a “financial crocodile” whose “war on the renminbi cannot possibly succeed.”

Of course Soros isn’t the only one waging “war” on the yuan. Kyle Bass is also betting against the currency.

China’s banking system, Bass told CNBC on Wednesday, is a $34 trillion ticking time bomb, and when it explodes, Beijing will need to plug the holes. $3.3 trillion in FX reserves will be woefully inadequate, he contends.

“Very few people have looked at what the cause of the problem is,” Bass begins. “They’ve let their banking system grow 1000% in 10 years. It’s now $34.5 trillion.”

Bass then goes on to note that special mention loans (which we’ve discussed on any number of occasions) are around 3% of total assets. “If they lose 3%, that’s a trillion dollars,” Bass exclaims. Ultimately, Bass’s argument is that when China is forced to rescue the banking system by expanding the PBoC’s balance sheet, the yuan will for all intents and purposes collapse. This is of course exacerbated by persistent capital flight.

Below, find some other soundbites from the interview. Notably, towards the end, Bass says that if China is right and speculation around a much larger devaluation is indeed unfounded, then it’s curious why China seems to care so much about what “one fund manager in Texas thinks.”

From Kyle Bass:

“The IMF says they need $2.7 trillion in FX reserves to operate the economy.They’ll hit that number in the next five months. Those who think they can burn it to zero and they have a few years ahead of them, they really only have a few months ahead of them.”

“When they lose money in their banks they’re going to have to recap their banks. They’ll have to expand the PBoC balance sheet by trillions and trillions of dollars.”

“No one’s focused on the banking system. Focus will swing to it this year.”

“A Chinese devaluation of 10% is a pipe dream. It will be 30-40% by the end.”

“If some fund manager in Texas is saying that your currency is dramatically overvalued, you shouldn’t care on a $10 trillion economy with $34 trillion in your banks. I have, call it a billion –  it’s so small it should be irrelevant and yet somehow it’s really relevant.”

“If 4% of the population takes out their $50,000 quota, the FX reserves are gone. We lose ourselves in the numbers. $3.3 trillion is a big number, but the reserves to bank assets number is one of the worst in the world.”

Lest you should be inclined to believe Bass, we close with yet another amusing “Op-Ed” from Chinese media, this time courtesy of Xinhua, who will patiently explain why the “doom predictors” always get it wrong on China.

*  *  *

From Xinhua

The first month of 2016 witnessed the Chinese stock market in panic selling mode and the RMB depreciating unexpectedly against the greenback. China’s GDP growth in 2015 also hit a 25-year low.

There seems to be a new surge of predictions about the “coming collapse of the Chinese economy and the end of the Chinese model”. However, looking back at China’s development journey from the late 1970s up to today, many pessimistic predictions, especially forecasting the “China breakdown”, have been proved wrong.

In 1996, Lester Brown, an American agricultural economist predicted that China would not be able to feed its large and fast-growing population and economic reforms would lead to malnutrition and hunger.

In the late 1980s and early 1990s, many Chinese pessimists predicted that economic reform without political reform would lead to a total collapse of China. In the Asian Financial Crisis of 1997-98 and the World Financial Crisis of 2007-08, many Chinese pessimists predicted that the Chinese model would not be able to sustain those drastic external shocks.

All those predictions were wrong. Since 2012, China has changed its economic development strategy from export and foreign direct investment driven to endogenous growth which emphasizes internal structural change, innovation and industrial upgrading to escape the so-called middle income trap.

In doing so, China has to eliminate excess industrial production capacity of steel, coal and other environmentally polluting products, and to promote high-end manufacturing, services, urbanization and rural modernization.

Economic slowdown is an inevitable outcome of the new development strategy, but given the tough external economic environment and surging domestic factor costs, China’s growth of 6.9% in 2015 was still the best among the world’s 10 largest economies except India. In particular, while the Russian and Brazilian economies are contracting sharply, and while many other developed economies are still struggling to move out of their own crisis, China continues to be a potent engine of growth for the global economy.

So why do doom predictors always get it wrong when it comes to China?

Firstly, some pessimists always look at China’s short term challenges and ignore its long term development capability and potential. Short term challenges and difficulties are temporal, they can be overcome if the government and the people have a strong will for success.

Secondly, some pessimists do not understand that the Chinese government is far better than they thought, and that political stability is the basic foundation of China’s success.

Thirdly, doom predictors of China underestimate the ability and determination of the Chinese people who are not only hard working and intelligent, but also resilient to all kinds of challenges and shocks.

China today is different from its past. The economy is well above 10 trillion US dollars, second only to the US, twice as large as Japan, and four times as large as India. A 6.9% growth is more than one-quarter of India’s annual GDP, and bigger than a medium-sized economy in the world.

China’s richest city, Shenzhen, erected from a small fishing village in 1980, now has a population of over 10 million people. Its per capita GDP is higher than that of Taiwan and is still growing at nearly 8% per year. China’s biggest city by population, Chongqing, has over 30 million people. The city’s GDP expanded by 11% in 2015 and the government’s plan is to achieve 10% growth in 2016.

The Chinese economic fundamentals are sound and robust: unemployment rate is low, people’s incomes are growing faster than GDP, income inequality is narrowing and energy intensity is declining.

If those pessimists were in China, they would see that all the Chinese regions are still ambitious in making their 13th Five Year Plan, which is to sustain China’s economic growth at a much higher rate than many other economies in the world. The policy objective is to build an all-round well-off society and to eliminate absolute poverty by 2020.

w

*  *  *

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EUROPEAN AFFAIRS

Just take a look at how European banks have fared so far this yr:

(courtesy Robert H to me)

Shedding the garbage! Deutsche Bank (DB), down 29.8% Credit Suisse (CS), down 31.4% HSBC Holdings (HSBC), down 14.8% Barclays PLC (BCS), down 21.1% UBS Group (UBS), down 20.6% Royal Bank of Scotland Group PLC (RBS), down 20.1% Banco Santander (SAN), down 16.6%

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RUSSIAN AND MIDDLE EASTERN AFFAIRS

 

thousands are massing at the Turkish border ready to enter the fight.  Iran, Hezbollah and the Syrian army are now closing in on Aleppo.  Will Turkey enter the fray?

(courtesy zero hedge

Video Shows Tens Of Thousands Massing At Turkey Border As Russia, Iran Bear Down On Key Syrian City

On Thursday we brought you the latest from Syria, where Hezbollah and the IRGC have encircled Aleppo and cut off rebel supply lines to Turkey.

It was months in the making, but it now appears that the city – Syria’s second largest – will soon be retaken by forces loyal to Bashar al-Assad. As we’ve explained in the past, that would effectively restore the President’s grip on power as he would effectively control most of the country’s urban centers – even if that “control” is tenuous.

Eastern Syria is of course a different story entirely, as ISIS is dug in at Raqqa, the group’s self-styled capital. If the rebels lose Aleppo, it will represent a huge blow to the effort to topple Assad’s government. Saudi Arabia and Turkey know this, which is presumably why Erdogan was busy criticizing the Russian airstrikes that have facilitated the Hezbollah advance yesterday and why Riyadh now says it’s prepared to send in ground troops (to “fight ISIS”).

Now, as the Russian air campaign continues unabated and Shiite fighters advance on the city, civilians are fleeing what they anticipate will be a bloody battle.

“The Russian (air) cover continues night and day, there were more than 250 air strikes on this area in one day,” Hassan Haj Ali, head of Liwa Suqour al-Jabal, a group that fights under the umbrella of the Free Syrian Army, said.

Tens of thousands of Syrians fled an intensifying Russian assault around Aleppo on Friday, and aid workers said they feared the city which once held two million people could soon fall under a full government siege,Reuters writes. “The last 24 hours saw government troops and their Lebanese and Iranian allies fully encircle the countryside north of Aleppo and cut off the main supply route linking the city – Syria’s largest before the war – to Turkey [who says] the aim is to starve the population into submission.”

Now obviously that’s ridiculous. The “aim” is to keep the rebels (some of whom are ISIS fighters) from obtaining guns and TOWs from Turkey where the government in Ankara is desperate to salvage whatever’s left of the effort to oust Assad.

In any event, the fighting looks set to create a new wave of refugees bound first for Turkey and ultimately for a beleaguered Western Europe.

Video footage showed thousands of people, mostly women, children and the elderly, massing at the Bab al-Salam border crossing,” Reuters continues. “Men carried luggage on top of their heads, and the elderly and those unable to walk were brought in wheelchairs.”

Here are the visuals:

Average:

5

GLOBAL ISSUES

Mass Layoffs are returning to the USA and the rest of the world and all the layoffs are in the high income category (courtesy Adam Taggart/Peak Prosperity.com) Mass Layoffs To Return With A Vengeance

Submitted by Adam Taggart via PeakProsperity.com,

Remember the mass layoffs of 2008-2009? The US economy shed millions of jobs quickly and relentlessly, as companies died and the rest fought for survival.

Then the Fed and the US government flooded the banks and the corporate sector with bailouts and handouts. With those giga-tons of liquidity sloshing around, as well as taking on massive amounts of new cheap debt, companies were able to finance their working capital needs, hire workers back, and even buy-back their shares en mass to make themselves look deceptively profitable. The nightmare of 2008 soon became a golden era of ‘recovery’.

Well, 2016 is showing us that that era is over. And as stock prices cease to rise, and in fact fall within many industries, layoffs are beginning to make a return as companies jettison costs in attempt to reduce losses.

Since January 1st, here is a but of subset of the headlines we’ve seen:

Note that nearly all of these companies are in the Energy, Finance and Tech sectors— the three biggest engines of growth, profits and market value appreciation within the economy over the past 7 years.

What will the repercussions be if those three industries go into contraction mode at the same time?

Whatever the specifics may be, the general answer is easy to predict: Nothing good.

This topic has particular relevance to me today, as my former employer Yahoo! just announced that it’s cutting 15% of its workforce (1,700 jobs) and considering putting itself up for sale. This is no shock to me, as I’ve long publicly predicted Yahoo!’s inexorable swirl into irrelevance, but it’s timing is indicative of the new era the economy is now entering.

With its stake in Alibaba, Yahoo! participated in the mania that drove Chinese and other emerging market shares in 2014 through mid-2015. The capital that flooded into the Tech sector in general didn’t hurt, either. Both of these helped mask the business’ broken fundamentals and kept the day of reckoning for its lack of demonstrable progress at bay. But no longer.

As Warren Buffet famously quipped: Only when the tide goes out do you discover who’s been swimming naked. Well, with the collapse of the Asian stock markets last year and the entire global market so far this year, the tide is fast receding and the rot at Yahoo! is now plainly visible to all. How much rot? During its earnings call yesterday, the company announced it’s taking a write-down of $4.5 billion. That’s nearly as much as it made in top-line revenue for all of 2015!

Yahoo! is one of the weaker players in Tech these days, and it’s now stumbling hard. Here at Peak Prosperity, we predict that collapse happens ‘from the outside in’, where the weaker parties fall first, followed by the demise stronger and stronger players. We’ve been seeing that happen internationally over the past year as smaller poorer countries succumbed first to slowing global economic growth, and we’re now seeing larger and more developed countries become desperate (Japan, anyone? How about Italy?). Yahoo! is a similar harbinger for the Tech sector, and is being fast joined by the many Tech companies in the list of headlines above (by the way, there are *many* more Tech companies I could easily add to that list — like HP who announced job cuts of 85,000 last fall).

And there’s good argument to be made that mass layoffs in Tech will be worse today than back in 2008/9. Back then, there were fast-expanding private future behemoths one could jump to: Facebook, Palantir, Uber and the like. Even Google, Netflix and Amazon held up well and were still investing for growth during that period. Today, there is no ready stable of up-and-comers with similar potential to power through a recession.

The ability for those laid-off to find open positions elsewhere will likely be more similar to the 2000 Tech bubble burst. Working in Silicon Valley back then, I was amazed at how fast 101 changed from a crawling bumper-to-bumper experience to an uncrowded freeway. The number of jobs (and thus commuters) that vaporized quickly was astonishing.

And that’s just Tech. As Chris has been warning us loudly, something is deeply amiss in the Financial sector. It’s mind-boggling that the biggest of the “too-big-to-fail” banks, like Citibank and Bank of America, have lost 25% of their market value in a little over 1 month(!). Deutsche Bank has lost over 33% over the same short period. All while the general market is down about 8%.

What these prices are telling us is that something big, ugly and damaging is happening within the banking sector. We just don’t know exactly what yet. And if you remember your history, this is eerily similar to how things went south so quickly in 2008. The banks started catching the sniffles, and soon after, Hank Paulson was on his knees begging Congress for the authority to stave off a full meltdown of the banking system.

And then there’s Energy. Can it be that the price of a barrel of oil was over $70 just 10 months ago? And over $100 five short months before that? Yesterday it was below $30. As we’ve been warning about here at Peak Prosperity, the carnage that collapse in price is going to wreak across the highly-leveraged companies in the Energy sector is going to be biblical. Not to mention the many other sectors that service the energy industry (trucking, housing, retail, infrastructure development, etc). We are just beginning to see the very early-stage ramifications, but in the words of Bachman Turner Overdrive: You ain’t seen nothin’ yet.

Conclusion

My point here is that the worm has turned.

All the stimulus and intervention undertaken by the Fed at all gave us five pleasant years (2010-2104) of rising stock, bond and home prices that allowed us to pretend that the 2008 credit crisis was a one-time event.

2015 proved to be the year that reality intervened. The rocket ride we were on hit its zenith, and things hung precariously there.

2016 is fast proving to be the year that the laws of physics are starting to matter again, and our rocket is now beginning its descent back to Planet Earth. How far we fall this year vs next is still unknown, but the direction of the trajectory is becoming increasingly hard to dispute. And as we lose altitude, we’re going to start losing jobs along with it.

So, for anyone reading this who is a salaried employee, a very important question to ask yourself is: Do I have a Plan B in place if I get unexpectedly laid off this year or next?

I’m not trying to frighten anyone unnecessarily. But I do see the probability of wide-scale jobs losses as materially higher this year than it was just a few short months ago. And with the headlines in the news today, things can easily accelerate further from here.

If you do not have a confidence-inspiring Plan B lined up yet, remember that the best time to plan for crisis is before it arrives. Spend time asking yourself what you would do in the aftermath of a pink slip. Save a greater percentage of your income, line up professional contacts, conduct informational interviews, and develop any needed new skills now — so that if you ever do need to turn to them, they’re already there to support you. A lot of the process for doing this is detailed in our book on career transition, and our related podcasts with career coach Jennifer Winn and the Johnson O’Connor Foundation are helpful resources, too.

Investing in the other Forms of Capital (besides money) that we detail in Prosper! will only help add to your resilience, as well. Especially Emotional Capital. Dealing with job loss is stressful by itself, but potentially doing so in the midst of another punishing Great Recession would place challenging strain on any of us. Working to improve our emotional ability to deal with setback, as well as perhaps doing the same with Social Capital — ensuring you have a community to support you through any tough times, just makes good sense.

 end These large global banks is where the market is most concerned with their high level of credit default swaps. Note that the no 1 concern is Deutche bank, the largest derivative player in the world.  As zero hedge staes, a failure by Deutsche bank, Credit Suisse or the Bank of China will no doubt bring the entire paper financial system to its knees: (courtesy zero hedge) These Are The Banks The Market Is Most Concerned About

While there are numerous financial institutions in the world that are full of hidden NPLs and over-leveraged, trading at extreme levels of risk, the FSA’s “Too-Interconnected-To-Fail” list of systemically critical banks is where global investors’ attention is really focused.

BOM Capital Markets breaks down the world’s most systemically critical financial institutions using their own “special sauce” of CDS levels, CDS term structure, equity price, liquidity, and spread trends.

Frankly, as we explained previously, these are the “Musketeer” banks – one for all and all for one as any system failure in Deutsche, Credit Suisse, or Bank of China will leak immeasurably and contagiously around the world via the interconnectedness of the collateral chains used to fund these behemoths.

end by the end of the day, global financial system risk soared: this may have blown up our European banks as massive collateral would be needed to cover our underwriting banks: (courtesy zero hedge) Global Financial System Risk Is Soaring Worldwide

We warned earlier in the week that the credit risk of the world’s financial institutions were on the rise and that trend has worsened as the week ends.

Global Bank Risk is spiking…

European Bank Risk is blowing out in Core and Peripheral nations…

And China Bank credit risk has broken to new cycle highs..

Some idiocysncratic names to keep an eye on…

Deutsche Bank – Europe’s largest derivatives exposure (and thus epicenter of collapse should things turn out as bad as the bank’s CoCos suggest) – is suffering seriously… It is becomeing very clear that banks are buying protection on DB to hedge their counterparty exposure…

ICBC Bank is among China’s largest banks (depending on the volatility of the day) and as China bank risk soars so China’s sovereign risk is soaring too with devaluation and systemic crisis co-priced into these contracts…

National Commercial Bank – the largest Saudi bank and proxy for The Kingdom’s wealth – is seeing its credit risk explode. As one analyst noted, if NCB has a crisis then Saudi military adevnturism is in grave jeaopardy…

And finally – yes it is spilling over to American banks and their “fortress” balance sheets…

But apart from that “storm in a teacup” – Buy The F**king Dip, right?

end Then late in the day, Bank of America seems to suggest that the party is over: BofA: “The Sense Of Calm Which Had Descended On Markets Has Come To An Abrupt End”

The centrally-planned party is over. Here is BofA’s Kama Sharma explaining why

The sense of calm which had descended on markets in recent weeks has come to an abrupt end.

This time it has been the USD which has been the focal point. Investors continue to rotate through a vicious circle of concerns on China, commodities and US growth and with a still large long position, further near-term USD losses are likely as broader US data momentum remains weak.

Until positioning becomes cleaner, bad news on the US economy will be bad news for the USD. China will once again be back in focus next week with the release of its FX reserves data and though our estimates are for a more modest decline, any relief rally would be an opportunity to sell into.

FX: Financial conditions to hold back the Fed again?

The DXY is on pace for its worst weekly performance since 2009. A weaker-than-expected non-manufacturing ISM report (representing 80% of the US economy) challenged the presumption that the US could weather a contraction in the much smaller manufacturing sector. The dollar has been resilient to slower growth readings and the re-pricing of the Fed Funds curve since end-2015 (Chart 1) which pushed rate differentials against it.

This dislocation suggests there is further room to run, particularly as FOMC members are showing sensitivity to tighter financial conditions, and, a stronger USD. Persistent trade-weighted USD strength in recent months has been a key factor driving tighter financial conditions (Chart 2).

The divergence with rate differentials suggests non-fundamental factors (such as flight-to-quality) could be driving USD strength, making it more likely Fed officials will speak more frequently about it. This poses further downside dollar risk.

The continued wedge between the dollar and rate differentials continues to leave asymmetric risks in the near-term as the market will need to see sustained signs of a US growth turnaround before rethinking Fed policy. Chair Yellen’s Humphrey Hawkins testimony will be a key focus in this regard. Short positioning in CAD, EUR, GBP, and MXN (according to the latest CFTC data dated January 26th). Should Chair Yellen emphasize the theme of the risks from financial conditions and the USD, we would expect further long USD position unwinds in these pairs.

* * *

So much for the “most crowded trade of all time”, as recently as Dec. 15.


end

EMERGING MARKETS

Venezuela is hyperinflating to the tune of 720%.  They now need 36 boeing 747 cargo planes to deliver fiat paper money (bolivars)

(courtesy zero hedge)

Hyperinflating Venezuela Used 36 Boeing 747 Cargo Planes To Deliver Its Worthless Bank Notes

The weeks ago, when we showed “What The Death Of A Nation Looks Like: Venezuela Prepares For 720% Hyperinflation“, we said that after looking at a chart of Venezuela’s upcoming hyperinflation…

…  a hyperinflation in which the soaring stock market has failed to keep pace with the collapsing currency, thereby mocking all erroneous thought experiments that under hyperinflation being long the stock market is a sure hedge to currency destruction…

… we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new currency.

After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices.

This question, as morbidly amusing as it may have been to us if not the local population, became particularly poginant yesterday, when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market.

And, as if on cue, the WSJ answered. As it turns out we were not the only ones wondering how the devastated “socialist paradise” gets its exponentially collapsing paper currency, which in just the past month has lost 17% of its value.

The answer: 36 Boeing 747s.

From the WSJ:

Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy.

But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar.

The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals.

More planes are coming: in December, the central bank began secret negotiations to order 10 billion more bills, five of these people said, which would effectively double the amount of cash in circulation. That order alone is well above the eight billion notes the U.S. Federal Reserve and the European Central Bank each print annually—dollars and euros that unlike bolivars are used world-wide.

This means that Venezuela’s hyperinflation, already tentatively estimated at 720%, will likely add on a few (hundred) zeroes by this time next year. It is also quite likely that Venezuela the country, as we know it now, will no longer exist because once any country is swept up in hyperinflationary rapids two things occur like clockwork: social uprisings and political coups.

But before it gets there, Venezuela’s president Maduro will be busy liquidating the nation’s roughly $12 billion in gold reserves, which his late predecessor fought hard in 2011 to repatriate back to Caracas. Sadly that gold was never meant to stay in Venezuela after all.

Meanwhile, life in Venezuela is disturbingly comparably to that under Weimar Germany, wheelbarrows of cash and all:

While use of credit cards and bank transfers is up, Venezuelans have to carry stacks of cash as many vendors try to avoid transaction fees. Dinner at a nice restaurant can cost a brick-size stack of bills. A cheese-stuffed corn cake—called an arepa—sells for nearly 1,000 bolivars, requiring 10 bills of the highest-denomination 100-bolivar bill, each worth less than 10 U.S. cents.

Rigid state price controls have only made matters worse, economists say, generating a thriving black market for just about every good, from car tires to baby diapers, in which cash is the preferred form of payment.

Adding insult to injury the very process of printing the almost instantly worthless currency costs Venezuela hundreds of millions of dollars.

“The bank-note buying spree is costing the cash-strapped leftist government hundreds of millions of dollars, said all seven of the people, who have been briefed on the deals Venezuela has entered with bank-note producers.”

But it gets even more ridiculous for the government where the largest bill in denomination is 100 Bolivars:

The high cost of the printing binge is an especially heavy burden as Venezuela reels from the oil-price collapse and 17 years of free-spending socialist rule that have left state finances in shambles.

Most countries around the world have outsourced bank-note printing to private companies that can provide sophisticated anticounterfeiting technologies like watermarks and security strips. What drives Venezuela’s orders is the sheer volume and urgency of its currency needs.

The central bank’s own printing presses in the industrial city of Maracay don’t have enough security paper and metal to print more than a small portion of the country’s bills, the people familiar with the matter said. Their difficulties stem from the same dollar shortages that have plagued Venezuela’s centralized economy, as the Maduro administration struggles to pay for imports of everything,including cancer medication, toilet paper and insect repellent to battle the mosquito-borne Zika virus.

That means Venezuela has to buy bolivars from abroad at any cost. “It’s easy money for a lot of these companies,” one of the people with details on the negotiations said.

Venezuela’s misery means a hefty pay day for those who end up printing its worthless currency, among them, the same company which printed Weimar’s own currency:

The huge order for 10 billion notes can’t be satisfied by a single firm, the people familiar with the deals said. So it has generated interest from some of the world’s largest commercial printers, each vying for a piece of the pie at a time when low profits in bank-note printing have pushed many of them to cut back on capacity.

According to the people familiar with the deals, the companies include the U.K.’s De La Rue, the Canadian Bank Note Co., France’s Oberthur Fiduciaire and a subsidiary of Munich-based Giesecke & Devrient, which printed currency in 1920s Weimar Germany, when citizens hauled wheelbarrows of cash to buy bread. More recently, the German technology company was the source of security paper for Zimbabwe when it was stricken in 2008 with a hyperinflation episode in which prices doubled daily.

Wait a minute, why not just print a single 100,000,000 Bolivar note instead of one million 100 bolivar bills? After all the savings on the printing, let along the air freight, to the already insolvent country will be tremendous and allow it to pretend it is not a failed nation for at least a few more days? It is here that the sheer brilliance of the rulers of this socialist paradise shines through:

Currency experts say the logistical challenges of importing and storing massive quantities of bank notes underscore an undeniable truth: Venezuela is spending a lot more than it needs because the government hasn’t printed a higher-denomination bank note—revealing a misplaced fear, analysts say, that doing so would implicitly acknowledge high inflation the government publicly denies.

“Big bills do not cause inflation. Big bills are the result of inflation,” said Owen W. Linzmayer, a San Francisco-based bank-note expert and author who catalogs world currencies. “Larger bills can actually save money for the central bank because instead of having to replace 10 deteriorated notes, you only need five or one,” he said.

The Venezuelan central bank’s latest orders have been exclusively only for 100- and 50-bolivar notes, according to the seven people familiar with the deals, because 20s, 10s, 5s and 2s are worth less than the production cost.

Mr. Maduro and his allies say galloping consumer prices reflect a capitalist conspiracy to destabilize the government.

Well, no, but at this point one may as well sit back and be amused by the idiocy of it all. But at least we will give Maduro one thing: he has done away with the pretense that when push comes to shove, the state and the central bank (and thus commercial banks) are two different things: “the president in late December changed a law to give himself full control over the central bank, stripping congressional oversight just as his political opponents took control of the National Assembly for the first time in 17 years.

Finally, while the rest of the world is wrapped up in such deflationary monetary madness as negative interest rates, Venezuela is subject to monetary lunacy too, only of a far more familiar, hyperinflationary kinds:

A color photocopy of a 100-bolivar bill costs more than the note. In an image that went viral on social media, a diner is shown using a 2-bolivar note to hold a greasy fried turnover because it is cheaper than a napkin.

And before we close this latest chapter on our ongoing chronicle of Venezuela’s complete economic disintegration, we are delighted to find that Kyle Bass’s “nickel” idea has made its way even in this Latin American socialist paradise:

On a recent day, a 46-year-old slum-dweller named Mario walked the streets of a wealthy district of Caracas with a megaphone, calling on residents to sell him their coins, which he gathered into a rolling water cooler. The idea: to melt it down later.

“You can make an amazing ring,” said Mario, who wouldn’t give his last name but said he preferred to go by his nickname, Moneda, or “Coins.”

Now if only Venezuela had a way of exporting some of its hyperinflation to the rest of the world, drowning in “deflation” the result of a few hundred trillion in debt. Actually, fear not: ultimately hyperinflation is easy to achieve – Venezuela is a good example of this; what is difficult is to admit when the current system has failed and when importing 36 Jumbo Jets full of cash is the only solution.

With every passing day, the rest of the “Developed Word” gets one step closer to recreating Venezuela’s experience.

END

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am

Euro/USA 1.1190 down .0009 (Draghi’s jawboning still not working)

USA/JAPAN YEN 116.83 down 0.017 (Abe’s new negative interest rate (NIRP) not working

GBP/USA 1.4538 down .0040

USA/CAN 1.3743 down .0014

Early this FRIDAY morning in Europe, the Euro fell by 9 basis points, trading now just above the important 1.08 level rising to 1.0916; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was up in value (onshore). The USA/CNY down in rate at closing last night: 6.5710 / (yuan up but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)

In Japan Abe went BESERK  with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP   . The yen now trades in a  northbound trajectory as IT settled UP in Japan again by 2 basis points and trading now well BELOW  that all important 120 level to 116.83 yen to the dollar.

The pound was down this morning by 40 basis point as it now trades just above the 1.45 level at 1.4538.

The Canadian dollar is now trading UP 14 in basis points to 1.3743 to the dollar.

Last night, Asian bourses were mixed with Shanghai down 0.63% falling badly in the last hour. All European bourses were mixed  as they start their morning.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade also blowing up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this FRIDAY morning: closed down 225.40 or 1.32%

Trading from Europe and Asia:
1. Europe stocks mixed

2/ Asian bourses mixed/ Chinese bourses: Hang Sang GREEN (massive bubble forming) ,Shanghai in the red by 0.63%  (massive bubble bursting), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the GREEN /

Gold very early morning trading: $1158.65

silver:$14.87

Early FRIDAY morning USA 10 year bond yield: 1.84% !!! down 3 in basis points from last night  in basis points from THURSDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.69 down 1 in basis points from THURSDAY night.  ( still policy error)

USA dollar index early FRIDAY morning: 96.66 up 11 cents from THURSDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers FRIDAY MORNING

OIL MARKETS

The following is quite something.  four days after predicting oil will double, T Boone Pickens sells all of his oil holdings. This is big!!

(courtesy zero hedge)

Four Days After Predicting Oil Will Double, T. Boone Pickens Sells All Oil Holdings

Just four days ago, on Monday afternoon, “legendary” oilman T Boone Pickens said that crude has hit bottom at $26 per barrel, and predicting that prices should double within 12 months.

Pickens then doubled-down on his wrong call from last year, telling CNBC’s “Squawk Box” that oil prices will rise to at least $52 per barrel by the end of the year. That said, he was at least honest enough to admit that his virtually identical call from last year, when he thought prices would strongly rebound, was wrong.

Whether it’s $50 or $70 by the end of 2016 will largely be determined by the global economy, he added reiterating the same flawed thesis he used to justify his bullishness a year ago: “We’re still building inventories, and we will for the next several months. And then we’ll start to draw,” Pickens said. “Once you start to draw, you’re not going to start back building again. The draw will come here in the next few months. It’ll become pretty clear.”

He was wrong then, and he will be wrong this time again for the simple fact that while historically OPEC exercised a rational production strategy, as of the 2014 OPEC Thanksgiving massacre, there is no more OPEC, as can be seen by the relentless attempts by roughly half the members to call an OPEC meeting unsuccessfully, confirming what we said in late 2014 – OPEC no longer exists, which means it is every oil produer for themselves.

Putting T Boone’s forecasts in context, in a CNBC commentary in October, Pickens conceded his prediction for $70 oil by the end of 2015 wasn’t going to happen, because worldwide demand did not go up as much as he thought and supply did not markedly go down. Oil closed the year at $37: his prediction was off by 50%.

* * *

Yet while being merely wrong is excusable, being a “legendary” hypocrite is not.

Earlier today, literally days after he predicted oil would double from its $26 “bottom”, Pickens told Bloomberg that he has cashed out.

But, but, what happened to oil prices will double from their bottom? And did he just liquidate all his holdings just $4 above this so-called bottom?

Well… yes.

Pickens has sold all his oil holdings and is waiting for the best moment to get back in, he said Thursday in an interview on “Bloomberg Go.” With prices low, mid-size U.S. oil companies such as Pioneer Natural Resources Co., Anadarko Petroleum Corp. and Apache Corp. are acquisition targets for larger firms like Exxon Mobil Corp., he said.

So low, that he would be delighted if others first took advantage of these low, low, offers.

But what is most fascinating is that the broken record continues:

“The low is in,” he said. “Just don’t get in a rush here. You’re going to have plenty of opportunity. The market is going to be volatile. it’s not going to go straight up, so there will be good entry points.”

And, at least as far as Pickens is concerned, exit points.

So for anyone who listened to the CNBC and BBG commentator, and bought oil thinking he knows what he is talking about, our condolences:

Pickens won’t start investing again until crude inventories start to fall. In the U.S., commercial stockpiles have risen in 16 of the past 19 weeks and now stand at more than 500 million barrels for the first time since 1930, at the height of the East Texas oil boom.

“I will not re-enter, I’m sure, until we start to draw on inventories,” Pickens said. “That’s a key point.”

And just like that another rider of the dumb-luck momentum trade has been exposed for the “expert” charlatain he is.

Those who wish to waste 10 minutes of their life, can watch the clip below.

http://www.bloomberg.com/api/embed/iframe?id=B~6barp0RXGkDGlnGuXhWA

end It sure looks like the non OPEC sector will see oil production collapse in 2016: (courtesy Patterson/OilPrice.com) Will Non-OPEC Oil Production Collapse In 2016?

Submitted by Ron Patterson via OilPrice.com,

The IEA Oil Market Report, full issue, is now available to the public. Some interesting observations:

Non-OPEC oil supplies are sharply lower in December. Overall supplies are estimated to have slipped by more than 0.6 mb/d from the month prior, to 57.4 mb/d. A seasonal decline in biofuel production, largely due to the Brazilian sugar cane harvest, of nearly 0.4 mb/d was the largest contributor to December’s drop. Production in Vietnam, Kazakhstan, Azerbaijan and the U.S. was also seen easing from both November’s level and compared with a year earlier.Persistently low production in Mexico and Yemen were other contributors to the year-on-year decline.

As such, total non-OPEC liquids output slipped below the year earlier level for the first time since September 2012. A production surge in December 2014 inflates the annual decline rate, but the drop is nevertheless significant should these estimates be confirmed by firm data. Already in November, growth in non-OPEC supply had slipped to 640 kb/d, from as much as 2.9 mb/d at the end of 2014, and 2.4 mb/d for 2014 as a whole. For 2015, supplies look likely to post an increase of 1.4 mb/d for the year, before contracting by nearly 0.6 mb/d in 2016. A prolonged period of oil at sub-$30/bbl puts additional volumes at risk of shut in as realised prices fall close to operating costs for some producers.

The IEA has every month of 2016 Non-OPEC production below the year over year 2015 production.

For the past four years, North America has carried the load as far as the increase in Non-OPEC production is concerned. Now the IEA believes North America will suffer the lion’s share of the decline in 2016.

The IEA says U.S. Gulf of Mexico and NGLs will show an increase in 2016 but every other location will show a decline with Texas showing the largest decline.

The IEA says Non-OPEC production was up 1.3 million bpd in 2015 but will be down 0.7 million bpd in 2016. Below are their numbers. They do not include biofuels or process gain.

2014 51.8
2015 53.1
2016 52.4

The IEA has Non-OPEC liquids in December 2015 down about 650,000 bpd compared to December 2014.

But if the IEA expects Non-OPEC production to be down in 2016, how will world oil production be able to meet the ever rising demand? Simple, just pick up the phone and call OPEC. They will supply the needed barrels.

Data from Rystad Energy show the number of completed wells have by far outpaced the number of wells spudded (drilled) since 4Q14. Indeed, the number of well completions per month continued to increase several months after the rig count started to drop off, peaking at more than 1,600 wells in December 2014. The number of completions are still outpacing the number of new wells drilled, and as a result, the number of uncompleted wells, or the frack-log, has been cut down from its peak of around 4,600 wells hit at the end of 2014 to around 3,700 wells currently.

Make of the above chart what you will. I do not understand the spuds going to zero. Spuds are, quite obviously, not at zero. But then it’s not my chart.

And here are a few charts of my own. I thought it would be interesting to make some comparisons between price, rig count and production. In all charts below the right axis is always color coded with the chart data. All data is through December 2015 unless otherwise noted.

(Click to enlarge)

The above rig count is just the oil rig count, not the total rig count. There is obviously a delay between rig count and production. Just how many months that delay is, is not completely clear.

(Click to enlarge)

All price data is from Index Mundi and is the average of three spot prices; Dated Brent, West Texas Intermediate, and the Dubai Fateh, in U.S. Dollars per Barrel. Quite obviously the rig count follows the price with a delay of from one year to as little as three or four months.

Related:BP Reports Huge Loss As Oil Slump Lingers On

(Click to enlarge)

And production follows price, somewhat, with a delay that is hard to calculate.

(Click to enlarge)

Well, production has followed price in the USA and Canada. But elsewhere everyone just seems to be producing flat out regardless of the price. Just as the price was peaking in early 2011, Non-OPEC production, less USA and Canada, began to decline. Production in this chart is only through October.

The recent surge in world production that was brought about by high prices was a USA and Canadian phenomenon only.

end Oil Rig count plunges by 31 down to 467 and this should cause production to slow down. Texas saw a drop of 19.  Total rig count (oil and gas) crashed by 48 to 571 (courtesy zero hedge) Oil Jumps As US Rig Count Plunges Most Since April

After weeks of modest declines, the US Oil Rig Count plunged by 31 to 467 this week – the biggest drop since April 2015 led by a 19 drop in Texas. Total rig count crashed 48 to 571. The reaction, though muted, was a jump in crude prices.

  • *BAKER HUGHES OIL RIG COUNT FALLS 31 THIS WK TO 467
  • *U.S. TOTAL RIG COUNT DOWN 48 TO 571

A big plunge – tracking lagged crude perfectly…

Led by Texas in absolute terms – but every region is accelerating in the last 6 months…

For now, as Bloomberg reports, production has not budged.  After a year of low oil prices, only 0.1 percent of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience. The analysis, published ahead of an annual oil-industry gathering in London next week, suggests that oil prices will need to drop even more — or stay low for a lot longer — to meaningfully reduce global production. “Since the drop in oil prices last year there have been relatively few production shut-ins,” according to the report. The company, which tracks production and costs at more than 2,000 oilfields worldwide, estimates that another 3.4 million barrels a day of production are losing money at current prices, of about $35 a barrel. It cautioned against expecting further closures, because “many producers will continue to take the loss in the hope of a rebound in prices.” The reaction…

end North Dakota’s economy is completely devastated due to oil’s collapse (courtesy zero hedge) North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse

Yesterday, on the way to documenting the malaise China’s hard landing has inflicted on Minnesota’s mining country, we discussed the dramatic impact falling crude prices have had on the American and Canadian oil patches.

Take Texas, for instance, where a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market.  As we showed in November, layoffs in Lone Star land far outrun job losses in any other state. In Houston (which was already staring down a worsening pension crisis), vacant office space is “piling up.” As WSJ wrote last week, “the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings.”

“The unemployment rate in Texas rose sharply to 9.2% in 1986, an all-time high for the state,” Goldman wrote recently, recalling a previous period of low oil prices in a note entitled “How Bad Can Texas Get?”

“Real house prices fell 30% peak to trough, and the number of bankruptcy filings (including both business and non-business filings) more than doubled from 1984 to 1986,” the bank added.

North of the border, things are even worse. As regular readers are no doubt aware, Alberta is a veritable nightmare as suicide rates rise, the number of jobless multiplies, food bank usage soars, and property crime in Calgary spikes.

“Lower for longer” has been a disaster for many state and local governments in the US, as revenue projections devised before oil’s historic plunge prove increasingly optimistic.

Take Louisiana for example, where Lt. Gov. Jay Dardenne recently announced that the state is facing a $750 million deficit. “Many people are probably wondering how this is possible, given legislators met just six weeks ago to approve a plan to close a nearly $500 million gap that was projected by state analysts,”The Times-Picayune wrote in late December. “Dardenne said he found the number ‘shocking,’ but said it was the state’s best guess at how short on cash the state will be by the end of the fiscal year given several projections that showed things are worse than previously thought.”

Louisiana officials had assumed oil prices around $62 a barrel when calculating projected tax revenue. Needless to say, their projections were slightly off the mark.

Meanwhile, in Alaska, Governor Bill Walker is looking at a $3.5 billion deficit, prompting the state to consider implementing an income tax for the first time in three decades. The new tax would generate about $200 million, based on estimates provided by Walker’s office. “Another of Walker’s proposals, unveiled in November, would divert some of the money from the state’s oil wealth investment fund, or Permanent Fund, which generates the annual payout based on earnings, toward financing state government,” Reuters reported in December. “This year, about 645,000 Alaskans received a Permanent Fund Dividend check for $2,072. A new calculation formula would cut that to about $1,000.”

“If we do nothing, we will empty our savings in the constitutional budget reserve, then we will have to tap into the earnings reserve – which means that in five years, Alaskans would no longer get dividends,” Office of Management and Budget Director Pat Pitney said.

And then there’s North Dakota which, as Bloomberg recalls, “has been the economic envy of every state in America for most of the past decade.”

“It posted the lowest jobless rate, the highest increase in personal income, and the fastest-growing population—all thanks to an historic oil boom that vaulted it past Alaska to become the country’s second-largest producer after Texas,” Bloomberg continues. “Now, amid the worst bust in a generation, North Dakota’s economy is shrinking, employment is falling fast, and the state is imposing the deepest spending cuts in its history to help plug a $1 billion budget deficit.” Here’s more:

With crude prices at 13-year lows, Republican Governor Jack Dalrymple on Feb. 1 ordered 73 state agencies to make 4 percent across-the-board cuts. Patching the deficit, which comes after years of surpluses, will require officials to take $500 million out of a rainy-day fund, leaving it with only $75 million for emergencies. Dalrymple is only the third governor in the state’s 127-year history to dip into the fund.

When state officials were drafting their budget a year ago, they assumed oil prices would range from $47 to $53 a barrel, which they thought was sufficiently pessimistic to cover them against further drops. They were not pessimistic enough. “We never would have guessed it would get down to $28 a barrel,” says Pam Sharp, the state’s budget director.


Taxes on oil production account for only about 5 percent of total state revenue, says David Flynn, chair of the economics and finance department at the University of North Dakota. The real money comes from sales tax revenue, the bulk of which is derived from the sale of equipment and services related to fracking, says Sharp. With prices down, roughly 1,000 wells that have been drilled but not fracked are sitting idle, awaiting the market’s recovery. As a result, the state’s sales tax revenue fell by a fourth during the third quarter of 2015from the same period in 2014. “Sales tax revenue alone is down $700 million from the original forecast,” says Sharp.

According to data from the Bureau of Economic Analysis, North Dakota’s economy shrank 10.4 percent in the first quarter of 2015 and 1.2 percent during the second quarter.

And there’s no respite in the cards.

Storage is overflowing, OPEC is splintered as Saudi Arabia remains generally belligerent on the idea of production cuts and Iran is reluctant to start talking about curtailing supply just as the country is attempting to ramp production back up after years spent languishing under international sanctions.

On the bright side for North Dakota, whose economy has “quite simply been devastated by the dramatic drop in oil prices” (to quote IHS economist Karl Kuykendall), at least no one can take away their new and improved roads.

“So much oil money went to road improvements,” one resident told Bloomberg. “That’s definitely a quality-of-life improvement that will last beyond the boom.”

And with cheap gas, North Dakotans can drive on them all day long.

See, there’s always a silver lining.

end

 

The following is a huge story:  the first warning that Cushing Oklahoma’s refining capacity may be about to overflow:

(courtesy zero hedge)

The First Warning Sign That Cushing May Be About To Overflow

 

To be sure, the rumors have been there for a while.

As we first wrote in March of 2015 when it became a topic of conversation, speculation that Cushing may fill, and even overflow, has been around for nearly 10 months.

As we reported then, there were floating predictions that Cushing may top out as soon as the summer of 2015.

In retrospect, these forecasts underestimated just how “stretchy” US commercial storage can be; they also ignored how many millions of barrels could and would be stored at sea even though the contango in recent months had made such storage virtually unprofitable; the recent change in the US oil exporting law helped, and much of the excess inventories were carted off toward Europe which allegedly has more oil excess capacity than the US.

However, as overproduction continues, even the highly adaptive US storage system appears to be reaching its limits. Recall that the primary reason why Goldman envisions $20 oil as a possibility is because US storage capacity will be reached.

Then yesterday, the EIA itself in a blog post took on the topic of soaring inventories.

This is what it said:

Several factors have played a part in pushing U.S. crude oil prices below $30 per barrel (b), including high inventory levels of crude oil, uncertainty about global economic growth, volatility in equity and nonenergy commodity markets, and thepotential for additional crude oil supply to enter the market. Crude oil and petroleum product inventories, both domestically and internationally, have been growing since mid-2014 and are above five-year averages for this date.

Although there is still traditional, on-land storage space available, higher inventory levels and expectations for global inventories to continue building in 2016 are lowering crude oil and petroleum product prices for near-term delivery:

  • Total U.S. commercial crude oil inventories as of January 29 were 503 million barrels, 132 million barrels above the 2011-15 January average. This marks the first time that U.S. inventories exceeded 500 million barrels.
  • Crude oil inventories at Cushing, Oklahoma, the delivery point for the West Texas Intermediate (WTI) futures contract traded on the New York Mercantile Exchange (Nymex), are 23 million barrels above the five-year average as of January 29.
  • Total U.S. distillate inventories (which include heating oil and diesel fuel) are 22 million barrels above the five-year average, and motor gasoline inventories in the United States also recently moved above historical averages.

But it was only today that we got the loudest alarm bell yet, suggesting that an “overflow” of Cushing may all too real in the not too distant future.

According to Reuters, the unprecedented build-up of surplus crude oil supplies in Cushing, Oklahoma, is beginning to cause logistical headaches for companies moving crude between thousands of steel tanks in the nation’s most important storage hub.

For one company, Enterprise Products Partners, which is a large participant in the Cushing market, this means telling at least some counterparties that it is experiencing delays in delivering crude from its tanks, Reuters said citing three sources who were informed of unspecified “terminalling and pump” issues.

Alarm bell #1:

“The sources attributed the disruptions to the unusually high level of oil collecting in Cushing, the delivery point of the CME Group’s U.S. oil futures contract. Stockpiles have risen to a record 62.4 million barrels as of last week, according to the U.S. Energy Information Administration, just 9 million barrels shy of their theoretical limit.”

“It’s hard to move barrels around right now because there’s so much oil (in Cushing),” said one trader.

And if it’s hard now, imagine what will happen in a few weeks let alone months, when 1-2 million barrels in excess production is dumped in Cushing courtesy of the relentless Saudis and Iranians.

For now at least, it’s not a panic: “The delivery delays are unusual but not severe enough to trigger contractual disputes, one source said. Oil traders routinely pump crude in and out of tanks in Cushing in order to settle futures contracts or create particular blends for refiners. Most trades are usually completed within a month’s time.”

However, that is about to change:

The hiccups may be a sign of things to come as traders fear a further increase in stocks at Cushing would test the upper limits of tanks and cause the next leg of an 18-month rout.

Alarm bell #2:

Enterprise owns just 3.3 million barrels of storage capacity in Cushing, small relative to operators like Enbridge Energy Partners with over 20 million barrels. It is not clear how much space the firm may have leased from other owners. But traders say they remain one of the larger players in that market, and first noticed that something was awry when Enterprise began bidding to buy the Feb/March WTI cash roll earlier on Thursday, indicating that they were potentially short barrels for immediate delivery.

The cash roll, which allows traders to roll their long positions forward, traded at larger volumes at negative $1.00 a barrel on Thursday. Those deals raised questions among market participants as the roll does not actively trade outside of the three-day window after the settlement of the front-month futures contract.

To be sure, this is not the first time the roll was negative: a few weeks ago, during the official roll period, it traded at negative $1.95 a barrel.

However, it is becoming increasingly recurring and certainly more acute.

The problem, the sources say, appears to be related to oil volumes being so high in Cushing that there is not enough room to drain existing tanks to blend oil to West Texas Intermediate specifications.

For now, only the smaller firms are affected which is a useful warning sign. Because if and when the large guys like Enbridge get in trouble and are no longer able to store the millions of barrels on location, we won’t learn about it in advance. Instead what we will see is the price of oil suddenly plunging by 5%, 10% or more percent, as attempts to clear and dump excess inventory spread like wildfire across the market.

So for those who are still long oil on hopes of some major supply disruption, or some miraculous surge in demand, consider this a fair warning that very soon things may change.

Average: And now for your closing FRIDAY numbers:

Portuguese 10 year bond yield:  3.13% up 10 in basis points from THURSDAY

Japanese 10 year bond yield: .027% !! down 3 full  basis points from THURSDAY which was lowest on record!! Your closing Spanish 10 year government bond,FRIDAY down 1 in basis points Spanish 10 year bond yield: 1.64%  !!!!!! Your FRIDAY closing Italian 10 year bond yield: 1.56% up 2 in basis points on the day: Italian 10 year bond trading 12 points lower than Spain. IMPORTANT CURRENCY CLOSES FOR FRIDAY Closing currency crosses for FRIDAY night/USA dollar index/USA 10 yr bond:  2:30 pm   Euro/USA: 1.11141 down .0058 (Euro down 58 basis points) USA/Japan: 116.94 up 0.083(Yen down 8 basis points) still major disappointment to our yen carry traders and Kuroda’s NIRP Great Britain/USA: 1.4493 down .0085 (Pound down 85 basis points) USA/Canada: 1.3883 up 0.0125 (Canadian dollar down 125 basis points with oil being lower in price ) This afternoon, the Euro fell by 58 basis points to trade at 1.1141.(with Draghi’s jawboning not doing much) The Yen fell to 116.94 for a loss of 8 basis points as NIRP is a big failure for the Japanese central bank The pound was down 85 basis points, trading at 1.4493. The Canadian dollar fell by 125 basis points to 1.3883 as the price of oil price fell to around $31.25 per barrel/WTI, down 47 cents). The USA/Yuan closed at 6.5700 the 10 yr Japanese bond yield closed at a record low of .027% Your closing 10 yr USA bond yield: down 3 in basis points from THURSDAY at 1.84%//(trading well below the resistance level of 2.27-2.32%) policy error USA 30 yr bond yield: 2.68 down 2 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error) and did not buy the USA rally today.  Your closing USA dollar index: 97.05 up 49 in cents on the day  at 2:30 pm Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for FRIDAY London: down 50.70 points or 0.86% German Dax: down 107.13 points or 1.14% Paris Cac down 27.86 points or 0.66% Spain IBEX up 31.40 or 0.32% Italian MIB: down 375.78 points or 2.13% The Dow down 211.61  or 1.29% Nasdaq: down 146.41  or 3.25% WTI Oil price; 31.29  at 2:30 pm;  31.03 at 5 pm. Brent OIl:  33.91 USA dollar vs Russian rouble dollar index:  77.54   (rouble is down 69/100 roubles per dollar from yesterday) with the fall in oil This ends the stock indices, oil price, currency crosses and interest rate closes for today. And now for USA stories:

New York equity performances plus other indicators for today:

 

Bloodbathery

Don’t just blindly follow someone else’s path… (FF to 40 seconds for today’s analogy)…

The Nasdaq’s collapse now turns it red since the end of QE3 – joing the rest of the US equity party poopers…

Since The Fed hiked rates, things have not gone according to plan…

As The “Growth” dream is over…

On the week, Nasdaq was boodbath’d but Trannies jumped…

NOTE: Amid all this carnage – VIX remains under 24 and the term structure not inverted – i.e. No Panic

Quite a week for The Dow…

And Nasdaq was the biggest loser on the day… the biggest single-day drop since August’s Black Monday plunge… (Nasdaq lowest close since Oct 2014)

The reaction across asset classes to today’s jobs report…

Financials disappointed as systemic risk surges and Materials’ big mid-week squeeze held its gains…

FANGs are FUBAR…

And Biotechs were battered to 2 Year lows… down 37% from its July 2015 highs…

And finally this happened…

Treasury yields jerked higher on the jobs data only to tumble as traders rotated out of growth stocks…

The USDollar Index crashed by the most since June 2009 this week (despite a bounce today) led by JPY strength (biggest week since Oct 2008!)…

A total fail for The BoJ…

Commodities were mixed on the week with USD weakness sending PMs higher but growth scares driving copper and crude lower..

Gold is “off the lows”

Gold’s best 3-week gain in over a year to near 4-month highs and Silver’s best 3-week run since May 2015…

Stocks and Crude remain highly correlated…

With China closed for a week, we wonder if the buying in gold is perhaps – just perhaps – anticipating a major devaluation by PBOC with public bank holidays already planned… but of course, this weekend will have all eyes glued to China FX outflows.

Charts: Bloomberg

Bonus Chart: Topping Pattern?

end

 

First:  the official numbers from the job report:  a big miss!! yet unemployment slides to 4.9%.  Hourly wages jump suggesting wage inflation which will be troubling to the Fed.

(courtesy BLS/zero hedge)

January Payrolls Miss Big, Adding Only 151,000 Jobs, But Hourly Wages Jump And Unemployment Slides To 4.9%

A quick glimpse at the big miss in the January payrolls report, which just reported only 151,000 jobs gains well below the 190,000 expected and below most big banks’ expectations, if precisely on top of thewhisper number, would have been sufficient to send futures soaring in the pre market: after all it would mean the economy has topped out and no more hikes are necessary.

Additionally, prior months were also revised sharply lower, with the November and October prints of 292K and 252K revised to 262K and 177K, a net loss of 105K jobs in the prior two months.

However, one glance below the headline and things get troubling because if indeed the Fed is most focused on the growth in hourly wages then we may have a problem: average hourly wages jumped by 0.5% – and 2.5% from a year ago – far above last month’s unchanged print, and quite a bounce to the expected 0.2%, suggesting wage inflation is indeed starting to heat up and putting the Fed in a very uncomfortable place.

Then there was the household survey which allegedly added 615,000 jobs, even if the pace of annual increase remains below the benchmark, at just 1.6% Y/Y.

Finally, the unemployment rate dropping to a cycle low of 4.9% is surely not going to help the “there is slack in the work force” argument.

From the report:

Total nonfarm payroll employment increased by 151,000 in January. Employment rose  in several industries, led by retail trade, food services and drinking places,  health care, and manufacturing. Private educational services and transportation  and warehousing lost jobs. Mining employment continued to decline. (See table B-1  and summary table B. See the note at the end of this news release and table A for information about the annual benchmark process.)

Retail trade added 58,000 jobs in January, following essentially no change in December. Employment rose in general merchandise stores (+15,000), electronics and appliance stores (+9,000), motor vehicle and parts dealers (+8,000), and furniture and home furnishing stores (+7,000). Employment in retail trade has increased by 301,000 over the past 12 months, with motor vehicle and parts dealers and general merchandise stores accounting for nearly half of the gain.

Employment in food services and drinking places rose in January (+47,000). Over the year, the industry has added 384,000 jobs.  (Harvey: our famous bartenders and waiters)

Health care continued to add jobs in January (+37,000), with most of the increase occurring in hospitals (+24,000). Health care has added 470,000 jobs over the past 12 months, with about two-fifths of the growth occurring in hospitals.

Manufacturing added 29,000 jobs in January, following little employment change in 2015. Over the month, job gains occurred in food manufacturing (+11,000), fabricated metal products (+7,000), and furniture and related products (+3,000).

Employment in financial activities rose in January (+18,000). Job gains occurred in credit intermediation and related activities (+7,000).

Private educational services lost 39,000 jobs in January due to larger than normal seasonal layoffs.

Employment in transportation and warehousing decreased by 20,000 in January. Most of the loss occurred among couriers and messengers (-14,000), reflecting larger than usual layoffs following strong seasonal hiring in the prior 2 months.

Employment in mining continued to decline in January (-7,000). Since reaching a peak in September 2014, employment in the industry has fallen by 146,000, or 17 percent.

Employment in professional and business services changed little in January (+9,000), after increasing by 60,000 in December. Within the industry, professional and technical services added 25,000 jobs over the month, in line with average monthly gains over the prior 12 months. Employment in temporary help services edged down in January (-25,000), after edging up by the same amount in December.

Employment in other major industries, including construction, wholesale trade, and government, changed little over the month.

The average workweek for all employees on private nonfarm payrolls rose by 0.1 hour to 34.6 hours in January. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime was unchanged at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.8 hours. (See tables B-2 and B-7.)

In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5 percent. In January, average hourly earnings of private-sector production and nonsupervisory employees rose by 6 cents to $21.33. (See tables B-3 and B-8.)

The change in total nonfarm payroll employment for November was revised from +252,000 to +280,000, and the change for December was revised from +292,000 to +262,000. With these revisions, employment gains in November and December combined were 2,000 lower than previously reported. Over the past 3 months, job gains have averaged 231,000 per month. Monthly revisions result from additional reports received from businesses since the last published estimates and the recalculation of seasonal factors. The annual benchmark process also contributed to these revisions.

end Initial reaction:  sell everything as believe it or not they believe more rate hikes in 2016: (courtesy zero hedge) Post-Payrolls Reaction: Sell Everything, Buy Dollars

The most obvious reaction to the “great” drop in the unemployment rate and “huge miss” in payrolls is arise (yes rise) in rate-hike odds for 2016. This appears to be why the Dollar is spiking and bonds, stocks, crude, gold and everything else is being sold…

Sell Mortimer Sell… oh and buy dollars…

end What a joke!!  Of the jobs added,  151,000 a huge 70% or  58,000 was in the minimum wage category and the bulk was in waiters and bartenders at 47,000.  The USA must have more waiters and bartenders than the rest of the world combined: (courtesy zero hedge) 70% Of Jobs Added In January Were Minimum Wage Waiters And Retail Workers

For those curious where the big jump in earnings came from, the answer appears rather simple: the reason, according to the BLS’ breakdown of jobs added in January (per the Establishment survey), of the 151,000 jobs added in the past month, retail trade added 58,000 jobs in January, while employment in food services and drinking places, aka waiters and bartenders, rose by 47,000 in January.

In other words, 70% of the job gains in January went to minimum wage workers.

So how does one explain the snap higher in January wages?

Simple: state regulations demanding higher wages for minimum wage workers starting January 1, which as discussed previously will promptly lead to employers passing on wage hikes to consumers in the form of 10% higher food prices starting in NYC and soon everywhere else.

This is the full breakdown of January job gains:

  • Retail Trade: +58K
  • Leisure and Hospitality, which includes food workers: +44K
  • Professional and business service workers, excluding temp workers: +34K
  • Manufacturing workers posted a curious rebound, rising by +29K. We are confident this number will be revised promptly lower.
  • Construction +18K
  • Wholesale Trade: +9K
  • Education and Health saw a big and unexplained drop from 54K to 6K
  • Information services added just 1K workers
  • As for sectors losing workers included Temp Help workers, Transportation and Warehousing (courtesy of the truck and train recession), Mining and Logging, and Government workers.

Bottom line: the big sequential bounce in wages was driven entirely by the minimum wage increase, and the low December vase effect. Expect this sequential increase to renormalize in February when the base now reflect higher minimum wages.

end Can the BLS explain the manufacturing data? (courtesy zero hedge) Dear BLS, Explain This

Factory orders are collapsing. Inventories are at recession cycle highs. Manufacturing ISM and PMIs are plunging… so Dear BLS, please explain the following chart?

ISM Manufacturing employment has crashed to cycle lows… BLS claims manufacturing added 29k jobs – the most in over a year…

Double-seasonally-adjusted, everything is awessome!! Just don’t tell the real workers in real American factories.

end Since 2007, all of the uSA job gains were the lower paying foreign born workers: (courtesy zero hedge0 Don’t Show Trump This Chart: All Job Gains Since December 2007 Have Gone To Foreign-Born Workers

With the Fed on the verge of a full relent and admission of policy error, the Fed’s “data (in)dependent” monetary policy once again takes on secondary relevance as we progress into 2016. However, even with the overall job picture far less important, one aspect of the US jobs market is certain to take on an unprecedented importance.

We first laid out what that is last September when we said that “the one chart that matters more than ever, has little to nothing to do with the Fed’s monetary policy, but everything to do with the November 2016 presidential elections in which the topic of immigration, both legal and illegal, is shaping up to be the most rancorous, contentious and divisive.”

We were talking about the chart showing the cumulative addition of foreign-born and native-born workers added to US payrolls according to the BLS since December 2007, i.e., since the start of the recession/Second Great Depression.

As usually happens, it is precisely this data that gets no mention following any job report. However, with Trump and his anti-immigration campaign continuing to plow on despite the Iowa disappointment, we are confident that the chart shown below will soon be recognizable to economic and political pundits everywhere.

And here is why we are confident this particular data should have been prominently noted by all experts when dissecting today’s job report: according to the BLS’ Establishment Survey, while 151,000 total workers were added in January, a number which rises to 615,000 if looking at the Household survey, also according to the same Household survey, a whopping 567,000 native-born Americans lost their jobs, far less than the 98,000 foreign-born job losses.

Here is a chart showing native-born non-job gains since the start of the depression:

Alternatively, here are foreign-born worker additions since December 2007:

Putting the two side by side:

And the bottom line: starting with the infamous month when it all started falling apart, December 2007, the US has added just 186,000 native-born workers, offset by 13.5x times more, or 2,518,000, foreign born workers.

If Trump wins New Hampshire and South Carolina, and storms back to the top of the GOP primary polls, expect this chart to become the most important one over the next 10 months.

Source: native-born and foreign-born worker data.

end as is our custom:  your update on our waiter and bartender job rcovery from 207 to now: (courtesy zero hedge) An Update On The Waiter And Bartender Recovery

Since the US manufacturing sector is unofficially in a recession, and since the US service sector is allegedly growing like gangbusters, we are updating our favorite chart showing the bifurcation in the New Abnormal US economy: the job gains by U.S. manufacturing workers on one hand, and by waiters and bartenders on the other.

Here is the cumulative job gains for manufacturers vs waiters and bartenders in the past 12 months…

… and since December 2007.

May the minimum wage waiter and bartender recovery live long and continue to prosper.

end The mouthpiece for the Fed shows how confused the Fed is: (courtesy Hilsenrath/Wall Street Journal/zerohedge) Hilsenrath’s Take: March Rate Hike In Limbo, But “Fed Was Expecting A Slowdown”

Just days after Fed whisperer Goldman Sachs made its first (of many) revisions to its Fed rate hike schedule, and no longer expects a March rate hike (if still somehow seeing 3 rate hikes in 2016), moments ago Fed mouthpiece Jon Hilsenrath reiterated the Fed’s latest favorite catchphrase – that would be “watchfully waiting” for those who haven’t paid attention – , and said that today’s jobs report leave the Fed in limbo when it comes to the March rate hike decision. More importantly perhaps he adds that “Fed officials were expecting a slowdown.” However, when one adds the 105,000 in prior month revisions, was is this big?

As he writes in the WSJ, “Friday’s jobs report likely leaves Federal Reserve officials in a ” watchful waiting” mode as they consider whether to lift short-term interest rates at their next policy meeting in March.”

The reported increase of 151,000 jobs in January was a bit less than Wall Street analysts expected, but still enough to absorb new entrants into the labor force and reduce economic slack. Fed Chairwoman Janet Yellen, in testimony to the Joint Economic Committee of Congress in December, said the economy needed to produce fewer than 100,000 jobs a month to absorb new entrants into the labor force and stabilize unemployment. Fed officials were expecting a slowdown. Payroll gains averaged 279,000 a month in the fourth quarter, too much for an economy that was barely growing.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, said Thursday, “I wouldn’t be surprised if the pace of job gains slowed somewhat, but the gains should be strong enough to put additional downward pressure on the unemployment rate.”

Meantime, the jobless rate decline by 0.1 percentage point to 4.9%, its lowest level since February 2008, reinforces the central theme behind the Fed’s December rate increase–slack in the job market is diminishing and will eventually lead to more wage and inflation pressure.

A 12-cent increase in average hourly earnings, which lifted wages by 2.5% from a year earlier, underscores that theme. The 2.5% increase is small by historical standards, but shows signs of lifting.

Fed officials will be wary of moving in March after the market turbulence of recent weeks. Economic growth was slow in the fourth quarter and appears to be off to a slow start in the first. Officials will want to look at more data in coming weeks to assess whether a slowdown is taking place or, instead, if the trend of 2% annual economic growth remains intact.

The market is betting against a Fed interest-rate increase in March. Still, if officials see new signs of firming inflation or wages before then, or another drop in the unemployment rate in the February jobs report (to be released in early March), or signs of a growth pickup, they might proceed with a rate raise.

Hilsy’t bottom line? “It is likely to be a last-minute decision either way, keeping investors guessing along the way.”

Of course it is, and it will entirely depend on not only China and Crude, but the Dow Jones, which in turn will depend on what the very, very confused Fed will say over the next month and a half.

Welcome to reflexivity hell, Janet.

end If the USA earnings are OK then let the pundits explain the following: (courtesy zero hedge) If Earnings Were “OK” And “We Are In A Bull Market”, This Would Not Happen
  • SHARES OF LIONS GATE ENTERTAINMENT FALL 5 PCT IN EXTENDED TRADE AFTER QUARTERLY RESULTS – RTRS
  • TABLEAU SOFTWARE SHARES TUMBLE 40 PCT IN AFTER HOURS TRADING – RTRS
  • YRC WORLDWIDE SHARES DOWN 16.4 PCT AFTER THE BALL FOLLOWING RESULTS – RTRS
  • SPLUNK INC SHARES DOWN 7.6 PCT IN AFTER HOURS TRADING – RTRS
  • LINKEDIN SHARES EXTEND DECLINE, DOWN 24 PCT AFTER RESULTS, GUIDANCE – RTRS
  • HANESBRANDS SHARES FURTHER ADD TO LOSSES IN EXTENDED TRADE, LAST DOWN 14.9 PCT – RTRS
  • OUTERWALL SHARES FALL 11 PCT IN EXTENDED TRADING AFTER QUARTERLY RESULTS – RTRS
  • GENWORTH SHARES DOWN 16.5 PCT AFTER THE BELL FOLLOWING RESULTS, RESTRUCTURING PLAN
end Linked In collapses to below its IPO price: trading at 117.00 dollars. (courtesy zero hedge) LinkedIn Collapses Below IPO-Day Highs

Well that escalated quickly…

From its $45 IPO price, LNKD soared to $122.70 on its first day of trading… For those that bought it that day, they are now under water as LNKD has crashed 40% after slashing guidance

Two words – Dot… Com.

end And now Amazon crashes to 4 month lows: (courtesy zero hedge) Amazon Crashes To 4 Month Lows, Breaks Key Technical Support As “Growth” Fails

It appears the growth-value divergence is collapsing…

AMZN just failed to hold its 200-day moving average and is down over 5% – 27% off its record highs to 4-month lows…

And the entire FANG dream disappears..

Who’s laughing now?

end We still have 45.5 million USA people on food stamps.  And this is a recovery? (Mike Krieger/Liberty Blizkrieg Blog) Welcome To The Recovery: 1 In 7 Americans (45.5 Million) Remain On Food Stamps

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

The following article from the New York Times is shameful in many ways. While the paper is forced to cover the undeniable fact that real wages for the lowest income Americans have plunged during the so-called “economic recovery” over the past six years, it fails to actually pin blame on the undemocratic, oligarch institution most responsible for this humanitarian crisis: The Federal Reserve.

Of course, I and many others have been saying this for years, but now more than half a decade into what is supposed to be a recovery, people are finally being forced to admit what this really is —  large scale theft.

In fact, Ben Bernanke and his crew of upward wealth distributing academics have pulled off the greatest wealth heist in American history. In its wake we have been left with a hollowed out, asset striped Banana Republic. Thanks for playin’ Main Street. Or more accurately, thanks for being played.

– From the post: The Oligarch Recovery – Study Shows Real Wages Have Plunged for Low Income Workers During the “Recovery”

More than six years into Dear Leader’s glorious economic recovery, 45.5 million Americans, or one in seven, remain on food stamps.

I’d say that’s a problem, but I don’t want to be accused of “peddling economic fiction.”

From Bloomberg:

During the 2007-2009 recession, state and federal governments actively encouraged people like Crofoot to take advantage of the aid. Millions did, and many are still claiming benefits. Enrollment in the Supplemental Nutrition Assistance Program, the formal name for food stamps, remains near record levels, even as the unemployment rate has fallen by half.

“When unemployment was rising people said enrollment would fall sharply when things got better,” said Parke Wilde, an associate professor of nutrition policy at Tufts University in Boston. “That hasn’t happened.”

About 45.4 million Americans, roughly one-seventh of the population, received nutrition aid last October, the most recent month of data. Unemployment was 5 percent that month. The last time joblessness fell to that level, in April 2008, 28 million Americans used food stamps, and the program cost less than half of what the government paid out last year.

There goes Bloomberg News, “peddling that economic fiction” again.

The uneven recovery has swelled the ranks of long-term unemployed and reduced the number of people working or looking for work, further boosting demand. Even for those with jobs, pay may be lower than in the past: In real dollars, SNAP recipients in 2014 had net incomes of $335 a month, the lowest since at least 1989.

Read that over and over and over again. Since 1989. Now here’s a chart of what a gradual transition into oligarch serfdom looks like:

Able-bodied, unemployed adults aged 18-49 who don’t have children are supposed to be limited to three months of food stamp benefits during a 36-month period.That can be extended during tough job markets, a provision that’s boosted the percentage of recipients who fit that description to 10.3 percent in 2014 from 6.7 percent in 2007.

But isn’t the job market supposed to be strong?

I think it’s clear who’s actually peddling economic fiction, and it’s not me.

For more on the oligarch recovery, see:

The Oligarch Recovery – U.S. Military Veterans are Selling Their Pensions in Order to Pay the Bills

Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery”

The Oligarch Recovery – 30 Million Americans Have Tapped Retirement Savings Early in Last 12 Months

The Oligarch Recovery – Study Shows Real Wages Have Plunged for Low Income Workers During the “Recovery”

Another Tale from the Oligarch Recovery – How a $1,500 Sofa Costs $4,150 When You’re Poor

 end I wish all our Chinese friends out there a very happy Chinese New Year. See you on Monday night harvey.

Feb 4/Another huge addition of 8.03 tonnes of gold into GLD/Gold rises again up $16.30 to $1157.60/Credit Suisse has huge loss of 7 billion USA for the year and disappoints the street; no real guidance from them/European bank credit risk rises with the...

Thu, 02/04/2016 - 19:07

Gold:  $1157.60 up $16.30    (comex closing time)

Silver 14.84 up 12 cents

In the access market 5:15 pm

Gold $1155.60

Silver: $14.86

Tomorrow is the jobs report (Non Farm Payrolls), and you know that gold and silver trade with huge volatility on the release of the data.

 

 At the gold comex today, we had a poor delivery day, registering 1 notice for 100 ounces. Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 202.66 tonnes for a loss of 100 tonnes over that period.

In silver, the open interest rose by a gigantic 6,841 contracts up to 164,775. In ounces, the OI is still represented by .824 billion oz or 118% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI rose by a huge 6,982 contracts to 386,167 contracts as gold was up $13.00 with yesterday’s trading.

We had a huge change in gold inventory at the GLD, another  deposit of 8.03 tonnes of gold   / thus the inventory rests tonight at 693.62 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had a small change in inventory, a withdrawal of 381,000 oz and thus/Inventory rests at 308.999 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver rise by 6841 contracts up to 164,775 as silver was up 44 cents with respect to yesterday’s trading.   The total OI for gold rose by 6942 contracts to 386,167 contracts as gold was up $13.00 in price from yesterday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

 

3. ASIAN AFFAIRS

i)Late  WEDNESDAY night/THURSDAY morning: Shanghai UP 1.52%  / Hang Sang UP . The Nikkei DOWN . Chinese yuan (ONSHORE) UP  and yet they still desire further devaluation throughout this year.   Oil lost a bit falling  to 32.21 dollars per barrel for WTI and 34.71 for Brent.  Stocks in Europe so far are all mixed . Offshore yuan trades at 6.5789 yuan to the dollar vs 6.5743 for onshore yuan AS THE SPREAD NARROWS WITH HUGE GOVERNMENT INTERVENTION (SEE BELOW)/  huge volatility is the Chinese markets screams of credit problems; a leaked document suggests that China will not use the lowering of the RRR reserves but instead provide direct yuan injections into the market/JAPAN INITIATES NIRP(LAST THURSDAY NIGHT CREATING HAVOC AROUND THE GLOBE)

 

ii) POBC tightens offshore yuan to spook speculators ahead of the Chinese New year.

The offshore yuan has spiked 800 basis points in 3 weeks.  No doubt that huge amounts of dollars are leaving Chinese shores. (zero hedge)

iii) After a huge 800 basis point spread between offshore and onshore yuan, the POBC intervened last night to shorten the spread to 450 basis points in an attempt to hurt speculators like George Soros and Kyle Bass.  My money will be on Soros and Bass:

( zero hedge)

iv) Sunday is the release of the USA dollar outflows in China. Consensus is around $120 billion.

We have two opposite scenarios as to what will happen with Chinese release of USA dollars outflow to defend the Yuan: Consensus is 120 billion.

i) Michael Harnett/ Bank of America believes that the USA dollar outflow is around $37 billion and if so expect a vicious bear market rally. ii) Goldman Sachs believes it is greater than 185 billion and thus expect a vicious bear market plunge!! important read.. ( zero hedge) 4. EUROPEAN AFFAIRS

i)Grim results for Swiss bank Credit Suisse as it posts a huge 5.8 billion dollars Q4 loss.

The annual loss: 7 billion dollars. Its shares are down 32% this year and 13% today with its share price equal to levels last seen in 1991. They have a rough ride ahead of them: ( zero hedge) ii)Bloomberg reports on the lousy earnings of Credit Suisse and its forward guidance: (Bloomberg)

iii)European bank risk soars to 3 year highs as well as the USA banks.  Big trouble ahead:( zero hedge)

 

iv) The Bank of England cuts its growth forecast.  The Eurozone slashes inflation outlook as Draghi prepares another jawboning to deepen NIRP:

(zero hedge)

v) Take a look at Deutsche bank’s credit default swaps and their contingent convertible bonds.  These bonds are convertible into equity first upon a bail in at the bank.

The bonds are plummeting in value;  Italian banks shares plummeted on news that the banking decree for solving Italian bank problems was put off for another week.

( zero hedge)

vi) Greeks unhappy with the government pension reform initiated a general strike and chaos ensued:

( zero hedge)

vii)  S and P downgrades Glencore to one step above junk.  A junk rating

will cause Glencore to supply more collateral to their derivative trading.  A default at Glencore will cause a massive global derivative mess: ( zero hedge) RUSSIAN AND MIDDLE EASTERN AFFAIRS i)The battle for Aleppo is set to begin.  Assad forces encircle this important city.  Peace talks collapse as this is a major problem for USA middle east policy: ( zero hedge)

ii) Looks like Saudi Arabia is not happy that Aleppo will fall.  They are now ready to send ground troops into Syria which will throw the entire middle east into chaos:

( zero hedge) GLOBAL MARKETS Have fun with this:  The world’s largest containership runs aground as the Baltic Dry Index crashes to 298 ( zero hedge) EMERGING MARKETS

Venezuela has only $10 billion in reserves,  It earns only 8 billion in revenue and yet imports into the country total $37 billion.  It is so hopelessly bust that it looks like we will have a disorderly bankruptcy which will cause harm to many:

(COURTESY London’s Financial times)

 

OIL MARKETS

i) ConocoPhillips reports and it is not pretty:  they are cutting their dividend to 25 cents per share from 74 cents. They reported its biggest quarterly loss in almost 10 years with the drop in crude. The company’s warning to the world is dire:  “we are going to have lower prices for longer”

Another energy giant, Weatherford axes 6,000 workers and 15% of all its workers:

( zero hedge)

 

ii)Yesterday oil spikes on rumours of an OPEC meeting.  Today’s rumour:

Turkey to invade Syria:

( zero hedge)

iii)The shale cost on many counties is less than 30 dollars.  Thus Saudi Arabia if their goal

is to knock out the Americans, they will need to pump more oil, not less: a very important commentary ( Bloomberg./zero hedge)

iv) We now have the real reason for the huge volatility in the price of oil:

the sudden unwinding of a huge 600 million triple levered fund bet on falling oil prices. It created havoc throughout the entire crude complex: (zero hedge)

v)Obama proposes a 10 dollar per barrel tax on oil to fund government transportation investments.

That should help out with oil demand!

( zero hedge)

PHYSICAL MARKETS i)Today’s trading in gold: (zero hedge)

ii) Kuroda claims no limit to Japan’s easing.  It sure looks like his gun is empty:

( Robin Harding/London’s Financial Times)

iii) Lars interviews Ronnie Stoeferle on gold;( Lars schall/Stoeferle/GATA)

 

iv) The biggy event of yesterday:

(Wigglesworth/London’s Financial times)

v)A very important commentary tonight from Bill Holter(Holter Sinclair collaboration)]

The piece is entitled:

“The Great Credit Unwind!”

USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER

 

i) The all important Challenger Christmas Gray layoff report was grim: USA employers plan to layoff 75,114 poor souls.

( Challenger/Christmas,Gray)

 

ii)Initial jobless claims at all month highs;

( BLS/zero hedge)

iii)The following commentary is very important:  the Fed released its senior officer loans report and it shows a tightening bias.  This is the second  straight quarter of tightening and this signals a default cycle is inevitable:

( zero hedge)

iv) USA factory orders tumble 2.9%, worse than expected. The all important inventories to sales ratio soars, and this is a pretty good indicator of a recession ahead of us:( zero hedge)

 

v)No doubt that GLD and SLV are two the ETF’s mentioned in the two anonymous whistleblowers to the SEC:

 From:  Wall Street on Parade: (courtesy Pam Martens/Russ Martens)

vi)OH!OH!  Pacific Capital is liquidating!!( zero hedge)

 

vii) Another important commentary!! Dave Kranzler and Mike Maloney have discovered that the Fed has withdrawn 19 billion from its capital account at the Fed and right now it is deficient by 75% of required funds. Kranzler believes that a major bank has an oil default problem and thus the urgent need of that $19 billion to fill a gaping hole:

( Dave Kranzler/IRD)

viii) Now it is the turn of Linked in to fall in value:

( zero hedge)

Let us head over to the comex:

 

The total gold comex open interest rose to 386,167 for a gain of 6982 contracts as the price of gold was up $13.00 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order as the drop in gold ounces standing for delivery is contracting due to cash settlements.  We now enter the big active delivery month is February and here the OI fell by 541 contracts down to 2691. We had 158 notices filed yesterday, so we lost 383 contracts or an additional 38,300 oz will not stand for delivery. The next non active delivery month of March saw its OI rise by 8 contracts up to 1340. After March, the active delivery month of April saw it’s OI rise by 7,326 contracts up to 276,338.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 205,652 which is fair to good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair to good at 198,837 contracts. The comex is in backwardation until June. 

 

Today we had 1 notice filed for 100 oz. And now for the wild silver comex results. Silver OI rose by 6841 contracts from 157,934 up to 164,775 as  the price of silver was up by 44 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI rose by 11 contracts up to 119.  We had 0 notices filed on yesterday, so we  gained 11 silver contracts or an additional 55,000 oz  will stand in this non active month of February. The next big active contract month is March and here the OI rose by 3,268 contracts up to 105,519.  The volume on the comex today (just comex) came in at 57,272 , which is huge. The confirmed volume yesterday (comex + globex) was very good at 42,799. Silver is not in backwardation at the comex but is in backwardation in London.  We had 0 notices filed for nil oz.

Feb contract month:

INITIAL standings for FEBRUARY

Feb 4/2016

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  nil nil Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz  nil No of oz served (contracts) today 1 contract( 100 oz) No of oz to be served (notices) 2690 contracts

(269,000 oz ) Total monthly oz gold served (contracts) so far this month 787 contracts (78,700 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 480,312.9 oz Today, we had 0 dealer transactions We had 0  customer withdrawals total customer withdrawals; nil  oz We had 0 customer deposits:

Total customer deposits  nil   oz

we had 1 adjustment.

i) Out of Brinks:  400.01 oz was adjusted out of the dealer and into the customer of Brinks:

 

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 7774.663 oz or 0.2418 tonnes in its dealer or registered account. ***JPMorgan now has 699,222.555 or 21.74 tonnes in its customer account. Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 1 contract of which 0 notice was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account.    To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (787) x 100 oz  or 78,700 oz , to which we  add the difference between the open interest for the front month of February (2691 contracts) minus the number of notices served upon today (1) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the February. contract month: No of notices served so far (787) x 100 oz  or ounces + {OI for the front month (2691) minus the number of  notices served upon today (1) x 100 oz which equals 347,700 oz standing in this active delivery month of February ( 10.814 tonnes) We thus have 10.814 tonnes of gold standing and 4.948 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing. Total dealer inventor 159,095.154 or 4.948 Total gold inventory (dealer and customer) =6,515,752.918 or 202.66 tonnes  Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 202.66 tonnes for a loss of 100 tonnes over that period.  JPMorgan has only 21.99 tonnes of gold total (both dealer and customer) end And now for silver FEBRUARY INITIAL standings/

feb 4/2016:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory  591,777.45 oz

Scotia Deposits to the Dealer Inventory nil Deposits to the Customer Inventory 594,934.833 oz

HSBC No of oz served today (contracts) 0 contracts nil oz No of oz to be served (notices) 119  contracts 

595,000 oz Total monthly oz silver served (contracts) 0 contracts nil Total accumulative withdrawal of silver from the Dealers inventory this month nil oz Total accumulative withdrawal  of silver from the Customer inventory this month 3,212,761.2 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

 

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

 

we had 1 customer deposits:

i) Into HSBC:  594,934.833 oz

total customer deposits: 594,934.833 oz

We had 1 customer withdrawal: i)Out of Scotia:  591,777.45 oz  

total withdrawals from customer account 591,777.45   oz 

 we had 0 adjustments:

 

The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (0) x 5,000 oz  = nil oz to which we add the difference between the open interest for the front month of February (111) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing Thus the initial standings for silver for the February. contract month: 0 (notices served so far)x 5000 oz +(111) { OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals 595,000  of silver standing for the February. contract month. we gained 55,000 additional silver ounces standing in this non active delivery month of February. On Friday, we had a massive 7 million oz leave the dealer; yesterday over 2 million oz leaves the customer account. Today a slight net gain Total dealer silver:  28.53 million Total number of dealer and customer silver:   156.277 million oz end The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.

in a little over a week we have had 29.43 tonnes added to the GLD.  Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.

Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes..  In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold.  It would be impossible to find 21 tonnes of physical gold and load the GLD.

Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes

Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43

JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes

jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23

jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.

Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes

 

 

 

Feb 4.2016:  inventory rests at 693.62 tonnes

 

Now the SLV: FEB 4/we had another small withdrawal of 381,000 oz of silver./inventory rests at 308.999 million oz Feb 3.2016: a small withdrawal of 130,000 oz and this is probably to pay fees Inventory rests at 309.380 million oz Feb 2.2016: no changes in inventory at the SLV/inventory rests at 309.510 million oz/ Feb 1/no change in inventory at the SLV/Inventory rests at 309.510 million oz JAN 29//we had another change in silver inventory/another withdrawal of 1.143 million oz of silver./inventory rests at 309.510 million oz JAN 28/no changes in silver inventory at the SLV/Inventory rests at 310.653 million oz Jan 27.2017: no changes to inventory/rests at 310.653 million oz Jan 26.2016: a huge withdrawal of 953,000 oz/silver inventory rests tonight at 310.653 million oz Feb 4.2016: Inventory 308.999 million oz. 1. Central Fund of Canada: traded at Negative 7.5 percent to NAV usa funds and Negative 7.3% to NAV for Cdn funds!!!! Percentage of fund in gold 63.3% Percentage of fund in silver:36.7% cash .0%( feb 4.2016). 2. Sprott silver fund (PSLV): Premium to NAV rises to  +.28%!!!! NAV (feb 4.2016)  3. Sprott gold fund (PHYS): premium to NAV rises to- 0.67% to NAV feb 4/2016) Note: Sprott silver trust back  into positive territory at +.28%/Sprott physical gold trust is back into negative territory at -0.67%/Central fund of Canada’s is still in jail. end

And now your overnight trading in gold, THURSDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe (COURTESY MARK O”BYRNE) Gold Prices To 3 Month High As Investors Sell Risky Assets

By Mark O’ByrneFebruary 4, 20160 Comments

Gold prices have continued to eke out further gains today. The very poor ISM data yesterday saw the dollar fall against all major currencies and particularly gold.

Bullion is seeing safe haven flows and gains due to increased concerns about the economic outlook. The narrative that the US economy is in recovery is coming into doubt. The weaker than expected ISM data showed a