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Updated: 8 hours 56 min ago

Sept 1/ConocoPhillips to lay off 10% of global force/Oil drops 10% as API numbers bearish for oil/Arms index screams of a market crash/SouthKorea’s exports plummet/Dow plummets by 470 points/Bourses around the globe deeply negative/Comex bleeds silver...

Tue, 09/01/2015 - 19:15

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1138.70 up $7.10   (comex closing time)

Silver $14.61 up 4 cents.

In the access market 5:15 pm

Gold $1140.00

Silver:  $14.60

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

 

At the gold comex today on first day notice, we had a poor delivery day, registering only 1  notice for 100 ounces  Silver saw 46 notices for 230,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 224.56 tonnes for a loss of 78 tonnes over that period.

In silver, the open interest fell by 1488 contracts despite the fact that silver was up in price by 3 cents yesterday. Again, our banker friends used the opportunity to cover as many silver shorts as they could.  The total silver OI now rests at 157,158 contracts   In ounces, the OI is still represented by .785 billion oz or 112% of annual global silver production (ex Russia ex China).

In silver we had 46 notices served upon for 230,000 oz.

In gold, the total comex gold OI collapsed to 411,956 for a loss of 1202 contracts. We had 1 notice filed on second day notice for 100 oz today.

We had no change  in tonnage at the GLD today/  thus the inventory rests tonight at 682.59 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold.  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 will be the FRBNY and the comex.   In silver, we had no change in silver inventory at the SLV/ Inventory rests at 325.922 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver fall by 1488 contracts down to 157,158 despite the fact that silver was up by 3 cents in price with respect to Monday’s trading.   The total OI for gold fell by 1292 contracts to 411,956 contracts, as gold was down by $1.50  yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3. Five stories on China tonight.  The Chinese markets were somewhat rescued by POBC last night but the Shanghai Composite was still down over 1%.Last week,  the big news was official announcement of China selling its hoard of USA treasuries. China is angry at the USA as they state that the market crash is USA’s fault. Today the yuan was bought in volumes by the POBC and thus wads of USA treasuries were again sold and it also looks like German bunds were also sold.

(Reuters/zero hedge/Dave Kranzler)

4.South Korea’s exports plummet last month.  The numbers set in motion the huge bloodbath from bourses around the world.

(zero hedge)

5. Suddenly the 3rd Greek bailout looks to be in jeopardy

(zero hedge)

6. Russia’s military forces arrive in Syria

(zero hedge)

7. Putin states it is time to depart from using the uSA dollar

(RT)

8.  Hungarian forces try and stop train carrying refugees.

(live feed/zero hedge)

9. Brazil gives up and provides a budget that has a  primary deficit.

They risk their bonds being classified as junk

(zero hedge)

10. ABN Ambro warns today that the ECB may have to increase QE.

That is impossible because there is not enough bonds for them to monetize

(ABN Amro/zero hedge)

11.  Four oil related stories/oil tanks over 5% today.

Canada officially enters a recession with two straight quarters of negative growth. Also ConocoPhillips to cut 10% of global workforce.

(zero hedge/ConocoPhillips)

12 Trading of equities/ New York  (two commentaries from zero hedge)

 

13.  USA stories:

a) VIX surges creating havoc for those who have shorted this volatility vehicle

b) USA national manufacturing PMI falters to a two year low

(Markit/zero hedge)

c) Have we reached peak construction spending?

zero hedge

d) the Death of the Petrodollar

(zero hedge)

e. El Nino set to reappear and this will create havoc.

(Bruce Krasting)

f. Arms index screams of a crash.  it is now 5. Anything above 1 is bearish/anything below 1 is bullish.

(zero hedge)

 

14.  Physical stories:

  1. A good study on the merits of silver….(courtesy Profit Confidential/By • Tuesday, September 1, 2015)
  2. New York Sun’s commentary tonight: a gold standard is probably a lot better than central bankers policy (New York Sun)
  3. Bill Holter explains the significance of the VIX and why we have more shares sold short than shares outstanding (Bill Holter)

Let us head over and see the comex results for today.

The total gold comex open interest fell from 413,158 down to 411,956, for a loss of 1202 contracts as gold was down $1.50 with respect to yesterday’s trading. Seems our specs have been obliterated.  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, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. We now enter the  delivery month of September and here the OI fell by 51 contracts down to 221. We had 4 notices filed yesterday so we lost 47 contracts or 4700 oz will not stand for delivery in this non active month of September. The next active delivery month is October and here the OI fell by 124 contracts up to 27,465. The big December contract saw it’s OI fall by 1971 contracts from 285,815 down to 283,844. The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was estimated at 145,085. The confirmed volume on Monday (which includes the volume during regular business hours + access market sales the previous day was fair at 104,689 contracts. Today we had only 1 notice filed for 100 oz.   And now for the wild silver comex results. Silver OI fell by 1458 contracts from 158,646 down to 157,158 despite the fact that  silver was up by 3 cents in price yesterday . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month. Today we witnessed a rather large contraction in OI. The bankers continue to pull their hair out trying to extricate themselves from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena (judging from the high volume every day at the comex). We are now in the active delivery month of September. Here the OI fell by 519 contracts to 1,679. We had 167 notices filed yesterday, so we lost 352 contracts or an additional 1,760,000 oz will not stand for delivery in this active delivery month of September. The estimated volume today was estimated at 34,213 contracts (just comex sales during regular business hours).  The confirmed volume on Monday (regular plus access market) came in at 32,650 contracts which is weak in volume. We had 46 notices filed for 230,000 oz.

September contract month:

Initial standings

September 1.2015

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz 4,851.10 oz Scotia,Manfra) oz Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz 3,574.669 oz (Delaware)_ No of oz served (contracts) today 1 contract  (100 oz) No of oz to be served (notices) 220 contracts (22,000 oz) Total monthly oz gold served (contracts) so far this month 5 contracts(500 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 5119.6   oz  Today, we had 0 dealer transactions Total dealer withdrawals:  nil oz we had 0 dealer deposits total dealer deposit:  zero We had 2 customer withdrawals: i) Out of Manfra; 610.85 oz ii) Out of Scotia:  4340.25 oz total customer withdrawal:  4951.10 oz We had 1 customer deposits:  i)into Delaware:  3574.669 oz

Total customer deposit: 3574.669  oz

We had 3  adjustments:  i) Out of Delaware; we had 393.16 oz leave the dealer and this entered the customer account of Delaware; ii)Out of Manfra; 2103.442 oz left the dealer and this entered the customer account of Manfra iii) Out of Scotia: a huge 46,536.906 oz left the dealer account and this entered the customer account of Scotia In total:  49,033.508 oz left all dealers to enter the customer accounts.

JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz)  and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes

. 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 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.   To calculate the final total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (5) x 100 oz  or 500 oz , to which we  add the difference between the open interest for the front month of September (221 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 September contract month: No of notices served so far (5) x 100 oz  or ounces + {OI for the front month (221) – the number of  notices served upon today (1) x 100 oz which equals 22,500 oz  standing  in this month of Sept (.699 tonnes of gold). Total dealer inventory 423,749.579 or 13.18 tonnes Total gold inventory (dealer and customer) =7,219,747.871 or 224.56  tonnes) Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.56 tonnes for a loss of 78 tonnes over that period.   end And now for silver September silver initial standings

September 1 2015:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory 1,948,479.835 oz (Brinks,Delaware,CNT, Scotia,HSBC) Deposits to the Dealer Inventory nil Deposits to the Customer Inventory nil No of oz served (contracts) 46 contracts  (230,000 oz) No of oz to be served (notices) 1632 contracts (8,360,000 oz) Total monthly oz silver served (contracts) 213 contracts (1,065,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month nil Total accumulative withdrawal  of silver from the Customer inventory this month 3,551,833.3 oz

Today, we had 0 deposits into the dealer account:

 

total dealer deposit; nil oz

we had 0 dealer withdrawal: total dealer withdrawal: nil  oz We had 0 customer deposits:

total customer deposits: nil  oz

We had 4 customer withdrawals: i) Out of Brinks:  2,981.300 oz ii) Out of CNT:  617,047.45 oz iii) Out of HSBC: 1,249,735.290 oz iv) out of Scotia; 77,730.110 oz v) out of Delaware; 985.685 oz

total withdrawals from customer: 1,948,479.835  oz

I can now safely say that the comex is bleeding silver to go along with their gold bleeding.

we had 1  adjustments i) Out of Delaware: 85,539.23 oz was removed from the dealer account and this landed into the customer account of Delaware Total dealer inventory: 53.541 million oz Total of all silver inventory (dealer and customer) 168.613 million oz The total number of notices filed today for the September contract month is represented by 46 contracts for 230,000 oz. To calculate the number of silver ounces that will stand for delivery in September, we take the total number of notices filed for the month so far at (213) x 5,000 oz  = 1,065,000 oz to which we add the difference between the open interest for the front month of September (1679) and the number of notices served upon today (46) x 5000 oz equals the number of ounces standing. Thus the initial standings for silver for the September contract month: 213 (notices served so far)x 5000 oz + { OI for front month of August (1679) -number of notices served upon today (46} x 5000 oz ,=9,425,000 oz of silver standing for the September contract month. 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: Sept 1/2015: no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes August 31./no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes August 28.2015:/no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes August 27./ a huge addition of tonnage at the GLD to the tune of 1.49 tonnes/Inventory rests at 682.59 tonnes (I believe that the GLD has now run out of physical gold and they cannot supply China from this vehicle) August 26.2015/ no change in tonnage at the GLD/Inventory rests at 681.10 tonnes August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes. August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes Sept 1/2015 GLD : 682.59 tonnes end

And now SLV:

September 1/no change in inventory over at the SLV/Inventory rests tonight at 325.922 million oz

August 31.a huge addition of 954,000 oz were added to inventory today at the SLV/Inventory rests at 325.922 million oz

August 28.2015: no change in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 27.no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 26.2015/no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 21.2015/ no change in inventory at the SLV/Inventory rests at

324.698 million oz

August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

 

September 1/2015:  tonight inventory rests at 325.922 million oz end   And now for our premiums to NAV for the funds I follow: Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that) 1. Central Fund of Canada: traded at Negative 9.0 percent to NAV usa funds and Negative 8.6% to NAV for Cdn funds!!!!!!! Percentage of fund in gold 63.0% Percentage of fund in silver:36.8% cash .2%( Sept 1/2015). 2. Sprott silver fund (PSLV): Premium to NAV rises to+.52%!!!! NAV (August 31/2015) (silver must be in short supply) 3. Sprott gold fund (PHYS): premium to NAV  rises to – .18% to NAV August 31/2015) Note: Sprott silver trust back  into positive territory at +.50% Sprott physical gold trust is back into negative territory at -.18%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *

>end And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Gold Up 3.5% In August, Stocks Fall 6% to 12%

By Mark O’ByrneSeptember 1, 20150 Comments

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DAILY PRICES
Today’s Gold Prices:  USD 1141.90, EUR 1012.23 and GBP 744.10 per ounce.
Yesterday’s Gold Prices: Bank Holiday in UK
Friday’s Gold Prices:  USD 1,125.50, EUR 998.23 and GBP 730.99 per ounce.
(LBMA AM)

Gold was marginally higher yesterday and closed at $1135.50 per ounce, up $1.10. Silver was 0.3% higher and closed at $14.64 per ounce.

Gold rose 4% in August as stocks globally saw sharp falls on growing concerns about the Chinese and the global economy. Silver was 1% lower for the month of August and  also acted as a hedge from falling stock markets globally.

Asset Performance in August – Finviz.com

Internationally, stocks had their worst month in the last three years. In one of the most volatile trading periods since the financial crisis, August saw $5.7 trillion erased from the value of stocks worldwide and no major stock market was left unscathed.

The S&P 500 was down a significant 6.3% and the Dow Jones Industrial Average ended the month 6.6% lower, while the Nasdaq was down 6.9%. At one stage losses were much higher but a sharp bounce toward the end of the month meant the declines were that as bad as they looked like they would be.

The weak performance of equity markets in August was mirrored across the world’s major financial centres, with the FTSE down 6.7%. The pan-European FTSEurofirst 300 index recorded a monthly loss of 9% – its worst monthly performance since August 2011.

Gold in USD – 30 days

Germany’s DAX was down 9% and posted its worst monthly performance since August 2011. The DAX is currently some 17% below a record high reached in April.

Asian stock markets closed their worst monthly performance in more than three years in August, as shares struggled to recover from a global selloff sparked by worries about China, the Fed and the global economy.

A slowdown in China’s economy, magnified by a surprise devaluation of the Chinese yuan earlier this month, accelerated a rout in Shanghai that spread across the globe, pushing down everything from stocks in the U.S. and Europe, to commodities and emerging market-currencies.

The Nikkei 225 down 8.2% – its biggest monthly decline since January 2014.

The Shanghai Composite Index ended down 12.5% , its third straight month of declines, and a close runner-up to July’s 14% loss, which was the index’s biggest monthly drop since August 2009.

India’s Sensex was down 6.5% in August.

The losses were broad-based as nine out of the 10 S&P sectors in the U.S. fell. Energy stocks were the sole gainers and interestingly oil prices have surged for a third straight day after the OPEC indicated they are prepared to discuss production levels. U.S. benchmark crude surged 8.8% to $49.20 a barrel on the New York Mercantile Exchange. Oil has surged 27% in just three days.

Today came further evidence of a global slowdown when factory gauges from France, Norway and Russia signaled contractions before data from the U.S. that economists predict will show slower growth

Gold served its function as a safe haven in August, rising strongly in the major currencies. Importantly, from a technical perspective gold recorded a monthly higher close which should see ‘trend following’ momentum traders and speculators begin to add to long positions and “to make the trend their friend”.

The ‘Fall’ and September and October can be the ‘cruelest’ months for stocks. Conversely, more years than not, precious metals prices perform well in September and the autumn period. Safe haven demand for bullion internationally remains robust and Indian festival seasonal demand looks set to be healthy as does Chinese New Year demand later in the autumn.

Given the very uncertain financial and economic outlook, it is important that investors remain diversified with healthy allocations to gold.

IMPORTANT NEWS

Gold Jumps 3.4% in August; US Mint Bullion Coins Impress – CoinNews.net
Gold regains shine in August amid market turmoil – Financial Times (registration required)
Oil’s Three Big Days Wipe Out a Month of Losses – Bloomberg
Gold Gains After China Factory Gauge Shrinks to Three-Year Low– Bloomberg
Asian shares slip as downbeat China PMIs revive growth fears – Reuters

IMPORTANT COMMENTARY

Breaking China could cripple us all – Davidmcwilliams.ie
Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report
“Something” Just Happened! – Holter – GoldSeek.com
Gold standard isn’t as crazy as today’s central banking – The New York Sun
If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek

Click on News and Commentary

end

 

A good study on the merits of silver….

(courtesy Profit Confidential/By • Tuesday, September 1, 2015)

 

 

Silver Price Forecast: Here’s Why Silver Prices Could Be Heading a Lot Higher

It doesn’t matter whether you’re a short-term investor or a long-term one, because the one basic rule remains the same.

You buy shares on the downside that have huge upside potential.

But take careful note of what this formula really means. The best investors concentrate on limiting downside as a first step, and only after seriously analyzing the downside risk do they start looking at a stock’s upside potential.

Remember the old proverb about how the best defense is a great offense? Well, market trading is counter-intuitive because it’s often quite the opposite. You really want to be playing more of a defensive game than anything.

What we’re looking at today in commodity markets is a fantastic opportunity to put all this into practice. Silver prices are at a multi-year low, which gives you a good window of opportunity to structure your traders in the grey metal on the low-downside.

Silver Price Forecast: Is Silver About to Hit $35.00?

But why am I advocating for silver here?

Silver is, of course, “real” money just as gold is. Both have been used as historic currencies, and people have been turning to them as safe havens in moments of crisis for centuries. Silver is a fantastic place to park your wealth if you’re worried about devaluation in virtual money and are looking for a disaster-proof insurance policy.

Would it surprise you to find out, then, that silver’s industrial use is more than three times its use for jewelry and as a safe haven? More than half a billion ounces a year are used in the manufacturing of solar panels, electronic equipment, photography, water purification, nanotechnology, biomedical engineering. The amount that went into silver coins and bars was 250 million ounces, while another 215 million ounces went into jewelry.

Translation: if you think of silver in terms of jewelry and coins, think again. Because it’s an extremely important ingredient in high-tech industries.

Silver prices rose from $4.00 per ounce in 2001 to $21.00 per ounce in 2008. Following the 2008 Financial Crisis, silver went into freefall and dropped to $9.00 per ounce before skyrocketing to almost $50.00 per ounce in 2011.

Now, the effects of this drop are felt most keenly by silver producers. In a low-price environment such as the one we are seeing today for silver, these mining companies are getting paid less to do the exact same work with the same expenses. Lots of producers, in fact, had to put a pause on their high-cost mining operations.

But wait, doesn’t a decline in physical disruption mean a smaller supply of actual silver? Furthermore, because of fast expansion of the industries that use silver, along with the grey metal’s slumping price, shouldn’t demand start to rise fast?

Decreased silver production means a smaller supply. And low prices should lead to higher industrial and investment demand. It’s a recipe for higher silver prices to come.

If you look at this year-on-year chart below, it may well have already started.

Chart Courtesy of www.StockCharts.com

As you can see, the rapid drop in silver prices looks to be leveling off as it finds its bottom. Going on historical data, this could well be a sign that silver is poised to rise. If the economic fundamentals we’ve been talking about here are any indication, prices will begin to slowly rise.

Translation: silver shares could skyrocket.

Keep in mind that silver is a commodity, and commodities have a tendency to be volatile. The grey metal may bounce off the bottom for some time before it begins its inevitable climb.

Now, lets talk about the downside risk here of a silver investment. How can you work to reduce it?

It’s fairly simple actually, and you can do it in three ways.

One way is to get into a diversified fund which holds multiple shares of different precious metals companies. This curbs the chance of your hard-earned investment flopping because of one company’s poor performance.

Sponsored Content: (Video) This Stock Market Prediction Will Shock You, But It’s True

Another is to utilize a stop loss. You can simply sell off your shares and take a small loss if silver drops below a level you view as too dangerous.

And finally, you can keep your investment position small. Aim to make your silver investment only one part of your overall investment portfolio so that even in the worst case scenario, you won’t suffer a financial meltdown.

Best of all, even if you implement these risk minimization strategies when silver investing, you are in no way, shape, or form limiting your upside potential.

Even a 100% gain is in the realm of possibility.

So if you have a mind for investing and a nose for good defensive strategies, silver investing might just be for you. When done properly, risk can be reduced substantially without hurting your chances of making big bucks.

Also Read:

Silver Price Forecast: Is Silver Going to $60?

Silver Price Forecast: Here’s Why Silver Prices are About to Soar

Silver Price Forecast: This Could Send Silver Prices Higher in 2016

 

 

 

end

 

 

 

 

(courtesy New York Sun/GATA)

New York Sun: Gold standard isn’t as crazy as today’s central banking

Submitted by cpowell on Tue, 2015-09-01 01:06. Section:

9:05p ET Monday, August 31, 2015

Dear Friend of GATA and Gold:

The New York Sun tonight comments on a conference held in Wyoming by the American Principles Project to counter the one held there annually by the Federal Reserve. Quoting the financial writer Judy Shelton, the Sun says returning to a gold standard would be less crazy than the daily weirdness of today’s central banking. The Sun’s editorial is headlined “‘Crazy’?” and it’s posted here:

http://www.nysun.com/editorials/crazy/89270/

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

end

Remarks from Bill Holter tonight on the VIX:

VIX ETFs Are In Crisis Mode “That’s what happens when there are 64 million shares short and only 52.3 million shares outstanding…”   Bill Holter’s comment.    Briefly and in plain English I would like to explain this to you.  The “VIX” index, otherwise known as the fear “index” has been a major tool of the PPT and Associates in supporting the stock market. A “low” number is indicative of little fear while a high number shows more fear.  In an effort to support equities, this index has clearly been suppressed in price by selling more shares short than even exist.  (Does this sound familiar to gold and silver investors?).  This now poses a VERY BIG PROBLEM!   Plain and simple, with more shares short than exist, a short squeeze for the ages has been set up.  Knowing a big move upward in the VIX is also synonymous with lower stock prices, one can extrapolate (along with many other technical and fundamental weaknesses) a market crash of epic proportions will happen whenever this short squeeze is actually covered.  The “squeeze” has already begun with the VIX running up to 31.8 as of this writing.  The “crash” has also started worldwide if you have been paying attention.  In my opinion, the “short covering” has the potential to push the VIX index to all time high prices.  Greater than 2001, 2008 and even 1987.  Can you guess what this will mean to averages like the Dow Jones, S+P 500 or the NASDAQ??? Standing watch, Bill Holter, Holter-Sinclair collaboration Comments welcome!  bholter@hotmail.com end And now your overnight Tuesday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan rises considerably this  time to   6.365/Shanghai bourse: red and Hang Sang: red

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei down 724.79   or 3.84.%

3. Europe stocks all deeply in the red    /USA dollar index down to  95.54/Euro up to 1.1257

3b Japan 10 year bond yield: falls to .3720% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.07

3c Nikkei now below 19,000

3d USA/Yen rate now just above the 120 barrier this morning

3e WTI:  47.83 and Brent:  52.44

3f Gold up  /Yen up

3gJapan 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 rises  to .777 per cent. German bunds in negative yields from 4 years out.(China must be selling copious amounts of German bunds)

Except Greece which sees its 2 year rate falls to 12.56%/Greek stocks this morning down by 0.17%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 9.16%

3k Gold at $1141.00 /silver $14.56  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 79/100 in  roubles/dollar) 65.01,

3m oil into the 47 dollar handle for WTI and 52 handle for Brent/Saudi Arabia increases production to drive out competition.

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.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9637 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0846 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/

3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.777%

3s The ELA lowers to  89.7 billion euros, a reduction of .7 billion euros for Greece.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.

4. USA 10 year treasury bond at 2.16% early this morning. Thirty year rate below 3% at 2.90% / yield curve flatten/foreshadowing recession.

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

 

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

US Futures Tumble After Latest Abysmal Chinese Economic Data, Crude Surge Stalls

Just like the last time when Chinese flash PMI data came out at the lowest level since the financial crisis, so overnight when both the official Chinese manufacturing and service PMI data, as well as the Caixin final PMI,s confirmed China’s economy has not only ground to a halt but is now contracting with the official manufacturing data the lowest in 3 years and the first contraction in 6 months, stocks around the globe tumbled on concerns another major devaluation round by the PBOC is just around the corner (especially following the unexpected strengthening in the CNY in the past week which has cost China even more billions in reserve outflows) with the drop led by the Shanghai Composite which plunged as much as 4% before, the cavalry arrived and bought every piece of SSE 50 index of China’s biggest companies  it could find, and in a rerun of yesterday sent it to a green close, with the SHCOMP closing just -1.23% in the red. So much for the “no interventions” myth. We wonder which journalist will take the blame for today’s rout.

Despite the latest attempt by Chinese authorities to smooth the drop, Asian equity markets traded lower as the rout in global stocks continued which saw US stocks post its worst month since May 2012 (S&P 500 -0.8%).Nikkei 225 (-3.8%) traded in negative territory in the wake of weak CAPEX (5.6% vs. Exp. 8.8%) figures, while ASX 200 (-2.1 %) is dragged lower by weakness in large banks. JGBs traded higher following the stellar 10yr JGB auction where b/c was at its highest in a year. RBA kept official cash rate unchanged at 2.00% as expected.

In Europe, stocks traded lower since the open in Europe (Euro Stoxx: -3.0%), following on from a negative session for Asian equities, with indices further weighed on by the latest manufacturing PMIs, which generally printed lower than expected (EU Manufacturing PMI 52.3 vs. Exp. 52.4). On a sector specific break down, materials are the session’s laggard amid the latest indication out of China that the country is facing an economic slowdown.

“Markets may have overemphasized China’s impact, but markets are also in relatively bad shape and we’re getting more negative technical signals,” says Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “It’s a close call for the Fed and as long as markets are in turbulence, I don’t think it will raise rates.”

US equity futures were down 40 points at last check, having traded well lower only saved in the last few minutes by yet another violent rebound in the USDJPY, and oil which after crashing 4% earlier has also managed to recoup nearly all losses on even more speculation someone in OPEC is willing to be the first to cut production and push prices higher (hint: nobody will).

Fixed income markets have seen choppy price action in Bunds , with the German benchmark falling during the European morning as it grappled with supply and risk-averse related factors, before paring the losses ahead of the North American open to trade relatively flat, however continuing to underperform its US counterparts, with T-Notes firmly in the green.

Safe-haven related flows were particularly evident in FX during the European morning, where broad based JPY gains saw USD/JPY fall by around 150 pips to break below the 120.00 level, with EUR/JPY breaking below its 100DMA line. At the same time, the resulting USD weakness (USD-Index: -0.4%) supported EUR/USD, which also benefited from the un-wind of carry trade positions.

Elsewhere, commodity sensitive currencies such as AUD, CAD and RUB continued to come under pressure , amid the decline in energy and base metal prices, with WTI and Brent crude futures trading lower by over USD 1.50 heading into the NYMEX pit open after sharp gains seen yesterday.

Going forward, market participants will get to digest the release of the latest US manufacturing PMI, ISM manufacturing and the release of the latest US API crude oil inventories report after the closing bell on Wall Street.

In commodities, WTI and Brent crude futures traded lower amid renewed concerns of a slowdown in China, as well as a paring of the aggressive advance yesterday, which rounded off their largest 3 day gains since 1990. This comes with some market participants downplaying the significance of the OPEC report yesterday. Subsequently, however, oil managed to stage a substantial rebound from the lows and at last check was trading entirely based on what some momentum algo thought it was “worth.”

The metals complex has generally seen weakness today, with most metals lower as a result of Chinese concerns, with the exception gold, which has seen a bout of strength today on the back of USD weakness.

Market Wrap

  • Euro up 0.5% at $1.1271
  • German 10Yr yield down 1bp at 0.79%
  • V2X up 9% at 33.8
  • S&P 500 futures down 2% at 1930.1
  • Brent futures down 2.6% at $52.8/bbl
  • LME 3m Copper down 0.9% at $5091/MT
  • Gold spot up 0.8% at $1143.7/oz

Overnight Media Digest

  • Chinese Caixin Manufacturing PMI ebbed lower to print in contractionary territory, while the official figure printed its lowest level in 3 years and 1st contraction in 6 months
  • Stocks traded lower since the open in Europe, following on from a negative session for Asian equities, with indices further weighed on by the latest manufacturing PMIs
  • Today’s highlights include the latest US manufacturing PMI, ISM manufacturing and the release of the latest US API crude oil inventories report after the closing bell on Wall Street
  • Treasuries rally as stocks, oil and industrial metals fall on weak China eco data; China also said to make banks trading FX forwards hold reserves.
  • PBOC will mandate a deposit of 20% of sales to be held at zero interest for a year on financial institutions trading FX forwards, according to six people familiar with matter
  • U.K. manufacturing growth slipped to 51.5 in August from 51.9 the prior month; firms cites strong pound, weak euro area sales, China’s economic slowdown, Markit said
  • Australia left interest rates unchanged Tuesday as a declining currency cushions the impact of lower commodity prices and a weaker outlook for key trading partner China
  • Greenlight Capital, the investment firm led by David Einhorn, fell 5.3% in its main hedge fund in August as volatility in oil and Chinese stocks rattled markets
  • $63.625b IG priced in August, $10.185b HY deals. BofAML Corporate Master Index holds at +169; reached +172 last week, widest since Sept 2012; YTD low 129. High Yield Master II OAS -2bp to +570; reached +614 last week, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mostly lower. Asian and European stocks side, U.S.equity-index futures decline. Crude oil and coppper lower, gold gains

 

The balance of the overnight wrap comes as usual from Jim Reid

Well today we’re all coming back from a summer holiday and ushering in September. It was clearly one of the most tumultuous Augusts in recent memory but one that ended on the stronger side with Oil climbing into bull market territory after a 3-day rally continued yesterday. We’ll go through a performance review of the month and YTD at the end and publish all the usual charts and table in the pdf. We’ll also repeat the week ahead that Craig published yesterday at the end for those out yesterday. Craig also fully reviewed the weekend’s Jackson Hole news, so for a recap see yesterday’s EMR.

It’s been a less than impressive start to September in Asia this morning where equity bourses have taken another tumble following some more soft PMIs out of China. The official manufacturing PMI for August fell 0.3pts last month to 49.7, in line with expectations but down from 50 last month and the first sub-50 reading since February. The Caixin measures have shown similar pain with the manufacturing PMI reading coming in at 47.3 (vs. 47.1 expected), down 0.5pts from last month and signaling the sixth straight month of contraction in the sector and to the lowest print since March 2009. With also a fall for the Caixin services reading to 51.5 (from 53.8), the composite print has declined 1.4pts to 48.8 and below 50 for the first time this year.

The Shanghai Comp has declined 1.06% into the midday break on the back of the data, although paring earlier losses of more than 4% with the move coming despite a report from the China Securities Regulatory Commission saying that it would encourage companies to increase dividends and stock buy backs in a bid to support the equity market. There’s also been declines for the Shenzhen (-2.85%) and CSI 300 (-1.24%), while the Nikkei (-2.26%), Hang Seng (-0.47%), Kospi (-1.02%) and ASX (-1.33%) have all followed suit. Oil markets have tumbled nearly 3% following yesterday’s rally while S&P 500 futures are over a percent and a half down as we go to print. EM FX markets are generally trading stronger meanwhile, supported by a strengthening of the Yuan fix this morning by the PBoC by the most (+0.22%) since November. The AUD is little moved meanwhile after the RBA kept rates on hold as expected.

Looking back at the price action yesterday, despite the strong surge in Oil it was a weak end to the month in equity markets. A late rebound in oil stocks failed to stop the S&P 500 from closing down 0.84% and in the process marking its biggest monthly slide since May 2012. The DOW (-0.69%) and NASDAQ (-1.07%) saw similar declines yesterday with those indices having their worst months since May 2010 and May 2012 respectively. It was a similar story closer to home where the Stoxx 600 (-0.38%), DAX (-0.38%) and CAC (-0.47%) taking similar legs lower with the falls yesterday coming on the back of more weakness in Chinese equity markets and the comments from Fischer over the weekend which left investors mulling over a higher probability of a September Fed move.

That probability edged up to 42% yesterday from 38% on Friday, although still tracking below the 54% we saw earlier this month. On this theme, yesterday DB’s Peter Hooper reiterated his September liftoff view but noted that the call is very close at this point. Peter believes that there are three key factors which will drive the outcome; fundamental economic developments and prospects (including upcoming data), financial market conditions and thirdly Fedspeak. In his view the strongest case for delaying is uncertainty about inflation prospects, however this is somewhat offset by progress in the labour market. On top of this, recent financial turbulence and global uncertainties make this a close call and caution may dictate accumulating more evidence in the wake of market gyrations. Looking forward, Peter notes that assumptions for a good August employment report, no significant weakness in the August CPI report and markets settling down following the equity volatility of late should help support his September call. However, should these assumptions prove wrong, then the schedule could well slip to December or even 2016.

Back to markets yesterday. 10y Treasury yields surged higher in the last couple of hours of trading, finishing 3.7bps higher at 2.219% and over 8bps off the day’s lows as the Oil complex rallied late in the day. Indeed, Brent finished the session 8.19% higher at $54.15/bbl, over $10 higher than Wednesday’s closing price with the three-day rally of 27% the most in 25 years. WTI (+8.80%) had a similar move higher, closing at $49.20/bbl. Yesterday’s extension of gains is largely being attributed to hints of a potential softer stance from OPEC after reports that the cartel may be ready to talk with other crude exporters to reach ‘fair and reasonable prices’. Also contributing to the price action was the latest US oil output data from the EIA which showed production in June fell to 9.3m barrels a day after peaking at 9.6m in April while the WSJ reported a Kremlin aide as saying that Russia President Putin is set to discuss ‘potential mutual steps’ to stabilize global oil prices with Venezuelan President Maduro on Thursday.

Elsewhere, data flow in the US was a touch on the weaker side yesterday. The August Chicago PMI reading declined 0.3pts to 54.4 (vs. 54.5 expected) while the details revealed some declines in the new orders and production components, as well as the employment, offset by a significant bounce in inventories. The ISM Milwaukee for August also came in below consensus (47.7 vs. 50 expected) although it was up slightly from the 47.1 in July. Meanwhile there was another negative reading for the Dallas Fed manufacturing activity index which fell to -15.8 (vs. -4.0 expected) from -4.6 in July. The reading marks the 8th consecutive negative print while the six-month outlook fell to 3.4 from 18.8 in the prior month.

Despite the slightly softer readings in the US yesterday, dataflow in Europe was slightly more upbeat. The August headline CPI reading was left unchanged at +0.2% yoy after expectations for a fall to 0.1%, while the core was also left unchanged at +1.0% yoy (vs. +0.9% expected). German retail sales for July were strong meanwhile, with the +1.4% mom print ahead of expectations of +1.0% and together with upward revisions to June seeing the annualized rate come in well above consensus estimates (+3.3% yoy vs. +1.7% expected). European sovereign bond yields were little moved following the data however the leg up in Oil helped push the bulk of the region higher later in the session with 10y Bunds closing up 5.6bps at 0.795% and the periphery around 4bps higher.

end

 

Monday night 9:30 pm est/Tuesday morning Shanghai time

Markets open in China: Yuan strengthens again as more treasuries are sold. Markets set to open down considerably!!

 

(courtesy zero hedge)

 

China Strengthens Yuan By Most Since Nov 2014 After PMI Hits 3-Year Low, PBOC Offers “Hope” As A Strategy For Stocks

Having exposed the culprit for all of its economic and market woes, China is likely going to have problems explaining why its economic plague is still spreading (with South Korean exports collapsing and Japanese Capex growth slowing) and China’s official manufacturing PMI slipped into contraction for the first  time in 6 months (to 3 year lows). Amid the face-saving clean-air of Parade Week, the appearance of awesomeness must prevail and following the worst quarter since Lehman, stocks are indicated lower despite having received some ‘help’ into last night’s close. PBOC proxies push ‘hope’ as a strategy for stock stability (even as US markets and oil are re-collapsing) as margin debt drops to an 8-month low – still double YoY though.PBOC fixes Yuan 0.22% stronger- the biggest jump since Nov 2014.

 

China’s bubonic economic plague is spreading…

  • S. KOREA EXPORTS DROP BY MOST SINCE 2009, FALLING FOR 8TH MONTH

 

So guess who will be next to devalue!

*  *  *

But having arrested the culprit for all of China’s market and economic woes, following the worst 3-month slide in stocks since Lehman

 

And with Parade Week under way, the propaganda continues…

  • *PBOC ACADEMIC URGES ATTENTION ON STOCK MKT STABILITY: SEC TIMES

Which, he writes, means market expectations should be optimistic about the economy as they were during the bull market… even though there seems to disconnect between economic fundamentals and the stock market, while the gap between the link, it is the reflection of the policy.

Which roughly translated means – In China, hope is a strategy.. and if you are anything but hopeful you are arrested.

But then China PMI hit…

  • *CHINA MANUFACTURING PMI AT 49.7 IN AUG. – 3 Year Low – The Official PMI in contraction for first time in 6 months.
  • *CHINA NON-MANUFACTURING PMI AT 53.4 IN AUG.

Don’t forget – Hope fills the gap.

So having switched its focus to more economic-growth-focused measures than stock-levitation, $100s of billions later, the economy keeps sliding.

Of course, there is always the unofficial Caixin print at 2145ET to baffle everyone with bullshit.

*  *  *

There is some good news… The delveraging continues:

  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN EIGHT MONTHS
  • Outstanding balance of Shanghai margin lending fell to 673.1b yuan on Monday, lowest level since Dec. 25.
  • Balance dropped by 1.5%, or 10b yuan, from previous day, in a 10th straight decline

But then again, we are not sure if we are allowed to mention that. And in any case – just to screw things up completely, China is goping full subprime in the real estate market…

China may strengthen property loosening andreduce down payment ratio on commercial mortgage loans if property investment remains weak, analysts led byNing Jingbian write in note.

 

Move to boost mkt confidence in short term, though real policy effect may be impaired due to caps on housing provident fund loans

Yeah – because loosening standards and lowering upfronts worked out so well for America’s already inflated housing market.!!

Asian equity markets are not happy…

  • *JAPAN’S NIKKEI 225 MAINTAINS LOSS AFTER CHINA PMI; DOWN 1.5%
  • *CHINA FTSE A50 STOCK-INDEX FUTURES FALL 1% AT OPEN

After two days of stronger Yuan fixes, PBOC goes crazy and drastically strengthens Yuan…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3752 AGAINST U.S. DOLLAR
  • That is the biggest single-day strengthening since Nov 2014…

 

Charts: Bloomberg

end

 

At 11:30 pm est/11:30 am in the morning Shanghai time, stocks are plunging all over the place:

 

 

(courtesy zero hedge)

US & China Stocks Are Plunging After PMI Hits 6.5-Year Low, PBOC Strengthens Yuan Most Since Nov 2014

Following China’s official PMI print at a 3-year low,Caixin’s PMI collapsed to 47.3 – the lowest sinec March 2009. Despite another CNY150bn liquidity injection(but the biggest strengthening of Yuan since Nov 2014 and a financial conditions tightening in FX trading), China, US, and Japanese stocks are plunging… SHCOMP -4%, Dow -280, NKY -340

Carnage!

 

China -4%

 

Dow -280…

 

NKY -340

Japan is now getting worried:

  • *ASO: CHINESE ECONOMY HAS BIG IMPACT ON JAPAN ECONOMY

Blood on the streets again in China…

 

None of this should come as a surprise to anyone as we noted earlier…

*  *  *

And as we detailed earlier…

Having exposed the culprit for all of its economic and market woes, China is likely going to have problems explaining why its economic plague is still spreading (with South Korean exports collapsing and Japanese Capex growth slowing) and China’s official manufacturing PMI slipped into contraction for the first time in 6 months (to 3 year lows). Amid the face-saving clean-air of Parade Week, the appearance of awesomeness must prevail and following the worst quarter since Lehman, stocks are indicated lowerdespite having received some ‘help’ into last night’s close. PBOC proxies push ‘hope’ as a strategy for stock stability (even as US markets and oil are re-collapsing) as margin debt drops to an 8-month low – still double YoY though.PBOC fixes Yuan 0.22% stronger- the biggest jump since Nov 2014 – as it injects another CNY150bn via 7-day rev.repo.

 

China’s bubonic economic plague is spreading…

  • S. KOREA EXPORTS DROP BY MOST SINCE 2009, FALLING FOR 8TH MONTH

 

So guess who wil lbe next to devalue!

*  *  *

But having arrested the culprit for all of China’s market and economic woes, following the worst 3-month slide in stocks since Lehman

 

And with Parade Week under way, the propaganda continues…

  • *PBOC ACADEMIC URGES ATTENTION ON STOCK MKT STABILITY: SEC TIMES

Which, he writes, means market expectations should be optimistic about the economy as they were during the bull market… even though there seems to disconnect between economic fundamentals and the stock market, while the gap between the link, it is the reflection of the policy.

Which roughly translated means – In China, hope is a strategy.. and if you are anything but hopeful you are arrested.

But then China PMI hit…

  • *CHINA MANUFACTURING PMI AT 49.7 IN AUG. – 3 Year Low – The Official PMI in contraction for first time in 6 months.
  • *CHINA NON-MANUFACTURING PMI AT 53.4 IN AUG.

 

“Both domestic and external demand are weak,”said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “Market sentiment is bad and it’s too early to say the Chinese economy is bottoming out.”

 

Don’t forget – Hope fills the gap.

So having switched its focus to more economic-growth-focused measures than stock-levitation, $100s of billions later, the economy keeps sliding.

Of course, there is always the unofficial Caixin print at 2145ET to baffle everyone with bullshit.

*  *  *

There is some good news… The delveraging continues:

  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN EIGHT MONTHS
  • Outstanding balance of Shanghai margin lending fell to 673.1b yuan on Monday, lowest level since Dec. 25.
  • Balance dropped by 1.5%, or 10b yuan, from previous day, in a 10th straight decline

But then again, we are not sure if we are allowed to mention that. And in any case – just to screw things up completely, China is goping full subprime in the real estate market…

China may strengthen property loosening andreduce down payment ratio on commercial mortgage loans if property investment remains weak, analysts led byNing Jingbian write in note.

 

Move to boost mkt confidence in short term, though real policy effect may be impaired due to caps on housing provident fund loans

Yeah – because loosening standards and lowering upfronts worked out so well for America’s already inflated housing market.!!

Asian equity markets are not happy…

  • *JAPAN’S NIKKEI 225 MAINTAINS LOSS AFTER CHINA PMI; DOWN 1.5%
  • *CHINA FTSE A50 STOCK-INDEX FUTURES FALL 1% AT OPEN
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 1.5% TO 3,157.83
  • *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 2.1% TO 3,296.53

After two days of stronger Yuan fixes, PBOC goes crazy and drastically strengthens Yuan…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3752 AGAINST U.S. DOLLAR
  • That is the biggest single-day strengthening since Nov 2014…

 

We are not sure of the implications yet but it seems like a tightening of financial conditions:

  • *PBOC SAID TO MAKE BANKS TRADING FX FORWARDS HOLD RESERVES: RTRS
  • *PBOC FX FORWARD RESERVE RATIO SAID TO BE 20% FOR NOW: REUTERS

 

Charts: Bloomberg

 

end

 

As noted above, China takes steps trying to stabilize the yuan. It now requires 20% holdback on forwards.  This is meant to dampen speculation and keep the yuan from plunging on further devaluations:

(courtesy zero hedge)

China Takes “10 Steps Back,” Slaps 20% Reserve Requirement On Currency Forwards

Overnight, China decided to take steps to reduce “macro financial risks.”

And by that they mean “do something quick to help ease pressure on the yuan” and by extension, on the PBoC’s rapidly depleting FX reserves.

To that end, starting October 15 banks will have to hold the equivalent of 20% of clients’ FX forward positions with the PBoC, where the money will sit, frozen, for a year, at 0% interest.

Obviously, that will drive up the cost of taking speculative positions which the PBoC hopes will help narrow the gap between onshore and offshore yuan and bring down volatility, although the degree to which this will help fill the CNY-CNH spread looks like an open question.

“It’s a move to ease the reduction in foreign-exchange reserves,” Tommy Ong, managing director for treasury and markets at DBS Bank Hong Kong, tells Bloomberg. “It will also remove lots of speculative trades that aim at short-term gains as the reserves have a minimum lock-up period of one year,” adds Stan Chart’s Becky Liu.

Here’s a bit of color from FX strategy desks via Bloomberg:

  • Andy Ji, Singapore-based currency strategist at CBA:
    • This is typical FX control, as it limits the FX forward positions
    • PBOC has intervened before in the forward market, but imposing the 20% limit on outstanding forward position will require less intervention effort
    • Spread on CNY and CNH may not substantially narrow on this move alone, as global demand on dollar remains high and China economic grow remains slow
  • Fiona Lim, Singapore-based senior FX analyst at Maybank:
    • This seems to be another move to discourage yuan forward selling and to lower yuan depreciation expectations
    • Offshore-onshore yuan gap has been pretty persistent because of yuan depreciation expectations and officials want to narrow the gap
    • Gap will be sustained as the economy continues to remain under pressure
  • Becky Liu, senior Asia Rates strategist at Standard Chartered:
    • Move aims to curb speculative onshore positions, anchor onshore forwards and hopefully eventually also bring down offshore forwards
    • This move itself would reduce the need for PBOC to intervene in the onshore market
    • Don’t think it will ease reduction in FX reserves; it basically is just making it a lot more costly to long USD in the onshore market

To the extent that the new currency regime ushered in on August 11 represented a “market-oriented” reform – and that characterization, as evidenced by daily FX interventions, is at best questionable – this move “is 10 steps back,” one Hong Kong trader told Reuters, a suggestion that this isn’t something the IMF will look favorably on when evaluating the yuan’s SDR bid.

In any event, the bottom line is that this requirement will cost banks money, which means the cost of trading for clients will rise and that, China hopes, will translate into less pressure on the yuan and will thus help to curb the FX reserve burn. As we’ve seen with Chinese equity markets, the more draconian the measures the more likely it is that Beijing feels like it’s losing control. As Credit Agricole puts it “while the introduction of reserve requirements for CNY forward trading overnight may help ease the selling pressure on the currency, the measure also reflects the fact that the markets did not really respond to the recent official attempts to prop up the CNY verbally.” In the end, this doesn’t alter any of the dynamics that are causing the depreciation pressure. Rather, it just punishes anyone looking to capitalize off those dynamics. Which we suppose is consistent with Beijing’s general approach to dealing with problems.

end

 

The anatomy of the 2 pm (China time) ramp sparing the Shanghai composite of further losses:

(courtesy zero hedge)

 

Behold China’s 2PM Ramp Capital

For the last few years, US equity traders have become conditioned to expect the miraculous arrival of some heavy-handed levitation in stock markets as 330pmET rolls by. This became ubiquitous enough to inspire a Twitter account. Well, it appears the Chinese have learnt a thing or two from the American manipulators… behold China’s 2pm Ramp Capital at work.

As Bloomberg reports,

Afternoons in the Chinese stock market have turned into a waiting game for the state-backed funds to arrive.

 

Over each of the past four days, China’s SSE 50 Index of large-capitalization companies has rebounded by an average 6.4 percent in late trading from session lows.

 

 

The gauge surged 15 percent over the four-day period, its biggest rally since 2008 and twice the 8.1 percent gain by the Shanghai Composite Index. The SSE 50 climbed 0.9 percent at the close on Tuesday, erasing an earlier loss of 4.8 percent.

 

The rallies are driven by government-backed funds buying shares to stabilize the market before a World War II victory parade on Thursday, according to IG Asia Pte.

Sadly – for the Chinese manipulators – unlike in ‘Murica, where any momentum is good momentum, the ‘burned’ farmers and grandmas are selling into government buying… not buying alongside…

“When you see a straight line buying pattern in the last 45 minutes, that’s usually the national team supporting the market,” said Michelle Leung, chief executive officer of Xingtai Capital Management Ltd. in Hong Kong.

 

“When you track market opens or you track outstanding margin balance, we could see the bulk of retail investors selling.”

And as one analyst warned…

“I don’t expect this intervention to continue in such a successive fashion longer out,” Aw said. “I will still sit tight and await better valuations.”

Welcome to the new normal, China.

end

The mess in the markets we have experiencing lately is not the fault of China

(courtesy Dave Kranzler/IRD)

Blame It On China… September 1, 2015Financial Markets, Market Manipulation, Precious Metals, U.S. Economy, , , ,

Nothing is ever the fault of the “exceptional” United States.  It’s not our fault that we have to spend trillions containing the evil terrorists in the Middle East while we steal their oil and occupy their countries.

And of course it’s China’s fault that the U.S. stock market is all of a sudden finding the gravitational pull of economic, financial and political fundamentals.

China must be the reason that the U.S. stock market has been bought up the highest p/e ratio in history.  Note:  I’m using a p/e ratio based on the way earnings were calculated using GAAP 20 years ago – not today’s garbage GAAP which enables companies to manipulate their accounting to an extreme degree.

I guess it’s China’s fault that almost every public and private pension fund in the U.S. is extraordinarily underfunded.

It’s probably even China’s fault that U.S investors and pensions gobbled up shale oil industry junk bonds like they were going out of style on the assumption that oil would stay above $100/barrel forever.

It’s China’s fault that student debt and auto loans have hit an all-time high in this country.  When housing prices crash again that will be China’s fault too.

I guess when it comes right down to it, it’s China’s fault that Hilary Clinton is being hounded by problems with her use of her personal email to sell U.S. foreign policy decisions to the highest bidder while she was Secretary of State.  Hell, I guess it was China who took a paper towel and wiped clean the hard drive on her personal server.

The fact of the matter is that there was indeed a series of big asset bubbles that formed in China.  But they are no different or more severe than the same asset bubbles that have formed all over the world, including and especially in the United States.  But at least China is trying to address its bubbles.  It was the first to throw its cards on the table and try to let some air out its asset bubbles.  Meanwhile the U.S. continues to defend and inflate its bubbles.

I mean, c’mon on – triple C-rated junk bonds in this country were trading at 4% at one point.  A triple C rating means that the company which issued that debt has a very high probability of going bust.  Triple C-rated paper in the 1990’s traded at yields in the high teens or higher.  More than likely CCC- rated bonds become the new equity of a company when it files for bankruptcy reorganization.  Or it becomes worth pennies on the dollar if the company liquidates.   Triple C-rated paper trading at 4% implies an extreme bubble in the junk bond asset class.  But that’s China’s fault, I guess.

This will not end well for the United States.   The problem with forcing the “blame China” propaganda on the U.S. public is that it inevitably will lead to a scenario in which the U.S.Government’s neocons who run the Department of Defense will justify starting a war with China.  A war with Russia is being started in Syria as I write this.  But that’s China’s fault too…

end

 

Big news of the day was the huge fall in South Korea’s exports to the tune of 14.9%.  The devaluation of China is having quite an effect on South East Asia.  Not only that but the entire global demand seems to be freezing up

(courtesy zero hedge)

Global Trade In Freefall: South Korea Exports Crash Most Since 2009

While the market’s attention overnight was focused on China’s crumbling manufacturing and service PMI, data which was already hinted in the flash PMI reports earlier in August, the real stunner came not from China but from South Korea, which last night reported an unprecedented 14.7% collapse in exports, far worse than the -5.9% consensus estimate, and more than 4 times worse than July’s 3.4%.

The number is critical because not only do exports account for about half of South Korea’s GDP (with Samusng alone anecdotally accountable for 20% of the country’s GDP), but because it also happens to be the first major exporting country to report monthly trade data. That makes it the perfect barometer of global trade flows, or as the case may be, the canary in the global trade coalmine. It also confirms what we reported just one week ago when we said that “Global Trade Is In Freefall“.

 

The carnage in Korean trade is unmistakable in the following Barclays chart:

Putting South Korea plunging trade in context, this was the worst monthly decline since August 2009, and was coupled by an 18.3% tumble in imports, the biggest drop since February. Worse, South Korea may soon run into a true Black Swan: a trade deficit: in August, the country’s trade surplus tightened to just $4.3 billion, one third worse than tha $6.1 billion expected, and nearly less tthan half the $7.7 billion surplus in July, suggesting South Korea may be forced to dip into its reserves next, or finally engage in what many have said is long overdue: the next Asian currency devaluation as China’s FX war spills over to what may be the most important harbinger of global trade.

Furthermore, with one quarter of total Korean exports going to neighbor China, this trade data is a far more accurate indicator of what is happening in China’s economy.

Kim Doo-un, economist at Hana Daetoo Securities in Seoul, told Reuters that Korea’s gloomy picture will not improve unless China’s economy manages to rebound: “The state of the Chinese economy is crucial to South Korean exports but we will not see meaningful improvement there before the end of this year,”  Kim added he sees one more rate cut in South Korea by end-2015 to boost economic activity at home. South Korea’s current policy rate stands at 1.50 percent.

We, on the other hand, anticipate far more aggressive devaluation by the BOK, along the lines of what China recently conducted.

Barclays digs deeper into the abysmal data:

Autos and vessel shipments fell sharply in August, exacerbating the weak underlying trend in petrochemicals, minerals and steel and masking a tentative pick up in electronics. Auto shipments were particularly disappointing, falling 32.4% y/y in August, despite a rising pipeline of new launches. Vessel deliveries also dropped sharply (-24.5%) in August, paying back the one-month surge (+56.7%) in July. Vessels and autos combined made up 4.3pp of the 14.7% headline fall. If we include petrochemicals, minerals and steel, almost 11.4pp of headline fall can be explained. One silver lining in August was that amid the declines, there are signs that electronics shipments may be bottoming out.  Exports of mobile devices and PCs jumped 14.5% and 8.6%, respectively, after declining in July. The drag in household electronics shipments also narrowed. Semiconductors, managed to grow 5.7% (July: +6.2%; June: 2.9%). Ominously, shipments to China, Korea’s largest trading partner, fell more sharply in August, falling 7.6% and extending the 6.4% drop in July, likely owing to slower sales of handsets and autos, and reflecting reduced Chinese purchasing power after the CNY was devalued after 11 August.

Another breakdown showing the drop across virtually all product cateogries comes courtesy of the Y-Y chart from Goldman:

The geographic distribution of the weakness was as follows: shipments to Europe (-7.7%), Japan (-20.9%) and ASEAN (-3%) also remained sluggish in August, although US shipments (+3.4%) did marginally better.

What does this mean for the global economy, aside from the obvious:

Our concern is with the jump in the inventory/shipment ratio to 1.29x in July (June: 1.29x; April-May: 1.27x; March: 1.24x), which leaves it a shade below the Global Financial Crisis record in December 2008 (1.30x). High inventories in both supply chains are likely to weigh on IP in the months ahead, a point underscored by the weak sub-50 Nikkei PMI readings (August: 47.9; July: 47.6)

As for what this means for Korean monetary policy, no surprise here: more easing.

We now expect the BoK to deliver a further 25bp rate cut in Q4, most likely in October. We see an outside chance of an earlier move, at the 11 September meeting, but we continue to believe that the BoK will prefer to move after the initial delivery of the fiscal supplementary spending and the US FOMC meeting on 17-18 September. Also, we now expect the first rate hike in Korea in Q3 16, rather than in late Q1 16. Moreover, with key indicators for the services economy showing a healthy post-MERS rebound, we believe the urgency to act immediately is still low. We believe the existing focus on engineering a weaker KRW bias – possibly by stockpiling essential commodities such as fuel – will remain.

Of course, further easing by South Korea, or even an outright devaluation, means the ball will then be in the court of Korea’s trade competitors, who will then be compelled to match the Korean move with further easing (or devaluation) of their own, and so on, until one can no longer sweep the global recession under the rug. It isn’t called the global race to the bottom for nothing.

To be sure, all of this could have been avoided if as we have sarcastically been commenting for the past year, global central banks had learned to print trade.

For now however, we sit back and wait as South Korea becomes the latest country to join the global currency devaluation bandwagon. We won’t have long to wait.

end If the vote does not go their way, the entire 3rd bailout may be jeopardy (courtesy zero hedge) Third Greek Bailout Suddenly In Jeopardy: Creditors Warn Cash May Be Delayed If Elections Don’t Go As Desired

Just when everyone was convinced that the main “risk off” event of the summer, namely the Greek bailout, was safely tucked away and that having abdicated its sovereignty to its creditors  and Germany in particular, who now hold the Greek banking system hostage courtesy of draconian capital controls, that Greece would continue to receive its monthly cash allotment just so it could repay creditors from its first two bailouts and would not make headlines for the foreseeable future , Market News just reported that suddenly even the Greek bailout is no longer on autopilot as a result of the upcoming elections in three weeks, whose outcome is anything but assured.

According to Market News, “Greece’s international creditors may delay the first review of the country’s bailout until November, multiple EU sources told MNI Tuesday, pushing talks on potential debt relief further down the road as Greece prepares for snap national elections on September 20.”

And just in case it was not clear that Greek sovereignty is now entirely conditional on the Greek people voting precisely as the Troika requires, and for a continuation of the austerity terms delineated in the 3rd Greek bailout, MNI reports that “officials will also stress that any new government that emerges from this month’s poll must meet the current bailout terms in order to release the E3 billion pending from the its first loan tranche and have already warned the interim government to continue with the implementation of prior actions set for September.

In other words more of the same: Greece pretending to reform, creditors pretending to inject funds into the Greek economy:

“Realistically speaking, the inspectors’ return to Greece might be delayed and the first assessment could take place in November instead of October. In such an event I don’t expect talks about another Greek debt relief to run simultaneously,” a top Commission source said. “But the new Greek government will have to implement a new set of milestones before receiving the remaining E3 billion irrespective of who wins.”

As a reminder, Greece and its creditors have yet to define the package of measures that will be attached as milestones and prior actions for the release of the E3 billion.

Furthermore, the biggest hurdle to any Greek formalized bailout, the IMF’s participation, remains anything but resolved: “there is still ambiguity about the involvement of the International Monetary Fund and when it will choose to agree with Greece a third loan programme. But the EU schedule will run irrespective of that.”

Another source said that the IMF’s Poul Thomsen gave recently a background briefing to the Board of Directors of the Fund where “he expressed his scepticism and reservations about the effectiveness of the new bailout and whether the IMF should participate.”

What is perplexing, is that none of this comes as a surprise to the Greek creditors: “EU leadership and Eurozone Finance Ministers knew as early as July that outgoing Prime Minister Alexis Tsipras would call elections within September.”

And here is where things get tricky: “we thought at the time that he (Tsipras) will win again and the everything will go as agreed,” the source said, adding that “now there is background worry about the outcome and the formation of the new (Greek) government, even the possibility of double elections.”

The reason for the worry is that unexpected to many, Syriza’s lead, which as recently as a month ago was seen as insurmountable, has dwindled to almost nothing. As Reuters reported over the weekend, “the gap between Syriza and the conservative New Democracy party has shrunk to 1.5 percentage points, according to a survey by pollster Alco for Sunday’s proto Thema newspaper.The poll gave Syriza 22.6 percent against 21.1 percent for New Democracy, with 79 percent of respondents saying Tsipras had disappointed their expectations and 66 percent believing he was wrong to call early elections.”

But the biggest wildcard may be the Greek youth. Overnight, Bloomberg reported that none other than “Syriza Youth Wing” has withdrawn its support for Tsipras: “We won’t support Syriza in forthcoming elections, nor participate in its election ticket,” majority of Syriza party’s youth wing leadership says in statement posted on its official website.  Instead, the group’s members say will continue fight against bailouts outside Syriza party, citing Alexis Tsipras’s decision to support an austerity-attached agreement with creditors as reason for their departure.

So the question suddenly becomes: if another party does what Syriza did in late 2014 when it promised to end austerity (with results that were very well known), will they win? And who could it be: will it be Varoufakis new “Pan-European anti-austerity” party? Or will Golden Dawn be given the mandate this time? The answer: probably neither, because courtesy of the Greek capital controls, the local population is still beholden to its European overlords courtesy of the ongoing indefinite lockdown on some €120 billion in Greek deposits.

One thing is certain: Greece will be making market-moving headlines once again, months if not years earlier than most had expected.

 end Russia decides to play USA rules.  They state that they are entering Syria to fight the terrorist ISIS (courtesy zero hedge) Russian Military Forces Arrive In Syria, Set Forward Operating Base Near Damascus

While military direct intervention by US, Turkish, and Gulf forces over Syrian soil escalates with every passing day, even as Islamic State forces capture increasingly more sovereign territory, in the central part of the country, the Nusra Front dominant in the northwestern region province of Idlib and the official “rebel” forces in close proximity to Damascus, the biggest question on everyone’s lips has been one: would Putin abandon his protege, Syria’s president Assad, to western “liberators” in the process ceding control over Syrian territory which for years had been a Russian national interest as it prevented the passage of regional pipelines from Qatar and Saudi Arabia into Europe, in the process eliminating Gazprom’s – and Russia’s – influence over the continent.

As recently as a month ago, the surprising answer appeared to be an unexpected “yes”, as we described in detail in “The End Draws Near For Syria’s Assad As Putin’s Patience “Wears Thin.” Which would make no sense: why would Putin abdicate a carefully cultivated relationship, one which served both sides (Russia exported weapons, provides military support, and in exchange got a right of first and only refusal on any traversing pipelines through Syria) for years, just to take a gamble on an unknown future when the only aggressor was a jihadist spinoff which had been created as byproduct of US intervention in the region with the specific intention of achieving precisely this outcome: overthrowing Assad (see “Secret Pentagon Report Reveals US “Created” ISIS As A “Tool” To Overthrow Syria’s President Assad“).

As it turns out, it may all have been just a ruse. Because as Ynet reports, not only has Putin not turned his back on Assad, or Syria, but the Russian reinforcements are well on their way. Reinforcements for what? Why to fight the evil Islamic jihadists from ISIS of course, the same artificially created group of bogeyman that the US, Turkey, and Saudis are all all fighting. In fact, this may be the first world war in which everyone is “fighting” an opponent that everyone knows is a proxy for something else.

According to Ynet, Russian fighter pilots are expected to begin arriving in Syria in the coming days, and will fly their Russian air force fighter jets and attack helicopters against ISIS and rebel-aligned targets within the failing state.

And just like the US and Turkish air forces are supposedly in the region to “eradicate the ISIS threat”, there can’t be any possible complaints that Russia has also decided to take its fight to the jihadists – even if it is doing so from the territory of what the real goal of US and Turkish intervention is – Syria. After all, it is a free for all against ISIS, right?

From Ynet:

According to Western diplomats, a Russian expeditionary force has already arrived in Syria and set up camp in an Assad-controlled airbase. The base is said to be in area surrounding Damascus, and will serve, for all intents and purposes, as a Russian forward operating base.

 

In the coming weeks thousands of Russian military personnel are set to touch down in Syria, including advisors, instructors, logistics personnel, technical personnel, members of the aerial protection division, and the pilots who will operate the aircraft.

The Israeli outlet needless adds that while the current makeup of the Russian expeditionary force is still unknown, “there is no doubt that Russian pilots flying combat missions in Syrian skies will definitely change the existing dynamics in the Middle East.

Why certainly: because in one move Putin, who until this moment had been curiously non-commital over Syria’s various internal and exteranl wars, just made the one move the puts everyone else in check: with Russian forces in Damascus implicitly supporting and guarding Assad, the western plan instantly falls apart.

It gets better: if what Ynet reports is accurate, Iran’s brief tenure as Obama’s BFF in the middle east is about to expire:

Western diplomatic sources recently reported that a series of negotiations had been held between the Russians and the Iranians, mainly focusing on ISIS and the threat it poses to the Assad regime. The infamous Iranian Quds Force commander Major General Qasem Soleimani recently visited Moscow in the framework of these talks. As a result the Russians and the Iranians reached a strategic decision: Make any effort necessary to preserve Assad’s seat of power, so that Syria may act as a barrier, and prevent the spread of ISIS and Islamist backed militias into the former Soviet Islamic republics.

See: the red herring that is ISIS can be used just as effectively for defensive purposes as for offensive ones. And since the US can’t possibly admit the whole situation is one made up farce, it is quite possible that the world will witness its first regional war when everyone is fighting a dummy, proxy enemy which doesn’t really exist, when in reality everyone is fighting everyone else!

That said, we look forward to Obama explaining the American people how the US is collaborating with the one mid-east entity that is supporting not only Syria, but now is explicitly backing Putin as well.

It gets better: Ynet adds that “Western diplomatic sources have emphasized that the Obama administration is fully aware of the Russian intent to intervene directly in Syria, but has yet to issue any reaction… The Iranians and the Russians- with the US well aware- have begun the struggle to reequip the Syrian army, which has been left in tatters by the civil war. They intend not only to train Assad’s army, but to also equip it. During the entire duration of the civil war, the Russians have consistently sent a weapons supply ship to the Russian held port of Tartus in Syria on a weekly basis. The ships would bring missiles, replacement parts, and different types of ammunition for the Syrian army.

Finally, it appears not only the US military-industrial complex is set to profit from the upcoming war: Russian dockbuilders will also be rewarded:

Arab media outlets have recently published reports that Syria and Russia were looking for an additional port on the Syrian coast, which will serve the Russians in their mission to hasten the pace of the Syrian rearmament.

If all of the above is correct, the situation in the middle-east is set to escalate very rapidly over the next few months, and is likely set to return to the face-off last seen in the summer of 2013 when the US and Russian navies were within earshot of each other, just off the coast of Syria, and only a last minute bungled intervention by Kerry avoided the escalation into all out war. Let’s hope Kerry has it in him to make the same mistake twice.

 

end

Putin scenes that the days of the USA is over:

(courtesy RT)  and special thanks to Robert H for sending this to us:

Putin says dump dollar Published time: 1 Sep, 2015 09:06 Russian President Vladimir Putin © Alexei Druzhinin / RIA Novosti Russian President Vladimir Putin has drafted a bill that aims to eliminate the US dollar and the euro from trade between CIS countries.

This means the creation of a single financial market between Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and other countries of the former Soviet Union.

“This would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets”, said a statement from Kremlin.

The bill would also help to facilitate trade in the region and help to achieve macro-economic stability.

Within the framework of the Eurasian Economic Union (EEU) the countries have also discussed the possibility of switching to national currencies. According to the agreement between Russia, Belarus, Armenia and Kazakhstan, an obligatory transition to settlements in the national currencies (Russian ruble, Belarusian ruble, dram and tenge respectively) must occur in 2025-2030.

Today, some 50 percent of turnover in the EEU is in dollars and euro, which increases the dependence of the union on countries issuing those currencies.

Outside the CIS and EEU, Russia and China have been trying to curtail the dollar’s dominance as well.

 

In August, China’s central bank put the Russian ruble into circulation in Suifenhe City, Heilongjiang Province, launching a pilot two-currency (ruble and yuan) program. The ruble was introduced in place of the US dollar.

 

In 2014, the Russian Central Bank and the People’s Bank of China signed a three-year currency swap agreement, worth 150 billion yuan (around $23.5 billion), thus boosting financial cooperation between the two countries.

 

end

Today, over in Hungary, this happened:

(courtesy zero hedge)

 

Meanwhile At Budapest Main Train Station (Live Feed)

In an unprecedented move to stem the tsunami of migrants entering Europe, Hungary has decided to stop all trains at Budapest main train station to stop refugees – most of them from conflict areas such as Syria – from entering the EU onwards to Austria and Germany. For now, there are 1000s of refugees waiting at the station, with entrances blocked by police.

Clashes occurred earlier…

 

And now the police face refugees cordoned off – Live Feed…

 

 

end

 

 

With markets plummeting, ABN Amro now comes out and warns that there is a 40% chance that Mario Draghi will expand QE as soon as this week.

 

One problem:  he will not find enough bonds to monetize.

This would be a complete failure!!

 

 

(courtesy zero hedge)

 

ABN Amro Warns There Is A 40% Chance Mario Draghi Expands ECB QE “As Soon As This Week”

Last week, when we quantified what China’s reserve unwind, aka Treasury liquidation, could mean in practical terms, we quoted Bank of America which put the total Reverse QE figure as we dubbed it (or Quantitative Tightening in DB’s terms), at between $1 trillion and $1.1 trillion.

At the same time, Deutsche Bank added fuel to the fire,when it noted that “the potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows (chart 2). The bottom line is that markets may fear that QT has much more to go.”

Deutsche was kind enough to provide a silver lining to this otherwise dreary forecast: “What could turn sentiment more positive? The first is other central banks coming in to fill the gap that the PBoC is leaving.China’s QT would need to be replaced by higher QE elsewhere, with the ECB and BoJ being the most notable candidates.

And there it is: the only thing that can offset the synthetic inverse QE that China and/or the rest of the EMs embarked on as Zero Hedge first warned last November, is more quite tangible QE conducted elsewhere, ideally at the ECB (which is currently 6 months into its first QE episode), or Japan (although the ceiling to debt monetization there may have been already hit with the BOJ already monetizing more than 100% of all gross issuance) but not the Fed, whose rate hike intentions are what started this entire global reserve liquidation fiasco in the first place.

Fast forward to today, when just two days before the September 3 ECB governing council meeting and press conference, ABN Amro released the genie from the bottle, when its head macro strategist Nick Kounis said the he now sees a much bigger risk that the ECB will step up QE as soon as this week’s meeting. We see this probability at around 40%, so it is an increasingly close call. The renewed drop in oil prices, which will keep headline inflation lower for longer is a key factor behind the rising risk of action in our view. This has also led to a sharp fall in inflation expectations, as measured by the 5y5y inflation swap, that ECB President Draghi has put a lot of weight on in the past (see chart).”

Why only 40%?

Our base case of no further QE ( now with a 60% chance) is still supported by indications that a moderate economic recovery is continuing, and by the bottoming out of core inflation. In any case, we expect Mr. Draghi to step his dovish rhetoric at this week’s meeting.

However, not even Kounis is so bold as to suggest that the Fed will scrap its rate hike strategy and proceed straight to more QE:

we have changed our forecast of the timing of the first rate hike by the Fed to December from September previously. There is still a chance of a move next month, given the ongoing strength in the economy and the labour market. However, we think that the FOMC will take a cautious approach given the ongoing fragility of financial markets (for instance, the VIX is still above its long-run average level). Officials may therefore decide that it makes sense to wait and see rather than risk rocking the boat. In addition, by December, the Fed will also have a better insight into how China and the global economy in general are developing. With inflation subdued it may well judge it can afford to take its time. So overall, we now expect one hike in Fed’s target for the fed funds rate this year, compared to two previously. We continue to expect four rate hikes next year, meaning a one-every other- meeting pace.

What does this mean for asset prices? Well, not much apparently with forecasts for US and German TSYs largely unchanged:

We now expect 10y Bund yields to remain broadly flat over the next few months, with an end of year forecast of 0.7%. Although the economic recovery should gain some pace, ongoing speculation about further ECB monetary easing should keep yields anchored. We still expect yields to rise next year (to 1.6% by end-2016).Meanwhile, we still expect 10y Treasury to rise this year and next, but the rise is likely to be more moderate than before – especially in the next few months – given less Fed hikes. We see yields rising to 2.4% by year end and 2.8% by the end of next year.

Perhaps ABN’s boldest call is on the EUR, which the Dutch bank sees at parity by year end.

All of this is reasonable, and the only fly in the ointment would be if the Fed does indeed take a hard right turn sometime in the next 3 weeks and decided that not only is a rate hike now impossible (and with the global and US economy rapidly stalling, would unleash the ghost of 1937 all over again as we previewed before) and would be in fact destructive to not only the economy but also confidence as measured by the S&P, but potentially pull a Bullard, and hint that should the market drop not stabilize, the Fed is ready to use “unconventional tools”, even if one considers that over the past 7 years, QE has become the most conventional – and only – tool left in the Fed’s arsenal.

Finally, while we agree with ABN that the ECB may indeed boost QE in a rerun of what the BOJ did in the great Halloween massacre of 2014, it would be largely a non-event, as the ECB biggest limitation remains the availability of monetizable assets. As such, any real monetary offset to the Reverse QE that is about to be unleashed now that the “Great Accumulation” is over, is and will always be the Fed. For a quick explanation of this, re-read “Why QE4 Is Inevitable.

 

 

end

 

 

 

Brazil last week reported a contraction in Q2 GDP of 1.9%. This week, they report that July saw their budget deficit climb to .9% of GDP which is absolutely huge and this was a primary deficit  (does not include interest payments). Having a negative primary deficit may influence the rating agencies to lower Brazil’s rating to junk.

(courtesy zero hedge)

Brazil Throws In Towel On Budget; Citi Compares Fiscal Outlook To “Bloody Terror Film”

Late last week, Brazil officially entered a recession as the economy contracted 1.9% in Q2, a quarter in which Brazilians suffered through the worst stagflation in over ten years.

What was perhaps worse than the GDP print however, was budget data for July which was meaningfully worse than expected. “On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive +0.15% of GDP surplus target,” Goldman noted.

We summed the situation up as follows:No primary surplus for you!” 

And while analyzing LatAm fiscal policy doesn’t make for the most exciting reading in the universe, this particular budget battle is critical for a number of reasons, the most important of which is that Brazil’s investment grade credit rating might just depend on it and to the extent the country is forced to concede that it will not, after all, hit its primary surplus target this year, junk status could be just around the corner. Needless to say, if Brazil is cut to junk, that will do exactly nothing to help the country combat a bout of extremely negative market sentiment tied to Brazil’s rather prominent role in the great emerging market unwind.

Sure enough, government sources have now confirmed that embattled President Dilma Rousseff – whose political woes are making it nearly impossible to pass legislation designed to plug gaps – will now submit a 2016 budget proposal that projects a deficit. Here’s Bloomberg:

The Brazilian government will send to Congress Monday a budget proposal for 2016 that projects a primary deficit instead of the previously expected surplus, according to two government sources familiar with the matter.

 

President Dilma Rousseff had earlier abandoned the idea of reviving the so-called CPMF tax on financial transactions after a backlash from politicians and companies, said the sources, who asked not to be named because the negotiations aren’t public. The goal now is to send a budget proposal that is more aligned with the reality of a sharp economic slowdown, according to the sources.

 

Rousseff was alerted by Vice President Michel Temer in the past couple of days that the current political crisis would make it hard to convince the Congress to pass measures such as the CPMF tax. The government had planned to include the revenue collected from the tax in the budget proposal to be sent to lawmakers on Monday, one of the sources said. The president met with some ministers on Sunday to discuss the new budget proposal, according to the source.

Although, as one analyst told Reuters, “the rating agencies are trying to bend over backwards to give Brazil the benefit of the doubt,” there’s only so much they can do, especially considering the fact that no one likely wants to set a precedent of being behind the curve as we enter what may end up being an outright emerging markets crisis. And a bit more color from Bloomberg:

The government foresees a deficit next year excluding interest payments of 30.5 billion reais ($8.4 billion), or about 0.5 percent of gross domestic product, Budget Minister Nelson Barbosa told reporters in Brasilia on Monday. That compares with a target of 2 percent at the beginning of the year and a revised objective of 0.7 percent announced in July.

 

The revision reflects the growing political headwinds Finance Minister Joaquim Levy faces in winning congressional approval for austerity measures and pushes Brazil’s credit rating closer to junk status, said Italo Lombardi, senior Latin America economist at Standard Chartered Bank. The government over the weekend scrapped plans to revive a tax on financial transactions following opposition by congressional leaders.

 

“Politics are making Levy’s life very difficult,” Lombardi said by telephone. “It’s a big red flag and rating agencies would need to show a lot of patience to not downgrade Brazil.”

And that, as they say, is all she wrote for Brazil’s investment grade rating.

We’ll close with the following rather colorful analysis from Citi:

Morning Friends, A Nightmare on Elm Street – one of the scariest movies of my childhood, where Freddy Krueger (a burnt serial killer) used to haunt and execute his victims in their own nightmares, was the origin of asleep nights for many kids of my generation… Well, before I tell you the Nightmares on Via Palacio Presidencial (Brasilia) and what is keeping players asleep, let me voice you that as in any bloody terror film, the villain never dies and the sequels are worse than the initial film. So, the American villain (Fed September Lift-off) is alive, as Vice Chair Fischer suggested over the weekend, sounding less dovish than expected. Also, the Chinese anti-hero (fear of slow growth) never dies, with Korea`s Industrial Production bringing additional woes.

 

As the film says:                     

 

1&2 – Freddy’s coming for you!

 

3&4 – Better lock the door…

 

In the meantime, in our (un)beloved country, there is something scarier than Freddy Krueger: our growth / fiscal outlook. The Growth scenario is haunting and executing our policymakers, with limited ability to halt such negative vortex and took our economic team to revise our GDP forecast to -2.7% (-1.7% previous) in 2015 and to -0.7% (-0.2% prior) in 2016. Mr. Market will price a -3% GDP growth figure in 2015… This damaging growth scenario will undermine the political capability to implement any fiscal austerity measure and will undermine the already bloody fiscal situation. With no growth and no fiscal measures, the primary fiscal figure for 2015 & 2016 will be scarier than Freddy Krueger & Jason together… Our view is that the 2015 primary fiscal print will be a deficit of -0.7% GDP (-0.3% previous) and  -0.1% GDP (+0.3% prior) deficit in 2016. Wires are mentioning that the government will send a draft budget proposal with a primary DEFICIT of 0.50% GDP (+0.70% primary SURPLUS target), with the proposal of reintroduction of the financial tax transaction being defeated and President Dilma not approving further spending cuts. The Nightmares on Via Planalto Presidencial must be keeping a lot of kids asleep.

 

Rates are trading 10/51bps wider on back of such bloody fiscal news as Players are pricing the downgrade from the Investment Grade level before year end. As the film says:                     

 

1&2 – Freddy’s coming for you!

 

3&4 – Better lock the door…

end Canada enters a recession as its economy shrinks for the 2nd straight quarter on oil problems: (courtesy Bloomberg/Greg Quinn) Sept 1.2015: Canada Economy Shrinks for 2nd Straight Quarter on Oil Shock

Canada’s economy shrank again in the second quarter as plunging oil prices triggered a drop in investment, with fresh debate about a recession dealing a blow to Prime Minister Stephen Harper’s bid for re-election.

Gross domestic product declined at a 0.5 percent annualized pace from April to June, Statistics Canada said Tuesday in Ottawa. The agency revised the first-quarter contraction to 0.8 percent from 0.6 percent.

The Group of Seven’s biggest crude oil exporter is struggling as a global commodity slump guts business spending. The consecutive output declines, a so-called technical recession, are expected to shift into a slow expansion over the rest of the year, giving Bank of Canada Governor Stephen Poloz scope to avoid cutting rates Sept. 9.

“I wouldn’t say this is a big red light saying this economy is in recession. Undeniably it slowed in the first half of the year, there is no way to sugar coat that,” said Dawn Desjardins, assistant chief economist at Royal Bank of Canada in Toronto. Output may grow at about a 2 percent pace in the second half and Poloz likely won’t need to cut rates, she said.

The second-quarter contraction matches the Bank of Canada’s forecast from July, when Poloz predicted a rebound to growth of 1.5 percent in the current quarter. Economists surveyed this month by Bloomberg predict a gain of 1.9 percent.

Rate-Cut Odds

Canada’s dollar depreciated 0.3 percent to C$1.3173 per U.S. dollar at 11:55 a.m. Toronto time. The currency is down about 12 percent this year. Swaps trading showed the odds of a rate cut next week fell to about 21 percent after Tuesday’s report, down from 24 percent Monday and 36 percent a week ago.

The consecutive GDP declines are milder than any back-to-back contractions since at least 1981, including the last recession in 2009 which saw drops of 3.6 percent and 8.7 percent. The job market also suggests there’s no broad-based slump in the world’s 11th largest economy. The jobless rate of 6.8 percent for July is down from 7 percent a year ago. August labor data is due Sept. 4.

The economy has dominated Canada’s election campaign in recent days, as opposition parties try to chip away at Harper’s long-held advantage on economic issues. Recent polls suggest a tight three-way race between Harper’s Conservatives, Tom Mulcair’s New Democratic Party and Justin Trudeau’s Liberals.

‘On Track’

Harper declined to use the word recession at a stop near Toronto on Tuesday morning, focusing instead on June data, which showed output grew after five prior declines. “The Canadian economy is back on track,” Harper said, adding the driver of future growth won’t be “permanent deficits, higher taxes.”

On a monthly basis, Canada’s gross domestic product rose 0.5 percent in June, the fastest since May 2014, led by the mining, quarrying and oil and gas extraction category. Economists predicted an expansion of 0.2 percent.

Trudeau, son of a former prime minister, says the economy needs three years of deficits and infrastructure spending to boost an economy he argues Harper has neglected.

“Stephen Harper is completely out of touch with the reality that Canadians are going through,” Trudeau said in Gatineau, Quebec, when asked about a recession Tuesday. “Canadians have known for a long time that his economic approach isn’t working.”

R-Word Debate

Business investment fell by 7.9 percent in the second quarter after a 10.9 percent decline in the prior three months, partly because of a drop in mineral exploration. GDP was also curbed as companies slowed their investment in inventories to C$7.1 billion from C$12 billion, Statistics Canada said.

“Our most common definition here in Canada of what a recession is has been two quarters of decline so I guess you can call this a recession,” said Pedro Antunes, deputy chief economist at the Conference Board of Canada in Ottawa. “What is most concerning about all of this is we have gone through almost two years now of very weak capital investment,” and “that is the key to future production and employment.”

Canada’s economy got a boost in the second quarter from international trade and continued support from consumer spending. Household consumption growth quickened to 2.3 percent from 0.5 percent in the first quarter, led by automobiles. Exports rose for the first time in three quarters with a 0.4 percent gain, while imports fell by 1.5 percent.

“While not yet a recession, since employment hasn’t declined, Canada’s first half was about as weak as advertised,” Avery Shenfeld, chief economist at CIBC World Markets said in a note to investors. “The momentum registered in June is consistent with our view that Q3 will provide a breather as the economy, at least for a quarter, returns to growth.”

end

 

Oil related stories today: Early this morning!! WTI Crude Plunges 5.25% – Biggest Drop In A Month

WTI crude has retraced 50% of yesterday’s ridiculous gains and is now down 5.25% from the NYMEX close yesterday. It appears everything is not so awesome again…

 

end

Then at 12 noon:

 

WTI Crude Crashes 8% – Biggest Plunge Since Nov 2014’s OPEC Meeting

Surprise!!! Month-end window-dressing manipulation massacred…

 

 

This is the biggest single-day drop since Nov 28 2014 – When OPEC stunned the world.

 

Charts: Bloomberg

end Now it is ConocoPhillips turn to fire 10% of its global workforce.  ht has warned of a dramatic downturn in the oil industry (courtesy zero hedge) ConocoPhillips Fires 10% Of Global Workforce, Warns Of “Dramatic Downturn” To Oil Industry

Remember when the oil crash was supposed to be “unequivocally good” for the global economy and the US consumer, only for this to be disproven as the biggest macroeconomic lie since “QE is good for the people”? We do –  quite vividly – which is why in December of last year we presented “150 Billion Reasons Why Low Oil Prices Are Not Good For The Global Economy” and countless other articles subsequently explaining why the great oil collapse of 2014 (and 2015) is actually “unambiguously bad.” It took the so-called experts the usual 6-8 months to catch up, and admit they were wrong or at least stay silent this time.

In fact, 10 months after our first exposition on the death of the Petrodollar, the massive upcoming reserve liquidation (read Treasury selling) that is about to be unleashed as a result of the soaring dollar and plunging price of oil, has finally become a topic du jour at such banks as Bank of America and Deutsche Bank, who have finally grasped that the great oil crash precipitated nothing short of the world’s first Reverse QE episode in history as some $10 trillion in accumulated reserves start being sold.

That, however, mostly impacts the uber-wealthy: those whose net worth is invested in financial assets which are about to be sold en masse by some of the world’s biggest central banks. Where it hits much closer to home is when firms such as Houston based ConocoPhillips announce that the E&P giant is about to terminate 10%, or 1,800 people, of its global workforce, in the next several weeks as it copes with low oil prices.

As the Houston Chroncile’s FuelFix blog writes, “Daren Beaudo, a company spokesman, confirmed that an internal communication was sent to employees earlier this week informing them of the upcoming staff reductions. Most of those affected workers will receive layoff notifications next month.”

But don’t worry: the great(ly fabricated) US jobs recovery myth will not be impaired: all these formerly highly-paid engineers, technicians, drillers and chemists will find minimum wage jobs flipping burgers at their local recently IPOed Shake Shack.

FuelFix adds that “the largest portion of the job cuts will come from North America, he said, where the Houston oil producer drills for crude from the oil sands in northern Canada to the shale plays in South Texas. The firm will also trim about 1,000 core contractors from its workforce.”

Beaudo said ConocoPhillips has informed employees, city and state agencies that more than 500 of the firm’s 3,750 employees in Houston will also be cut. In Canada, the firm is cutting 400 employees and 100 contractors.

And just in case there is still any confusion about the real impact of the great oil crash, here is Conoco again warning it will certainly not be the last to engage in mass layoffs: “We’ll know more in the next several weeks as we work through our formal process,” Beaudo said in an emailed statement. “Our industry is undergoing a dramatic downturn, which has caused us to look at our future workforce needs. As we have assessed the implications of lower prices on our business, we’ve made the difficult decision that workforce reductions will be necessary.”

But before anyone panics and gets worried that while thousands are losing their jobs, there is a threat to the luxurious living standards of the 1% of Americans who alone benefit from the Fed’s policies and corporate cash flow generosity, fear not: COP may be firing thousands, but at least the dividend is safe, for now.

end

After the market closed, oil got this nasty news:

(courtesy API/zero hedge)

WTI Extends Crash To 10% After API Inventories Surge Most In 5 Months

fter the worst day since last November’s OPEC meeting, WTI crude is falling further tonight as API reported a huge 7.6 million barrel inventory build. This is the biggest build (compared to DOE data) since early April!WTI Crude is now down 9.85% on the day – that is a bigger drop (close to close) than the Nov OPEC meeting drop and is not matched back to 2008/9’s collapse.

 

 

and the reaction is more selling in WTI…

 

Which is now down 10% on the day – a bigger move than the OPEC drop…

 

Charts: Bloomberg

Your early Tuesday morning currency, and interest rate moves

Euro/USA 1.1257 up .0033

USA/JAPAN YEN 120.07 down 1.033

GBP/USA 1.5343 down .0019

USA/CAN 1.3185 up .0042

Early this Monday morning in Europe, the Euro rose by 33 basis points, trading now well above the 1.12 level rising to 1.1257; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes, crumbling European and Asian bourses and today another Chinese currency revaluation northbound,  Last night the Chinese yuan strengthened a huge .0220 basis points. The rate at closing last night:  6.367 which means again that the POBC used up considerable USA treasuries to again support the yuan.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a northbound trajectory  as settled up again in Japan up by 103 basis points and trading now just above the 120 level to 120.07 yen to the dollar, 

The pound was down this morning by 19 basis points as it now trades well below the 1.54 level at 1.5343.

The Canadian dollar reversed course by falling 42 basis points to 1.3185 to the dollar. (Harper called an election for Oct 19)

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. Today, the yen carry traders blew up.

2, the Nikkei average vs gold carry trade (blowing up)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)

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: up by 724.79 or 3.84%

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

2/ Asian bourses mostly in the red  … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red/

Gold very early morning trading: $1143.00

silver:$14.59

Early Tuesday morning USA 10 year bond yield: 2.16% !!! down 5  in basis points from Monday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield lowers to  2.90 down 5 basis points. Officially we got the word that got  China is selling treasuries like mad!

USA dollar index early Tuesday morning: 95.62 down 31 cents from Monday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Tuesday morning And now for your closing numbers for Tuesday night: Closing Portuguese 10 year bond yield: 2.73% up 7 in basis points from Monday Closing (very ominous as European bourses collapsed today and bond yields rose) Japanese 10 year bond yield: .361% !!  down 2 in basis points from Monday Your closing Spanish 10 year government bond, Tuesday, up 4 in basis points Spanish 10 year bond yield: 2.15% !!!!!! (very ominous..bond yields rise despite markets collapsing) Your Tuesday closing Italian 10 year bond yield: 2.00% up 4  in basis points from Monday: trading 15 basis point lower than Spain. IMPORTANT CURRENCY CLOSES FOR TUESDAY Closing currency crosses for TUESDAY night/USA dollar index/USA 10 yr bond:  3:00 pm  Euro/USA: 1.1290 up .0066 (Euro up 66 basis points) USA/Japan: 119.80 down 1.30 (Yen up 130 basis points) *  the ramp up of the Dow failed again today Great Britain/USA: 1.5307 down .0054 (Pound down 54 basis points USA/Canada: 1.3209 up .0065 (Canadian dollar down 65 basis points)

USA/Chinese Yuan:  6.3630  down .0240  ( Chinese yuan up 24 basis points/and again they must have sold a considerable amount of  USA treasuries)

This afternoon, the Euro rose by 66 basis points to trade at 1.1290. The Yen rose to 119.80 for a gain of 130 basis points and destroying the yen carry traders.. The pound was down 54 basis points, trading at 1.5307. The Canadian dollar fell 65 basis points to 1.3209. The USA/Yuan closed at 6.3630 Your closing 10 yr USA bond yield: down 4 basis points from Monday at 2.17%// ( well below the resistance level of 2.27-2.32%). USA 30 yr bond yield: 2.93 down only 2 in basis points on the day (despite the huge drubbing NY stock exchanges took).   * not a good sign as the Dow was down massively and yields hardly moved..  Indicates again that China was massively selling Treasuries.  Your closing USA dollar index: 95.48 down 44 cents on the day . European and Dow Jones stock index closes: England FTSE down 189.40 points or 3.03% Paris CAC down 111.79 points or 2.40% German Dax down 243.89 points or 2.38% Spain’s Ibex down 266.20 points or 2.59% Italian FTSE-MIB down 490.55. or 2.24% The Dow down 469.68 or 2.84% Nasdaq; down 140.40 or 2.94% OIL: WTI:  $45.18   (down 8.21%. and  Brent:  $49.39  (down 8.79%) Closing USA/Russian rouble cross: 66.58  down 2 and 1/3 roubles per dollar on the day And now for your more important USA stories.

Presented with no comment…

 

 

Source: Investors.com

end Your closing numbers from New York Crude Carnage & Asian Contagion Crushes Hype-Fueled Dreams Of US Stocks

A’twofer’ today… The arrogant BTFDiness of Friday’s talking heads…

 

And for everyone else worried about the“containment”…

 

So 3 big stories today – Equities collapsed… VIX ETFs turmoiled… and Crude Oil crashed…

But before we start – something odd is going on…Simply put – it is very clear now that stocks are moving in lockstep with JPY carry (China forced unwinds) and long-dated TSYs (China selling) have entirely decoupled from the rest of US assets…

We suspect that as Monday’s collapse occurred last week it forced “Risk Parity” shops into selling as China’s intervention throws their simple arbs (equities down, yields down) into a fit – unleashing all sorts of negative feedback loops which are still underway.

 

As Volatility relationships ‘break’…

 

Which summarized simply means – any time you introduce an exogenous signal to a correlation pair, it blows it up and forces derisking. The more leverage on both legs, the more unwinds needed… and the more negative the feedback loop. And this ‘correlation pair’ game has been going on for 5 years unabated.

*  *  *

This is the worst “first day the month” since Mar 2009 for The Dow

Since Sunday night, things have not been great for stocks with aggreesive US futures selling during the Asia session and weakness towards the US Close…

 

Leaving all major indices notably in the red for the first day of the month…

 

And we use The Dow Futures to illustrate the pull back… Dow was down over 530 points at the lows

 

Which has slammed Nasdaq back into the red for 2015 – joining everything else….

 

FANG stocks are all sufferring post-FOMC Minutes…

 

As Financials and Energy were ugly…

 

VIX rose over 10% to top 32 as the VIX complex was a mess of short-squeezes and liquidity holes. S&P is catching down to XIV (inverse VIX ETF)…

 

With what looked like VIX ETF margin calls into the close…

 

NOTE: After late-day mismacthes were offset – VIX was smashed lower as always to ensure stocks close “off the lows”

 

Treasury yields were bid through most of Asia and Europe’s session then sold off in the US session – despite equity weakness – before a late day rally…

 

The USDollar Index drifted lower today as AUD plunged and JPY surged…

 

Commodities were a mixed bag with Gold & Silver gaining as crude and copper were clubbed…

 

Crude Oil was a catastrophe. After yesterday’s epic rtamp squeeze into month-end, today saw a total collapse- the biggest drop since OPEC met late November. Note they tried to ramp it into the NYMEX close but that failed…

  • *WTI FALLS $1.65 IN LAST 15 MINS. OF TRADING, SETTLES AT $45.41

Then touched a $44 handle…

 

Gold remains the only safe haven for now post-FOMC…

 

 

Charts: Bloomberg

end

Just before markets are set to open:  9:30 am/ New York time US Equities Are Crashing Again – Dow Futures Down 430, AAPL -2.75%; NYSE Unleashes Rule 48 (Again)

US equity futures markets have just pushed to fresh overnight lows, with the last leg down seemingly triggered by the CAD recession print. Let’s hope Cramer and Cook have another email up their sleeves as weakness in AAPL is notable – down 2.75% in the pre-market. Lastly, we noted US equities are rapidly catching back down to the XIV-implied lows as the last few days bounce evaporates. And then NYSE instigates Rule 48 once again to save the world.

  • *NYSE AND NYSE MKT CASH EQUITIES MARKETS WILL INVOKE RULE 48
  • *NYSE AMEX/ARCA OPTIONS GRANT TRIPLE-WIDTH OPENING QUOTE RELIEF
  • *NYSE AMEX/ARCA OPTIONS OPENING QUOTE RELIEF FOR SEPTEMBER 1

 

 

Ugly…

 

AAPL Ugly..

 

It appears XIV was on to something after all…

 

But XIV is crashing – down 10% now – and below last Monday’s crash lows…

 

Charts: Bloomberg

end The volatility Index, or (VIX) surges indicating a “black” day for the USA markets:  Many flash crashes!! (courtesy zero hedge) VIX ETF Surges Above ‘Black Monday’ Spike Highs, Numerous ETF Flash-Crashes

As Nanex’s Eric Hunsader notes “there are numerous mini-flash-crashes in ETFs this morning,” as market structure comes under significant pressure. Nowhere is that more obvious than in the VIX complex with VXX spiking above last Monday’s highs and XIV collapsing…

 

VXX (VIX ETF) spikes above last Monday’s highs…

 

Underlying components very weak…

  • *LESS THAN 1% OF S&P 500 STOCKS RISING IN EARLY TRADING
end

 USA manufacturing PMI’s (Markit PMI) are plunging to 2 year lows as new orders and employment tumble

(courtesy zero hedge)

US Manufacturing Plunges To 2-Year Lows As New Orders, Employment Tumble

Following disappoint PMIs from around the world, the US decoupling meme took another knock today as Markit PMI printed 53.0 (from 53.8) – its lowest in almost 2 years, led by a plunge in the employment subindex. Weakness was also evident in new factory orders. As Markit notes, “U.S. manufacturing sector continues to struggle under the weight of the strong dollar and heightened global economic uncertainty.” On the heels of Milwaukee and Dallas Fed weakness, ISM Manufacturing printed a disastrous 51.1 (vs 52.5 expectations) – the lowest since May 2013. Employment tumbled, as did New Export ordedrs, but unadjusted New Orders plunged to its lowest since 2013, which is a problem given the massive inventory builds that have saved the world in the last few months.

 

 

Manufacturing worst since Oct 2013…

And under the surface it is ugly..

  • *MARKIT AUGUST FACTORY EMPLOYMENT GAUGE DROPS TO ONE-YEAR LOW
  • *MARKIT AUGUST FACTORY ORDERS INDEX FALLS TO 54.7 FROM 55.4

As Markit summarizes,

“August’s survey highlights that the U.S. manufacturing sector continues to struggle under the weight of the strong dollar and heightened global economic uncertainty, but resilient domestic spending and subdued cost pressures are keeping the recovery on track. Reflecting this, new orders from abroad have now fallen in four of the past five months, which represents the weakest phase of manufacturing export performance since late-2012.

 

“In response to softer growth momentum, manufacturers took a more cautious approach to staff hiring and inventories in August. Stocks of finished goods were depleted for the first time in 2015 so far, and job creation was the weakest for over a year, as some firms sought to realign production schedules with expectations of sluggish growth trends ahead.”

And then ISM hit…and collapsed…

 

As non-adjusted New orders collapse to the lowest sicne 2013…

As respondents noted, hope remains high…

  • “Falling crude oil prices are benefiting all resin based purchases as well as positively impacting fuel surcharges for inbound products.” (Food, Beverage & Tobacco Products)
  • “We are oversold.” (Paper Products)
  • “Business is still strong but has slowed slightly.” (Transportation Equipment)
  • “Modest growth slightly ahead of GDP. Optimistic for the remainder of the year as we have little international exposure.” (Chemical Products)
  • “FX [Foreign Exchange] continues to be a challenge, especially in Europe. Overall though, the mood is fairly upbeat regarding H2 [second half of 2015] as we ramp up for a new product launch.” (Computer & Electronic Products)
  • “Our business is good due to the increase in commercial construction.” (Fabricated Metal Products)
  • “Raw metals price decreases will impact our business favorably.” (Miscellaneous Manufacturing)
  • “Business is guarded but steady. Margins are tight. Markets are very competitive. China is lackluster.” (Wood Products)
  • “Automotive companies are investing heavily in upgrading their equipment.” (Machinery)
  • “Business is strong and doing well. Labor continues to be a struggle to find.” (Furniture and Related Products)

 

Charts: Bloomberg

end

This is interesting.  Construction spending is on tap for a 13.7% gain year over year and yet lumber prices are down badly..  Why??

see zero hedge for the explanation..

(courtesy zero hedge)

Peak Construction Spending?

Construction spending grew at 13.7% YoY in July. It has only grown at a faster pace than that once – at the very peak of the idiocy in Q1 2006.

Nope – no bubble here…

 

So that got us wondering… how is it that Construction Spending is surging as Lumber Prices are collapsing? (unless homes are now made of Twitter share certficates).

 

The answer is simple – lag… and we have seen this picture before… and it did not end well.

Clearly, the exuberant construction industry jumps on Fed-induced signals of recovery and mal-invests en masse… until reality bites again.

 

Charts: Bloomberg

end A great article from zero hedge:  the death of the Petrodollar and the biggest risks now facing the world’s central banks… an important read… (courtesy zero hedge) The “Great Accumulation” Is Over: The Biggest Risk Facing The World’s Central Banks Has Arrived

To be sure, there’s been no shortage of media coverage regarding the collapse in crude prices that’s unfolded over the course of the past year. Similarly, it’s no secret that commodity prices in general are sitting near their lowest levels of the 21st century.

When Saudi Arabia, in an effort to bankrupt the US shale space and tighten the screws on a recalcitrant Moscow, endeavored late last year to keep oil prices suppressed, the kingdom killed the petrodollar, a move we argued would put pressure on USD assets and suck hundreds of billions in liquidity from global markets. 

Thanks to the fanfare surrounding China’s stepped up UST liquidation in support of the yuan, the world is beginning to understand what we meant. The accumulation of USD assets held as FX reserves across the emerging world served as a source of liquidity and kept a bid under things like US Treasurys. Now that commodity prices have fallen off a cliff thanks to lackluster global demand and trade, the accumulation of those assets slowed, and as a looming Fed hike along with fears about the stability of commodity currencies conspired to put pressure on EM FX, the great EM reserve accumulation reversed itself. This is the environment into which China is now dumping its own reserves and indeed, the PBoC’s rapid liquidation of USTs over the past two weeks has added fuel to the fire and effectively boxed the Fed in.

On Tuesday, Deutsche Bank is out extending their “quantitative tightening” (QT) analysis with a look at what’s ahead now that the so-called “Great Accumulation” is over.

“Following two decades of unremitting growth, we expect global central bank reserves to at best stabilize but more likely to continue to decline in coming years,” DB begins, before noting what we outlined above, namely that the “three cyclical drivers point[ing] to further reserve draw-downs in the short term [are] China’s economic slowdown, impending US monetary tightening, and the collapse in the oil price.”

In an attempt to quantify the effect of China’s reserve liquidation, we’ve quoted Citi, who, after reviewing the extant literature noted that for every $500 billion in EM FX reserve draw downs, the effect is to put around 108 bps of upward pressure on 10Y UST yields. Applying that to the possibility that China will have to sell up to $1.1 trillion in assets to offset the unwind of the great RMB carry and you end up, theoretically, with over 200 bps of upward pressure on yields, which would of course pressure the US economy and force the Fed, to whatever degree they might have tightened by the time China’s 365-day liquidation sale ends, to reverse course quickly.

Deutsche Bank comes to similar conclusions. To wit:

The implications of our conclusions are profound. Central banks have accumulated 10 trillion USD of assets since the start of the century, heavily concentrated in global fixed income. Less reserve accumulation should put secular upward pressure on both global fixed income yields and the USD. Many studies have found that reserve buying has reduced both bund and US treasury yields by more than 100bps. For every $100bn (exogenous) reduction in global reserves, we estimate EUR/USD will weaken by ~3 big figures.

 

[…]

 

Declining FX reserves should place upward pressure on developed market yields given that the bulk of reserves are allocated to fixed income. A recent working paper by ECB staff shows that the increase in foreign holdings of euro area bonds from 2000 to mid-2006… is associated with a reduction of euro area long-term interest rates by about 1.55 percentage points, in line with the estimated impact on US Treasury yields by other studies. On the short-term impact, one recent paper estimates that “if foreign official inflows into U.S. Treasuries were to decrease in a given month by $100 billion, 5- year Treasury rates would rise by about 40–60 basis points in the short run”, consistent with our estimates above. China and oil exporting countries played an important role in these flows.

 


Which of course means the Fed is stuck:

The current secular shift in reserve manager behavior represents the equivalent to Quantitative Tightening, or QT. This force is likely to be a persistent headwind towards developed market central banks’ exit from unconventional policy in coming years, representing an additional source of uncertainty in the global economy. The path to “normalization” will likely remain slow and fraught with difficulty.

Put simply, raising rates now would be to tighten into a tightening.

That is, the liquidation of EM FX reserves is QE in reverse. The end of the great EM FX reserve accumulation means QT is set to proliferate in the face of stubbornly low commodity prices and decelerating Chinese growth. And indeed, if the slowdown in global demand and trade turns out to be structural and endemic rather than cyclical, the pressure on EM could continue unabated for years to come. The bottom line is this: if the Fed hikes into QT, it will exacerbate capital outflows from EM, which will intensify reserve draw downs, necessitating a quick (and likely embarrassing) reversal of Fed policy and perhaps even QE4.


end Here is another indicator which suggests a crash is upon us: The ARMS index is now 5.  Anything above 1 is bearish, below one is bullish: (courtesy zero hedge) The Market’s “Other” Panic Indicator Just Went Off The Charts

With indicators from macro-fundamentals (e.g. retail sales, core capex, inventory-to-sales) to market-oriented measures (VIX levels and backwardation, HY credit spreads, commodity prices) all flashing various colors of dead canary in the coal-mine red, we thoughttoday’s colossal spike in the Arms (TRIN) Index was a notable addition.

An Arms Index value above one is bearish, a value below one is bullish and a value of one indicates a balanced market. Traders look not only at the value of the index, but also at how it changes throughout the day. Traders look for extremes in the index value for signs that the market may soon change directions. The Arm’s Index was invented by Richard W. Arms, Jr. in 1967. In essence, a sudden surge in the TRIN indicates a jump in trader lack of confidence, as everyone scrambles to either go long the 2-3 rising stocks, or to sell or short the biggest decliners, ignoring the bulk of the market..

Today’s move was far greater than “Black Monday’s market-halting crash:

In longer context:

As we noted previously, the Arms index is an indicator of market breadth essentially tracks lemming like momentum-chasing behavior with respect to volume… meaning today saw panic-buying volumes which given that it was dip-buyers at the close, we suspect won’t end well…

 

Trade accordingly….

end

We haven’t heart from Bruce Krasting in a while.  However today he provided a dandy where he now states that El Nino will be back this year.  It means California will have a deluge of rain as well as other sections of the globe.  However after the rains, another drought… (courtesy Bruce Krasting) California – A Deluge Followed by Mega Drought?

Submitted by Bruce Krasting on 09/01/2015 08:53 -0400

Both NOAA and the Australian Meteorologists issued El Nino updates in the past 24 hours. The weekly numbers that were released confirm that an historic event is taking place. It now is (nearly) certain that the most significant El Nino in recorded history will be with us over the next five months. From the Aussie weather geeks:

The 2015 El Niño is now the strongest El Niño since 1997–98.

The last time we were close to the current El Nino conditions was the fall/winter of 1997/1998. National Geographic has this to say of the 1997 El Nino:

It rose out of the tropical Pacific in late 1997, bearing more energy than a million Hiroshima bombs. By the time it had run its course eight months later, the giant El Niño of 1997-98 had deranged weather patterns around the world, killed an estimated 2,100 people, and caused at least 33 billion [U.S.] dollars in property damage.

At its peak, the 1997 El Nino index reached a record high of 2.3. This extreme level was nearly reached over the past week, there is every indication that it will move higher in the coming months.

The 1997-98 results:

We just hit 2.2 on the weekly numbers. This number will climb over the coming months:

 

 

What does a super El Nino mean for California? Record rains are coming soon! The historical results from the 1997 Nino event:

National Geographic sums up the consequences of a weather system that has the power of 1m nukes:

In the U.S. mudslides and flash floods flattened communities from California to Mississippi, storms pounded the Gulf Coast, and tornadoes ripped Florida.

The effects of the 1997 Nino were felt globally:

Forest fires burned furiously in Sumatra, Borneo, and Malaysia, forcing drivers to use their headlights at noon. The haze traveled thousands of miles to the west into the ordinarily sparkling air of the Maldive Islands, limiting visibility to half a mile [0.8 kilometer] at times.

Temperatures reached 108°F [42°C] in Mongolia; Kenya’s rainfall was 40 inches [100 centimeters] above normal; central Europe suffered record flooding that killed 55 in Poland and 60 in the Czech Republic; and Madagascar was battered with monsoons and cyclones.

Okay – It’s going to rain in the Pacific West the next four months. If history is any guide, the rainfall will reach record levels. Extreme flooding is a probable outcome. As the rain/snow falls the epic drought that is now going on will abate. The rivers and reservoirs will refill by the end of February 2016. BUT THEN WHAT?

If history is any guide the extreme El Nino will be followed by a crash in ocean temperatures. By next summer it is increasing likely that the world will be facing La Nina conditions. The 1997 El Nino was followed by one of the longest periods of La Nina conditions in history.

Put this together and what do you get? It now very likely that extreme weather conditions will be with us through this winter. The West and the South will be inundated with rain. But a year from now we will be facing much different conditions. The La Nina that will be with us in 12 months will bring with it very dry conditions for California. This drought is likely to last for years.

 

  end Well that is all for today I will see you tomorrow night Harvey.

August 31/Another 73 tonnes of gold demand into China/Another explosion in China’s Shandong Province/Grenade rips into Ukrainian Parliament in Kiev/Dallas Mfg Fed index crashes into negative territory/ 11 million oz of silver standing in September/.84...

Mon, 08/31/2015 - 19:13

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1131.60 down $1.50   (comex closing time)

Silver $14.57 up 3 cents.

In the access market 5:15 pm

Gold $1135.00

Silver:  $14.63

Here is the schedule for options expiry:

 

LBMA: options expire Monday, August 31.2015:

OTC  contracts:  Monday August 31.2015:

 

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

I reported to you late Friday night, that an additional 58 contracts of gold were served upon.  There has been no additional filings.

At the gold comex today on first day notice, we had a poor delivery day, registering only 4  notices for 400 ounces  Silver saw 167 notices for 835,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 224.60 tonnes for a loss of 78 tonnes over that period.

In silver, the open interest fell by 5161 contracts despite the fact that silver was up in price by 12 cents on Friday. Again, our banker friends used the opportunity to cover as many silver shorts as they could.  The total silver OI now rests at 158,436 contracts   In ounces, the OI is still represented by .819 billion oz or 117% of annual global silver production (ex Russia ex China).

In silver we had 167 notices served upon for 835,000 oz.

In gold, the total comex gold OI collapsed to 413,158 for a loss of 2479 contracts. We had 4 notices filed on first day notice for 400 oz today.

We had no change  in tonnage at the GLD today/  thus the inventory rests tonight at 682.59 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold.  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 will be the FRBNY and the comex.   In silver, we had a huge addition of 954,000 in silver inventory at the SLV  tune of / Inventory rests at 325.922 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver fall by 5161 contracts down to 158,646 despite the fact that silver was up by 12 cents in price with respect to Friday’s trading.   The total OI for gold fell by 2479 contracts to 415,637 contracts, as gold was up by $10.70 on Friday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

 

3. Six stories on China tonight.  The markets were again rescued by POBC and now arrests are being made.  The big news last week was official announcement of China selling its hoard of USA treasuries. China is angry at the USA as they state that the market crash is USA’s fault. Today the yuan was bought in volumes by the POBC and thus wads of USA treasuries were again sold. It also looks like German bunds were also sold. We had another chemical explosion in Shandong province.  This is the 3rd major blast in 3 weeks.

(Reuters/zero hedge)

4.A Grenade attack on the Ukrainian Parliament today.

(zero hedge)

5.  Over the weekend massive protests in Malaysia.

(3 stories/Bloomberg/zero hedge)

6.Venezuela is running out of food

(zero hedge)

7.  Three oil related stories

(zero hedge)

8 Trading of equities/ New York

(zero hedge)

9.  USA stories:

a) Chicago PMI and Milwaukee PMI both stall

b) the all important Dallas Fed now in negative territory

both of the above caused the NYSE to have a bad day today.

 

c. This week’s wrap up with Greg Hunter and Craig Hemke

(Greg Hunter/USAWatchdog,Craig Hemke)

10.  Physical stories:

  1. Premiums for physical gold and silver rising (Jessie’s Americain cafe)
  2. South Africa to promote platinum  (but not gold???) /Reuters
  3. Smaulgld reports a huge 73 tonnes of gold demand from China in latest reporting week.  Also Jessie reports on the same subject.
  4. Two commentaries on the finding of that Nazi Gold Train/Reuters/Newsmax
  5. Another ten tonnes of gold leaves FRBNY after a one month hiatus/Harvey,FRBNY,zero hedge
  6. Isis advertises new gold coin as currency but pay their soldiers in dollars (DailyMail/London/GATA)
  7. New app to store gold from Bitcoin/CanadianPress/Toronto
  8. Bill Holter’s important paper tonight is titled:  “”Something” just happened!”
  9. A gold dealer/jeweller from Dubai with 150 stores has defaulted over 135 million owing to several banks. (GATA/Reuters)
  10. Gold quantities spiking over at the LBMA as massive quantities move from London to China, India and Russia. (jessie/Americain cafe)

Let us head over and see the comex results for today.

The total gold comex open interest fell from 415,637 down to 413,158, for a loss of 2479 contracts despite the fact that gold was up $10.70 with respect Friday’s trading. Seems our specs have been obliterated.  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, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. We now enter the  delivery month of September and here the OI fell by 1 contract down to 272. The next active delivery month is October and here the OI fell by 555 contracts up to 27,589. The big December contract saw it’s OI fall by 2658 contracts from 288,473 down to 285,815. The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was wrong recorded at 2,366. The confirmed volume on Friday (which includes the volume during regular business hours + access market sales the previous day was fair at 160,311 contracts. Today we had only 4 notices filed for 400 oz.   And now for the wild silver comex results. Silver OI fell by 5161 contracts from 163,807 down to 158,646 despite the fact that  silver was up by 12 cents in price on Friday . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month. Today we witnessed a rather large contraction in OI. The bankers continue to pull their hair out trying to extricate themselves from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena (judging from the high volume every day at the comex).  We are now off the delivery month of August as we enter the active delivery month of September. Here the OI fell by 5166 contracts to 2,198. The estimated volume today was wrong recorded at 136 contracts (just comex sales during regular business hours).  The confirmed volume on Friday (regular plus access market) came in at 62,232 contracts which is huge in volume. (equates to 311 million oz or 44.4 % of annual global production) We had 167 notices filed for 835,000 oz.

September contract month:

Initial standings

August 31.2015

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz 268.47 oz Delaware,HSBC,Manfra) oz Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz 1060.87 oz (HSBC,Manfra)_ No of oz served (contracts) today 4 contracts  (400 oz) No of oz to be served (notices) 268 contracts (26,800 oz) Total monthly oz gold served (contracts) so far this month 4 contracts(400 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 268.47   oz Today, we had 0 dealer transactions total Dealer withdrawals: nil  oz we had 0 dealer deposits total dealer deposit: zero we had 3 customer withdrawals  i) out of Manfra: 64.30 oz  (2 kilobars) ii) Out of Delaware:  100.13 oz iii) Out of HSBC: 104.04 oz total customer withdrawal: 268.47 oz  We had 2 customer deposits:  i) Into HSBC:  96.37 oz ?? do they mean 96.45 oz or 3 kilobars??? ii) Into Manfra:  964.500 oz  (30 kilobars)

Total customer deposit: 1060.87  oz

We had 0  adjustment:

JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz)  and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes

. Today, 0 notices was issued from JPMorgan dealer account and 616 notices were issued from their client or customer account. The total of all issuance by all participants equates to 4 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.   To calculate the final total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (4) x 100 oz  or 400 oz , to which we cannot add the difference between the open interest for the front month of August (272 contracts) minus the number of notices served upon today (4) x 100 oz   x 100 oz per contract equals the number of ounces standing.   Thus the initial standings for gold for the September contract month: No of notices served so far (4) x 100 oz  or ounces + {OI for the front month (272) – the number of  notices served upon today (4) x 100 oz which equals 27,200 oz  standing  in this month of Sept (.846 tonnes of gold).

 

Total dealer inventory 472,783.087 or 14.705 tonnes Total gold inventory (dealer and customer) =7,220,124.302 or 224.60  tonnes) Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.60 tonnes for a loss of 78 tonnes over that period.   end And now for silver August silver final standings

August 31 2015:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory 1,603,393.382 oz (Brinks,Delaware,CNT, Scotia) Deposits to the Dealer Inventory 99,961.45 oz CNT Deposits to the Customer Inventory 904,454.05 oz (Brinks, CNT) No of oz served (contracts) 167 contracts  (835,000 oz) No of oz to be served (notices) 2031 contracts (10,155,000 oz) Total monthly oz silver served (contracts) 167 contracts (835,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month nil Total accumulative withdrawal  of silver from the Customer inventory this month 1,603,353.382 oz

 

Today, we had 1 deposit into the dealer account:

i) Into CNT:  99,691.45 oz

total dealer deposit; 99,691.45 oz

we had 0 dealer withdrawal: total dealer withdrawal: nil  oz We had 2 customer deposit: i) Into Brinks:   403,901.190 oz ii) Into CNT:  500,552.86 oz

total customer deposits: 904,454.05  oz

We had 4 customer withdrawals: i) Out of Brinks:  297,601.93 oz ii) Out of CNT:  459,406.880 oz iii) Out of HSBC: 554,608.772 oz iv) out of Scotia; 291,735.800 oz

total withdrawals from customer: 1,603,353.382  oz

we had 3  adjustments i) Out of Brinks: 182,647.92 oz was removed from the dealer account and this landed into the customer account of Brinks ii) Out of Scotia: 1,125,719.396 oz was removed from the dealer account and this landed into the customer account of Scotia iii) Out of CNT: we had 60,518.000 oz ??? removed from the customer account and this landed in the dealer account of CNT Total dealer inventory: 53.627 million oz Total of all silver inventory (dealer and customer) 170.562 million oz The total number of notices filed today for the September contract month is represented by 167 contracts for 835,000 oz. To calculate the number of silver ounces that will stand for delivery in September, we take the total number of notices filed for the month so far at (167) x 5,000 oz  = 835,000 oz to which we add the difference between the open interest for the front month of September (2198) and the number of notices served upon today (167) x 5000 oz equals the number of ounces standing. Thus the initial standings for silver for the September contract month: 167 (notices served so far)x 5000 oz + { OI for front month of August (2198) -number of notices served upon today (167} x 5000 oz ,= 11,010,000 oz of silver standing for the September contract month.

 

for those wishing to see the rest of data today see:http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com 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: August 31./no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes August 28.2015:/no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes August 27./ a huge addition of tonnage at the GLD to the tune of 1.49 tonnes/Inventory rests at 682.59 tonnes (I believe that the GLD has now run out of physical gold and they cannot supply China from this vehicle) August 26.2015/ no change in tonnage at the GLD/Inventory rests at 681.10 tonnes August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes. August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 17.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 14.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 13.2015:/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 31 GLD : 682.59 tonnes end

And now SLV:

August 31.a huge addition of 954,000 oz were added to inventory today at the SLV/Inventory rests at 325.922

August 28.2015: no change in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 27.no change in inventory at the SLV/Inventory rests at 324.698 million oz  (for the 11th straight trading day)

August 26.2015/no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 21.2015/ no change in inventory at the SLV/Inventory rests at

324.698 million oz

August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz

August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.

August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.

August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz

August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.

August 31/2015:  tonight inventory rests at 325.922 million oz end   And now for our premiums to NAV for the funds I follow: Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)  Central Fund of Canada/data is from Friday/ 1. Central Fund of Canada: traded at Negative 8.0 percent to NAV usa funds and Negative 8.2% to NAV for Cdn funds!!!!!!! Percentage of fund in gold 63.2% Percentage of fund in silver:36.5% cash .3%( August 31/2015). 2. Sprott silver fund (PSLV): Premium to NAV rises to+.90%!!!! NAV (August 31/2015) (silver must be in short supply) 3. Sprott gold fund (PHYS): premium to NAV  falls to – .44% to NAV August 31/2015) Note: Sprott silver trust back  into positive territory at +.90% Sprott physical gold trust is back into negative territory at -.44%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *

>end And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Gold Set for Best Month Since January as Stock Market Rout Lifts Safe Haven

By Mark O’ByrneAugust 31, 20150 Comments

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DAILY PRICES
Today’s Gold Prices: Bank Holiday in UK today
Friday’s Gold Prices:  USD 1,125.50, EUR 998.23 and GBP 730.99 per ounce.
(LBMA AM)

Last week gold and silver prices fell and gave up some of the gains from the previous week. Gold was 2% lower on Friday and indeed 2% lower for the week and closed at $1134.40 per ounce. Silver was 4.5% lower for the week and closed at $14.59 per ounce but is just 1.8% lower for the month of August.

August has been a tumultuous month with stocks seeing sharp losses and gold has again protected investors from sharp losses. Gold has had a 3.36% gain for the month so far (see table below).

Gold is on track for the best monthly advance since January after most market participants were surprised by the devaluation of China’s currency. This has fueled concerns about furthercurrency wars and about the world’s second-largest economy and indeed the global economy may be vulnerable to a recession – potentially a severe one.

Gold exchange-traded fund holdings rose to a one-month high last week on safe haven demand. The MSCI All-Country World Index of equities is headed for the worst monthly performance since May 2012 and a gauge of 22 raw materials was set to decline for a second month.


Monthly Asset Performance – Finviz.com

IMPORTANT NEWS

Gold Set for Best Month Since January as Rout Lifts Haven Assets – Bloomberg
Asian stocks set for worst monthly drop in three years on global rout – Reuters
Stocks Set for Worst Month Since 2012 as Fed, China Woes Collide – Bloomberg
Polish Government Confirms Discovery Of Nazi “Gold Train”, Warns It May Be Booby-Trapped – Zero Hedge
App for that? BitGold looks to take gold savings mainstream – CTV News
South Africa to promote platinum as central bank reserve asset – Reuters

IMPORTANT COMMENTARY

The Fed Spent $23 Billion In 3 Days, But Still Had A Hard Time Pushing Up Stocks – Seeking Alpha
Red Alert For 2nd Crash Downwave… – CliveMaund.com
The Central Bankers’ Malodorous War On Savers – David Stockman’s Contra Corner
Since 2014 Foreign Central Banks Have Withdrawn 246 Tons Of Gold From The NY Fed – Zero Hedge
When David beats Goliath – Davidmcwilliams.ie

Download Essential Guide To Storing Gold Offshore

end

 

(courtesy Jessie’s American cafe)

Despite Being A ‘Pet Rock’, The Premium For Physical Bullion Is Exploding

While status quo-huggers are all too happy to point out gold and silver’s lack of utter exuberance amid this week’s carnage, perhaps they need to re-comprehend the difference between a heavily manipulated ‘paper’ market and the surging demand for physical precious metals that is evident in the 20-plus percent premium – and rising – being paid for silver bullion currently…

 

 

Chart: GoldChartsRUs.com

“One important aspect of the physical market that is often overlooked is the premium it commands over spot price. Right before the Global Financial Crisis in 2008, the spot Silver price fell as low as USD 9 per oz., whereas the price of a 1 oz. Silver Eagle was around USD 17 on the wholesale market and even higher on the retail market! That’s a price premium of 188%!

 

That means that if you had held 100 oz. of paper Silver, you might have had to liquidate that for USD 900 (assuming the market was not halted for trading then), whereas if you had held 100 pieces of 1 oz. Silver Eagle coins, you would have gotten at least USD 1700 for them if not more.”

 

BullionStar, The Difference in Paper and Physical Gold and Silver in times of Crisis

h/t Jesse’s Americain Cafe

 

end

 

 

Gold quantities are spiking off the LBMA:

(courtesy Jessie of Americain cafe)

 

30 August 2015

 

 

Gold Coming Off the LBMA Spiked Last Week

There was a interesting spike in physical gold activity last week on the LBMA.

It could be some seasonal phenomenon connected with the end of August and the approach of the prime season for gold.

But it also seems consistent with the ‘tension on the tape’ that I have been seeing. And a number of little indicators and some interesting things, like the generally ‘well informed’ Goldman taking delivery of gold at the Comex for their house account.

One outcome of this increase in physical gold flows *might* be the realization of the cup and handle bottom formation on the gold chart, and a quick run to target around the 1250 to 1270 area. And depending on what else goes with it, that might just be for openers.

Or it might once again be ignored and come to nothing.

But it does seem that the gold flows from the West to the markets in China and India are intensifying at these prices based on a number of diverse data points.

One cause of this could be a divergence between the paper price of gold with leverage and the actual physical markets because the price of gold as set in London and New York is below the clearing price in dollars as part of a momentum trend in the forex markets.

If a commodity price is set below the natural clearing price, one would expect to see the demand for the real underlying asset increasing.

Those who flatly dismiss the possibility there can be such a divergence between the market price and the natural clearing price have not been paying attention to what has been going on in any number of rigged markets over the past few years.

The excessive speculation fueled by a surfeit of paper money in a few hands and slack regulation that permits the unsustainable reckless pyramiding of positions is a good contender for the theme of the last two decades.

For what it is worth, I am seeing what appear to be increasing signs of ‘fragility’ in the precious metals market. And in a nutshell, I am thinking that we are seeing a bear market bottom. Trends, especially in forex related markets, often tend to overshoot and overstay their time.

But like the proverbial search for the lost keys, we will find the end of this era of financial madness in the last crisis, and perhaps that will be the one that breaks the Banks.

The chart below was provided by Nick Laird at goldchartsrus.com.

***

 

end

Fascinating!! and not promote gold???

 

(courtesy Reuters)

Reuters: South Africa to promote platinum as central bank reserve asset

Submitted by cpowell on Sat, 2015-08-29 20:47. Section:

So why haven’t they figured this out for gold too? Are there no patriots in South Africa’s government?

* * *

South African Mine Industry Job Plan Targets Platinum as Central Bank Reserve Asset

By Ed Stoddard
Reuters
Wednesday, August 26, 2015

JOHANNESBURG, South African — South Africa’s mining industry, unions, and the government have committed to a broad plan to stem job losses, including boosting platinum by promoting the metal as a central bank reserve asset, according to a draft agreement seen by Reuters on Wednesday.

The parties also said they would strive to delay layoffs, sell distressed mining assets instead of closing them, and look at ways of streamlining the legal process employers must follow to cut jobs.

The mining industry, which contributes around 7 percent to Africa’s most developed economy, is struggling with sinking commodity prices, rising costs, and labor unrest, forcing a number of companies into mine closures and layoffs.

The agreement is expected to be signed on Monday next week after its details were hammered out on Tuesday.

The draft agreement lays out 10 wide interventions including getting the BRICS group of emerging nations to hold “platinum as a reserve asset” — like gold — in their central banks. Brazil, Russia, India, China, and South Africa comprise the BRICS.

South Africa sits on close to 80 percent of the world’s known reserves of platinum, a metal used in emissions-capping catalytic converters and facing depressed demand. …

… For the remainder of the report:

http://www.reuters.com/article/2015/08/26/us-safrica-mining-idUSKCN0QV0W…

end

Two stories…

(courtesy Reuters/GATA)

 

Polish Government Confirms Discovery Of Nazi “Gold Train”, Warns It May Be Booby-Trapped

Last weekend we reported that in the past month two men, a Pole and German, claimed to have discovered the legendary Nazi “gold train” – a 150 meter long German train alleged to be full of gold, gems and weapons, which disappeared just before the end of World War II – in the proximity of the Polish town of Walbrzych, close to where the Nazi are said to have loaded up the train with valuables for its final voyage in the town of Wroclaw, just as the Soviet forces approached in 1945.

As we detailed, the train is said to have been entombed in the vast tunnel labyrinth located close to Ksiaz castle, which served as Nazi headquarters during World War II…

Ksiaz castle, Nazi headquarters during World War II

… and specifically, was said to be located at the foot of the Sowa mountain, in the woods three miles outside the town of Walbrych.

The “gold train” is said to be located under this hill

While many were skeptical that the mystical Nazi treasure train had been finally discovered after many years of searching, an official update last Friday by the Polish government suggested that that may indeed be the case. As the Mail reported on Friday, a representative of the Polish culture ministry, Poland’s National Heritage and Conservation Officer Piotr Zuchowski, said that the man who helped hide the train had revealed its location shortly before he died, and that proof of the train has been observed on radar.

Zuchowski added that “Information about where this train is and what its contents are were revealed on the deathbed of a person who had knowledge of the secret of this train.’ He added that Polish authorities had now seen evidence of the train’s existence in a picture taken using a ground-penetrating radar. He said the image – albeit blurred – showed the shape of a train platform and cannons.

Piotr Zuchowski, Poland’s National Heritage and Conservation Officer, confirmed the ‘unprecedented’ find

Mr Zuchowski said the find was ‘unprecedented’, adding: ‘We do not know what is inside the train.‘Probably military equipment but also possibly jewellery, works of art and archive documents.

‘Armored trains from this period were used to carry extremely valuable items and this is an armored train, it is a big clue.’ He said authorities were now ’99 percent sure the train exists’ and whatever is on it will be returned to the rightful owners, if they can be found. ‘We will be 100 per cent sure only when we find the train,’ Mr Zuchowski added.

The train found in the mountains is an ‘armored train’ which looks similar to the one pictured

Mr Zuchowski told reporters that the train was about 100 metres long but added: ‘It is not possible to disclose the exact location of where the train can be found. Still, he noted cryptically that “The local government in Walbrzych knows where it is.”

He explained it is hidden along a 4km stretch of track on the Wroclaw-Walbrzych line.

Mr Zuchowski said the person who claimed he helped load the gold train in 1945 said in a ‘deathbed statement’ the train is secured with explosives. The official declined to comment further about the man who said this but speculation is now rife that it was a former SS guard or a local Pole who stumbled upon the train before hiding it.

Deputy Mayor of Walbrzych, Zygmunt Nowaczyk told the press: ‘The city is full of mysterious stories because of its history. ‘Now it is formal information – we have found something.’

Key excerpts from the press conference by the Polish official can be seen on the Euronews clip below:

 

The confirmation of the discovery unleashed a surge of treasury hunters, and forced the Polish government to warn the population to stop looking because it could be booby-trapped and dangerous. Zuchowski said “foragers” have become active since two people claimed to have discovered the train last week and urged eager fortune-hunters to stop searching, saying they risk injury or death.

Zuchowski adds that “there may be hazardous substances dating from the Second World War in the hidden train, which I’m convinced exists. I am appealing to people to stop any such searches until the end of official procedures leading to the securing of the find. There’s a huge probability that the train is booby-trapped.’

If anything, tthese warnings are sure to unleash an even more aggressive wave of seekers now that the train’s existience has been confirmed, and the government is actually warning seekers to be careful in their search.

But perhaps what is more interesting is just what the discovery, which would be straight out of an Indian Jones sequel, will contain, and whether someone already got to the precious cargo over the past 7 decades. The answer should be made public shortly.

end

 

(courtesy Newsmax)

Report: Putin Could Seize Nazi Gold Train for Alleged Soviet Reparations

Report: Putin Could Seize Nazi Gold Train for Alleged Soviet Reparations

Sunday, 30 Aug 2015 02:02 PM

Russian strongman Vladimir Putin may be moving to seize the famed Nazi ghost train laden with gold that has ostensibly been discovered in Poland.

How could he do it? A Russian lawyer says Kremlin could lay claim to the valuables as compensation for the country’s losses in the Second World War, according to the Independent.

The so-called ‘Nazi gold train’ has been reportedly been found hear the town of Walbrzych, where rumors have been constant for years that a train filled with gold had been abandoned during the Nazi era and was lying undiscovered nearby. Polish government officials say that they are now “more than 99 per cent certain the train exists.”

The train could reveal the long-sought solution to the mystery of the ‘Amber room’ – an ornate chamber made of amber pearls thought to be worth at least $300 million. It was stolen by German troops from a palace near St. Petersburg during the war.

The Russian lawyer told a Russian news site that “representatives of Russia should undoubtedly be involved in determining the value of the items discovered if the train is located.

“In this case, Poland is obliged to engage international experts to clarify what is in the cargo. If the property has been taken away from territory, including the USSR, then the cargo, in accordance with international law, must be passed to the Russian side,” the lawyer said.

© 2015 Newsmax. All rights reserved.

Read Latest Breaking News from Newsmax.com http://www.newsmax.com/Newsfront/nazi-gold-train-russia/2015/08/30/id/672660/#ixzz3kORNFsaO
Urgent: Rate Obama on His Job Performance. Vote Here Now!

 

 

end

 

 

 

Saturday morning August 29, saw the FRBNY report its earmarked gold.

The report showed that :

total gold holdings in June 8.089  million dollars total gold holding in July:  8076  million dollars net gold leaving  $13 million at 42.22 dollars per oz thus $13,000,000  divided by $42.22  =   307,910.94 oz left the vaults or 9.5 tonnes of gold. He have had around 9.5 tonnes leave everything month except last month when it was zero. . 311,319 311,852 290,949 286,779 284,197 284,884 284,538 287,685 298,627 295,692 4 Earmarked gold4 8,417 8,410 8,170 8,143 8,130 8,116 8,103 8,089 8,089 8,076

 

(courtesy zero hedge)

Since 2014 Foreign Central Banks Have Withdrawn 246 Tons Of Gold From The NY Fed

First it was Germany who redeemed 120 tons of physical gold in 2014; then it was the Netherlands who “secretly” redomiciled 122 tons of gold; then this past May, we learned that Austria would be the third “core” European nation to repatriate most of its offshore gold, held primarily in the Bank of England, redepositing it in Vienna and Switzerland.

In short, beginning in 2014 and continuing through today, the gold “bleeding “from the vault located 90 feet below street level at 33 Liberty Street (and which may or may not be connected by a tunnel to the JPM gold vault locatedjust across the street at 1 Chase Manhattan Plaza) has continued. As the chart below shows, while central banks assure the population that there is nothing to worry about when it comes to paper money, and in fact it is the evil ISIS terrorists who plot and scheme to crush the benevolent Fed with their terroristy “gold dinars” and if not that then their made in Hollywood propaganda movies, they have been quietly pulling gold from the biggest centralized depository of global gold in the world: the New York Federal Reserve.

According to the latest just released monthly update of foreign official assets held in custody at the NY Fed, in July the total holdings of foreign earmarked, i.e., physical, gold declined to just over $8 billion when evaluated at the legacy “price” of $42.22 per ounce. In ton terms, this means that after declining below 6000 tons in January, for the first time since FDR’s infamous gold confiscation spree, the total physical gold held at the NY Fed dropped another 9.6 tons in July, down to 5,950 tons.

This is the lowest amount of gold held by the NY Fed in custody in decades, is the 18th consecutive month of flat or declining gold, and when added to previous outflows, amounts to 192 tons of gold withdrawn in the past 12 months, and a whopping 246 tons pulled since the start of 2014.

Indicatively, during the last crisis period, starting in March 2007 and lasting through November 2008, foreign central banks withdrew gold for a total of 20 out of 21 consecutive months, repatriating a grand total of 409 tons of gold. The last period of peak redemption culminated with the failure of Lehman in September 2008, the near failure of AIG in October and November 2008, coupled with the Fed’s bailout of the western financial system.

If past is prologue, one should ask: what current or future event is driving the ongoing redemption of gold from the NY Fed this time?

end

 

 

(courtesy London’s Daily Mail/GATA)

 

 

ISIS advertises its new gold coins but still pays its gunmen in U.S. dollars

Submitted by cpowell on Sun, 2015-08-30 18:08. Section:

ISIS Release Pictures of Their New Gold Coins They Say Will ‘Break Capitalist Enslavement’ — So Why Are They Still Paying Their Deranged Gunmen in U.S. Dollars?

By Tom Wyke
Daily Mail, London
Sunday, August 30, 2015

ISIS have released a new hour-long video, showing off their latest propaganda tool — their very own coin currency.

The video, which includes a dreary and distorted history of world economics, shows the smelting of gold, silver, and copper coins.

Dramatised by clips from Hollywood war films, the film accuses the United States of “confiscating Americans’ real wealth through an executive decree” with the introduction of the Gold Reserve Act in 1934.

Yet despite their glorification of their new currency, ISIS have no other means to pay their band of jihadis except through the use of U.S. dollars. …

… For the remainder of the report:

http://www.dailymail.co.uk/news/article-3215910/ISIS-release-pictures-ne…

end

(courtesy Canadian Press/Toronto)

App for that? BitGold looks to take gold savings mainstream

Submitted by cpowell on Sun, 2015-08-30 17:59. Section:

By Ian Bickis
The Canadian Press
via CTV News, Toronto
August 30, 2015

CALGARY, Alberta, Canada — Want to buy gold as a savings alternative? Well, you guessed it — there’s an app for that.

Josh Crumb, co-founder of BitGold, says he created the software that automatically links buyers to bullion dealers and storage companies because he wanted to make it easier for people to own gold as a hedge against inflation and as a store of value.

“It’s just so much easier, like everything else, to do it from your mobile phone,” Crumb said.

The system charges a 1 percent fee to exchange cash into gold and back but storage is free. It also allows users to transfer their gold value to a prepaid credit card, so they can actually buy a cup of coffee with their gold holdings, Crumb said.

“It gives the ability without having to go to coin shops and shave off some flakes of gold to buy something.” …

… For the remainder of the report:

http://www.ctvnews.ca/business/app-for-that-bitgold-looks-to-take-gold-s.

end

 

A huge 73 tonnes of gold was withdrawn from vaults last week.

 

(courtesy Smaulgld)

Shanghai Gold Exchange volume for the week ended August 21, 2015. The Shanghai Gold Exchange withdrawals were 72.91 tons of gold during the week ended August 21, 2015.

Withdrawals on the Shanghai Gold Exchange were the fourth largest ever.

Total gold withdrawals on the Shanghai Gold Exchange year to date are 1,658.22 tons.

Withdrawals on the Shanghai Gold Exchange are running 37.2% higher than last year.

China’s Insatiable Demand for Gold

The Shanghai Gold Exchange (SGE) delivered 72.91 tons of gold during the week ended August 21, 2015. The prior week the SGE delivered 65.31 tons of gold.

The two week total of withdrawals is over 121 tons of gold and the year to date total is1,585.31 tons, for an annualized run rate of approximately 2,600 tons.

Shanghai Gold Exchange Withdrawals During the Two Week Period Ended 8/21/2015 vs. Comex 2014 Deliveries

Volume of Gold Withdrawals on the Shanghai Gold Exchange

The volume of withdrawals of gold on the Shanghai Gold Exchange as of August 21, 2015, is running 37% higher than 2014 during the same period and 13.3% higher than 2013’s record pace.

China is becoming the center of the Asian gold world. A $16 billion China Gold Fund was announced in May and the Shanghai Gold Exchange continues to establish itself as viable competitor to the gold trading centers in London and Chicago. China’s gold imports, trading and mining production are one of the cornerstones of China’s de-dollarization/Yuan strengthening initiatives that focuses no so much on selling U.S. Treasuries but creating alternative financial systems like the Asian Infrastrucure Investment Bank.

China is widely believed to be making a play for inclusion in the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs) Program later this year. If China fails to gain inclusion in the SDR, its recent initiatives to strengthen its currency and gain greater acceptance of the Yuan may provide a strong alternative to the IMF regime.

China Updates its Gold Holdings

China recently announced their first update to their official gold holdings since 2009. The People’s Bank of China announced that their gold holdings had climbed from 1054 tons to 1658 tons, making China the fifth largest gold holding nation in the world.
China chose to incude six years worth of gold accumulation (over 600 tons) all in the month of June.

Earlier this month China reported that they added 19.3 tons (610,000 ounces) of gold to their reserves in July bringing their total to 1,677 tons (53.93 million ounces).

 

end

 

 

Jessie, of Americain cafe on the same subject as to the huge 73 tonnes of gold demand coming from the citizenry of China:

28 August 2015

 

 

Shanghai Exchange Has 73 Tonnes of Gold Withdrawn In 4th Largest Week In History

 

 

There were a little over 73 tonnes of physical gold withdrawn from the Shanghai Gold Exchange in the latest week ending August 21st.

This is the 4th largest withdrawal of bullion in its history.

It is hard to tell what exactly is going on in such a dodgy, highly leveraged market, with its determined attempts to keep the price knocked lower so often during the late London to NY trading hours.

But I am sensing a change in the market, and more things running under the surface than meets the eye.

Goldman is no major player in the gold bullion market, but it did strike me as odd that they are suddenly stopping large amounts of bullion for their own house account this month. It is not that they are a player in gold, because they are not. But that they are wired into many sources of information, are good at spotting trends, and are more like a hedge fund, comfortable running on the edge of the markets.

And the gold chart, for what it is worth in these times of market interventions, seems to be trying to form a rounded bottom in the form of a cup and handle, with a successful retest of the handle this week. This calls out a price around the bottom of the old trend channel at 1270.

It could also be nothing. I will pursue the details of such a chart formation if we see the right kinds of follow through next week.

And I will certainly be watching silver very carefully for any signs of life. It may be pivotal next month.

Let’s see what next week brings. Gold is just one market among many, and it is certainly not the largest one in play.

And while I have your attention, I thought I would include a long term chart of the relation of deliverable gold at current prices to open interest. It might mean nothing. But it doesn’t seem to be anything familiar before 2013.

The charts below courtesy of data wrangler Nick Laird at goldchartsrus.com.

***

 

 

end

 

 

This is interesting

 

they do not know why they defaulted!!

 

(courtesy Reuters/GATA)

Dubai gold retailer defaults on $136 million

Submitted by cpowell on Mon, 2015-08-31 14:11. Section:

By Stanley Carvalho and Tom Arnold
Reuters
Monday, August 31, 2015

DUBAI, United Arab Emirates — A Dubai-based gold and jewellery retailer has defaulted on loans worth about 500 million dirhams ($136.2 million), with banks considering options including legal action to retrieve the money, four banking and trade sources told Reuters.

The non-payment by Atlas Jewellery, which has more than 50 branches across the Gulf and in India, affects at least 15 banks, the sources said on condition of anonymity because the information isn’t public.

It was not clear why Atlas Jewellery had failed to honor its debts. Company officials declined to comment and Reuters was unable to contact the company’s owner, M.M. Ramachandran. …

… For the remainder of the report:

http://www.reuters.com/article/2015/08/31/emirates-gold-default-idUSL5N1

 

end

And now Bill Holter with an important paper tonight…

 

(courtesy Bill Holter/Holter-Sinclair collaberation)

“Something” just happened! (reprint)

.

 

 “Something” happened three weeks ago.  While we cannot be sure “what” exactly happened, we can speculate.  We have many dots and lots of data points to help us but first it needs to be pointed out, even if wrong in conclusion …just the knowledge alone that “something changed” is enough.  If you know something has changed, you can take clues and look at various markets for inflection points.  Currently, most markets are stretched to various limits.  Whether it be zero bound credit markets, equities, real estate, commodities or gold and silver, all values had reached extreme highs or lows. 

  Something changed three weeks ago and a series of events began.  It all started with China announcing 600 additional tons of gold.  This was followed by the IMF rebuff of China, the three yuan devaluations and three “coincidental” explosions.  Then equity markets around the world (which were already weak) began to violently unravel and finally spilled over to the U.S..  This tested the PPT’s limits (which were apparently $23 billion last week).   There were other behind the scenes dots which I missed and would like to add here before theorizing.  In the gold arena, the GLD inventory supposedly rose over the last two weeks even though gold was “weak” and being sold.  This was against a backdrop of very deep backwardation going out a full six months in London.  The current backwardation is further out in time and far larger in price than EVER before!  These two data points are in exact divergence to a dropping gold price.  Why would there be buying in GLD if gold was being panic sold?  Also, if real gold was being dumped, how could it be in backwardation or shortage?  Wouldn’t “sales” make product extremely plentiful?    There were several more major anomalies in gold.  As of Friday, there were 63 August contracts still open …even though the contract went off the board.  This has NEVER happened in 40 years!  How is this possible?  The day before on Thursday, there were 552 contracts open.  Can someone please explain to me why the shorts would not have delivered gold (like they did in the old days) on the first or second delivery day rather than waiting to the last day?  Someone has to pay for storage, why would the short want to pay for storage they are contractually able to deliver nearly 30 days prior and avoid the charges.  Are they having problems sourcing gold?  Just like several mints who have gone to rationing or halts of production …and exactly as the backwardation is suggesting?   Over in silver, did you know they had confirmed volume on Thursday of 122,482 contracts traded?  Did you know this represents 612 MILLION ounces of silver …or over 87% of annual global silver production ex China and Russia?  How in the world does 87% of a full year’s production trade in just several hours?  Doesn’t this go against commodity laws?  AND, silver was pummeled on Thursday so it was supposed to represent PANIC SELLING.  Who was panicking and needed to sell all that silver so fast?  …especially since the U.S. Mint just raised premiums and started rationing dealers because they couldn’t keep up with DEMAND!  Let’s not forget the Royal Canadian Mint, they have suspended sales of silver Maples!  Why or how could this be?  Everyone has been selling silver but the mint could not source any?  This defies pre school logic!   Let me give you another very strange data point.  The FRBNY (New York Fed.) always reports custodial gold holdings on the 28th or 29th of the month for the previous month.  They missed July 29th and reported on August 20 NO GOLD was shipped (to Germany for their repatriation program) when month after month they have been reporting close to 10 tons out the door.  What’s going on?   Before telling you what I think has changed, we need to look at what China has just done.  China has sold $100 billion worth of Treasury bonds over the last two weeks.  Before they sold these, they devalued their yuan by about 5% which is the same thing as making their dollar holdings worth 5% more in yuan …so they increased their sale by the equivalent of $5 billion!  Please understand the following because it is VERY important, we have not experienced hyper inflation in the U.S. because the debt was always “sterilized”.  We actually exported the inflation to other nations and as long as they did not sell the actual dollars (if they sold Treasuries), the trade remained sterilized.  It was reported Friday China had actually sold their dollars realized from the Treasury sales for …you guessed it YUAN!  This drove the yuan up versus the dollar so China added even more to their trade.  Brilliant!   This topic deserves an entire writing and I’ll undertake it later.  Suffice it to say, the Federal Reserve had to buy the $100 billion worth of bonds.  This is “reverse” QE or as they now say “QT” (quantitative tightening).  As the great credit unwind continues, more and more Treasuries from China and other sources will hit the market and force the Fed to buy them.  This will take more and more “space” on the Fed’s balance sheet but they will have NO CHOICE unless they want interest rates to skyrocket.  In the end, the inflation we exported for so many years will come washing back on our shores like a tidal wave!   OK, what do I think “happened” three weeks ago?   On the original writing, I erroneously believed the SGE had not reported withdrawals for the last two weeks, this was incorrect and they have in fact reported withdrawals.  This led me to believe China was no longer being delivered gold.  No proof of this yet but it will mathematically happen.  Why?  Because the simple math says so.  China/India can only import more than total production for as long as Western vaults have metal to dishoard.  Once non delivery does happen  and becomes known, our hoard of “power” will be gone and so will the façade of financial strength.  Our standard of living will collapse into third world status hand in hand with a broken financial system.    Something behind the scenes has caused markets all over the world to convulse.  The likely candidate involves leverage and most probably derivatives.  As I wrote last week, “dead bodies must be strewn everywhere”,  call them walking dead institutions or whatever.  We have experienced 5% and even 10% moves in various markets in less than a week’s time or even in just one day.  Many derivatives are carried with just one or two percent margin, in other words the moves have been big enough to completely wipe out equity.  Winners become losers when the losers cannot pay and default.   There is one more piece of news that may be nothing at all or it may fit hand in hand with the above.  King Salman of Saudi Arabia announced a visit for this coming week with president Obama.  http://www.nytimes.com/2015/08/27/world/middleeast/saudi-arabia-king-plans-to-visit-us.html?partner=rss&emc=rss&_r=0  The press has speculated the meeting has to do with the Iran deal or even aggressions with Yemen.  I don’t think so.  My guess is King Salman may be coming to Washington to say “the deal is off”.  The “deal” being Henry Kissinger’s early 1970’s petrodollar.  I suspect Saudi Arabia will inform our commandeer in chief, they will begin accepting yuan for oil.  The Saudis have over the last year or more done many trade deals with both Russia and China.  It should only follow at some point they do not use dollars but instead use their own currencies.    Before finishing, Saudi Arabia increased their oil production at the behest of Washington to injure Russia.  I think the price drop got way out of control as the algos took over.  The drop was so severe it has seized up the U.S. fracking industry and put at least $500 billion worth of energy credit in jeopardy while China has filled up her storage reserves with cheap oil.  If I am correct about the gold default, China/Russia have also made strategic strides in trade with Iran and Saudi Arabia in preparation.    The important thing is you understand “something” very big has happened and trends are changing in many markets.  The leverage in all markets suggests a “holiday” will occur because the unwinding cannot be orderly.  The “unwinding” by the way will need to undue the credit built upon credit going all the way back to Aug. 15, 1971!    Standing Watch,   Bill Holter Holter-Sinclair collaboration Comments welcome!  bholter@hotmail.com    

end

 

 

And now your overnight Monday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan rises considerably this  time to   6.3761/Shanghai bourse: red and Hang Sang: green

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei down 245.84   or 1.28.%

3. Europe stocks all deeply in the red    /USA dollar index up to  96.00/Euro up to 1.1208

3b Japan 10 year bond yield: falls to .3760% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 121.26

3c Nikkei now below 19,000

3d USA/Yen rate now just above the 121 barrier this morning

3e WTI:  44.35 and Brent:  48.86

3f Gold up  /Yen up

3gJapan 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 rises  to .738 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate rises to 13.03%/Greek stocks this morning down by 1.43%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield rises to  : 9.31%

3k Gold at $1132.60 /silver $14.54  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 1  2/3 in  roubles/dollar) 66.88,

3m oil into the 44 dollar handle for WTI and 48 handle for Brent/Saudi Arabia increases production to drive out competition.

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.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9645 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0810 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/

3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.738%

3s The ELA lowers to  89.7 billion euros, a reduction of .7 billion euros for Greece.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.

4. USA 10 year treasury bond at 2.16% early this morning. Thirty year rate below 3% at 2.88% / yield curve flatten/foreshadowing recession.

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

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

China Dramatically Intervenes To Boost Stocks Despite Reports It Won’t; US Futtures Slump On J-Hole

Yesterday, the FT triumphantly proclaimed: “Beijing abandons large-scale share purchases“, and that instead of manipulating stocks directly as China did last week on Thursday and Friday, China would instead focus on punishing sellers, shorters, and various other entities. We snickered, especially after the Shanghai Composite opened down 2% and dropped as low as 4% overnight:

Less than five hours after this tweet, we found out that our cynical skepticism was again spot on: the moment the afternoon trading session opened, the “National Team’s” favorite plunge protection trade, the SSE 50 index of biggest companies, went super-bid and ramped from a low of 2071 to close 140 points higher, ending trading with a last minute government-facilitated surge, and pushing the Composite just 0.8% lower after trading down as much as -4.0%.

It wasn’t just direct stock market intervention: Bloomberg reported that additionally the PBOC also conducted another Short-term Liquidity Operations with some banks Monday, adding that tenors offered included six-day loans. Recently, the PBOC had conducted 7-day CNY60b SLO at 2.35% on Aug 28 and 140b yuan 6-day SLO at 2.30% on Aug 26.

China’s interventions were to be expected: what the FT got right is that the government is intent on “providing a “positive market environment in preparation for a big military parade this week to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression.” The question is whether once the September 3 event is over, will China finally allow stocks to truly trade down. We doubt it: just like the Fed has found 7 years later when even the tiniest of rate hikes threatens to collapse the house of cards, so China will hardly dare to step away at least until the Chinese premier Li Keqiang is sacrificed, literally or metaphorically, to appease the millions who have lost everything and then some (thanks to margin).

Elsewhere in Asia, equity markets traded lower following Fed’s Fischer comments over the weekend which implied that a September rate hike has not been completely ruled out. China’s Shanghai Comp, despite the late government intervention, led the region lower, after reports authorities would stop supporting stock markets through large scale buying, while Nikkei 225 (-1.3%) traded in negative territory following the release of Japanese industrial output where both M/M (-0.6%) and WY (+0.2%) figures missed expectations. 10yr JGBs traded higher amid the risk off tone in Asia while the BoJ were also in the market for JPY 1.18trl of JGBs.

Utilities underperformed on the sector breakdown as European equities spend the morning in the red (Euro Stoxx -1.2%) as participants remain concerned over the ongoing volatility in Asian markets, with RWE (-2.5%) trading sharply lower following reports that one of RWE’s municipal shareholders, expects the company to slash its dividend by as much as half. On the other hand, ENI (+3%) shares surged at the open after the company and also ensured that the Italian benchmark FTSE-MIB index outperformed, despite falling into the red during the morning, after the Co. announced that it has made a huge gas field discovery off Egyptian coast Lower stocks and dovish comments by ECB’s Constancio, who said that the fall in oil prices is an issue with regards to inflation despite the efforts of the central banks’ QE programme, kept Bunds bid, albeit marginally. However it is worth noting that trade volumes were below the usual levels given the closure of the UK’s financial district due to the August bank holiday.

In FX, EUR/USD gradually moved off the best levels printed ruing the late Asian trading hours, weighed on by touted selling by macro and corporate accounts, failure to break above 0.7300 level by EUR/GBP and dovish comments by ECB’s Constancio. Elsewhere, the ongoing volatility stemming from China, together with lower copper prices, saw AUD trade lower, with AUD/USD consolidating in 0.7100 area.
Going forward, market participants will get to digest the release of the latest EU CPI, which printed in fractionally hotter than expected, at 0.2%, vs consensus of 0.1%,  and the release of the latest Chicago PMI report.

In terms of Central bank speakers and news from over the weekend:

  • Fed’s Fischer (Voter, Soft Dove) said the first rate-hike would come when there is “some further improvement in the labour market” while ‘there is good reason to believe inflation will move higher and forces holding down inflation will dissipate further’. (WSJ) This comes after earlier comments that that it was too early to make a decision on a rate-hike in September. (CNBC/RTRS)
  • Fed’s Lockhart (voter, neutral) stated that a rate lift-off is near and that it is an “open question” whether
    the members of the FOMC decide to lift interest rates now or delay until another meeting. (RTRS)
  • Fed’s Kocherlakota (Non-voter, Dove) stated that he would prefer a rate hike to occur in the 2H of 2016. (Fox Business)
  • Fed Watcher Hilsenrath interpreted these comments as hawkish suggesting that the central banker did not rule out September and the point at which Fischer believes inflation will pick-up is getting closer. (WSJ)
  • ECB’s Constancio (Dove) says the fall in oil prices is an issue with regards to inflation despite the efforts of the central banks’ QE programme. (RTRS)
  • BoE Governor Carney (Neutral) said that a slowdown in China’s economy could push down further on inflation but at this moment in time does not alter the central bank’s position on when it will hike rates. (Observer)
  • SNB’s Jordan stated the CHF is highly overvalued at present levels and interest rates will remain negative for a while. (RTRS)

Energy and base metals markets remained under pressure amid the ongoing supply glut in the market, as well as the slowdown in China. Nonetheless, despite the downside across the metals complex, gold prices traded relatively flat overnight with a mild gain seen amid a pullback in the greenback from Friday’s highs and weakness across equity markets and are on track for their best month since January.

 

Bulletin Headlin Summary from Bloomberg and RanSquawk

  • Stocks in Europe traded lower, as market participants continued to fret over the ongoing volatility in Asian markets
  • Appetite for risk was dented by somewhat hawkish comments by Fed’s Fischer, with WSJ’s Hilsenrath subsequently pointing out that comments indicate that the central banker did not rule out September rate hike
  • Focus going forward will be on the release of the latest Chicago PMI report for the month of August
  • Treasuries diverge as decline in long yields drives curve flattening; global stocks and crude oil lower as markets await August payrolls report on Friday.
  • China’s securities regulator held meeting with representatives from 50 brokerages on Aug. 29 and told them to contribute an additional 100b yuan to support the stock market, said people familiar with the matter
  • China has decided to abandon attempts to boost the stock market through large-scale share purchases and has shifted its focus to investigating and punishing manipulators, FT reports, citing an account of unidentified senior regulatory officials speaking at a meeting on Thursday
  • Options traders have never been so pessimistic on China’s stock market, betting the government’s renewed effort to prop up share prices is doomed to fail
  • Fed Vice-Chair Stanley Fischer proclaimed his faith at Jackson Hole this weekend that inflation is poised to move upward, suggesting a September move by Fed has not been ruled out
  • The euro area’s inflation rate held steady in August, highlighting the challenge facing ECB policy makers as they seek to revive consumer-price growth
  • Democratic Senator Jeff Merkley of Oregon said he will vote to support the Iran nuclear deal, a pledge that puts Obama only three votes short of protecting the pact in Congress
  • One IG deal for $700m priced last week, no HY deals. BofAML Corporate Master Index -3 to +169 from +172, widest since Sept 2012; YTD low 129. High Yield Master II OAS -19bp to +572; reached +614 last week, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mostly lower. Asian and European stocks mostly lower, U.S.equity-index futures decline. Crude oil falls, gold and copper little changed

 

DB’s Jim Reid completes the overnight recap

So after we put an interesting and exhausting week of huge swings in markets behind us and look forward to the next five days, any hope that we might see some calm return to markets may have to be put on hold temporarily with the last payrolls report before the September 16th/17th FOMC meeting due on Friday afternoon, giving economists, analysts and the market another chance to fine tune their liftoff expectations. Fedspeak between now and then will also take on more significance with each passing day and we can look forward to comments from Rosengren on Tuesday and Lacker on Friday. We’ve got the usual full run down of the week ahead at the end but it’s Fedspeak that we start with this morning after a bumper last few days of comments, including from Fed-Vice Chair Fischer on Saturday at the Jackson Hole symposium.

Without pinning down any specific hints on timing but still leaving the September liftoff door open, Fischer’s tone certainly felt like it weighed on the more hawkish side, saying that the Fed should not wait until it meets its inflation goal while voicing confidence that prices should head higher. Specifically, Fischer said that ‘given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further’ and that ‘with inflation low, we can probably remove accommodation at a gradual pace’ however ‘because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2% to begin tightening’. The comments came a day after a TV interview with CNBC in which Fischer noted that ‘the change in the circumstance which began with the Chinese devaluation is relatively new and we’re still watching how it unfolds, so I wouldn’t want to go ahead and decide right now what the case is – more compelling, less compelling etc’, before noting that ‘we’ve got a little over two weeks before we make the decision’ and that ‘we’ve got time to wait and see the incoming data, and see what is going on now in the economy’.

It wasn’t just Fischer we heard from at the event. Speaking on Friday, more hawkish commentary came in the form of non-voters Mester and Bullard. Mester in particular said that ‘my view so far in looking at all of the factors is that the economy can sustain an increase in interest rates’, while Bullard signaled that the volatility of the last 10 days would not be enough to change his view that the US economy can sustain a rate rise. The lone voice in the dovish camp on Friday, Kocherlakota, said that ‘I don’t see a near term increase in interest rates as being appropriate, and by near-term I mean really through the course of 2015’. Meanwhile Lockhart, speaking once again, commented that timing for liftoff ‘is close’ but that it’s an ‘open question’ whether the Fed moves now or waits a little, noting that the October FOMC is a ‘live meeting’ and ‘in play’.

So with all the comments, the probability of a September move by the Fed has now jumped to 38% from 30% at Thursday’s close. This morning we’ve seen little change in 2y (+0.6bps) or 5y (0.0bps) Treasury yields, while the benchmark 10y is down 2.1bps to 2.159%. Much of the action is again in equity markets where S&P 500 futures are down over a percent in trading this morning. It’s much the same in bourses across Asia too. Led by China once again with the Shanghai Comp (-2.61%) and Shenzhen (-2.25%) both taking another steep leg lower into the midday break, the Nikkei (-1.94%), Hang Seng (-0.77%), Kospi (-0.32%) and ASX (-1.51%) have all followed suit with material moves lower. The lower tone this morning in markets has also been reflected in the Oil complex which is down 2% as we go to print.

With regards to the moves in Chinese equities in particular, it’s hard to tell how much of this is in response to conflicting reports of state intervention in the market this morning. The FT is running an article suggesting that state-owned investment funds and institutions, which were previously boosting the stock market through large scale purchases, are set to refrain from such actions with the government switching its attention to punishing those involved in ‘destabilizing the market’. Meanwhile, according to a Bloomberg report and in contrast to the FT article, Chinese authorities are set to seek to stabilize markets before an important military parade this week, with the regulatory commission asking 50 brokerages to contribute an additional 100bn yuan to the rescue fund.

Back to the Jackson Hole gathering quickly where along with the Fed, we also got some hints into the current thinking at the BoE and ECB. Along with Fischer, the comments echoed a more hawkish tone largely. The ECB’s Constancio noted that ‘the link between inflation and real activity appears to have strengthened in the euro area recently’ and that ‘provided our policies are able to significantly reduce the output gap, we can rely on a material effect to help bring the inflation rate closer to target’. The BoE’s Carney stated that the ‘prospect of sustained momentum’ in the economy ‘will likely put the decision as to when to start the process of gradual monetary policy normalization into sharper relief around the turn of this year’. On the hot topic of the China turmoil, Carney said that ‘recent events’ there didn’t call for a change in strategy, while Constancio warned that ‘we all know about the big challenges they face, so that is a situation we monitor closely’, but hinted that no immediate shift in policy would be needed for now. Fischer was a bit more moderate in his view, noting that the Fed is monitoring developments there more closely than usual.

Prior to the commentary on the weekend, it felt like markets entered something of a calmer state on Friday relative to the volatility of the prior ten days in particular. The S&P 500 (+0.06%) finished virtually unchanged at the close having traded in a much tighter range, although in turn posted its best three-day gain (+6.5%) since November 2011. Despite trading over 5% down part way through the week, the index managed to finish in positive territory (+0.91%) for the five days, while the VIX, having closed unchanged on Friday actually managed to retreat over 50% from Monday’s intraday highs. With little change in European equity markets too (Stoxx 600 +0.28%, DAX -0.17%, CAC +0.36%), Friday’s notable price mover was again in the oil complex where we saw WTI (+6.25%) cap its biggest two-day gain since January 2009 (+17%) after climbing to $45.22/bbl, seemingly on the back on further momentum from Thursday’s gains. There was a similar rally for Brent (+5.24%) also, while the rest of the commodity space generally had a strong session with the likes of Gold (+0.76%), Aluminum (+2.76%), Zinc (+3.28%) and Lead (+3.22%) all up.

Fischer’s comments on Friday helped support another strong day for the Dollar, with Dollar index closing up 0.52% to cap a rally of nearly 3% since Monday. There was little change in 10y Treasury yields (-0.3bps) at Friday’s close, finishing the week at 2.182% and 28bps off Monday’s intraday lows. Friday’s economic data contributed to the fairly benign price action. Much of the focus was on the July PCE readings where both the deflator (+0.1% mom) and core (+0.1% mom) prints came in line with market expectations. There was some disappointment in the August University of Michigan consumer sentiment print which was revised down 1pt to 91.9, while personal income (+0.4% mom vs. expected) and spending (+0.3% mom vs. +0.4% expected) were slightly mixed.

Over in Europe we got a slightly higher than expected inflation reading out of Germany for August, with the 0.0% mom (vs. -0.1% expected) print keeping the annualized rate at +0.2% yoy after forecasts for a slight drop to 0.1%. Euro area confidence indicators were a lot more mixed for the month, with better than expected economic (104.2 vs. 103.8 expected) and services (10.2 vs. 8.8 expected) readings, but softer industrial (-3.7 vs. -3.2 expected) and business climate (0.21 vs. 0.34 expected) indicators. UK Q2 GDP offered little in the way of surprise, unrevised at +0.7% qoq as expected with the annualized rate at +2.6% yoy.

Staying in Europe, as well as the obvious Fed progress to watch in September, Greece’s election campaign is set to garner further attention as we approach the end of the month. The first set of polls released over the weekend suggest that support for Tsipras’ Syriza party is dwindling somewhat. A poll run for Agora newspaper showed Syriza with 24.6% of total votes, a lead of 1.8% over New Democracy while a poll for Alpha TV showed Syriza with a lead of 2.1% and a Proto Thema poll suggested the lead is as small as 1.5%, opening up the possibility of messy coalition talks and a long way from the 15% lead Syriza held over its main rival back in May.

 

end

 

Sunday night 9:30 pm/(Monday morning 9:30 am Shanghai time): Chinese markets open.  Stocks open down 2.1% as China arrests 4 major citizens.

 

courtesy zero hedge)

Chinese Stocks Slump After “Arrest-Fest”, Yuan Strengthens Most In 9 Months, Goldman Cuts Outlook

 

Update: So much for the “no more intervention” Since the government bailout fund has run dry of money, the brokerages have to step up – CHINA SAID TO ORDER BROKERAGES TO BOOST STOCK MARKET SUPPORT

 

 

A busy weekend in Asia was dominated by mayhem in Malaysia, and witch-huntery in China. Chinese authorities began a wide-scale crackdown on rumor-mongerers, arrested journalists, and even detained a regulator for insider trading, as they lifted loan caps on the banking system at the same as withdrawing (verbally) support for the stock market. China strengthen the Yuan fix by 0.15% to 6.3893 – this is the biggest 2-day strengthening of the Yuan fix since Nov 2014. Then just to rub some more salt in the wounds, Goldman cut China growth expectations to 6.4% and 6.1% respectively for the next 2 years. Chinese stocks are opening modestly lower (SHCOMP -01.8%).

  • *SHANGHAI COMPOSITE INDEX FALLS 1.8% AT OPEN
  • *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 1% TO 3,307.40

Yuan fixed stronger for 2nd day in a row…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3893 AGAINST U.S. DOLLAR
  • *CHINA RAISES YUAN REFERENCE RATE BY 0.15% TO 6.3893/USD

Then Goldman slahes China growth…

  • *CHINA 2016 GDP GROWTH FORECAST CUT TO 6.4% VS 6.7% AT GOLDMAN
  • *CHINA 2017 GDP GROWTH FORECAST CUT TO 6.1% VS 6.5% AT GOLDMAN
  • *CHINA 2018 GDP GROWTH FORECAST CUT TO 5.8% VS 6.2% AT GOLDMAN

A “double-dip” in China’s growth in 2015…

China’s economic growth was very weak in early 2015, reflecting a combination of slowing money/credit growth, reform-driven fiscal tightening, and an appreciating CNY, among other factors. Policy easing starting in March seemed to help revive growth in May and especially June. But growth has slowed anew in July and August, prompting market and policymaker concerns and a further spate of easing measures. We retain our 2015 real GDP growth forecast of 6.8%, but note that alternative indicators of activity suggest a sharper slowdown, and mark down our 2016/17/18 forecasts to 6.4%/6.1%/5.8% respectively from 6.7%/6.5%/6.2% previously. We now expect short-term interest rates to fall further, to 1.5% by end-2016 (from 2.25% previously).

…and increased policy uncertainty…

Policy uncertainty has increased. Measures to contain local governments’ off-balance sheet financing have taken a back seat for now to a focus on reviving infrastructure spending. Equity market volatility has been large, diminishing the near-term potential for this channel to reduce reliance on debt financing. The snap 3% depreciation in the CNY is small in a macro context, but represents the sharpest weakening in two decades that were dominated by stability/appreciation vs USD, and has prompted an acceleration in capital outflows, heightening the risk of a larger move down the road.

But before all that, this happened…

First, as The FT reports, China “says” it will abandon buying stocks...

China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials.

 

For two months, a “national team” of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.

 

 

Traders and officials said the latest intervention was aimed at providing a “positive market environment” in preparation for a big military parade this week to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression”.

 

Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities.

Which could be a problem as all that stopped total and utter carnage last week was their buying…

 

But then they unleashed full scale fractional reserve banking…

  • *SCRAPPING OF LOAN CAP TO HELP STABILIZING ECO GROWTH: FIN. NEWS

Though we suspect this is as much use as a chocalate fireguard for the already maximally-indebted Chinese public.

But nothing stops the propaganda from flowing…

  • *CHINA ECO FUNDAMENTALS BETTER THAN OTHER MAJOR ECONOMIES: 21ST

As authorities begin wide-scale crackdowns on rumor-mongers and nay-sayers…

  • *CHINA DETAINS REPORTER ON SUSPECTED SPREADING RUMORS: XINHUA
  • *CHINA DETAINS CSRC OFFICIAL ON SUSPECTED INSIDER TRADING:XINHUA

As The FT goes on to note,

In a worrying signal for global investors with a presence in China, some officials have argued strongly for a crackdown on “foreign forces”, which they say have intentionally unsettled the market.

 

“If our own people have collaborated with foreign forces to attack the soft underbelly of the market and bet against the government’s stabilisation measures then they should be suspected of harming national financial security and we must take resolute measures to subdue them,”said an editorial in the state-controlled Securities Daily newspaper last week.

As SCMP’s Goerge Chen details…

 

As China.org further details,

Chinese authorities have held several people, including a journalist, an official of China’s securities watchdog and four senior executives of China’s major securities dealer for stock market violations.

 

Wang Xiaolu, journalist of Caijing Magazine, has been placed under “criminal compulsory measures” for suspected violations of colluding with others and fabricating and spreading fake information on securities and futures market, Xinhua learned on Sunday.

 

Wang confessed that he wrote fake report on Chinese stock market based on hearsay and his own subjective guesses without conducting due verifications.

 

He admitted that the false information have “caused panics and disorder at stock market, seriously undermined the market confidence, and inflicted huge losses on the country and investors.”

 

Also put under “criminal compulsory measures” were Liu Shufan, an official with China Securities Regulatory Commission.He is held over suspicions of insider dealings, taking bribes and forging official seals.

 

According to Liu’s confession during the investigation, he has taken advantage of his position to secure an approval from the securities authorities for a public company and help the growth of the company’s shares.

 

In return, the head of the company offered bribes worth several million yuan to him.

 

Also, Liu has used insider information from the above-mentioned company and another company and obtained millions of yuan of illegal gains, according to his confession.

 

Liu confessed that he has forged official seals to fake a court ruling on divorce and taxation certificates for his mistress.

 

Xinhua also learned from authorities that Xu Gang, Liu Wei, Fang Qingli and Chen Rongjie, senior executives of the Citic Securities, China’s leading securities dealer, have been put under “criminal compulsory measures” for suspected insider trading. They have also confessed to their violations.

 

“Compulsory measures” may include arrest, detention, issuing a warrant to compel a suspect to appear, bail pending trial, or residential surveillance.

*  *  *

Way to go China – “open” those markets up to anyone (as long as they are buying)

 

Charts: Bloomberg

end

Evercore reports that the real GDP of China is -1.1%

 

(courtesy Evercore/zero hedge)

 

China Stunner: Real GDP Is Now A Negative -1.1%, Evercore ISI Calculates

With Chinese data now an official farce even among Wall Street economists, tenured academics, and all others whose job obligation it is to accept and never question the lies they are fed, the biggest question over the past year has been just what is China’s real, and rapidly slowing, GDP – which alongside the Fed, is the primary catalyst of the global risk shakeout experienced in recent weeks.

One thing that everyone knows and can agree on, is that it isnot the official 7% number, or whatever goalseeked fabrication the communist party tries to push to a world that has realized China can’t even manipulate its stock market higher, let alone its economy.

But what is it? Over the past few months we have shown various unpleasant estimates, the lowest of which was 1.6% back in April.

Today we got the worst one yet, courtesy of Evercore ISI, which using its own GDP equivalent index – the Synthetic Growth Index (SGI) – gets a vastly different result from the official one, namely Chinese growth of -1.1% annually. Or rather, contraction.

To wit, from Evercore:

Our proprietary Synthetic Growth Index (SG!) fell 1.1% mim in July, and was also down 1.1% y/y. No wonderglobal commodities are so weak. The most recent 18 months have been much weakerthan the 2011-13 period. Even if we adjust our SG I upward (for too-little representation of Services — lack of data), we believe actual economic growth in China is far below the official 7.0% yly. And, it is not improving, Most worrisome to us; the ‘equipment’ portion of Plant & Equipment spending is very weak, a bad sign for any company or country. Expect more monetary and fiscal steps to lift growth.

And here is why the world is in big trouble.

Source: China Stunner: Real GDP Is Now A Negative -1.1%, Evercore ISI Calculates | Zero Hedge end Prof Buiter has now come full circle and thinks that only “helicopter money” can save the world now… a must read (courtesy zero hedge) Citigroup Chief Economist Thinks Only “Helicopter Money” Can Save The World Now

Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota – who never met an economy he didn’t want to throw free money at), we found it fascinating that no lessor purveyor of the status quo’s view of the world – Citigroup’s chief economist Willem Buiter – that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright “helicopter” money from the central banks will avert the deepening crisis. Faced with China’s ‘Quantitative Tightening’, the economist who proclaimed “gold is a 6000-year old bubble” and cash should be banned, concludes ominously,“everybody will be adversely affected.”

China has bungled its attempt to slow the economy gently and is sliding into “imminent recession”, threatening to take the world with it over coming months, Citigroup has warned. As The Telegraph’s Ambrose Evans-Pritchard reports, Willem Buiter, the bank’s chief economist, said the country needs a major blast of fiscal spending financed by outright “helicopter” money from the bank to avert a deepening crisis.

Speaking on a panel at the Council of Foreign Relations in New York, Mr Buiter said the dollar will “go through the roof” if the US Federal Reserve lifts interest rates this year, compounding the crisis for emerging markets.

 

So why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question – the messing around with monetary policy, the hinting on doing things on the fiscal side through the policy banks. But I think the only thing that is likely to stop China from going into, I think, recession – which is, you know, 4 percent growth on the official data, the mendacious official data, for a year or so – is a large consumption-oriented fiscal stimulus, funded through the central government and preferably monetized by the People’s Bank of China.

 

Well, they’re not ready for that yet. Despite, I think, the economy crying out for it, the Chinese leadership is not ready for this.

 

So I think they will respond, but they will respond too late to avoid a recession, and which is likely to drag the global economy with it down to a global growth rate below 2 percent, which is my definition of a global recession. Not every country needs go into recession. The U.S. might well avoid it. But everybody will be adversely affected.”

Or translated from ‘economist’ to English – a massive helicopter drop of cash (well 1s and 0s) into the inflating hands of Chinese soon-to-be-consumers is all that can the world from another recession… and The Chinese leadership may need to stare into the abyss before they actually pull the trigger. Just think of the pork prices?

 

 

Mr Buiter had some more to add on the idiocy of Chinese Equity markets. He said the stock market crash in Shanghai and Shenzhen…

   

…is a sideshow. Consumption effects, you know, wealth effects, minor. Almost no capex in China is funded through share issue. And so it is a symbol of the policy failure rather than intrinsically economically important.

 

China’s problems are excessive leverage in the corporate sector, in the local government sector, and the very fragile banking system, and shadow banking system. As Chen pointed out, it won’t be allowed to collapse because it is underwritten by the government, but it won’t be a source of great funding strength.

 

There is excess capacity and a pathetically low rate of return on capital expenditure, right?Invest 50 percent of GDP and get, even in the official data, 7 percent growth. The true data is probably something closer to 4 ½ percent or less. So it is an economy that, I think, is sliding into recession.

 

And what the stock market reminds us of, I think, especially this sequence of thegovernment first cheerleading the stock market boom and bubble – because quite a few of the local pundits believed that this was a great way of deleveraging without paying for the corporate sector, to have a stock market bubble. And then, of course, the rather panicky and incompetent reaction in response.

 

So, once again, why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question.

*  *  *

So, it seems, all of a sudden – despite the permabulls, asset-gatherers, and commission-takers saying otherwise – China matters! As Bloomberg notes,China’s deepening struggles are starting to make a bigger dent in the global economic outlook.

“We’re seeing evidence that the slowdown is broader than expected” in China, saidMarie Diron, a London-based senior vice president at Moody’s and one of the report’s authors. “It’s long been clear that there’s a slowdown in the manufacturing and construction sector, but the service sector was more resilient. That’s still the case, but we’re seeing some signs of weakness in the labor market.”

 

“We continue to believe that the greatest risks to our growth forecasts remain to the downside,” Schofield wrote. Actual growth is “probably even lower” because of “likely mis-measurement in China’s official data,” he wrote.

*  *  *
Which, is exactly what we have been saying for the last 2 years as the rolling collapse of China’s ponzi becomes ever more evident (and hidden by ever more manipulation)…

Here, for those curious, are links to previous discussions:

And so on and so forth.

In short, stabilizing the currency in the wake of the August 11 devaluation has precipitated the liquidation of more than $100 billion in USTs in the space of just two weeks, doubling the total sold during the first half of the year. 

In the end, the estimated size of the RMB carry trade could mean that before it’s all over, China will liquidate as much as $1 trillion in US paper, which, as we noted on Thursday evening, would effectively negate 60% of QE3 and put somewhere in the neighborhood of 200bps worth of upward pressure on 10Y yields. 

And don’t forget, this is just China.

The potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows . The bottom line is that markets may fear that QT has much more to go.

What could turn sentiment more positive? The first is other central banks coming in to fill the gap that the PBoC is leaving. China’s QT would need to be replaced by higher QE elsewhere, with the ECB and BoJ being the most notable candidates. The alternative would be for China’s capital outflows to stop or at least slow down. Perhaps a combination of aggressive PBoC easing and more confidence in the domestic economy would be sufficient, absent a sharp devaluation of the currency to a new stable. Either way, it is hard to become very optimistic on global risk appetite until a solution is found to China’s evolving QT.

*  *  *

end Again, China punishes hundreds for “maliciously” manipulating the market:  Monday morning (courtesy zero hedge) China “Punishes” Hundreds For “Maliciously” Manipulating The Market

The deadly chemical blast in the Chinese port of Tianjin was a preventable catastrophe in which more than 100 people lost their lives thanks in part to what looks like the political connections of the warehouse’s owners and although an upfront, transparent investigation and honest assessment of the environmental impact is likely the only way to safeguard the public and ensure it doesn’t happen again, no one believes the Chinese government has the will to conduct such an investigation.

But whatever you do, do not say any of the above if you live in China.

Similarly, China’s stock market collapse was an entirely preventable financial catastrophe caused by the unchecked accumulation of margin debt and the encouragement of speculation, and the bursting of the equity bubble which began in June has been nothing short of a debacle that’s led to international condemnation and accusations that, even in a centrally planned world, Beijing’s particular brand of intervention is so egregious as to stray outside the bounds of manipulated market decorum.

But if you live in China, don’t say that either. 

Over the last two months there were signs that Beijing would soon resort to outright, sweeping censorship as it relates to both the stock market and the Tianjin blast. For instance, in July, phrases like “rescue the market” were reportedly banned and in the wake of the Tianjin disaster, hundreds of social media accounts were shut down for spreading “blast rumors.”

Now, ahead of a military parade that Xi Jinping will allegedly use to show the world that the Chinese lion “has woken up” (albeit with the amusing caveat that the lion is “peaceful, pleasant and civilized”), the Politburo apparently has seen just about enough criticism for its handling of the stock market collapse and the Tianjin blasts and as WSJ reports, more than 200 people have now been “punished” for their alleged role in “mislead[ing] society and the public, generat[ing] and spread[ing] fearful sentiment, and even us[ing] the opportunity to maliciously concoct rumors to attack [the] Party and national leaders.” Here’s more:

The sweep targeted people who the government said spread false Internet rumors regarding events such as the stock-market turmoil and deadly explosions earlier this month in the port city of Tianjin, the Ministry of Public Security said Sunday.

 

The government is facing intense public scrutiny in China over its management of the slowing economy and turbulent markets, as well as public anger over the blasts at a hazardous-chemical warehouse in Tianjin.

 

In its statement, the public-security ministry didn’t identify most of the 197 alleged offenders, giving only surnames for some of them. The statement quoted four people, identified only by their surnames, as expressing regret for spreading false information. It didn’t elaborate further on individual offenses and punishment, except to note that 165 online websites and accounts were shut down.

 

Statements described by the ministry as false included rumors that a man jumped to his death in Beijing because of the stock market slump, claims that at least 1,300 people were killed in the Tianjin blasts, and inflammatory rumors related to China’s commemorations of the 70th anniversary of victory in World War II.

 

Sunday’s statement came just weeks after the Cyberspace Administration of China said it shut down 18 websites permanently and suspended another 32 websites for a month for allegedly publishing unverified information or letting users spread groundless gossip related to the Aug. 12 explosions in Tianjin, which killed at least 150 people and injured more than 700.

China has also officially confirmed what multiple news outlets reported late last week. Namely that a journalist at Caixin and a prominent investment banker had been detained in connection with spreading “rumors” and “illegal trading.”From WSJ again:

In the case of Mr. Wang, the Caijing reporter, Xinhua said an alleged fabrication was a July 20 report saying the China Securities Regulatory Commission was studying a withdrawal of government funds used to stabilize the domestic stock market amid a broad-based slump. 

 

Mr. Wang told investigators he wrote the report by combining market-related information with his own “subjective assessment.” More specifically, Wang says he“obtained the information [about the possible scaling back of CSF’s plunge protection buying] through the abnormal channel of gleaning, in private, information about the market.” 

So essentially, Wang’s criminal behavior amounted to reading publicly available information in “private” (which we presume means “at his desk”), drawing conclusions, and writing a story, which is of course contrary to the tried and true method of journalism in China wherein Beijing sends journalists a dispatch telling them what to say and then journalists just regurgitate it.

As for Xu Gang, the CITIC executive, he has now apparently given a detailed account of his misdeeds, as has CSRC official Liu Wei who apparently “told investigators that he took bribes from an executive of a listed company to help that firm pass regulatory scrutiny, engaged in insider trading and made use of forged documentation to help a lover purchase an apartment in Shanghai.”

Meanwhile, China has also brought in Li Yifei, chairwoman of Man Group’s China arm. From Bloomberg:

Chinese authorities took Li Yifei, chairwoman of Man Group Plc’s China unit, into custody to assist with a police probe into market volatility, according to a person familiar with the matter.

 

Li assisting with the investigation doesn’t mean she is facing charges or has done anything wrong. She has led Man Group in China since November 2011, according to her profile on LinkedIn. The person asked not to be identified because the probe isn’t public.

We suspect maybe this was the mistake:

In an interview with Bloomberg Television’s Stephen Engle in November, Li said investors and regulators in China were beginning to understand hedge funds.

 

“The Chinese investors and regulators are beginning to understand that actually hedge fund is about hedging.”

Yes, “actually hedge fund is about hedging,” which, asCitadel learned earlier this month, would “actually” be fine as long as by “hedging” Li means “buying” or any other activity which leads equities higher. Always higher. Never, ever lower.

In any event, the Politburo has now abandoned all prestense of capital market liberalization and/or providing for an environment that’s conducive to any semblance of freedom of speech. This is of course predictable. It’s rather easy to claim that reforms are being implemented at a rapid clip both in terms of financial markets and in terms of society when everything is going well. But free markets can be painful when the invisible hand purges misallocated capital and freedom of the press can be equally painful when journalists unconstrained by censorship purge bullshit.

Of course journalists face plenty of censorship even in the US, which is supposed to be the bastion of press freedom (just ask Pedro da Costa) and capital markets are everywhere and always manipulated by central planners.

And that is perhaps the lesson Xi Jinping has yet to learn. That is, we all exist in a censorsed and manipulated world; the Politburo just hasn’t figured out how to be subtle about it yet.

 end This morning, as the DAX was down 100 points, one would have thought that Bund yields would fall (bond prices rise).  Strangely bund yields rose to .79 from 73.  With China openly selling USA treasuries are they dumping German bunds as well? (courtesy zero hedge) Is China Dumping German Paper Now? Bund Prices Are Collapsing

German bonds are under significant pressure again this morning – despite equity weakness and US Treasury strength. This raises the rather interesting question of whether – after decimating Treasuries last week, is China turning to its Bund holdings and liquidating them to raise cash?

Bunds crushed to one-month lows…

as 10Y yields spike to 6-week highs…

Charts: Bloomberg

end What on earth is going on in Shandong province. Another major blast!! (courtesy zero hedge) China Rocked By Another Massive Chemical Explosion, People’s Daily Reports

Seriously, what the f##k is going on over there?

  • *BLAST SEEN IN CHEM. IND. ZONE IN SHANDONG, CHINA: PEOPLES DAILY

This is the second explosion in Shandong, which both follow the huge and deadly explosion in Tianjin.

We’ll await the details which we imagine will suggest that, as was the case in Tianjin, many more tonnes of something terribly toxic were stored than is allowed under China’s regulatory regime which apparently only applies to those who are not somehow connected to the Politburo.

After the last Shandong explosion, The People’s Daily reported that the plant contained adiponitrile,which the CDC says can cause “irritation eyes, skin, respiratory system; headache, dizziness, lassitude (weakness, exhaustion), confusion, convulsions; blurred vision; dyspnea (breathing difficulty); abdominal pain, nausea, [and] vomiting.”

 

This clip has just been posted to a Weibo account – reportedly showing tonight’s explosion (we are unable to confirm this is not the previous Shandong explosion though that was more twlight than dead of night)

 end  The following is a good comprehensive review as to how China’s credit bubble started which led to the stock market crash and many more problems facing the POBC today: (courtesy Guilford/Quartz/Contra Corner) Origins Of China’s Credit Bubble And Stock Market Crash—–The Key Explanatory Charts

by Gwynn Guilford at Quartz

This week’s Chinese stock market implosion has been widely viewed as a reaction to the Chinese government’s devaluing the yuan on Aug. 11—a move many presume was a frenzied bid to lower export prices and strengthen the economy.

This interpretation doesn’t stand up to scrutiny. First, Chinese investors haven’t been investing based on how the economy is doing, but rather, based on what they think the government will do to prop up the market. The crash, termed “Black Monday,” was more likely a reaction to the central bank’s failure over the weekend to announce a widely expected cut to the bank reserve requirement since previous cuts in February and April had boosted stock prices. The government eventually caved andannounced a cut on Tuesday (Aug. 25).

Second, the crash happened nearly two weeks after the devaluation, and the government only let the yuan depreciate by about 3% before swooping in and propping up its value again—which hardly helps exporters since the currency’s value effectively rose some 14% in the last year.

The devaluation probably had more to do with breaking the yuan’s tightly managed peg to the US dollar, an obligation that has been draining the economy of scarce liquidity as capital outflows swell.

Both moves—the government pulling back from its market bailout and the currency devaluation—stem from the same ominous problem: China’s leaders are scrambling to find the money to keep its economy running. To understand the broader forces that led to this predicament, here’s a chart-based explainer tracing its origins:

China used its exchange rate to stoke growth

China has long pegged its currency to the US dollar at an artificially cheap rate. Keeping the yuan cheaper than it should be, even as export revenues and foreign investment gushed in, allowed China to amass huge foreign exchange reserves, as we explain in more detail here:

http://atlas.qz.com/embed/V1gTftS2

A cheap currency has also powered China’s investment-driven growth model (more on this here). By paying more yuan than the market would demand for each dollar, the People’s Bank of China (PBoC) created extra money out of thin air, sending it sloshing around in the economy. (Meanwhile, the PBoC prevented this from driving up inflation by setting its bank reserve requirements unusually high, as we explain here.)

http://atlas.qz.com/embed/NkgZcnU2

Easy money, easy lending, easy growth. This was especially true after the global financial crisis hit, when China pumped 4 trillion yuan ($586 billion in 2008 US dollars) into its economy to protect it from the fallout. The resulting double-digit growth attracted foreign investment and hot money inflows, raising demand for yuan. To buoy its faltering export industry, the PBoC had to buy even more dollars to prevent surging yuan demand from driving up the local currency’s value.

1 The government pumped the stock market

But growth is now slowing, making the $28 trillion in debt China racked up in the process even harder to pay off.

http://atlas.qz.com/embed/VyuKC9A_

About a year ago, the government turned to pumping up the stock market. The thinking behind this move, says Derek Scissors, economist at the American Enterprise Institute, was, “Hey, why not address our huge problems by replacing debt with equity?” In other words, a bull market would help indebted companies raise new capital and pay off overdue loans. But eventually the market tanked.

http://atlas.qz.com/embed/VJ50kZvn

So starting in early July, the government launched a sweeping stock market bailout, vowing to prop up the Shanghai Composite Index until it hit 4,500. The problem is, every time it has neared that target level, investors start selling in anticipation that the government will pull back its support. As a result, the Chinese government has now spent as much as $1 trillion to prop up stocks.

Hot money fled the country

While some investors were betting on stocks, others had seen the writing on the wall and were getting out—swapping their yuan for other currencies. Starting in late 2014, the influx of hot money reversed course, and speculative investment flooded out of China. One measure of that is the drop in (mostly) short-term trade finance from foreign banks, which started in Q4 2014:

http://atlas.qz.com/embed/Vykuf_l2

Another is the fall in foreign exchange that Chinese banks are holding:

http://atlas.qz.com/embed/4yOHPwZ3

Once people started selling the yuan, others began fearing that their yuan holdings would lose value—so they sold too. Lower demand for the yuan should have lowered the currency’s value relative to the dollar. But the PBoC had to keep the yuan’s value stable. Not only had it promised to do so as a requirement of joining the IMF’s basket of central bank reserve currencies; the yuan’s stability and gradual appreciation has long attracted foreign capital into China, says Carlo Reiter, an analyst at J Capital Research. To continue propping up the yuan’s value, the PBoC started selling dollars from its precious reserves in exchange for yuan:

http://atlas.qz.com/embed/EkKbftS2

Buying back yuan lowered liquidity, however, which raised borrowing costs, putting a damper on borrowing and investment and threatening deflation:

http://atlas.qz.com/embed/4JvVGh82

Higher borrowing costs exacerbated the country’s $28 trillion in debt, much of which has been borrowed at variable interest rates.

http://atlas.qz.com/embed/NJwOs2I2 The rising stock market crimped bank lending

As investors shifted money from their banking deposits into brokerage accounts to buy stocks, liquidity tightened, leaving banks with less money to lend, says Christopher Balding, finance professor at Peking University. To keep the economy growing, the government continued to pressure banks to lend.

http://atlas.qz.com/embed/4JNc4j7P

To help keep credit flowing, the Chinese government launched a bailout in early July (which, as we mentioned earlier, cost the government more than $1 trillion.) To fund this bailout, interbank lending by state-backed entities has surged, says Carlo Reiter, analyst at J Capital Research. In July, government institutions lent 9.3 trillion yuan to banks, mostly to boost the stock market, he says.

However, the flood of interbank capital eventually caught up with the PBoC. Adding even more money into the financial system put downward pressure on the yuan.

This brings us to the Aug. 11 currency devaluation, which likely occurred because the yuan became too “expensive to defend,” says Reiter. Nevertheless, the exchange rate has leveled off over the last few trading days—a sign that capital outflow is so great that the central bank has once again resorted to selling dollars for yuan.

http://atlas.qz.com/embed/EJ3Gp3U3

Already, this “battle to stabilize the currency has had a significant tightening effect on domestic liquidity conditions,” wrote Wei Yao, economist at Societe Generale, in an Aug. 25 note. In other words, the government’s grand plans to reduce its debt woes while preventing capital from flowing out may have the perverse effect of causing more of both.

Source: Everything you’ve heard about China’s stock market crash is wrong – Qua

end

Early this morning, a grenade attack on the Ukraine Parliament killed one and injured 50 more.

(Monday morning)

 

Grenade attack on the Ukraine Parliament:

Ukraine Reignites – 50 Injured After Grenade Attack On Parliament

mid the Ukraine government’s vote for constitutional changes to give its eastern regions a special status(that it hopes will blunt their separatist drive) protests have turned deadly as RT reports50 Ukrainian nation guards have been injured in a greande blast near parliament in Kiev.

 

The clashes began earlier in the day…

 

Following, as Reuters reports,Ukraine’s parliament on Monday voted for constitutional changes to give its eastern regions a special status that it hopes will blunt their separatist drive…

At a rowdy session, a total of 265 deputies voted in favor in the first reading of a “decentralization” bill, backed by President Petro Poroshenko’s political bloc and his government – 39 more than that required to go through.

 

But many coalition allies, including former prime minister Yulia Tymoshenko, spoke against the changes and it is open to question whether Poroshenko will be able to whip up the necessary 300 votes for it to get through a second and final reading later this year.

 

Approval of legislation for special status for parts of Donetsk and Luhansk regions, which are largely controlled by Russian-backed separatists, is a major element of a peace agreement reached in Minsk, Belarus, in February.

 

Though a ceasefire is under pressure from sporadic shelling and shooting which government troops and rebels blame on each other, Western governments see the deal as holding out the best possible prospect for peace and are urging Ukraine to abide by the letter of the Minsk agreement.

But they have not turned deadly as a greande attack leaves 50 national guard injured…

At least 50 Special Forces troops have been injured during clashes in front of the parliament in Kiev, the Ukrainian National Guard said. Crowds of protesters came to oppose amendments to the constitution that would provide for decentralization of the country.

 

 

“About 50 soldiers of the National Guard of Ukraine have been injured during clashes near Ukrainian parliament, four of them in serious condition,” the National Guard said in a statement.

Tweets from journalists at the scene said supporters of the radical group Right Sector were brutally attacking police officers.

“A combat grenade has been thrown at the Ukrainian special forces. Some of the servicemen from [Ukraine] National Guard have been seriously injured. Their life is in danger,” Anton Gerashchenko, an adviser to Kiev’s Interior Ministry, wrote on his Facebook page.

end Saturday morning: mass protests sweep Kuala Lumpur The citizenry are furious with Goldman Sachs and they have a right to be!!  (courtesy zero hedge) Mass Protests Sweep Malaysian Capital As Anger At Goldman-Backed Slush Fund Boils Over

 

If we told you that thousands of protesters donning bright yellow shirts had taken to the streets to call for the ouster of a leader in an important emerging market, you’d be forgiven for thinking we were talking about Brazil, where President Dilma Rousseff is facing calls for impeachment amid allegations of fiscal book cooking and government corruption.

But on this particular weekend, you’d be wrong.

We’re actually talking about Malaysia, where tens of thousands of demonstrators poured into the streets of Kuala Lumpur on Saturday to call for the resignation of Prime Minister Najib Razak whose government has been accused of obstructing an investigation into how some $700 million from 1Malaysia Development Berhad mysteriously ended up in Najib’s personal bank account.

1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman, whose Southeast Asia chairman Tim Leissner is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

You really cannot make this stuff up.

What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit (more here from FT). Somewhere in all of this, $700 million allegedly landed in Najib’s bank account and the going theory is that 1MDB is simply a slush fund.

So you can see why some folks are upset, especially considering Rosmah has a habit of having, how shall we say, rich people problems, like being gouged $400 for a home visit by a personal hairstylist. Here’s The New York Times with more on the protests:

Tens of thousands of demonstrators in Malaysia defied police orders on Saturday, massing in the capital in a display of anger at the government of Prime Minister Najib Razak, who has been accused of corruption involving hundreds of millions of dollars.

 

The demonstration in central Kuala Lumpur, which has been planned for weeks, has been declared illegal by the Malaysian police, and the government on Friday went as far as to pass a decree banning the yellow clothing worn by the antigovernment protesters.

 

But the demonstrators, who represent a broad coalition of civic organizations in Malaysia, including prominent lawyers, asserted their right to protest on Saturday.

 

The government has acknowledged that Mr. Najib received the money in 2013 and said it was a donation from undisclosed Arab royalty. 

 

One group of protesters on Saturday carried the image of a giant check in the amount of 2.6 billion ringgit, with a sign that read, “You really think we are stupid?”

 

The group organizing the protest goes by the name Bersih, which means clean in Malay.

 

Calls for Mr. Najib to resign have come both from within his party, which is divided, and from the opposition. One junior member of Mr. Najib’s party, the United Malays National Organization, filed a lawsuit against Mr. Najib on Friday asking for details of how the money was spent.

Of course the most prominent voice calling for Najib’s ouster is that of the former Prime Minister Mahathir Mohamad. “I don’t believe it is a donation. I don’t believe anybody would give [that much], whether an Arab, or anybody,” he says.

Meanwhile, Malaysia is facing a re-run of the 1997/98 financial crisis as the ringgit plunges amid broad-based pressure on emerging markets. With FX reserves now sitting under $100 billion some fear a return to capital controls (let’s just call it the “1998 option”) is just around the corner despite the protestations of central bank chief Zeti Akhtar Aziz. Here’s BofAML:

Capital controls are not likely, but the possibility cannot be dismissed, despite <assurances from Zeti.Introducing controls will be a regressive move and a huge setback, hurting the economy and financial sector, and derailing any ambitions of becoming an international Islamic financial center. Malaysia’s reputation and credibility remain tainted by the capital controls of 1998, even after almost two decades.

 

The ringgit has depreciated almost 13% year-to-date, the worst performing EM Asian currency. FX reserves fell to $94.5bn at mid-August, falling below the $100bn threshold and down by about $9bn in July alone. At the peak, FX reserves were $141bn in May 2013. Cover to short-term external debt is only 1x, while cover to imports stands at 5.9 months. Downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis over 1MDB. Malaysia’s vulnerability is also heightened by high leverage (household, quasi-public and external) and a fragile fiscal position (heavy oil dependence, off balance sheet liabilities)

 

The current crisis has not reached the extreme stress seen during the Asian financial crisis, when draconian capital controls were eventually introduced in September 1998. During that episode, the ringgit collapsed by about 89% from peak to trough at its worst (to 4.71 from 2.49 against the USD). The ringgit has depreciated some 26% in the current crisis. During that episode, the KLCI fell by about 79% from peak to trough (from 1,271 to 263) at its worst. The KLCI today has fallen by only about 12% from its recent peak.Nevertheless, downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis.

So in short, Malaysia is on the brink of political and financial crisis, and it looks as though the nuclear route (capital controls) may be just around the corner, which would of course only serve to alienate the country’s financial system at a time when the government looks to be on the brink of collapse. What’s particularly interesting here is the timing. Mahathir Mohamad famously clashed with George Soros during the ’98 crisis, going so far as to brand the billionaire a “moron”. Now that the country’s “founding father” is looking to oust Najib, it will be interesting to see what role he plays in shaping Malaysia’s response to the current financial crisis and on that note, we’ll leave you with a quote from Dr. Mahathir ca. 1997:

“I know I am taking a big risk to suggest it,but I am saying that currency trading is unnecessary, unproductive and immoral. It should be stopped. It should be made illegal. We don’t need currency trading. We need to buy money only when we want to finance real trade.”

 


end Sunday: Get a load of this:  The government bans the colour yellow as protests swell!! (courtesy zero hedge) Malaysia Bans The Color Yellow As Protests Swell Into The Hundreds Of Thousands

The anti-government protests that swept through the Malaysian capital of Kuala Lumpur on Saturday continued unabated on Sunday after tens of thousands of demonstrators camped in the streets overnight.

Emboldened by the presence of influential former Prime Minister Mahathir Mohamad, protesters chanced being confronted with water cannons and tear gas, which police used to disperse crowds at previous Bersih rallies.

As we detailed on Saturday, calls for the ouster of Prime Minister Najib Razak have grown louder in recent months after the government appeared to be obstructing an investigation into how more than $600 million in funds from a Goldman-backed development bank ended up in Najib’s personal bank account. Mahathir Mohamad, who many say still hasn’t accepted the fact that he hasn’t been Prime Minister since 2003, has called for a no-confidence vote and insists that the man he handpicked to govern “has to go.”

Estimates of Sunday’s crowd varied slightly depending on who you listen to. Police, for instance, say the gathering attracted around 20,000 protesters while Bersih insists the number was closer to 300,000.

Whatever the number, it was large enough to cause the police to move tonight’s Independence Eve celebrations from Kuala Lumpur’s Merdeka Square to a location outside the city, Bloomberg said, citing local officials.

As for Najib, the premier blasted the protesters in comments made to the media on Sunday. “What is 20,000? We can gather hundreds of thousands. The rest of the Malaysian population is with the government.”

Perhaps, but that too could change should the country plunge further into financial crisis. As we’ve documented extensively (here and here, for instance), a plunging currency, falling FX reserves, and a collapsing stock market threaten to push Malaysia over the edge and many fear a repeat of the capital controls the country introduced to stem the 1997/98 crisis may be just around the corner.

And the punchline – because there’s always a punchline – the government has banned the color yellow…

Source: Malaysia Ministry of Home Affairs

end

 The following happened the last time that Malaysia faced a currency crisis: (courtesy zero hedge) This Is What Happened The Last Time Malaysia Faced A Currency Crisis

Earlier today, we highlighted the street protests currently underway in the Malaysian capital of Kuala Lumpur where tens of thousands of Malaysians are calling for the ouster of Prime Minister Najib Razak whose government has been accused of obstructing an investigation into how some $700 million from the Goldman-backed 1Malaysia Development Berhad mysteriously ended up in Najib’s personal bank account.

Of course political turmoil isn’t Malaysia’s only problem. Two weeks ago, in the wake of the yuan devaluation, a $10 billion bond maturity sparked the largest one-day plunge for the ringgit in two decades, serving notice that whispers about a replay of the currency crisis that gripped the country in 1997/98 were about to become shouts.

Sure enough, Malaysia – whose FX reserves fell under $100 billion late last month leaving it with dry powder sufficient to cover only 6 months of imports and putting its short-term external debt cover at just 1X – is now at the center of the Asia Financial Crisis 2.0 discussion and central bank head Zeti Akhtar Aziz has been at pains to reassure the market that a replay of 1998’s “draconian” crisis fighting measures is not in the cards.

Because it appears the situation is set to deteriorate meaningfully in the near term, and because the country’s political situation could serve to undermine already fragile confidence, we thought it an opportune time to revisit exactly what happened two decades ago. For the breakdown, we go to BofAML.

*  *  *

From BofAML

Capital controls – the drastic option

Concerns that Bank Negara Malaysia may re-introduce capital controls is resurfacing after the ringgit plunged past RM4 against the US dollar, with FX reserves dropping below the $100bn psychological threshold. The MYR has depreciated by 12% against the US dollar since the start of the year and by about 26% from its peak in August last year. BNM’s FX reserves fell to $96.7bn at end-July, falling below the $100bn threshold and down by about $9bn in July alone. At the peak, FX reserves were $141bn in May 2013.

During [the crisis], the ringgit collapsed by about 89% from peak-to-trough at its worst (to 4.71 from 2.49 against the USD). The ringgit has depreciated some 26% in the current crisis. During that episode, the KLCI fell by about 79% from peak-to-trough (from 1,271 to 263) at its worst. The KLCI today has fallen by only about 12% from its recent peak. Nevertheless, downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis.

But depletion of FX reserves is more severe this time, down $44.7bn so far from the recent peak in May 2013, versus $8.2bn during the Asian crisis episode. Capital controls enacted in 1998 allowed BNM to rebuild FX reserves quickly, rising +$13bn to $32.6bn in a year (Chart 2).

This political crisis is probably the worst in Malaysia’s history, with no resolution in sight over the 1MDB scandal and a growing “trust deficit” with PM Najib.

Former premier Mahathir has criticized the finding that Middle Eastern sources “donated” RM2.6bn ($700m) into the PM’s accounts as “hogwash.”

Malaysia’s vulnerability is also heightened by higher leverage – household, quasipublic and external – than during the Asian crisis. Household debt is 86% of GDP, almost double that pre-Asian crisis (46%). External debt is 69% of GDP, much higher than the 44% in 1997. Even if half of external debt is MYR-denominated, foreign withdrawals will still pressure the ringgit and FX reserves. Public debt is 54% of GDP today versus 31% in 1997. Inclusive of government guarantees, quasi-public debt rises to 70% of GDP. This moreover do not include the potential liabilities from 1MDB, including “letters of support” to circumvent the use of guarantees. Only corporate debt is lower today, at 86% vs. 105% of GDP in 1997. Government-linked companies, pension and pilgrimage funds are also facing pressures to bail-out 1MDB by taking over its assets, including power plants and property projects. With the Prime Minister more focused on 1MDB and survival, the economy is in danger of slipping into another crisis.

end Venezuela runs out of food!! (courtesy zero hedge) 80 Year Old Woman Trampled To Death In Venezuela Supermarket Stampede

With 30% of Venzuelans eating two or fewer meals per day, social unrest is mounting rapidly in President Nicolas Maduro’s socialist utopia. As WSJ reports,soldiers have now been deployed to stem rampant food smuggling and price speculation, which Maduro blames for triple-digit inflation and scarcity. “Due to the shortage of food… the desperation is enormous,”local opposition politician Andres Camejo said, and nowhere is that more evident than the trampling death of an 80-year-old woman outside a state-subsidized supermarket.

As Reuters reports,

An 80-year-old Venezuelan woman died, possibly from trampling, in a scrum outside a state supermarket selling subsidized goods, the opposition and media said on Friday.

 

The melee at the store in Sabaneta, the birthplace of former Venezuelan leader Hugo Chavez, was the latest such incident in the South American nation where economic hardship and food shortages are creating long queues and scuffles.

 

The opposition Democratic Unity coalition said Maria Aguirre died and another 75 people were injured – including five security officials – in chaotic scenes when National Guard troops sought to control a 5,000-strong crowd with teargas.

 

“Due to the shortage of food … the desperation is enormous,” local opposition politician Andres Camejo said, according to the coalition’s website. It published a photo of an elderly woman’s body lying inert on a concrete floor.

 

Camejo said thieves had also attacked the crowd, members of which were seeking to buy cheap food on offer at an outlet of the state’s Mercal supermarket chain in Barinas state.

 

 

El Universal newspaper reported that Aguirre was knocked to the ground during jostling in the crowd, while the pro-opposition El Nacional said she was crushed in a stampede.

 

Another person was killed and dozens detained following looting of supermarkets in Venezuela’s southeastern city of Ciudad Guayana earlier this month.

 

President Nicolas Maduro accuses opponents of deliberately stirring up trouble, exaggerating incidents, and sabotaging the economy to try and bring down his socialist government.

 

Critics, though, say incidents of unrest are symptoms of the increasing hardships Venezuela’s 29 million people are facing due to a failed state-led economic model. Low oil prices are exacerbating economic tensions in the OPEC nation.

Venezuelans protest the starvatiion with signs saying ‘hunger’…

 

Shoppers are finger-printed when buying government-controlled foods…

 

“What’s certain is that we are going very hungry here and the children are suffering a lot,” said María Palma, a 55-year-old grandmother who on a recent blistering hot day had been standing in line at the grocery store since 3 a.m. before walking away empty-handed at midday.

 

In a national survey, as WSJ reports, the pollster Consultores 21 found 30% of Venezuelans eating two or fewer meals a day during the second quarter of this year, up from 20% in the first quarter.

 

Around 70% of people in the study also said they had stopped buying some basic food item because it had become unavailable or too expensive.

As The Mises Institute’s Carmen Elena Dorobat details,

Millions, Billions, Trillions: The Disaster of Socialism, Once Again

Venezuela’s nearly full-blown socialism is making the news once again. For approximately two years now, the country’s economic crisis has been rapidly unfolding: rising prices, fuelled by increased scarcity of goods and a depreciating currency, were followed by price controls, which brought about even higher prices and more shortages. The list of basic commodities missing from stores, such as toilet paper, has gradually expanded to include cooking oil, corn flour, sugar, sanitary pads, batteries, coffins, and even oil (once the country’s main export). The Cendas survey showed that more than a third of foodstuffs cannot be found on supermarket shelves; moreover, vegetables are 32% more expensive every month, meat prices are going up by 22% every month, and beans are surging by 130%. Basic Venezuelan dishes containing rice and beans have thus become a luxury, as people queue for 8 hours a week, on average, to buy basic goods.

This time it was the bolivar, Venezuela’s currency, which made the headlines, as it tumbled from 82 bolivars to the dollar last year, to 300 bolivars in May, and to a staggering 670 bolivars this August. Because the Venezuelan administration stopped publishing inflation figures in December 2014 (when annual inflation reached 68%), some economists have designed an Arepa (i.e. cornmeal cake with cheese) hyperinflation index, which suggests a current inflation rate of around 400%. Othersestimate the annual inflation rate is actually 808%.

A photo of a Venezuelan using a 2 bolivar banknote as a napkin to hold a cheesy pastry (an empanada) has recently gone viral: the banknote is worth less than a third of one US cent on the black market, while the price of a pack of napkins is about 500-600 bolivars.The photo is reminiscent of the Weimar Republic hyperinflationary episode, where the wholesale price index jumped from 100% in July 1922 to more than 2500% in January 1923, which led to German banknotes being used to light fires (right photo).

One can only speculate at the moment the extent of the damage this episode will leave on Venezuelan savings. But if history is any indication, we could soon hear stories similar to those of some of Mises’s acquaintances (recorded from his lectures by his student, Bettina Bien-Greaves):

[A] man made a will according to which this $ 2,000,000 was to be sent back to Europe to establish another orphan asylum such as that in which this man had been educated. This was just before World War I. The money was sent back to Europe. According to the usual procedure it had to be invested in government bonds of this country, interest to be paid every year to keep up the asylum. But the war came, and the inflation. And the inflation reduced to zero this fortune of $ 2,000,000 invested in European Marks—simply to zero.

 

[The president of a Bank in Vienna] told me that as a young man in his twenties he had taken out a life insurance policy much too large for his economic condition at the time. He expected that when it was paid out it would make him a well-to-do burgher. But when he reached his sixtieth birthday, the policy became due. The insurance, which had been a tremendous sum when he had taken it out thirty five years before, was just sufficient to pay for the taxi ride back to his office after going to collect the insurance in person. Now what had happened? Prices went up, yet the monetary quantity of the policy remained the same. He had in fact for many, many decades made savings. For whom? For the government to spend and devastate (Mises 2010, 30-31).

As news of Venezuela’s suffering keeps coming through, one cannot help but feel a certain sense of dread. All governments control the money supply to essentially the same extent that Maduro’s administration does. All around the world we have monetary socialism, where national currencies are subject solely to political power. And one cannot help but wonder (and fear) how many more such economic disasters it will take before it becomes clear that socialism of all shapes, sizes, and degrees, is unrealizable, unbearable, and unforgivable.

*  *  *

end

 

 

Oil related stories  WTI Crude Tumbles To $43 Handle Despite EIA Lowering Production Estimates

After last week’s epic squeeze in crude, overnight weakness has accelerated dragging WTI back to a $43 handle. This comes after EIA (based on improved reporting) reduced the H1 2015 production data by 130,000 barrels per day.

 

 

As Reuters reports,

The U.S. government on Monday released new data on domestic oil production for the first half of this year based on improved methodology, showing output was as much as 130,000 barrels per day (bpd) lower than first estimated.

 

In a posting on its website prior to the formal release of new figures, the Energy Information Administration said its new, survey-based production data showed the country pumped 9.3 million bpd in June, down 100,000 bpd from a revised May figure. It said previously reported monthly data for January through May were revised down by between 40,000 and 130,000 bpd.

*  *  *

end

Today, the USA/JPY ramp failed, then the VIX failed, so onto the 3rd

ignite oil:

(courtesy zero hedge)

The Oil Volatility Farce Continues: Oil Now Surging As OPEC Hints At “Fair Price” Talks

The equity market momo-igniters tried USDJPY – and failed. Then they tried XIV – and failed. So what next? WTI crude of course which has just exploded back to Friday’s highs, with Brent Crude also breaking back above $50.

 

It appears the catalyst this time may be a stray OPEC headline:

  • OPEC READY TO TALK TO OTHER PRODUCERS TO ACHIEVE `FAIR PRICES’

And then one asks: what OPEC? Didn’t Saudi Arabia destroy the cartel last November.

For now, however, welcome to the Penny-Oil market:

 

Friday high stops have been run – now run to the lows to test those stops?

end  Citibank slams today’s rally!! (courtesy zero hedge) Citi Slams Today’s Historic Oil Surge: “Another False Start, Time To Fade The Rally”

Earlier today we were wondering how long it would take the big banks – many of whom are short the commodity – to jump in the path of the oil momentum train, and we didn’t have long to wait for the answer.

Just before the NYMEX close, Bank of America revised its year end and 2016 oil forecasts lower, from $58 and $62 to $55 for 2015 and $61 for 2016. But the real downgrade came moments ago from Citi’s Ed Morse who, together with Goldman, has been bearish on oil for a good part of the past year, just slammed today’s crude breakout and doubled down on his double-dead cat skepticism, when he released a report titled “Another False Start…Time to Fade the Rally” whose punchline is that “Citi foresees that WTI and Brent prices should post another fresh leg lower—perhaps making new 2015 lows—before year-end.”

More from Morse:

The Oil Price Surge

Another False Start…Time to Fade the Rally

The bullish c20-25% crude oil price spike since late last week looks driven more by sentiment than by reality.

Bottom Line: Citi foresees that WTI and Brent prices should post another fresh leg lower—perhaps making new 2015 lows—before year-end.

In Citi’s view, it’s time to “sell the news and buy the facts.” This is reinforced by today’s strong intra-day gains around 8%, which appear driven by a misread of market data and financial headlines.

Notably, nearby timespreads are lagging the move higher in flat price, which is consistent with weak fundamentals.

Sharp gains over the past three trading sessionswere driven by a combination of short covering and chart-readers again looking to call a bottom falsely.

As recently as last Wednesday, both WTI and Brent were hovering at YTD lows of $38/bbl and $42/bbl, respectively. Combined futures and options net length held by money managers on NYMEX and ICE was also near record lows of 225-k contracts, matching the nadir in category positioning in 4Q’14.

The continuation of the rally was further buttressed today by (1) EIA reports showing US production was overstated; (2) non-agency reports that Saudi production had fallen by c60-k b/d m/m; (3) news chatter (CNBC, Reuters, Bloomberg, etc.) that highlighted the most recent OPEC Bulletin which, with no independent reporting, stated the producer group was willing to talk to non-OPEC producers to get ‘fair prices.’ In our judgment, this was a gross misrepresentation of the Bulletin’s editorial which was wistful about such a dialogue.

Almost all OPEC officials are still on holiday and the lack of further reporting suggests none actually were involved in suggesting there was a change in policy.

  • The EIA data should be treated with caution.The old EIA data were a fiction coming out of modeling; the new EIA data are coming out of sampling techniques that are untested and difficult to call reliable. Given the structurally unique nature of the US shale industry, whereby separating the durability of good and bad wells needs the test of time, further complicates matters.
  • 60-k b/d of Saudi production on a 10.3-10.5-m b/d base is a rounding error. Furthermore, there is no credible sign as yet of any change in Saudi market share policy, which is why Citi noted pre-open today that Saudi OSPs (official sale prices) would be of particular importance to monitor this month.
  • It is unclear as to why any non-OPEC producer would want to commit to a target with OPEC.2015 is not like 1998 when both Mexican and Russian production were surging and when both countries participated in a supply cut. Russian production is growing this year because of a significantly weaker ruble cost of oil while Mexico is trying to push through energy reform. Neither country is in a position to really commit to a production cut, in our view.

Neither would the US, Canada or Brazil – the three main non-OPEC parties – willingly participate or agree to curtailing output, in our view; nor would they constitutionally be able to do so.

A (global) production cut today would mostly benefit US producers who can react quickly to price changes. The rig count increase in 3Q’15 following the (temporary) oil price rebound in 2Q’15 seems indicative of the resiliency of the US shale industry. For OPEC and other major oil states to meaningfully slow the shale juggernaut, low prices might need to be in place for perhaps a few years, so that there is enough labor forced out of the sector and equipment scrapped, making any rebound in supply more difficult. For now, there is enough talent still on staff and equipment in place across all the major shale plays to allow for a quick return to drill for oil and gas. In addition, a partial price recovery now could reopen the capital markets to the sector, giving funding to producers to keep drilling, particularly as hedge flows would increase in a higher price environment just as the Northern Hemisphere comes-off peak demand season.

On top of all of this, OPEC has a problem internally – who is going to cut? In our view, it certainly would not be Iran and Iraq, which combined might be adding over 1.5-m b/d of incremental supply over the next twelve to eighteen months. While entirely plausible for the Saudis to cut this fall, that might be more a function of its own internal consumption waning seasonally.The Kingdom burns up to 1-m b/d of crude during the peak summer months for power generation, though that begins fading in September.

For Moscow and Riyadh to reach an agreement, it would essentially mean a Saudi cut – but what quid pro quo could be achieved any time soon? A change in Iranian and Iraqi behavior? A change in the Syrian regime? This seems unlikely, in our view.

end Your early Monday morning currency, and interest rate moves

Euro/USA 1.1208 up .0028

USA/JAPAN YEN 121.26 down 0.429

GBP/USA 1.5409 up .0026

USA/CAN 1.3241 up .0045

Early this Monday morning in Europe, the Euro rose by 28 basis points, trading now well above the 1.12 level rising to 1.1208; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes, crumbling European bourses and today a Chinese currency revaluation northbound,  Last night the Chinese yuan strengthened a considerable .0104 basis points. The rate at closing last night:  6.3761 which means again that the POBC used up considerable USA treasuries to support the yuan.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a northbound trajectory  as settled down again in Japan up by 15 basis points and trading now just above the 121 level to 121.26 yen to the dollar, 

The pound was up this morning by 26 basis points as it now trades just above the 1.54 level at 1.5409.

The Canadian dollar reversed course by falling 45 basis points to 1.3241 to the dollar. (Harper called an election for Oct 19)

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)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).

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: up by 245.84 or 1.28%

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

2/ Asian bourses mostly in the red except Hang Sang … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red/

Gold very early morning trading: $1131.70

silver:$14.51

Early Monday morning USA 10 year bond yield: 2.16% !!! down 2  in basis points from Friday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield remains at  2.88 down 0 basis points. Officially we got the word that got  China is selling treasuries like mad!

USA dollar index early Monday morning: 96.00 up 1 cent from Friday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Monday morning And now for your closing numbers for Monday night: Closing Portuguese 10 year bond yield: 2.66% up 6 in basis points from Friday Closing Japanese 10 year bond yield: .38% !!  par in basis points from Friday Your closing Spanish 10 year government bond, Monday, up 5 in basis points Spanish 10 year bond yield: 2.11% !!!!!! Your Monday closing Italian 10 year bond yield: 1.96% up 4  in basis points from Friday: trading 15 basis point lower than Spain. IMPORTANT CURRENCY CLOSES FOR MONDAY Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond:  3:00 pm  Euro/USA: 1.1234 up .0053 (Euro up 53 basis points) USA/Japan: 121.15 down .538 (Yen up 54 basis points) *  the ramp up of the Dow failed today Great Britain/USA: 1.5352 down .0032 (Pound down 32 basis points USA/Canada: 1.3168 down .0028 (Canadian dollar up 28 basis points)

USA/Chinese Yuan:  6.3760  down .0105  ( Chinese yuan up 10.5 basis points/and again they must have sold a considerable amount of  USA treasuries)

This afternoon, the Euro rose  by 53 basis points to trade at 1.1234. The Yen rose to 121.15 for a gain of 54 basis points. The pound was down 32 basis points, trading at 1.5352. The Canadian dollar rose 28 basis points to 1.3168. The USA/Yuan closed at 6.3760 Your closing 10 yr USA bond yield: up 3 basis points from Friday at 2.21%// ( well below the resistance level of 2.27-2.32%). USA 30 yr bond yield: 2.96 up 5 in basis points on the day. * not a good sign as the Dow was down and yields up.  Indicates again that China was massively selling Treasuries.  Your closing USA dollar index: 95.83 down 15 cents on the day . European and Dow Jones stock index closes: England FTSE closed Paris CAC down 22.18 points or 0.47% German Dax down 39.07 points or 0.38% Spain’s Ibex down 93.90 points or .91% Italian FTSE-MIB down 51.82. or 0.24% The Dow down 114.98 or 0.69% Nasdaq; up 51.82 or 1.07% OIL: WTI:  $48.61  and  Brent:  $53.49 Closing USA/Russian rouble cross: 64.28  up 92/100 roubles per dollar on the day And now for your more important USA stories. Your closing numbers from New York Stocks Suffer Biggest Monthly Drop In Five Years As Oil Spikes Most Since 1990

Only one thing for it really…

 

Forget stocks, today was all about crude oil again…

WTI pushed into the green for August!!!

 

3 Bear markets and 3 Bull markets now in 2015 so far… perfectly tagging the 50-day moving-average today…

 

This is the biggest 3-day rise in WTI since 1990!!

 

Oil Volatility and credit markets were not squeezed into euphoria at all…

Trade accordingly!!

*  *  *

Having got that out of the way…Dow’s worst monthly drop since May 2010..

 

and had an ugly close…

 

Stocks got some lift from the momo-igniters -but once NYMEX closed, it was over. Stocks traded in a relatiovely narrow range glued to VWAP after the overnight plunge… Small Caps outperformed as Nasdaq Underporformed…

 

Futures markets giveus a better idea of the moves…NOTE -0 this is from the beginning of Friday’s pathetic EOD ramp…

 

Once again complete chaos on VIX ETFs…

 

VIX had its biggest monthly jump in history…

 

For the month, it’s been a wild ride!! but just look at how clustered the moves were…

 

Finacials & Enmergy and Healthcare (Biotech) were worst performers in August…

 

For all the excitment over FANG – August was a mixed bunch for them with FB and AMZN notably red…

With all the craziness in stocks, Treasury yields at the long-end ended the month practically unch… 2Y rose 8bps…

 

With some more notable weakness today (which was also seen in Bunds)…note once again selling weas in US session, buying in Asia and Europe…

 

The USD ended the day lower with some major swings in CAD…

 

As August’s USD Index drop was the biggest in 4 months…

 

Commodities were insane today – led obviously by crude!

 

And on the month… perhaps most notably, the perfect recoupling of crude and gold on the month!!??

 

But we note that Gold (+3.5%) had its best month since January even as Silver dropped

 

Finally – amid all the chaos in August, it appears there is a safe-haven… Gold outperforms

 

Charts: Bloomberg

end Not only do we have a faltering Milwaukee ISM but also today we got the big Chicago PMI stalling as inventories continue to rise with a lack of sales to accompany it: (courtesy Chicago PMI/zero hedge) Chicago PMI Bounce Stalls, “Firms At Risk Of Being Over-Inventoried”

Following this morning’s ISM Milwaukee disappointment, missing for the 8th month sof the last 9 (printing 47.67 vs 50.00 exp and hovering at 2 year lows) with production and prices plunging, Chicago PMI just printed a slightly disappointing 54.4 (against expectations of 54.5). After last month’s surprise bounce, this slowdown suggests there is little to no momentum in any ‘recovery’ stemming from a Q2 bounce. Weakness under the surface is broad and as purchasers warned “failure of New Orders to materialize “within the next few weeks” could put firms at risk of being over-inventoried and curtail producton levels.” Perhaps most worrying though is the 4th consecutive contraction in employment… but the recovery?

 

Production and Prices plunged holding Milwaukee’s ISM near 2-year lows…

 

But then Chicago PMI hit…

 

And underlying factors were weak…

  • MNI CHICAGO REPORT: BAROMETER 54.4 AUG VS 54.7 JUL SEASADJ
  • MNI CHICAGO: SUPPLIER DELIVERIES RISE TO HIGHEST SINCE MARCH
  • MNI CHICAGO: EMPLOYMENT UP BUT IN CONTRACTION FOR 4TH MONTH
  • MNI CHICAGO: PRICES PAID FALL BACK BELOW 50
  • MNI CHICAGO: INVENTORIES COMPONENT HIGHEST SINCE NOV 2014
  • MNI CHICAGO: ORDER BACKLOGS CONTRACT AT FASTER RATE
  • MNI CHICAGO: PRODUCTION AND NEW ORDERS EASE SLIGHTLY

Some purchasers reported enough work to keep their facilities “busy” but said that there were a lot of small orders with large orders lacking.

Part of the resilience in Production and New Orders was due to stock growth as companies built inventories at the fastest pace since November 2014.

*  *  *

Judging by the market’s response – it appears bad news is now bad news.

 

Charts: Bloomberg

end This is a biggy!!!  The Dallas Fed manufacturing index collapses to minus 15.8 against expectations of -4.  The Dow reacted in kind (courtesy Dallas Fed Mfg.Index/zero hedge) “The Quantitative Easing Hangover Is Starting” – Dallas Fed Dead-Cat-Bounce Collapses To Post-2009 Recession Lows

With the biggest miss sicne April 2013, Dallas Fed’s 2-month dead-cat-bounce has collapsed to -15.8 (against expectations of -4.0). This is practically the weakest level for the manufacturing index since 2009. The entire report is a disaster – Fisher’s exit seems well timed? – as New Orders crash from +0.7 to -12.5 and Pries Paid craters from +0.1 to -8.0.Even worse, 14 of the 15 ‘hope’ indicators declined and as one respondent warned “the quantitative easing hangover is starting.” We have 3 simple words – “not unequivocally good.”

Worse!

 

Under the surface the responses were really ugly, with 14 out of 15 forward-looking indicators all hinting at contraction.

 

Here are the best survey responses:

  • “The quantitative easing hangover is starting.”
  • Overall business is slowing.
  • ” New orders have dropped to half of what they were last year. Capital project equipment continues to be sourced in China and Korea as the owners are chasing every dollar of savings possible. We had our first layoff in 15 years.”
  • “Oil and gas prices, weather, world outlook and politics make for a poor forecast”
  • “All our time is spent complying with increasing government regulations.”
  • “The strong dollar has significantly impacted our export business. We have balanced this with domestic growth.”
  • ” We are deeply concerned about the markets and the effects they are having globally” 
  • ” The interest in manufacturing has increased; however, the orders have not followed.”
  • ” The continued decline in the West Texas Intermediate crude oil price is expected to soften the demand for our basic fabricated products”
  • ” August will be our worst production and delivery month since March 2014.”

Charts: Bloomberg

end

 Let us close with this interview of Craig Hemke  (Turd Ferguson) and Greg Hunter (courtesy Greg Hunter/USAWatchdog) Bond Market Explosion Not Stoppable-Craig Hemke By Greg Hunter On August 30, 2015 In Market Analysis 38 Comments

By Greg Hunter’s USAWatchdog.com   (Early Sunday Release)

Financial expert Craig Hemke says there is an explosion coming in the bond market–it’s just a matter of when. Hemke explains, “Yes, at some time eventually, yes, just because mathematically the debt based system is unsustainable. It’s now grown so large in the amount of continued debt that it takes to service the existing debt makes it all move exponentially against you, and it is spiraling towards an eventual failure.”

What can they do to stop the bond market from blowing up? Hemke contends, “You can’t. It’s not stoppable and it’s not sustainable. At some point, it simply collapses. As much as the pundits and money managers and talking heads on the financial TV want to convince everyone that everything is fine . . .and it’s just bliss and nirvana. Eventually, it is a mathematical certainty that the music stops. Getting back to China, we have ceded control of that to them . . . They can pull the plug on it whenever they want, and that is the most dangerous part of where we are headed.”

Hemke, who has Wall Street experience that dates back to 1990, says, “The whole thing is a charade akin to a movie set. . . . We have the illusion of markets, and that is propped up on a daily basis by the financial media who has an interest in propping it up. They parade money managers on there who have an interest in making it seem all is well because they are collecting fees. You also have the Fed pretending to be in control through their interest rate policies and trying to make it sound like the economy is doing just fine. . . .All of it is a hall of mirrors or a charade to try to convince everybody that it is all okay. When I got into this business 25 years ago, there was an actually functioning stock market . . . it was buyers and sellers, actually real people. Now, 75% of the volume of the listed stocks is done by high frequency trading computers. . . . It is a fraud, a scam and a charade.”

On the US dollar, Hemke says, “I think the dollar will lose purchasing power dramatically. We have been printing dollars and shipping them all overseas for 40 years. Those dollars are tied up in our bonds and in foreign currency reserves in other nations that have been forced to soak them up. As the dollar loses its reserve currency status, which it is going to do because we are not using the reserve currency from 100 years ago or 1,000 years ago because these things change. When it changes, all those existing dollars are going to come home. It will devalue in multiples, the ones we have now. Inflation is going to go through the roof, and it’s a totally different world. That is probably a best case scenario. What I really worry about is that transition from one financial scheme to the next is never done peacefully. The hegemon that has the printing press, that has the reserve currency, they don’t just sit back and say we’ve had our time in the sun. Now it’s your turn. No, they fight as hard as they can to protect and defend that. That’s my biggest concern.”

Join Greg Hunter as he goes One-on-One with Craig Hemke, founder of TFMetalsReport.com.

(There is much more in the video interview)

end

well that about does it for today

I will see you tomorrow night

harvey


August 28/Gold continues into steep backwardation in London/Saudi Arabia crosses into Yemen as oil rebounds to $45.00 per barrel/Atlanta Fed lowers 3rd quarter GDP to only 1.2%/China continues to sell USA treasuries as yuan appreciates in value/USA...

Fri, 08/28/2015 - 18:55

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1133.10 up $10.70   (comex closing time)

Silver $14.54 up 12 cents.

In the access market 5:15 pm

Gold $1134.50

Silver:  $14.58

 

Here is the schedule for options expiry:

Comex:  options expired last night

LBMA: options expire Monday, August 31.2015:

OTC  contracts:  Monday August 31.2015:

needless to say, the bankers will try and contain silver and gold until Sept 1.2015:

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

At the gold comex today, we had a good delivery day, registering 618 notices for 61,800 ounces  Silver saw 7 notices for 35,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 225.59 tonnes for a loss of 78 tonnes over that period.

In silver, the open interest fell by 3457 contracts as silver was down in price by 56 cents yesterday. Again, our banker friends used the opportunity to cover as many silver shorts as they could .  The total silver OI now rests at 163,807 contracts   In ounces, the OI is still represented by .819 billion oz or 117% of annual global silver production (ex Russia ex China).

In silver we had 7 notices served upon for 35,000 oz.

In gold, the total comex gold OI collapsed to 415,637 for a loss of 7166 contracts. We had 618 notices filed for 61,800 oz today.

We had no change  in tonnage at the GLD today/  thus the inventory rests tonight at 682.59 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold.  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 will be the FRBNY and the comex.   In silver, we had no changes in silver inventory at the SLV  tune of / Inventory rests at 324.968 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver fall by 3457 contracts down to 163,807 as silver was pummeled by 56 cents in price with respect to yesterday’s trading.   The total OI for gold fell by 7166 contracts to 415,637 contracts, as gold was down by $2.20 yesterday. We still have 15.70 tonnes of gold standing with only 14.70 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3. COT report

(Harvey)

4. Four stories on China tonight.  The markets were again rescued by POBC as nobody wants to be arrested.  The big news yesterday was official announcement of China selling its hoard of USA treasuries. China is angry at the USA as they state that the market crash is USA’s fault. Today the yuan was bought in volumes by the POBC and thus wads of USA treasuries were again sold.

(Reuters/Bloomberg/Dave Kranzler/zero hedge)

5. Yesterday, we brought you the story that the Ukraine has been offered a debt deal with a haircut. Only one problem:  Russia states that it will not accept any haircut and Putin wants the entire 3 billion USA returned.  Today, Bank of America explains why Putin will receive his money

(zero hedge/Bank of America)

 6.  Two Oil related stories i) Saudi Arabia invades Yemen as oil shoots up above 45.00 dollars ii) Canadian banks getting hurt by the low oil price as they must take write downs (London’s Financial times/zero hedge)

7 Trading of equities/ New York

(zero hedge)

8.  USA stories:

a)USA investors revolt as we witness large redemptions

(two commentaries/zero hedge)

b) U. of Michigan Consumer sentiment tumbles to lows not since in a year.

(U of Michigan consumer sentiment report/zerohedge)

c) Consumer spending misses expectations/lowest in a year

(zero hedge)

d) Atlanta Fed lowers 3rd quarter GDP to 1.2%

(Atlanta Fed/zero hedge)

e. China’s largest automobile maker warns of a huge global glut and warns about huge increases in inventory.

f.  VIX today orchestrates another short squeeze/the ETF is still in backwardation.  (backwardation in VIX ETF”s means there is a greater number of shorts vs the number of shares outstanding)

g.Michael Snyder today comments on the CNN report where they state that there will be no market crash’

(Michael Snyder/EconomicCollapse Blog)

h. This week’s wrap up with Greg Hunter

(Greg Hunter/USAWatchdog)

 

9.  Physical stories:

  1. JPMorgan customer delivers another 54,000 gold oz/picked up by Goldman (Jessie/Americain cafe and Dave Kranzler explains its significance.
  2. Avery Goodman/Fed spent 23 billion usa in last 3 days trying to prop up USA stocks
  3. Chris Powell: Is the Fed behind the USA stock crashes.
  4. Andrew Maguire on gold LBMA/comex trading, reports on permanent and severe backwardation and delays in repatriation of gold to Germany.  (I reported to you that last month zero oz of gold left for Germany.
  5. Bill Holter delivers a terrific paper:  “What will historians say…?”
  6. Steve St Angelo of the SRSRocco report shows in chart form how demand for physical gold is miles ahead of demand for paper silver.
  7. Turd Ferguson discusses the movements of gold at the comex(Craig Hemke/Turd Ferguson/TFMetals)

Let us head over and see the comex results for today.

The total gold comex open interest fell from 422,803 down to 415,637, for a loss of 7166 contracts as gold was down $2.20 with respect yesterday’s trading. Seems our specs have been obliterated.  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, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. Last night we had a net 739 contracts outstanding for 73,900 oz of gold outstanding.  Today the gold contract went off the board and yet last night only 618 notices/739 were filed. Thus I have no idea if the last 121 contracts or 12100 oz has been served upon. It seems that our banker friends are having trouble locating physical gold. The August contract month is now officially off the board.  The next delivery month is September and here the OI fell by 170 contracts down to 273. The next active delivery month is October and here the OI fell by 1,494 contracts up to 28,144. The big December contract saw it’s OI fall by 4911 contracts from 293,384 down to 288,473 The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was fair at 120,361. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 157,013 contracts. Today we had 618 notices filed for 61,800 oz. ** just before this goes to print, the CME downloaded another 58 gold contracts for 5800 oz.  They actually have until midnight Monday night to serve upon any naked gold long contract. I will amend the data for official gold oz standing Monday night due to the delay in servicing our gold longs.   And now for the wild silver comex results. Silver OI fell by 3457 contracts from 167,264 down to 163,807 as  silver was whacked by 37 cents in price yesterday . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month. However this time in silver the OI did not see such a huge fall. The bankers continue to pull their hair out trying to extricate themselves from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena (judging from the high volume every day at the comex).  We are now off the delivery month of August and enter the active delivery month of September. Here the OI fell by 18,265 contracts to 6,009. We have one more reading day which is Monday, August 31.2015.The estimated volume today was excellent at 41,017 contracts (just comex sales during regular business hours).  The confirmed volume yesterday (regular plus access market) came in at 122, 482 contracts which is huge in volume. (equates to 612 million oz or 87.4 % of annual global production) We had 7 notices filed for 35,000 oz.

August contract month:

final standings

 

August 28.2015

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  382.802 oz Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz nil No of oz served (contracts) today off the board No of oz to be served (notices) 739 contracts (73,900 oz) Total monthly oz gold served (contracts) so far this month 5055 contracts(505,500 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 664,121.9   oz Today, we had 0 dealer transactions total Dealer withdrawals: nil  oz we had 0 dealer deposits total dealer deposit: zero we had 1 customer withdrawals  i) out of Manfra: 385.802 oz total customer withdrawal: 385.802 oz  We had 0 customer deposits:

Total customer deposit: nil  oz

We had 0  adjustment:

JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz)  and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes

. Today, 0 notices was issued from JPMorgan dealer account and 616 notices were issued from their client or customer account. The total of all issuance by all participants equates to 618 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 55 notices were stopped (received) by JPMorgan customer account.   To calculate the final total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (5055) x 100 oz  or 505,500 oz , to which we cannot add the difference between the open interest for the front month of August (off the board) and the number of notices served upon today (618) x 100 oz equals the number of ounces standing.   Thus the final standings for gold for the August contract month: No of notices served so far (5055) x 100 oz  or ounces + {OI for the front month (???) – the number of  notices served upon today (618) x 100 oz which equals 505,500 oz officially standing  in this month of August (15.723 tonnes of gold).

Thus we have 15.723 tonnes of gold standing and only 14.70 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.

Total dealer inventory 472,783.087 or 14.705 tonnes Total gold inventory (dealer and customer) =7,220,331.902 or 224.58  tonnes) Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.59 tonnes for a loss of 78 tonnes over that period.   The Comex is still bleeding gold. This concludes and should finalize the non active month of August end And now for silver August silver final standings

August 28 2015:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory 33,259.700 oz (Brinks,Delaware) Deposits to the Dealer Inventory  nil Deposits to the Customer Inventory 919.05 oz (Delaware) No of oz served (contracts) 7 contracts  (35,000 oz) No of oz to be served (notices) off the board Total monthly oz silver served (contracts) 380 contracts (1,900,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month 85,818.47 oz Total accumulative withdrawal  of silver from the Customer inventory this month 9,162,951.6 oz

total dealer deposit: nil   oz

Today, we had 0 deposits into the dealer account:

we had 0 dealer withdrawal: total dealer withdrawal: nil  oz We had 1 customer deposit: i) Into Delaware: 919.05 oz

total customer deposits: 919.05 oz

We had 2 customer withdrawals: i) Out of Brinks:  31,209.700 oz ii) Out of Delaware:  2050.000 oz ???

total withdrawals from customer: 33,259.700  oz

we had 0  adjustments Total dealer inventory: 54.775 million oz Total of all silver inventory (dealer and customer) 171.161 million oz The total number of notices filed today for the August contract month is represented by 7 contracts for 35,000 oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (380) x 5,000 oz  = 1,900,000 oz to which we add the difference between the open interest for the front month of August (probably 7) and the number of notices served upon today (7) x 5000 oz equals the number of ounces standing. Thus the final standings for silver for the August contract month: 380 (notices served so far)x 5000 oz + { OI for front month of August (7) -number of notices served upon today (7} x 5000 oz ,= 1,900,000 oz of silver standing for the August contract month.

This should finalize the month the active month of August.

for those wishing to see the rest of data today see:http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com 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: August 28.2015:/no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes August 27./ a huge addition of tonnage at the GLD to the tune of 1.49 tonnes/Inventory rests at 682.59 tonnes (I believe that the GLD has now run out of physical gold and they cannot supply China from this vehicle) August 26.2015/ no change in tonnage at the GLD/Inventory rests at 681.10 tonnes August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes. August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 17.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 14.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 13.2015:/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 28 GLD : 682.59 tonnes end

And now SLV:

August 28.2015: no change in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 27.no change in inventory at the SLV/Inventory rests at 324.698 million oz  (for the 11th straight trading day)

August 26.2015/no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 21.2015/ no change in inventory at the SLV/Inventory rests at

324.698 million oz

August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz

August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.

August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.

August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz

August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.

August 28/2015:  tonight inventory rests at 324.968 million oz end   And now for our premiums to NAV for the funds I follow: Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that) 1. Central Fund of Canada: traded at Negative 8.0 percent to NAV usa funds and Negative 8.2% to NAV for Cdn funds!!!!!!! Percentage of fund in gold 63.2% Percentage of fund in silver:36.5% cash .3%( August 28/2015). 2. Sprott silver fund (PSLV): Premium to NAV rises to-.50%!!!! NAV (August 28/2015) (silver must be in short supply) 3. Sprott gold fund (PHYS): premium to NAV  rises to – .39% to NAV August 28/2015) Note: Sprott silver trust back  into positive territory at -.50% Sprott physical gold trust is back into negative territory at -.39%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *

>end At 3:30 pm we receive the COT which gives position levels of our major players. First the Gold COT:

wow!!

 

Gold COT Report – Futures Large Speculators Commercial Total Long Short Spreading Long Short Long Short 189,893 119,160 53,016 156,659 219,295 399,568 391,471 Change from Prior Reporting Period 4,181 -24,893 4,300 -9,403 23,285 -922 2,692 Traders 130 125 87 47 54 219 230   Small Speculators   Long Short Open Interest   32,586 40,683 432,154   348 -3,266 -574   non reportable positions Change from the previous reporting period COT Gold Report – Positions as of Tuesday, August 25, 2015 Our large specs: Those large specs that have been long in gold added a large 4181 contracts to their long side. Our large specs that have been short in gold saw the light and covered a monstrous 23,285 contracts from their short side. Our commercials: Those commercials that have been long in gold pitched a huge 9403 contracts from their long side. Those commercials that have been short in gold added a monstrous 23,285 contracts to their short side. Our small specs: Those small specs that have been long in gold added 348 contracts to their long side. Those small specs that have been short in gold pitched 3266 contracts from their short side. Conclusion: our commercials go net short by a whopping 32,686 contracts.  speechless! And now for silver:  big difference between gold and silver Silver COT Report: Futures Large Speculators Commercial Long Short Spreading Long Short 58,687 43,129 14,926 71,182 95,152 -848 -2,372 -3,051 -38 539 Traders 90 59 49 42 42 Small Speculators Open Interest Total Long Short 167,243 Long Short 22,448 14,036 144,795 153,207 -2,365 -1,418 -6,302 -3,937 -4,884 non reportable positions Positions as of: 152 136 Tuesday, August 25, 2015   © Our large specs: Those large specs that have been long in silver pitched 848 contracts from their long side. Those large specs that have been short in silver covered 2372 contracts from their short side. Our commercials; Those commercials that have been long in silver pitched a tiny 38 contracts from their long side. Those commercials that have been short in silver added a tiny 539 contracts to their short side. Our small specs; Those small specs that have been long in silver pitched 338 contracts from their long side. Those small specs that have been short in silver covered 2806 contracts from their short side. Conclusions: commercials go net short by only 577 contracts. It seems that positions are not changing much. end And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Einstein, Physics, Gold and The Formula To End Economic Decay

By Mark O’ByrneAugust 28, 20150 Comments

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We continue to have a wonderful dialogue with and frequent editorial submissions from readers and clients. Today, we have a thought provoking and important article that should greatly contribute to the debate on the merits of continuing to use artificial money.  David Bryan draws on the genius of Einstein and uses science as the basis for policies that would end economic decay and rejuvenate local and national economies and indeed the global economy.

Einstein, Physics, Gold and The Formula To End Economic Decay
“It Can Be No Other Way

By backing their productivity with artificial money, people have been tricked into giving banks a counter party claim to their wealth. The assets used or owned by their forefathers are now incorporated within vast corporations or pledged as debt in exchange for central banker’s script.

Einstein was the greatest mind of this century and when he states the formula for reality we should pay full attention to what he says. Beliefs spun into economic or social systems do not improve the economy or add to the social health of a nation.

“Everything is energy and that is all there is to it. Match the frequency of the reality you want and you cannot but get that reality. It can be no other way. This is not philosophy. This is Physics.” Einstein

Read David Bryan’s full essay here.

DAILY PRICES
Today’s Gold Prices: USD 1,125.50, EUR 998.23 and GBP 730.99  per ounce
Yesterday’s Gold Prices:  USD 1128.50, EUR 999.38 and GBP 728.91 per ounce.
(LBMA AM)

Gold Outperforms All Assets In August
Yesterday, gold rose a marginal $0.20 to $1124.30 in New York.  Silver rose 27 cents or nearly 2% to $14.45 per ounce.

Gold prices moved higher in Asian trade overnight and bullion for immediate delivery rose as much as 0.8 percent to $1,132.55 an ounce prior to selling in Europe capped gains.

Gold has declined 2.5 percent this week in dollar terms, the first weekly loss in three but importantly it remains nearly 3% higher for what was the volatile month of August (see table).

Earlier in the week, gold had breached the $1,150 level on safe haven demand as stock markets around the world plummeted on concerns about both the Chinese and indeed the global economy.

Gold in US Dollars – 5 Years

Gold then fell as sentiment improved and stock markets bounced from oversold levels.

The question is whether this is another correction and stocks will continue marching to giddy new highs in the coming months or whether this is a typical dead cat bounce prior to further losses and a new bear market.

We are of the belief that it is likely the latter and investors and owners of pensions who are overweight stocks and bonds should use rallies to reduce allocations to stocks and bonds and increase allocations to gold.

Gold remains very undervalued on a whole host of various measures (see analysis and charts in Commentary today) vis-a-vis both stocks, bonds and indeed many property markets internationally. Silver even more so.

In the last two weeks, gold has held its own nicely amid the stock market bloodbath. Indeed, the fact that it is higher despite market carnage bodes very well indeed for the coming months.

Gold is acting like a safe haven again -at a time when arguably financial assets and investors are facing significant risks and need a safe haven and wealth preservation most.

Frequently, gold is correlated with equities in the very short term and can fall when stock markets suffer sharp one day corrections.However, over the month and the quarter, gold has an inverse correlation with equities.

We are extremely busy and this was one of the busiest weeks of the year so far – both in terms of number of transactions and total volume in dollar sales terms. This increase in physical demand should lead to higher prices in the coming weeks.  This has been the case for bullion refiners, mints and dealers all of whom say very high demand for physical this week.

Once again, gold and silver prices appear completely divorced from the reality of physical demand.
Paper and electronic selling of futures contracts and hedge fund and bank liquidations and trading machinations continue to dominate the price, for now.

As ever, it is vitally important to focus on asset performance and investments over the long term – months, quarters and of course years.

As month end approaches, gold has outperformed the vast majority of major assets (see table above) and is nearly 3% higher in August while leading stock indices have fallen by more than 6% and some crashed by 20% this week prior to the recent bounce.

Gold’s hedging and safe haven characteristics are being shown again and we believe this important safe haven importance of gold in a diversified portfolio will again become evident in the coming months.

IMPORTANT NEWS

Gold Up in Asia Trade – The Wall Street Journal
Gold Pares Biggest Weekly Drop in Month on U.S. Growth Concern – Bloomberg
European Stocks Decline, Erasing Gains in Roller Coaster Week – Bloomberg
Oil prices extend gains after biggest daily climb in six years – Reuters
Federal Reserve Increasing Scrutiny of Bank Payment Systems – The Wall Street Journal

IMPORTANT COMMENTARY
Reflation threat to bonds as money supply catches fire in Europe – The Telegraph
Optimism for Africa despite threat from China downturn – The Telegraph
This Weird Story Suggests Gold and Miners Are Near a Bottom – Casey Research
Gold and Silver Have Never Been This Cheap – GoldSeek
Expect markets to fall 20 to 40 percent: Marc Faber – Yahoo Finance

Download Essential Guide To Storing Gold Offshore

end

Avery Goodman: Fed spent $23 billion in three days but still had trouble pushing up stocks

Submitted by cpowell on Thu, 2015-08-27 21:04. Section:

5:03p ET Thursday, August 27, 2015

Dear Friend of GATA and Gold:

Colorado securities lawyer Avery Goodman writes today that the U.S. stock market’s recent recovery is entirely a matter of the Federal Reserve’s injection of unprecedented amounts of money via “temporary open market operations” through primary dealers in U.S. government securities — and for a while even the unprecedented amounts failed to halt the market’s slide.

Goodman writes: “Absent money printing, there will be a very large decline in stock prices. We do not yet know the timing. If the decision is to print more money, as is likely, stocks will rise when looked at in nominal terms. However, the Fed will lose so much credibility that the value of the dollar will be greatly impacted. For that reason a significant delay in making that decision will probably occur. Stocks must fall first, and the techniques they are now using must be proven to be a definitive failure.”

People should send Goodman’s analysis to their members of Congress and ask them to report whether the Fed is operating as he describes and, if so, if the country has exchanged free markets for a covert command economy.

Goodman’s analysis is headlined “The Fed Spent $23 Billion in 3 Days But Still Had a Hard Time Pushing Up Stocks” and it’s posted at Seeking Alpha here:

http://seekingalpha.com/article/3472286-the-fed-spent-23-billion-in-3-da…

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

end

(courtesy Chris Powell/GATA)

Is the Fed behind the stock market and commodity crashes?

Submitted by cpowell on Thu, 2015-08-27 21:33. Section:

5:32p ET Thursday, August 27, 2015

Dear Friend of GATA and Gold:

Suspicion is growing that the Federal Reserve is behind the crash of the stock market as well as the crash of the commodity market.

Financial writer Charles Hugh Smith, in commentary reposted at Zero Hedge yesterday, headlined his analysis “What If the Crash Is as Rigged as Everything Else?”:

http://charleshughsmith.blogspot.com/2015/08/what-if-crash-is-as-rigged-…

Today Leonard Brecken of Oilprice.com asks, “Did the Fed Intentionally Spark a Commodity Selloff?”:

http://oilprice.com/Energy/Energy-General/Did-The-Fed-Intentionally-Spar…

Of course back in 2001 the British economist Peter Warburton, in his essay “The Debasement of World Currency: It Is Inflation But Not as We Know It,” wrote that Western central banks were using their investment bank agents and derivatives to suppress commodity prices generally to prevent commodities from being used as hedges against monetary inflation:

http://www.gata.org/node/8303

And last year it was disclosed by filings at the U.S. Commodity Futures Trading Commission and Securities and Exchange Commission that CME Group, operator of the major futures exchanges in the United States, offers secret futures trading accounts and discounts to central banks and governments and considers central banks and governments to be among its major customers:

http://www.gata.org/node/14385

http://www.gata.org/node/14411

These are matters financial journalism would pursue if it existed in the West.

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

end

(courtesy Andrew Maguire/Kingworldnews)

At KWN, Maguire cites ‘permanent’ backwardation, repatriation delays

Submitted by cpowell on Fri, 2015-08-28 19:04. Section:

3p ET Friday, August 28, 2015

Dear Friend of GATA and Gold:

Interviewed today by King World News, London metals trader Andrew Maguire describes increasing strains in the gold banking system, including “permanent” backwardation and delays in gold repatriations. Maguire’s interview is excerpted at the KWN blog here:

http://kingworldnews.com/andrew-maguire-warns-recent-chaos-is-a-prelude-…

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

end

 

Dave Kranzler of IRD gives his thoughts on why Goldman sachs is picking up gold being issued by JPMorgan:

(courtesy Dave Kranzler/IRD)

Goldman’s Gold Delivery – Real Or Paper? August 27, 2015Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy, , , ,

My good friend and colleague, “Jesse,” of Jesse’s Cafe Americain wrote an insightful and piercing commentary on the Comex report from last night showing that Goldman took delivery of 442 contracts on the other side of JP Morgan.  Supposedly it was for Goldman’s “House” account.

This would make sense in light of the fact that Goldman ALWAYS takes the other side of its research recommendations – in this case Goldman is quite bearish on gold.  The problem is, as Jesse points out, we will never know for sure if Goldman took delivery or real gold that will moved from JP Morgan’s vault to wherever Goldman safekeeps its valuables.

HOWEVER, in light of an interesting news report just hitting the tapes that King Salman of Saudi Arabia is visiting the White House next week – news of which Goldman no doubt had insight knowledge – perhaps Goldman has been loading up on real physical gold ahead of this meeting.  Why?

This is pure speculation on my part, but I suspect that Saudi Arabia is going to start trading their oil in yuan.  The Chinese are clearly dumping dollars know and they are making it clear that their preferred method of trade settlement is to us yuan.  Perhaps the good King will also let Obama know that they are losing their appetite for buying Treasuries.

The petro-dollar is being dismantled systematically by the non-US vassal world – i.e. the eastern hemisphere, for the most part.  It would make sense that entities like Goldman with access to real inside information would be loading up on gold ahead of an event like this.

end

 

 

And they take another 54,000 oz of gold today ( reported on this in yesterday’s summary of gold inventory movements:

 

(courtesy Jessie/Americaine cafe)

 

 

JPM Customers Issue and Goldman Takes Another 54,100 Ounces of Gold For the ‘House Account’The receipts for another large chunk of bullion changed ownership from a JPM Customer to the Goldman ‘house account’ at $1,122 per ounce.

With all the usual caveats, and just taking note.

This is especially interesting since Goldman has been publicly beating the drums for gold to drop well below $1000.

We ought not to presume anything about how naive the customer might be, or the sly cunning of any particular buyer. For all we know the ‘customer’ could be a large and highly competent ETF or fund, and not some naive or desperate or perhaps whimsical individual.

And as for the buyer and its motives, my friend Dave offered some speculation on this phenomenon here. While it is based on a ‘guess’ founded in possibly disparate facts, it is no more untoward than those who dismiss the whole thing, and seemingly ascribe no significance to anything whatsoever, except that the price of gold and silver must go lower.

And I am sure that all of it is God’s work, and not sly cunning in service to earthly greed, from such a kindly and selfless institution.

***

end

 

A terrific paper from Steve St Angelo on the demand for paper silver vs real silver

 

(courtesy Steve St Angelo/SRSRocco report)

 

MUST SEE CHART: Something Quite Interesting Happened In The Silver Market

Something quite interesting took place in the silver market and I believe few investors realize the significance. After looking over the data, I came across some fascinating evidence that shows just how fearful individuals are about investing in the paper precious metal markets.

While analysts and investors are familiar with the data put out by the Silver Institute and World Silver Surveys, we can see an entirely different picture when we combine the figures in a certain way. What I am trying to say here is this… by crunching the official data (even though it might be understated or manipulated) we can see very interesting trends that aren’t noticeable when looking at the individual figures.

This is one of the more important analytic tools I like to use at the SRSrocco Report. By crunching the numbers and looking at figures in a certain way, I can see certain trends that may not be apparent to most investors.

Before we look at the chart that (I believe) proves investors have become increasingly fearful of the paper markets, let’s look at the chart below. This chart shows the difference between the build of Silver ETF inventories versus Silver Coin and Bar investment demand:

As we can see, Silver ETF inventories and Silver Coin & Bar demand both increased after the collapse of the U.S. Investment Banking System and Housing Market in 2007. Global Silver ETF’s saw their inventories increase from a build of 54.6 million oz (Moz) in 2007 to 156.9 Moz in 2009. While physical Silver Bar & Coin demand increased from 51.2 Moz in 2007 to 187.3 Moz in 2008, it fell nearly 100 Moz in 2009 to 87.5 Moz.

For whatever reason, Global Silver ETF inventories increased in 2009, even though the average annual price of silver fell to $14.67 compared to $14.99 in 2008. When the price of silver jumped to an average of $20.19 in 2010, the build of Global Silver ETF inventories fell to 129.5 Moz (compared to 156.9 Moz in 2009), while demand for Silver Bar & Coin increased to 143.3 Moz.

However, something interesting took place in 2011. This was the year the price of silver nearly touched $50. As you can see from the chart, Global Silver ETF inventories actually suffered a net 24 Moz decline in 2011, while Silver Coin & Bar demand skyrocketed to 210.6 Moz. A significant portion of this physical silver investment was due to a large increase of Indian silver bar demand in 2011.

If we look at the next several bars in the chart (2012-2014) we can see a serious change in the silver market. Even though there was a 55.1 Moz build in Global Silver ETF inventories in 2012, the next two years saw very little silver enter into this investment market. There was a paltry increase of Global Silver ETF inventories of 1.6 Moz in 2013 and 1.4 Moz in 2014.

Now, on the other hand, Silver Bar & Coin demand shot up to a record 243.6 Moz in 2013 and 196 Moz in 2014.Basically, savvy precious metal investors decided to take advantage of the lower silver price in 2013 and 2014 by stocking up on a great deal of physical silver while Main Stream investors brainwashed by Wall Street, had no motivation to park their money into Silver ETFs.

Of course, some analysts will say the flat Global Silver ETF inventories in 2013 and 2014 were due to a falling price and lack of investment demand. Well, that might be true for paper or digital silver, but not so for physical silver investment. Why? Let’s look at the chart that says it all.

The Silver Chart That Proves Investors Prefer Physical Over Paper

What a difference in the two four-year periods… aye? From 2007 to 2010, the build of Global Silver ETF inventories and Coin & Bar demand were pretty even. As we can see, a total of 442.3 Moz went into the World’s Silver ETFs, while 469.3 Moz was consumed as Silver Bar & Coin investment during this four-year period.

But, something changed significantly in the next four-year period. From 2011 to 2014, the net increase of Global Silver ETFs was a paltry 34.1 Moz compared to a staggering 788.2 Moz of Silver Bar & Coin demand. This proves, investors rather purchase physical silver than take their chances playing in the Paper Silver ETF market.

Here is the net change between these two periods:

Global Silver ETFs: 2007-2010 vs 2011-2014 = 92% decline

Silver Bar & Coin: 2007-2010 vs 2011-2014 = 70% increase

Again, I realize analysts will say the relatively flat inventory levels of Global Silver ETFs over the past couple of years were due to falling silver prices in 2013 and 2014. Yeah, I get that. However, that still doesn’t change the fact that a certain segment of the investment public purchased record amounts of Silver Bar & Coin even though prices declined significantly in 2013 and 2014.

The chart above proves that investors rather stockpile physical silver than gamble it in the paper silver market.Now, I realize there has been speculation put forth by the precious metal community that all the silver supposedly stored by custodians of the Silver ETFs might not be there. Unfortunately, there is no way of knowing.

That being said, most precious metal investors rather have guaranteed silver in their sweaty palms than a paper (or digital) promise in the future. I totally agree.

The world’s stock markets are currently experiencing some of the most worst volatility in years. One day the Chinese Hang Seng Index was down 1,000 points, then another day, it was up 600. The Dow Jones lost 1,800 points over a four-day period, then came back nearly 1,000 points over the past two days.

The markets are totally broken. I believe a small percentage of investors realize this as they purchased 23 oz of Silver Bar & Coin for each 1 oz build in paper Global Silver ETFs during 2011-2014. I think physical silver investment demand will only get stronger over the next several years as the broader stock and bond markets continue to disintegrate under massive leverage and debt.

If you haven’t checked out THE SILVER CHART REPORT, there’s a great deal of information on the Silver Industry & Market not found in any single publication on the internet. There is one chart in this report (Chart #19) that I can guarantee that 99.9% of precious metal investors haven’t seen before.

CLICK HERE: For The Silver Chart Report

I use this bird’s-eye approach when I create my easy to understand charts. The Silver Chart Report is a collection of my top silver charts from articles published over the past six years, and includes in-depth, never-before-seen charts and content that indicate that silver is on the rise. There are 48 charts in the report, broken down in five sections.

Please check back for new articles and updates at the SRSrocco Report. You can also follow us at Twitter below:

end

 

(courtesy zero hedge)

 

Gold Surges On NIRP Hint

The Fed’s ultimate dove has been unleashed and this time he means business. Faced with the inevitable rate hike, Kocherlakota has come out swinging to explain how cataclysmic inflation is and why The Fed should use its asset-purchase tools and lower interest rates further… i.e. to negative… Gold reacted instantly…

  • *KOCHERLAKOTA SAYS FED HAS ASSET-PURCHASE TOOLS
    *KOCHERLAKOTA: THERE ARE WAYS TO LOWER INTEREST RATES FURTHER

 

And sure enough gold surges…

end TF Metals Report: August gold delivery update

 

 

Submitted by cpowell on Fri, 2015-08-28 14:37. Section:

10:35a ET Friday, August 28, 2015

Dear Friend of GATA and Gold:

The TF Metals Report’s Turd Ferguson today reviews deliveries reported for August gold contracts on the New York Commodities Exchange and concludes:

“The entire Comex delivery scheme is nothing but a paper shuffle of warehouse receipts. Very little real gold is ever moved. Each ‘delivery’ month is just a shell game where the banks simply pass ownership claims back and forth.”

Far from making a market, the point of the Comex in gold seems to be to prevent a market from ever developing.

The TF Metals Report’s analysis is headlined “August Gold Delivery Update” and it’s posted here:

http://www.tfmetalsreport.com/blog/7099/august-gold-delivery-update

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

end

 

 

Bill Holter…..

What will historians say…?

 

 

Two weeks back I asked the question whether or not the “Final War” had started, between the EAST AND WEST. I was called a number of politically incorrect names for suggesting the Tianjin explosion might have been an “attack” and took even more heat,… because I included the word “nuclear”. Since then there have been many theories as to what happened, some of them pretty far fetched. Yesterday another article was published in Veterans Today, http://www.veteranstoday.com/2015/08/25/confirmation-tianjin-was-nuked/which scientifically suggests the explosion was in fact “nuclear.” I am inquiring as to whether the science used as proof is in fact sound. In the meantime, I would like to hear from readers why or why not the science used in this article is correct or is not. Please do not send me “opinion” or tell me Veterans Today is a poor source. Please specifically attack the science!

I would like to use the Tianjin explosion as a mid point in my review of what happened before and since the tragic event. Prior to the Tianjin explosion, China announced they had accumulated 600 more tons of gold over the last 6 years. On the face of it; this number is clearly bogus as China mines 400 tons per year and none of this product leaves their border for export. I termed this 600 tons….a “polite number”. Seemingly, the number was enough to demand a place at the IMF table but not enough to be a threat to the “sacrosanct” 8,133 tons the U.S. claims. This was followed almost immediately by the IMF announcing it would review China’s inclusion in the SDR in another 9 months. Just two days later China began a series of three yuan devaluations, on day two the Tianjin explosion occurred.
Since then, China announced another 19 tons of gold accumulated. One week later the chemical explosion in Shandong destroyed one of China’s main trading cities (this chemical explosion looked nothing at all like Tianjin). Yes, I understand, different chemicals explode differently but the videos clearly look like fuel ordnance. Coincidentally, two days after the Shandong explosion… a U.S. munitions depot in Tokyo exploded. Maybe I have been sleeping or just haven’t been paying attention but when was the last time a U.S. munitions depot exploded by accident?

As we know so well; over the last two weeks, the chaos in global markets finally reached the shores of Manhattan. Market chaos, that had previously been quite widespread and headlined by China, finally gripped U.S. markets. Now we find out China has exited over $100 billion of U.S. Treasury bonds in just the last two weeks and has indicated it is dumping more through Belgium and elsewhere.

http://www.zerohedge.com/news/2015-08-27/its-official-china-confirms-it-has-begun-liquidating-treasuries-warns-washington . We knew they had been selling over past months to the tune of nearly $150 billion, but $100 billion compressed into just two weeks is mammoth! I would also add “smart” because China did this selling while fear capital was clamoring to seek “safety” in risk free U.S. Treasuries. China traders appear to have effectively used the fear bid to their advantage as an exit. Please note I wrote “two weeks” several times above. Is it just coincidence Tianjin experienced the explosion “two weeks” ago?

A total of $250 billion worth of Treasury bonds have been sold, what does this imply? The T-bond selling appears to indicate a number of things, with possible multiple ramifications. First and foremost it says “they are not buying”! Of course the next logical questions follows;….”who” will step in to fund the U.S. deficits now that China has turned from buying to selling…In China they call it a Yin Yang. Also, who will the buyers be if China keeps selling? The logical conclusion; after answering the two above questions is…. “the Federal Reserve.” The follow on question is; will the Federal reserve need to commence another round of stimulus, QE 4 and more?

No matter how you look at China’s current financial position and about face, they will clearly no longer fund U.S. budget deficits in the foreseeable future. This leaves us with the misunderstood truth “the Federal Reserve is THE Buyer of last resort.” Worse yet; the Emerging Markets have had to jump the gun and have already started to unload U.S. Treasury’s as their currency falls to reflect lower trade and China’s devaluation of the Yuan.

Apparently, the U.S. has now crossed the Rubicon of sorts and will be forced to “print” deficit spending as a last resort. It is called MONETIZATION and has ALWAYS led to hyperinflation with existing “paper currency” becoming diluted and ever more worthless. The current situation is far more troubling and far reaching than any before it, because the entire world will be fearing a dilution of their “reserve base.” Dollar instruments (U.S. Treasury issues, etc.) are held by nearly ALL central banks and act as a foundation for all other fiat currencies, “infecting balance sheets all over the world.” For what ever reason; I would call a run from the Dollar “a plague,” but in fact, the situation is more like an infestation, the effects of a diluted dollar could well be… far more than any plague in history.

I would like to ask you a few questions. Is there any way you can look at the chronological events over the last month and not conclude they are connected? Is it not clear China/Russia and the U.S. are in a trade, currency, military confrontation, one that might lead to a shooting war? Even the mainstream media reports on U.S. spying and SinoRuso hacking. The West, led by the U.S. have evolved entirely into a “credit based” society …funded in large part by China. Can you look at China’s sales of Treasury securities and say they are not pulling the credit plug? Can you in any way, from a U.S. standpoint, say this is beneficial, or helpful to the U.S.? Or, might it be overt financial war?

China is building military bases throughout the Pacific on man made islands and telling the U.S. to mind their own business, in spite of Pres. Obama’s pivot to the Pacific. The U.S. and NATO are amassing troops and hardware on Ukraine’s border. On the other side Russia is doing likewise. Now we are seeing aerial attacks in Syria, etc. John Kerry has even said; ” If the U.S. does not ratify the deal with Iran, the dollar will lose it’s reserve currency status.” He said this because five nations in Europe have already agreed and sent delegations to Iran to open trade channels. Would this not isolate the U.S. further in energy, trade and finance? As for the series of explosions, could they be coincidence? Yes. Do you believe they are? Or,.. maybe “too coincidental?”

Are there too many coincidental technological, financial and geopolitical dots lined up to come to any conclusion other than we are already in the early stages of war? I believe this is in fact the case. I still believe the Chinese would prefer to “win” via financial means, rather than physical means, but this remains to be seen. Would a ” 9/11 truth bomb,” which is now rumored more often out of Russia, be another way to neuter American hegemony without military use?

As a final thought, I believe global markets are beginning to discount or recognize the war behind the scenes. This is the reason for the chaos in equity and credit markets. Can you imagine what it looks like behind the derivatives curtain? Guaranteed;…. there are dead bodies strewn all over,… with no ability to perform or settle. When history looks back upon August 2015, I believe the consensus view will agree THE WAR had already started!

Standing watch,
Bill Holter
Holter -Sinclair collaboration
Comments welcome!
bholter@hotmail.com

 

end

And now your overnight Friday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan rises considerably this  time to   6.3888/Shanghai bourse: green and Hang Sang: red

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei up 561.88   or 3.03.%

3. Europe stocks all deeply in the red   /USA dollar index up to  95.84/Euro up to 1.1278

3b Japan 10 year bond yield: rises to .390% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.20

3c Nikkei now above 19,000

3d USA/Yen rate now just above the 120 barrier this morning

3e WTI:  42.37 and Brent:  47.19

3f Gold up  /Yen up

3gJapan 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 rises  to .736 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate falls slightly to 12.13%/Greek stocks this morning up by .01%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 9.11%

3k Gold at $1126.80 /silver $14.43  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 1  1/3 in  roubles/dollar) 67.21,

3m oil into the 42 dollar handle for WTI and 47 handle for Brent/Saudi Arabia increases production to drive out competition.

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.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9584 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0811 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/

3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.736%

3s The ELA lowers to  89.7 billion euros, a reduction of .7 billion euros for Greece.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.

4. USA 10 year treasury bond at 2.15% early this morning. Thirty year rate below 3% at 2.88% / yield curve flatten/foreshadowing recession.

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

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

China Surge Continues, Futures Slide As Jittery Market Looks For Jackson Hole Valium

Overnight’s star attraction was as usual China’s stock market, where trading was generally less dramatic than Thursday’s furious last hour engineered ramp, as stocks rose modestly off the open only to see a bout of buying throughout the entire afternoon session, closing 4.8% higher, and bringing the gain over the last two days to over 10%, facilitated by China repeating it will singlehandedly invest two trillion in pensions funds in stocks, but not to worry: there is no risk of loss. This happens as China dumped a boatload of US paper to push the CNY higher the most since March, strengthening from 6.4053 to 6.3986, even as Chinese industrial profits tumbled 2.9% from last year: this in a country that still represents its GDP is rising by 7%. Expect much more Yuan devaluation in the coming weeks.

Here is a quick summary of the last week seen through the perspective of Chinese stocks.

  • Aug 20: -3.4%
  • Aug 21: -4.3%
  • Aug 24: -8.5%
  • Aug 25: -7.6%
  • Aug 26: -1.3%
  • Aug 27: 5.3%
  • Aug 28: 4.8%

And if BofA Chief equity strategist David Cui, is right, it’s not over: overnight the China expert said A shares will “gap down” in coming quarters as valuations not cheap enough for general investors to buy, adding that the Shanghai Composite has to be below 2,000 for people to find some attractive valuations. In other words, the bubble has to fully burst before fundamentals kick in again.

So strap on, traders: it will continue to be a bumpy ride.

Speaking of bumpy rides, keep an eye on the USDJPY which after roaring above 121 during yesterday’s furious last hour ramp to undo the gamma exposure highlighted by us and which sent the market in a tailspin between 2 and 3pm, is back under and has dragged the E-mini lower by some 15 points this morning. Keep an eye for the daily BOJ interventions, as the USDJPY ramps higher for no reason dragging the S&P alongside with it.

Perhaps all the jittery market needs is some soothing words from today’s Jackson Hole symposium, although with Yellen absent, and the headliner Stan Fischer speaking tomorrow, it is most likely we will get nothing but more confusion from a Fed that now clearly has no idea what it is doing.

A quick look around the globe: Asian equities traded in the green following the positive close on Wall Street. Nikkei 225 (+3.0%) outperformed to trade back above 19,000 amid reports the GPIF is close to reaching its equity target allocation as it now holds an allocation of 23% vs. 25% target. Shanghai Composite (4.8%) extended on yesterday’s gains amid recent speculation of government intervention, while the Hang Seng (-1.0%) fell into the red shortly before the close.10yr JGBs (+3 ticks) traded mildly higher despite the gains seen in equities with the BoJ in the market for JPY 400bIn of 5yr-10yr government bonds.

European equities initially opened in the green, however have drifted lower throughout the session (Euro Stoxx: -0.7%) as some of the moves from earlier in the week are reversed, with losses contained as a result of outperformance in the energy sector , bolstered by the aforementioned strength in WTI and Brent seen yesterday. Bunds trade in modest positive territory in line with weak equities, while T-Notes also reside in modest positive territory ahead of the key risk events of the day in the form of US personal income, PCE deflator and final reading of University of Michigan Sentiment as well as comments from SNB’s Jordan and Fed’s Kocherlakota.

EUR has been the notable outperformer so far today, strengthening against both GBP and the USD to pare back of some its recent losses. The strength in EUR comes despite German regional CPIs coming in generally below previous, with some desks attributing this strength to the usual month end buying in EUR/GBP. Other notable data saw UK GDP print in line with Exp. however components such as exports printed higher than expected and as such granted GBP some reprieve amid softness seen through the rest of the session, with GBP/USD trading around its 200DMA at 1.5375. While USD has trended lower today after seeing strength in recent days, weighed on by EUR strength to see the USD-index lower by 0.2%. Of note, heading into the North America crossover EUR/GBP and GBP/USD saw a paring of their initial moves as EUR/GBP found resistance at its 200DMA at 0.7358 and GBP/USD bounced off its 200DMA to the downside at 1.5369.

Elsewhere, commodity currencies have come off their best levels and seen some weakness throughout the European session in line with commodities, which trade in the red today to pare some of the overnight gains which saw WTI extend on its gains to briefly trade back above the USD 43/bbl level and post its largest intra-day gain in over 6 years.

The energy complex heads into the North American crossover relatively flat after trading in choppy fashion throughout the European morning after coming off their highs , with some participants booking profits after WTI extended on its gains overnight to briefly trade back above the USD 43/bbl level to post its largest intra-day gain in over 6 years. The metals complex has also seen fairly choppy price action, with gold modestly in the green however prices are still on course for its worst week in over 1-month as the recovery in USD weighed on prices during the week.

Today we get data on the July PCE deflator and along with real personal spending and the University of Michigan consumer sentiment print. With the Jackson Hole symposium underway, Bloomberg TV is scheduled to hold sideline talks with Bullard, Kocherlakota, Mester and Lockhart before the main event tomorrow when Fischer will address the audience. So plenty of Fedspeak to end a fascinating week and momentum ignition triggers.

 

Bulletin headline summary from Bloomberg and RanSquawk

  • EUR has been the notable outperformer so far today, strengthening against both GBP and the USD to pare back of some its recent losses
  • WTI heads into the NYMEX pit open relatively flat as participants book profits after yesterday saw the largest intra-day gains since 2009
  • Today’s highlights include US personal income, PCE deflator and final reading of University of Michigan Sentiment as well as comments from SNB’s Jordan and Fed’s Kocherlakota
  • Treasuries gain, paring weekly losses in week that has seen 10Y yields trade in 30bps range amid volatile equities and commodities, China growth concern.
  • The rebound in China’s stocks will be short-lived because state intervention is too costly to continue and valuations aren’t justified given the slowing economy, says BofAML
  • Profits at China’s industrial companies fell 2.9% y/y in July
  • BoJ’s key inflation gauge slumped to zero for the third time this year, as tumbling energy prices counter Governor Haruhiko Kuroda’s effort to reflate the world’s third- biggest economy
  • Alexis Tsipras’s lead over Greek opposition parties narrowed ahead of an early election next month, a poll showed Friday, as a vote-weary public has soured over unkept promises to end an age of austerity
  • Democrat Tom Carper became the 30th U.S. senator to support the nuclear agreement with Iran, the Delaware News Journal reported, leaving Obama just four votes short of preventing Congress from blocking the deal.
  • Macedonia appealed for more financial aid from the EU to help it deal with the effect of the migrant crisis as what it has received so far has been “peanuts,” Foreign Affairs Minister Nikola Poposki said
  • No IG or HY deals priced this week. BofAML Corporate Master Index tightens to +170 from +172, widest since Sept 2012; YTD low 129.High Yield Master II OAS tightens 11bps to +591; reached +614 Tuesday, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mostly lower. Asian stocks gain, European stocks and U.S. equity-index futures mostly lower. Crude oil and gold little changed, copper falls

 

Kansas City Fed Symposium continues in Jackson Hole, Wyoming

  • 7:30am: Fed’s Bullard on Bloomberg TV
  • 9:15am: Fed’s Kocherlakota, Mester on Bloomberg TV
  • 12:25pm: Swiss National Bank’s Jordan speaks in Jackson Hole
  • 2:15pm: Fed’s Lockhart on Bloomberg TV
  • 4:15pm: Reserve Bank of India’s Rajan on Bloomberg TV
  • 10:25pm: Bank of England’s Carney speaks in Jackson Hole

DB’s Jim Reid completes the overnight recap

Markets have continued to rally in Asia this morning. In China the Shanghai Comp is +1.93% as we head into the midday break, seemingly also buoyed by the news late in the Asia session yesterday of some state intervention in the equity market. Without meaning to tempt fate, if the index manages to stay in positive territory for the entire duration of the session (which it so far has done this morning), it’ll be the first time the index has managed to do so since August 10th. Elsewhere the Shenzhen (+1.87%) and CSI 300 (+1.52%) are also both up, while it’s been a decent morning also for the Nikkei (+2.69%), Hang Seng (+0.50%), Kospi (+1.29%) and ASX (+0.28%). EM FX markets are generally off to better starts this morning, while WTI has risen another 1% in early trading following the huge moves yesterday, which we’ll touch on shortly.

In terms of data this morning the focus has been on Japan where inflation concerns continue to linger. Headline CPI of +0.2% yoy was in line with market expectations and down from +0.4% last month, while the core (ex food) fell to 0.1ppt to 0.0% yoy (vs. -0.2% expected), although beating expectations of a drop to -0.2%. The Yen is largely unmoved on the back of the print, after briefly weakening.

Yesterday the big mover was Oil, with WTI up +10.26% to $42.56/bbl, the largest daily percentage move since March 12th 2009 and the $4 price move the largest in three years. There were similar gains for Brent too (+10.25%) to finish at $47.56/bbl, the biggest percentage move since December 2008. The bulk of the justification for the move is being attributed to a huge bout of short covering following some decent GDP numbers from the US yesterday which in turn helped contribute to an overall better tone in markets. Saying that, it appears that the Oil complex was given a subsequent lift too from headlines out of Royal Dutch Shell that they have issued a force majeure on Bonny Light exports out of Nigeria after shutting down two pipelines and in turn cutting supply from Africa’s largest oil producer.

An oil-led second wind helped the S&P 500 close up 2.46%. That came after (in what seems to have been a similar trend for most of this week) the index did its best to wipe out the bulk of the intraday move higher, at one stage declining 2% from its peak following the early bounce from the GDP numbers. Unsurprisingly, the gains were led by energy (+4.9%) and materials (+3.6%) names to help the index log its biggest two-day gain since 2009. There were similar moves higher for the DOW (+2.27%) and NASDAQ (+2.45%) also, with the latter moving back into positive territory YTD once again while the VIX (-13.9%) closed down for a third consecutive session and is now back to more or less where it closed last Friday.

It was the US dataflow which got most of the early attention yesterday afternoon. The big upward revision for Q2 GDP to 3.7% saar qoq (from 2.3% and ahead of expectations of 3.2%) has helped muddle Fed liftoff timing expectations a bit. Revisions were fairly broad-based and included decent upgrades for structures and equipment spending in particular. Notable was the upward revision to government spending (+2.6% from +0.8%) which resulted in the largest quarterly increase for the sector since Q2 2010. Meanwhile, Q2 personal consumption was revised up a tad to 3.1% (from 2.9%) and Core PCE was kept unchanged at 1.8%. It was a mixed bag of data elsewhere. Initial jobless claims declined 6k last week to 271k (vs. 274k expected) and slightly below the four-week average of 272.5k. Elsewhere, there some disappointment in the August Kansas City Fed manufacturing activity index reading which declined 2pts to -9 (vs. -4 expected), while pending home sales for July came in a tad below consensus (+0.5% mom vs. +1.0% expected).

That GDP data helped support a decent day for the Dollar with the Dollar index closing up +0.54%. It was a much more choppy session for Treasuries however with the 10y (+0.9bps) fairly unmoved at the close at 2.185% although that’s after having traded in a 7bps range over the day. All told, September Fed liftoff expectations were raised to 30% from 24% on Tuesday, although still behind the 34% we finished last Friday.

It was a decent day also for European equities yesterday, receiving an initial boost after a late surge in Chinese equity markets. The Stoxx 600 closed up 3.46% and has now rebounded over 9% off the intraday lows we saw on Monday. There were gains also for the DAX (+3.18%), CAC (+3.49%), IBEX (+3.06%) and FTSE MIB (+3.39%) while credit markets saw a decent bounce with Crossover in particular rallying 21bps.

Staying in Europe, Ukraine generated plenty of headlines yesterday after we heard that the nation had secured a restructuring deal with its Creditors, following five months of negotiations. The agreement has seen the Creditors accept a 20% haircut to the face value of around $18bn of Ukraine’s bonds and a freeze on debt repayments for four years. Speaking following the deal, IMF Chief Lagarde said that the deal would ‘help restore debt sustainability’ and ‘substantially meet the objectives set under the IMF-supported program’.

Turning to the day ahead now, it’s set to be a pretty busy day ahead for data. We kick off this morning in France with PPI data, before we get Q2 GDP out of the UK. This will be followed by various confidence indicators for the Euro area before we get the preliminary August CPI reading out of Germany. Turning to the US session this afternoon, the July PCE deflator and core readings are set to be closely watched, along with real personal spending and the University of Michigan consumer sentiment print. With the Jackson Hole symposium underway (that word again), Bloomberg TV is scheduled to hold sideline talks with Bullard, Kocherlakota, Mester and Lockhart before the main event tomorrow when Fischer will address the audience. So plenty of Fedspeak to end a fascinating week.

 

end Last night:  9:30 pm/Chinese stock market opens: Yuan Strengthens Most Since March, China Unveils New Bailout Source After Rescue Fund Runs Out Of Fire-Power

Update: China readies new bailout mechanism – pooling CNY2 Trillion of Pension funds for “investment”

Straight from Japan’s playbook…

  • *CHINA TO START PENSION FUNDS INVESTMENT AFTER FUNDS POOLED: MOF
  • *CHINA DRAFTING RULES ON POOLING, TRANSFERRING PENSION FUNDS: YU
  • *ABOUT 2T YUAN FROM CHINA PENSION FUNDS CAN BE INVESTED: YU
  • *CHINA CAN ENSURE STABLE LONG TERM RETURN ON PENSION FUNDS: YU
  • *CHINA TO CAP RISK EXPOSURE IN PENSION FUNDS INVESTMENT: YU
  • *CHINA FINANCE MINISTRY OFFICIAL YU WEIPING COMMENTS AT BRIEFING

How can we be so positive that this is another bailout – simple!

  • *CHINA PENSION FUNDS’ ROLE IS NOT TO RESCUE STOCK MARKET: YU

They denied it was! Of course even more worrying – is this a Greece-esque pooling of pension funds in a desperate grab for cash across the nation?

We are sure that will work out great!!

*  *  *

As we detailed earlier…

A busy night in AsiaPac before China even opens.Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody’s downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits – China’s bailout fund needs more money (applies for more loans from banks) – in other words –The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms – lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger – most since March, but even with last night’s epic intervention,SHCOMP looks set for its worst week since Lehman.

 

Vietnam is in trouble…

  • *VIETNAM FAILS TO SELL ANY OF 3T DONG BONDS OFFERED AUG. 27

The first of many failed auctions for EM we suspect.

  • But Some good news:
  • *VIETNAM TO RELEASE 18,500 PRISONERS ON 70TH NATIONAL DAY

*  *  *

Japanese data was mixed,..

  • *JAPAN JULY OVERALL CONSUMER PRICES RISE 0.2% Y/Y (in line)
  • *JAPAN JULY RETAIL SALES RISE 1.6% Y/Y(better than expedted)
  • *JAPAN JULY HOUSEHOLD SPENDING FELL 0.2% Y/Y (much worse than expedted rise)

So Goldilocks – enough to keep BoJ in the game (as Reuters reports)

Japan’s core consumer inflation was flat in the year to July and household spending unexpectedly fell, casting deeper doubt on the central bank’s forecast that a solid economic recovery will help accelerate inflation to its 2 percent target.

 

While the Bank of Japan has said it will look through the effect of slumping oil costs on inflation, the weak figures will keep it under pressure to expand its massive stimulus programme.

 

Separate data showed household spending fell 0.2 percent in the year to July, confounding a median market forecast for a 1.3 percent rise and reinforcing concerns about the strength of Japan’s recovery.

And then there’s China…

Before we get started, we thought the following comparison of two stock indices today was in order… one is from a totally manipulated market that proclaims itself ‘open’ and ‘free’ with nothing to fear because “the underlying economy is doing great”… and the other is China…

Notice how the ramp was almost identical in style also – an initial burst, modst pull back, then big push, then rest, then final surge into close

But then again we already explained how past is prologue in this Nasdaq vs SHCOMP world.

And remember – it’s not China’s fault…

  • *CHINA STOCK ROUT NOT THE REASON FOR GLOBAL MKT PLUNGE:SEC. NEWS

And then Moody’s did the unpossible…

  • *MOODY’S CUTS CHINA ’16 GDP GROWTH FORECAST TO 6.3% FROM 6.5%

But the biggest news is…

  • *CHINA’S RESCUE FUND APPLIES FOR MORE LOANS FROM BANKS: CAIXIN
  • China Securities Finance may have applied for 1.4 trillion yuan ($219 billion) of borrowing in the interbank market, Caixin reported, citing unidentified bank officials. The government should adopt a proactive fiscal policy and further ease monetary policy, the Economic Daily wrote in a front-page commentary.

Which means the bailout fund needs a bailout after blowing its load last night.

Deleveraging continues:

  • *SHANGHAI MARGIN DEBT BALANCE FALLS FOR EIGHTH STRAIGHT DAY
  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN EIGHT MONTHS

Though we note that the short-selling balance rose to one-week highs.

Even with last night’s epic intervention, Chinese stocks look set for the worst week since Lehman…

 

Although they are up at the open…extending gains from the US session…

  • *FTSE CHINA A50 SEPT. FUTURES RISE 1.7%

But are fading off early highs.

And in what appears another reform aimed at improving the economy, China lifts some restrictions…

China’s central tax authority has published a list of tax breaks for which qualifying businesses and other enterprises will no longer be required to seek prior approval to enjoy.

And…

The mainland has relaxed foreign investment restrictions in its once-sizzling real estate market as worries mount on capital flight in the wake of a weakening yuan and slowing economic growth.

 

Six governing ministries, including the central bank and the commerce ministry, issued a statement scrapping previous rules that required foreign property investors to pay the full amount of registered capital for their mainland entities to mainland authorities before borrowing any loans or applying for foreign exchange transactions.

 

“The move seems to be aimed at discouraging capital outflow after the devaluation of the yuan,” said Alan Chiang, head of residential in the Greater China region for global property consultancy DTZ.

Which we are sure will not be taken advantage of.

Finally The Yuan – which remember is not being devalued – was fixed 0.15% stronger…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3986 AGAINST U.S. DOLLAR
  • *CHINA RAISES YUAN FIXING MOST SINCE MARCH

 

Problems continue to mount for the Chinese economy…

  • *CHINA JULY INDUSTRIAL COMPANIES’ PROFIT FALLS 2.9% Y/Y

After a 0.3% drop in June, it’s getting worse.

*  *  *

Charts: Bloomberg

end

 

Last night we saw the strengthening of the yuan which means that the Chinese sold a boatload of USA treasuries.  Here in simple language, zero hedge puts the selling in numbers for us to see

(courtesy zero hedge

What China’s Treasury Liquidation Means: $1 Trillion QE In Reverse

Earlier today, Bloomberg – citing the ubiquitous “people familiar with the matter” – confirmed what we’ve been pounding the table on for months; namely that China is liquidating its UST holdings.

As we outlined in July, from the first of the year through June, China looked to have sold somewhere around $107 billion worth of US paper. While that might have seemed like a breakneck pace back then, it was nothing compared to what would transpire in the last two weeks of August. Following the devaluation of the yuan, the PBoC found itself in the awkward position of having to intervene openly in the FX market, despite the fact that the new currency regime was supposed to represent a shift towards a more market-determined exchange rate.That intervention has come at a steep cost – around $106 billion according to Soc Gen. In other words, stabilizing the yuan in the wake of the devaluation has resulted in the sale of more than $100 billion in USTs from China’s FX reserves. 

That dramatic drawdown has an equal and opposite effect on liquidity. That is, it serves to tighten money markets, thus working at cross purposes with policy rate cuts. The result: each FX intervention (i.e. each round of UST liquidation) must be offset with either an RRR cut, or with emergency liquidity injections via hundreds of billions in reverse repos and short- and medium-term lending ops.

It appears that all of the above is now better understood than it was a month ago, but what’s still not well understand is the impact this will have on the US economy and, by extension, on US monetary policy, and furthermore, there seems to be some confusion as to just how dramatic the Treasury liquidation might end up being.

Recall that China’s move to devalue the yuan and this week’s subsequent benchmark lending rate cut have served to blow up one of the world’s most popular carry trades. As one currency trader told Bloomberg on Tuesday, “it’s a terrible time to be long carry,increased volatility — which I think we’ll stay with — will continue to be terrible for carry. The period is over for carry trades.

Here’s a look at how a rules-based carry strategy designed to capture yield differences would have fared in the universe of G10 CCYs (note the blow ups around the SNB’s franc shocker and the yuan deval):

In short, the music stopped on August 11 and to the extent that anyone was still dancing going into this week, the PBoC’s decision to cut the lending rate along with RRR buried the trade once and for all.

Estimating the size of that trade should be a good indicator for just how expensive it will be – i.e. how much in Treasurys China will have to liquidate – to keep the yuan stable. The question, as BofAML puts it, is this: “can China afford the unwinding of carry trades?”

The first step is estimating the total size of the trade.Although estimates vary, BofAML puts the figure at between $1 trillion and $1.1 trillion. Here’s more:

As analyzed above, the size of RMB carry could be quite high and thus exert downward pressure on RMB. But the PBoC should have scope to defend its currency if necessary. The PBoC’s toolbox includes its $3.65tn FX reserves (at end-July), as well as measurements to tighten FX controls on individuals, corporate and banks, if necessary, including imposing stricter requirements on NOP, among others. 

 

That said, we doubt if the PBoC will persistently intervene as rapid decline of FX reserves undermines market confidence anyway and imposes challenges to the PBoC. Alternatively, the PBoC could impose stricter FX controls but that would be considered as a backward move of capital account opening up.Nevertheless, we believe the PBoC intervention will still have spillover effects on the market. 

In other words, if this entire $1 trillion trade gets unwound, China will need to offset the pressure by either i) draining its reserves, or ii) taking a big step backwards on capital account liberalization. The latter option would be bad news for Beijing’s efforts to liberalize markets and land the yuan in the SDR basket.

Of course, as noted yesterday and as tipped by SocGen earlier this week, the liquidation of $1 trillion in FX reserves would put enormous pressure on domestic liquidity, tightening money markets meaningfully, and forcing the PBoC to cut RRR 10 times (assuming 50 bps intervals). As BofA notes, China can’t “afford another liquidity squeeze like June 2013 given very poor sentiment nowadays and China’s economic downturn.”

Putting the pieces together here – and here is the critically important takeaway – we know that the size of the RMB carry trade could be as high as $1.1 trillion. If that entire trade is unwound, it would require China to liquidate a commensurate amount of its reserves in order to keep control of the yuan – or else resort to FX controls. Here’s the point: if China were to liquidate $1 trillion in reserves (i.e. USTs), it would effectively offset 60% of QE3.

Furthermore, based on Citi’s review of the academic literature which shows that for every $500 billion in EM reserves liquidated, the yield on the US 10Y rises 108bps, if the PBoC were to use its reserves to offset a hypothetical unwind of the entire RMB carry trade, it would put around 200 bps of upward pressure on 10Y yields.

So in effect, China’s UST dumping is QE in reverse – and on a massive scale. Facing this kind of pressure the FOMC will at the very least need to exercise an exorbitant amount of caution before tightening policy and at the most, embark on another round of asset purchases lest China’s devaluation and attendant FX interventions should be allowed to decimate whatever part of the US “recovery” is actually real.

end Bank of America agrees with David Stockman that the Chinese markets have 35% more to be shed.  (Stockman believes the number is even greater) Chinese Stocks To Plunge Another 35%, BofA Says

On Monday and Tuesday, China’s plunge protection team attempted to step out of the market. The result: a 15% decline on the SHCOMP, the shockwaves from which reverberated in equity markets across the globe.

After Wednesday’s ad hoc policy rate cuts failed to shore up sentiment, the PBoC was forced to come face to face with the harsh reality that massive capital markets intervention is very difficult to unwind once implemented and indeed, China isn’t alone in grappling with the rather undesirable consequences of pulling back central bank support for markets.

Rather than watch as the SHCOMP crashed through key level after key level, China looks to have stepped back into the market on Thursday and again on Friday in a desperate attempt to restore order ahead of a military parade next month which Beijing apparently sees as an opportunity for Xi Jinping to project the country’s growing power to the rest of the world.

Here is a quick summary of the last week seen through the perspective of Chinese stocks.

  • Aug 20: -3.4%
  • Aug 21: -4.3%
  • Aug 24: -8.5%
  • Aug 25: -7.6%
  • Aug 26: -1.3%
  • Aug 27: 5.3%
  • Aug 28: 4.8%

But as is the case with the PBoC’s open FX interventions, some doubt how long China will be willing to spend money to prop up stocks and at least one analyst thinks that Chinese equities are in for further dramatic declines in the absence of the CSF bid. Here’s more from Bloomberg:

The rebound in China’s stocks will be short-lived because state intervention is too costly to continue and valuations aren’t justified given the slowing economy, says Bank of America Corp.

 

“As soon as people sense the government is withdrawing from direct intervention, there will be lots of investors starting to dump stocks again,” said David Cui, China equity strategist at Bank of America in Singapore.The Shanghai Composite Index needs to fall another 35 percent before shares become attractive, he said.

 

The Shanghai gauge rallied for a second day on Friday amid speculation authorities were supporting equities before a World War II victory parade next week that will showcase China’s military might. The government resumed intervention in stocks on Thursday to halt the biggest selloff since 1996, according to people familiar with the matter.

 

China Securities Finance Corp., the state agency tasked with supporting share prices, will probably end direct market purchases within the next month or two, Cui said.

Be that as it may, it doesn’t look like CSF intends to go down without a fight – it’s either that, or the plunge protection team is looking to go out in a blaze of market-manipulating glory, because overnight, Caixin reported that the vehicle looks to have applied for around CNY1.4 trillion in new loans from banks. On the bright side, we suppose that means China will be able to report blockbuster credit growth in August or else in September, just as they did in July, thanks to the fact that loans to the plunge protection team are counted as though they represented real, organic demand for credit.

If CSF does indeed exit the market after one final trillion-yuan buying spree, it looks like next in line to prop up Chinese equities will be China’s pension fund assets, as much as 30% of are set to be funneled into stocks. Here’sThe People’s Daily will the Party line:

Some 2 trillion yuan pension fund could be invested in domestic stock market, an official estimates in a press conference in Bejing Friday.

Pension fund is allowed to be invested in new products, including domestic stock markets,but restricts the maximum proportion of investments in stocks and equities to 30 percent of total net assets.

 

Deputy Finance Minister Yu Weiping said that China will start investing of the pension fund after collection. Currently China is drafting regulations on pension collection and transfer.

 

China is capable to ensure long-term stable returns and will control the risk associated with the pension fund investment, says You Jun, Deputy Minister of Human Resources and Social Security.

 

You Jun estimates some 2 trillion yuan pension fund could be invested in domestic stock market. The role of the investment is not to support the stock market, or to rescure [sic] it.

Yes, the point is not “to support the market” and definitely not to “rescure it”, it’s just China taking a hard look at its pension fund investments and making smart decisions about how to allocate capital – or something.

But whatever the case – and the fact that stock market interventions are correlated with public spectacles like military parades is proof positive of this – Beijing is clearly aware that allowing the market to collapse completely would deal a death blow to the public’s already shaken belief in the omnipotence of the Politburo and that is a completely unacceptable outcome. At the end of the day, the masses must be appeased and, more importantly, they must be pacified and if spending a few trillion yuan is what it takes to acheive that, then so be it, and after the two-day rally everything is fine… for now at least…

end The following is an extremely important commentary for you tonight. Zero hedge and Deutsche bank’s George Saravelos explain perfectly the problems the world will face with a huge selling of USA treasuries from Chinese shelves.  I have pointed out to you on several occasions that the total USA short position is around 9 trillion USA and 1/3 of that is responsible for the yuan carry trade.  In simple language investors for many years have borrowed dollars and bought yuan denominated assets with the borrowed dollars.  It was a good idea then because the yuan was undervalued and the Chinese market was screaming higher. Now this is being undone and the consequences will be huge!! a must read… (zero hedge/George Saravelos/Deutsche bank) The Reason China’s Crash Will Unleash A Global Bond Shockwave

One narrative we’ve pushed quite hard this week is the idea that China’s persistent FX interventions in support of the yuan are costing the PBoC dearly in terms of reserves. Of course this week’s posts hardly represent the first time we’ve touched on the issue of FX reserve liquidation and its implications for global finance. Here, for those curious, are links to previous discussions:

And so on and so forth.

In short, stabilizing the currency in the wake of the August 11 devaluation has precipitated the liquidation of more than $100 billion in USTs in the space of just two weeks, doubling the total sold during the first half of the year. 

In the end, the estimated size of the RMB carry trade could mean that before it’s all over, China will liquidate as much as $1 trillion in US paper, which, as we noted on Thursday evening, would effectively negate 60% of QE3 and put somewhere in the neighborhood of 200bps worth of upward pressure on 10Y yields. 

And don’t forget, this is just China. Should EMs continue to face pressure on their currencies (and there’s every reason to believe that they will), you could see substantial drawdowns there too. Meanwhile, all of this mirrors the petrodollar unwind. That is, it all comes back to the notion of recycling USDs into USD assets by the trillions and for decades. Now, between crude’s slump, the commodities bust, and China’s deval, it’s all coming apart at the seams.

Needless to say, this “reverse QE” as we call it (or “quantitative tightening” as Deutsche Bank calls it) has serious implications for Fed policy, for the timing of the elusive “liftoff”, and for the US economy more generally. Of course we began detailing the implications of China’s Treasury liquidation months ago and now, it’s become quite apparent that analyzing the consequences of China’s massive FX interventions is perhaps the most important consideration when attempting to determine the future course of global monetary policy.

On that note, we present the following from Deutsche Bank’s George Saravelos.

*  *  *

Beware China’s Quantitative Tightening  (Q.T.)

Why have global markets reacted so violently to Chinese developments over the last two weeks? There is a strong case to be made that it is neither the sell-off in Chinese stocks nor weakness in the currency that matters the most. Instead, it is what is happening to China’s FX reserves and what this means for global liquidity. Starting in 2003, China engaged in an unprecedented reserve-accumulation exercise buying almost 4 trillion of foreign assets, or more than all of the Fed’s QE program’s combined (chart 1). The global impact was indeed equivalent to QE: the PBoC printed domestic money and used the liquidity to buy foreign bonds. Treasury yields stayed low, curves were flat, and people called it the “bond conundrum”.

Fast forward to today and the market is re-assessing the outlook for China’s “QE”. The sudden shift in currency policy has prompted a big shift in RMB expectations towards further weakness and correspondingly a huge rise in China capital outflows, estimated by some to be as much as 200bn USD this month alone. In response, the PBoC has been defending the renminbi, selling FX reserves and reducing its ownership of global fixed income assets. The PBoC’s actions are equivalent to an unwind of QE, or in other words Quantitative Tightening (QT).

What are the implications? For global risk assets, they are clearly negative –global liquidity is falling. For fixed income, the impact on nominal yields is ambivalent because private safe-haven demand for bonds may offset central bank selling. But real yields should move higher, inflation expectations lower, and there should be steepening pressure on curves. This is indeed how markets have responded over the last two weeks: as if the Fed has announced it is unwinding its balance sheet!

The potential for more China outflows is huge: set against 3.6trillion of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows (chart 2). The bottom line is that markets may fear that QT has much more to go.

What could turn sentiment more positive? The first is other central banks coming in to fill the gap that the PBoC is leaving. China’s QT would need to be replaced by higher QE elsewhere, with the ECB and BoJ being the most notable candidates. The alternative would be for China’s capital outflows to stop or at least slow down. Perhaps a combination of aggressive PBoC easing and more confidence in the domestic economy would be sufficient, absent a sharp devaluation of the currency to a new stable. Either way, it is hard to become very optimistic on global risk appetite until a solution is found to China’s evolving QT.

*  *  *


end As promised to you, Putin will not partake in the 20% haircut. Not to be undone, he will still get his 100% value for his loan.  Here is why!! (courtesy zero hedge) Putin To Get $3 Billion From US Taxpayers After Ukraine Bond Debacle

On Thursday, Ukraine struck a restructuring agreement on some $18 billion in Eurobonds with a group of creditors headed by Franklin Templeton. The deal calls for a 20% writedown and a reprofiling that includes a maturity extension of four years and an across-the-board 7.75% coupon. All told, Kiev should save around, let’s just call it $4 billion once everything is said and done (there are some miscellaneous loans and bonds that still have to be worked out).

That’s the good news.

The bad news is that Ukraine also owes $3 billion to Vladimir Putin.

Now obviously, owing Vladimir Putin $3 billion is not a situation one ever wants to find themselves in, but this particular case is exacerbated by the fact that Putin did not loan the money to Ukraine as we know it now, he loaned the money to a Ukraine that was governed by Russian-backed Viktor Yanukovych. Of course Yanukovych was run out of the country last year following a wave of John McCain-attended protests.

Well, one thing led to another and here we are 18 months later with a festering civil war and a sovereign default and on Thursday, Ukrainian finance minister Natalie Jaresko offered the same restructuring terms to Russia that it offered to Franklin Templeton and T. Rowe. In effect, Jaresko was attempting to tell Vladimir Putin that Ukraine would allow him to take a 20% upfront loss on the $3 billion he loaned to Yanukovych who was overthrown by the current Ukrainian government with whom Moscow is effectively at war. As you might imagine, Putin was not at all interested.

So what happens now?

Well, it’s very simple actually. Someone owes Vladimir Putin $3 billion which he intends to collect in full and he could care less if Franklin Templeton and T. Rowe Price are willing to take a 20% hit.

Who’s going to pay him, you ask? Probably the US taxpayer. Here’s BofAML:

The $3bn Russian bond is included in debt restructuring, but Russia will not participate in debt restructuring and will either be paid $3bn from reserves in December or there will be a political decision to agree on an extension, likely without haircuts. We believe the $3bn bond is likely to be classified as sovereign debt and the IMF would likely be forced to pay it (as a holdout) in order to continue the program in December.

Got that? The IMF (so, the US with the tacit support of the taxpayer) is going to pay Vladimir Putin his $3 billion which he loaned to Viktor Yanukovych who the US effectively helped to overthrow.

And if that isn’t hilarious enough for you, consider that the rationale behind paying Putin 100 cents on the dollar is that the IMF needs to be able to justify the continual flow of IMF bailout funds to Kiev, some of which must be used to pay Gazprom which immediately remits the funds to Putin’s personal money vault.

So in a nutshell, the US is going to pay Putin in order to ensure that it can continue to pay Putin.

*  *  *

Bonus: Ukraine restructuring decision tree


end As we have been pointing out to you these past few weeks:  the situation on the ground in Brazil is getting worse:  (courtesy zero hedge) “No Recovery For You!” Brazil Officially Enters Recession, Goldman Calls Numbers “Disquieting”

Well, you know what they say: when it rains it pours, especially when you’re the poster child for an epic emerging market unwind and you’re suffering through the worst stagflation in over a decade while trying to clean up the feces ahead of the summer Olympics.. or something.

Make no mistake, Brazil is in a tough spot.

Here’s a list of problems: 1) collapsing commodity prices, 2) the worst inflation-growth outcome in over a decade, 3) deficits on both the fiscal and current accounts, 4) street protests calling for the President to be sacked, 5) a plunging currency, 6) allegations of rampant government corruption. And we could go on. 

On Friday, the latest quarterly GDP print shows the country sliding into recession (of course these determinations are always backward looking and just about every indicator one cares to observe seems to show that the economy is closer to depression than it is to the early stages of recession) as output contracted 1.9% in Q2. Here’s the summary from Barclays:

Q2 15 real GDP in Brazil surprised on the downside, contracting -1.9% q/q sa and compatible with a y/y print of -2.6%. This follows a downwardly revised -0.7% q/q sa Q1 real GDP print (previous: -0.2%), and also a flat real GDP print in Q4 14 (previous: 0.3% q/q sa). As a matter of fact, the past three quarters were revised to the downside, which now implies a strong negative carry-over for this year: if real GDP is flat in H2 15, the annual growth would be -2.3%.

 

Relative to our forecast, household consumption, fixed-assets investments and imports all surprised on the downside. These components reflect the adverse conditions for domestic demand, as a reflection of higher inflation, interest rates, fall in income and weaker currency. 

And from Goldman:

The forecasted deeper 2015 recession will contaminate the 2016 growth outlook. Given the worse-than-expected 2Q figure and the downward revision to 1Q sequential growth, our profile for 2H2015 growth points now to a 2.6% contraction of real GDP in 2015 (down from our previous -2.1% forecast) and worsens the statistical carry-over for growth in 2016 to -0.8%. That is, were the economy to stay flat throughout 2016 at the expected 4Q2015 level, real GDP would contract by 0.8% in 2016. Hence, we are now forecasting real GDP to contract 0.4% in 2016 (down from the previous -0.25% forecast). This is consistent with average quarterly real GDP growth of 0.10%-0.20%, a path that is still subject to obvious downside risks given the prevailing high level of macro and political uncertainty and recognized negative skew in the distribution of domestic and external risks.

 


The latest on the political front is that President Dilma Rousseff has 15 days to explain to the the Federal Accounts Court why everyone seems to think that she intentionally delayed nearly $12 billion in social payments last year in an effort to make the books look better than they actually were. And while we won’t endeavor to weigh in one way or another on that issue, what we would say is that if someone in Brazil is doctoringthis year’s books, they aren’t doing a very good job because things just seem to keep going from bad to worse. 

Case in point, on Friday, Brazil said its primary budget deficit was R10 billion in July, far wider than expected. The takeaway: “no 2015 primary surplus for you!

Here’s Goldman with the breakdown:

The consolidated public sector posted a worse than expected R$10.0bn deficit in July, driven by the weak performance of both the central and regional governments. The central government posted a R$6.0bn deficit in July and the states and municipalities a larger than expected R$3.2bn deficit. Finally, the state-owned enterprises added another R$810mn to the overall deficit.

 

On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive +0.15% of GDP surplus target.Hence, it is increasingly likely that we may observe a second consecutive year of primary fiscal deficits.

 

The overall public sector fiscal deficit (primary surplus minus interest payments) widened to a very large 8.81% of GDP, from 6.2% of GDP in the 12 months through December 2014. The net interest bill is running at 7.92% of GDP in the 12 months through July.

 

Gross general government debt worsened to 64.6% of GDP, up from 58.9% of GDP at end 2014 and 53.3% of GDP in 2013.

 

The twin combined fiscal and current account deficits now exceed a disquieting 13.2% of GDP.

 

Overall, we have yet to detect a visible turnaround in the fiscal picture. The overall fiscal deficit is tracking at a disquieting 8.8% of GDP, driven in part by the surging net interest bill, which was exacerbated by the large losses on the central bank stock of Dollar-swaps. We expect the gradual fiscal consolidation process to last at least 3-4 years, perhaps longer.

 

 

As Barclays recently argued, a downgrade to junk is now just “a matter of time,” a development which may well usher in a new era in which the world’s emerging economies begin to backslide into “frontier” status, and as we put it earlier this month, after that it’ll be time to break out the humanitarian aid packages.

*  *  *

Bonus: Charting a Brazilian nightmare

Bonus Bonus: “That aint no unpopular President, THIS is an unpopular President”…

Stay positive Brazil…


 end Oil related stories Oil Surges To $45 After Saudi Troops Invade Yemen

For the 3rd day in a row, crude oil prices are spiking as the short squeeze morphs into a war premium. Heberler reports that Saudi ground troops have entered Northern Yemen and seized control of two areas in the Saada province. WTI is now above $45…

As we noted previously, boots have been on the ground there (and tank tracks) since early July…

 

But, as Haberler reports, forces seize control of two areas in Yemen’s Saada province in the first actual ground offensive by The Saudis…

Saudi Arabian ground troops have advanced into northern Yemen, in a bid to push back against Houthi Shia militia and forces loyal to ousted president Ali Abdullah Saleh, military and tribal sources said.

 

This is Saudi Arabia’s first ground offensive in Yemen since it launched an extensive military campaign in March targeting Houthi positions.

 

The sources told Anadolu Agency that Saudi Arabian troops advanced into Saada province after Houthi militants recently stormed Saudi positions in the southern Saudi province of Jizan.

 

“Saudi ground forces seized control of two areas in Saada province and intend to advance toward Houthi positions,” sources said.

 

Yemen descended into chaos last September, when the Houthis overran capital Sanaa and other provinces, prompting Saudi Arabia and its Arab allies to launch a massive air campaign against the Shia group.

 

Pro-Hadi forces – backed by Saudi-led air power – have managed recently to retake Aden and Taiz from the Houthis.

And the result…

 

We have however seen this size 3-day explosion before…

 

Charts: Bloomberg

end The fall in oil hits the Canadian banks quite hard! (courtesy Ben McLannahan/London’s Financial times )

Oil price fall hits Canada’s big banksBen McLannahan in New York

Canada’s biggest banks have warned of more troubles to come from the fall in the oil price, as they reported surges in bad loans and chilling effects on consumer demand in the world’s 11th-largest economy.

So far the big lenders such as Royal Bank of Canada and Toronto-Dominion Bank have kept a lid on writedowns by assuming a recovery in the price of crude, while borrowers have continued to service loans by cutting spending and tapping bond and equity markets where they can.

But signs of strain are emerging. On Thursday morning TD Bank said oil and gas impairments in the third quarter to the end of July rose by about two-thirds from the second quarter to C$35m, while CIBC said they rose by a third to C$34m. Earlier in the week RBC had said that impairments in its energy portfolio roughly quadrupled to C$183m in the third quarter, while Bank of Montreal revealed a similar rise, to C$106m.

The banks also warned of a loss of consumer confidence in parts of the country dependent on oil, such as the “prairie provinces” of Alberta, Saskatchewan and Manitoba. In a call with analysts, RBC chief David McKay said that some of the group’s overall growth had been offset by “low activity” in oil-exposed regions. While some of that slowdown was from a state of “hypergrowth”, he said, “we do recognise these markets remain vulnerable to lower oil prices”.

Canadian banks have October year-ends, meaning the figures for the May-July period provide some of the first glimpses into the effects of the latest fall in the price of crude, which has tumbled about 60 per cent in the past 12 months.

The results could foreshadow problems for the big US lenders, which report results for the July-September quarter in mid-October. During the first six months of the year, rising non-performing loan ratios were mostly confined to lenders with outsized oil and gas exposures, such as Comerica and Capital One, noted Barclays.

But twice-yearly reviews are coming up in September, when banks reassess the quality of their loans by projecting likely cash flows from borrowers’ oil reserves.

Analysts say banks are unlikely to be as relaxed as they were in April, when many assumed a bounceback in the price of oil. RBC, for example, expected the average annual price to be $53 in 2015 in April, rising to the mid-$60s over time. The average so far this year is $55, but this month it has fallen to $43.

“Should oil prices remain below $45, we would expect to see further challenges,” said Mark Hughes, RBC’s chief risk officer.

Energy loans account for about 9 per cent of the big five Canadian banks’ aggregate corporate loan book. The last of the big five, Scotiabank, reports on Friday.

Reported losses so far are “the tip of the iceberg”, said Meny Grauman, a banks analyst at Cormark Securities in Toronto. Remedial measures such as cost-cutting and mergers between struggling operators can only go so far, he said. “I think there is a lot of scepticism in the market about how much more those kind of actions are available, and whether the banks can delay more significant losses,” he added.

end Your early Friday morning currency, and interest rate moves

Euro/USA 1.1278 up .0035

USA/JAPAN YEN 120.81 down 0.209

GBP/USA 1.5381 down .0026

USA/CAN 1.3227 up .0037

Early this Friday morning in Europe, the Euro rose by 35 basis points, trading now well above the 1.12 level falling to 1.1278; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes, crumbling European bourses and today a Chinese currency revaluation northbound,  Last night the Chinese yuan strengthened a considerable .0172 basis points. The rate at closing last night:  6.3888

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a northbound trajectory  as settled down again in Japan up by 15 basis points and trading now just above the 120 level to 120.81 yen to the dollar, 

The pound was down this morning by 26 basis points as it now trades just below the 1.54 level at 1.5381.

The Canadian dollar reversed course by falling 37 basis points to 1.3227 to the dollar. (Harper called an election for Oct 19)

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)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).

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: up by 561.88 or 3.08% 

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

2/ Asian bourses mostly in the green except Hang Sang … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the green/

Gold very early morning trading: $1128.15

silver:$14.47

Early Friday morning USA 10 year bond yield: 2.15% !!! down 2  in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield fell to 2.88 down 4 basis points.  Officially we got the word that got  China is selling treasuries like mad!

USA dollar index early Friday morning: 95.56 down 21 cents from Thursday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Friday morning And now for your closing numbers for Friday night: Closing Portuguese 10 year bond yield: 2.60% down 2 in basis points from Thursday Closing Japanese 10 year bond yield: .38% !!  up 1 in basis points from Thursday Your closing Spanish 10 year government bond, Friday, par in basis points Spanish 10 year bond yield: 2.06% !!!!!! Your Friday closing Italian 10 year bond yield: 1.92% down 1  in basis points from Thursday: trading 14 basis point lower than Spain. IMPORTANT CURRENCY CLOSES FOR FRIDAY Closing currency crosses for Friday night/USA dollar index/USA 10 yr bond:  3:00 pm  Euro/USA: 1.1181 down .0061 (Euro down 61 basis points) USA/Japan: 121.36 up .335 (Yen down 34 basis points) * allows for the ramp up of the Dow/today it prevented a rout on the Dow Great Britain/USA: 1.5390 down .0018 (Pound down 18 basis points USA/Canada: 1.3216 up .0026 (Canadian dollar down 26 basis points)

USA/Chinese Yuan:  6.3865  down .0195  ( Chinese yuan up 19.5 basis points/and they must have sold a considerable amount of treasuries)

This afternoon, the Euro fell dramatically again falling by 61 basis points to trade at 1.1181. The Yen fell to 121.36 for a loss of 34 basis points and this fuels the Dow/Nasdaq. The pound was down 18 basis points, trading at 1.5390. The Canadian dollar fell 26 basis points to 1.3216. The USA/Yuan closed at 6.3865 Your closing 10 yr USA bond yield: up 1 basis points from Thursday at 2.18%// ( well below the resistance level of 2.27-2.32%). USA 30 yr bond yield: 2.91 par in basis points on the day.  Your closing USA dollar index: 96.10 up 49 cents on the day . European and Dow Jones stock index closes: England FTSE up 35.91 points or 0.90% Paris CAC up 16.95 points or 0.36% German Dax down 17.09 points or 0.17% Spain’s Ibex up 62.70 points or .61% Italian FTSE-MIB down 207.50. or 0.93% The Dow down 11.76 or 0.07% Nasdaq; up 15.62 or 0.32% OIL: WTI:  $45.32  and  Brent:  $50.12 Closing USA/Russian rouble cross: 65.43  up 1/2 roubles per dollar on the day And now for your more important USA stories. Your closing numbers from New York Biggest Short Squeeze Since 2008 Bank Bailout And Epic VIX Rigging Sends Stocks Green For The Week

UNRIGGED!!

VIX ETFs were screwed with…

 

To ensure S&P closed Green!!!

 

*  *  *

After a week like that, we think everyone needs some downtime… relax… (NSFW)

 

Before we get to stocks, oil is the big news this week… as a short-squeeze morphed into leaked news which became the real news of a Saudi invasion of Yemen…

 

This is the biggest weekly gain for WTI since Feb 2011 (when politicial unrest surged in MidEast and Northern Africa with Libya at the heart)

 

As the Oil-USD correlation regime has flipped dramatically post-FOMC Minutes…

 

Sparking a huge squeeze higher in Energy stocks…

8 of the 10 biggest gainers in SPDR oil and gas exploration ETF are refiners which are more like inverse bets on oil (crude is an input thus betting on dropping oil prices flowing through to margins)… so the ultimate irony is XLE is surging on negative oil bets and dragging oil higher.

Because that has worked out so well before…

As Credit Suisse noted – nothing has changed with the fundamentals.

*  *  *

Volume today in stocks was abysmal…

 

Energy’s ramp supported much of the gains in the broad indices…and with panic buiyi9ng at the close thanks to XIV manipulation

 

A look at The Dow futures gives a sense of the panic.. and the resistance that it can’t break…

 

Futures for the week show the craziness of the moves…DUDLEY IS THE NEW BULLARD!!!

 

VIX was all kinds of messy this week – slammed lower into the close to guarantee a green close for stocks

 

But VXX shorts were dramatially squeezed every day…this was VXX’s biggest weekly gain since May 2010.. and the biggest 2-week rise (up 68%) ever…

 

56 members of the S&P 500 gained more than 5% this week!!!

 

And “Most Shorted” had their best (or worst) 3-day surge since Nov 26th 2008 – i.e. the biggest short squeeze since post-Lehman creation of TALF, bailout of Citi, froced acquisiion of BofA and Merrill, and Fed buying GSE debt

 

The last time shorts were squeezed this much, this happeened…

The Bottom Line: Window Dressing (Most Momentum) and Squeezes (Most Shorted) provided all the ammo needed to create the illusion that all is well

*  *  *

Treasury yields had an ugly week as investors were awakened to just what China’s devaluation dilemma means… Rising odds of a Sept hike (rom Fischer) sent the long-end lower and front-end higher today…

 

The USD Index was up around 1.3% on the week – the best week in the last 6 weeks led by AUD and EUR weakness…

 

Commodities were mixed on the week with USD strength sending PMs lower but growth hyper, squeezes, and war driving copper and crude higher…

 

Charts: Bloomberg

Bonus Chart: Briefly this week, US equities reflected their short-term macro fundamentals…

 

Bonus Bonus Chart: This is the data The Fed is dependent on…

end Big news: Two commentaries: Investors have finally caught on and they are voting with the feet. They are getting out of Dodge as they sell their holdings with hedge funds: First: (courtesy zero hedge) The Investor Revolt Arrives: This Hasn’t Happened Since Q4 2008

There’s little question that the collapse of the financial universe in 2008 dealt a dramatic blow to retail’s confidence in US capital markets. Taxpayers were forced to foot the bill for a Wall Street bailout just as 45% of their 401ks was being vaporized and to make matters immeasurably worse, CNBC ensured that mom and pop could watch their retirements disappear in real time on the same channel that had, for the better part of a year, been telling them that everything was fine.

To the extent that the Fed-driven, six-year rally restored some semblance of trust between retail investors and Wall Street, it was wiped away for good on Monday when, in a harrowing day of flash-crashing mayhem, the perils of broken, manipulated markets were laid bare for all to see and to add insult to injury, the ETF pricing model blew up causing some funds to trade far below NAV.

Given that, and given how predisposed household investors are to mistrust Wall Street in the post-crisis, post-Flash Boys world, retail outflows during uncertain times (like those that began last month when China’s stock market collapse began to make national news) shouldn’t come as a surprise, but as Credit Suisse notes, something happened in July and August that hasn’t happened since Q4 of 2008: retail investors pulled money from both stocks and bond funds.

In other words, mom and pop were selling everything. 

From Credit Suisse:

We observe that the latest weekly estimates from the ICI indicate these retail investment outflows began gaining strength in Q3 2015.Data to date suggest that we will see the first example of back-to-back monthly outflows from both equity and bond mutual funds (in July and August 2015) since Q4 2008.

More from Bloomberg:

Credit Suisse estimates $6.5 billion left equity funds in July as $8.4 billion was pulled from bond funds, citing weekly data from the Investment Company Institute as of Aug. 19. Those outflows were followed up in the first three weeks of August, when investors withdrew $1.6 billion from stocks and $8.1 billion from bonds, said economist Dana Saporta.

 

“Anytime you see something that hasn’t happened since the last quarter of 2008, it’s worth noting,” Saporta said in a phone interview. “It may be that this is an interesting oddity but if we continue to see this it could reflect a more broad-based nervousness on the part of household investors.”

 

Withdrawals from equity funds are usually accompanied by an influx of money to bonds, and an exit from both at the same time suggests investors aren’t willing to take on risk in any form. While retail investor sentiment isn’t the best predictor of market moves, their reluctance could have significance, Saporta said.

 

“It might suggest households are getting nervous about holding investments, and that could lead to some real economic implications including cutting back on spending,” she said. “Should the market turn lower again, it will be interesting to see if we have the traditional move back into bonds or if households move to cash.”

 

end

Second:

(courtesy zero hedge)

“Total Capitulation” – Biggest Weekly Equity Outflow On Record

If anyone was curious why the Fear and Greed index is at 13 (up from 5) despite the biggest 2-day surge in the Dow Jones ever, the answer is very simple: nobody believes the “broken market “any more, as confirmed by the biggest weekly equity outflow on record.

The full details courtesy of Bank of America:

Record Equity Outflows: weekly flows show $29.5bn outflows from equity funds (largest outflows on record – data since 2002)

  • Equities: $29.5bn outflows (largest on record in absolute terms) ($6bn ETF outflows and $24bn mutual fund outflows)
  • Bonds: $11.7bn outflows (largest since Jun’13)
     
  • Money-markets: $22bn inflows (8w inflows of $121bn = largest since Dec’13)
  • Precious Metals: $1.1bn inflows (largest since Jan’15)

The YTD verdict: equity inflows just $448MM YTD, compared to $97bn for bonds. Even commodities have a greater inflow compared to stocks, making one wonder who else is buying (we know it’s not the smart money).

Geographic Breakdown:

  • EM: $10.5bn outflows (largest outflows since Jan’08!)
  • US: $12.3bn outflows (largest in 16 weeks)
     
  • Europe: $3.6bn outflows (largest outflows since Oct’14) (first outflows in 15 weeks)
  • Japan: bucks trend with $3.3bn inflows (inflows in 25 out of past 27 weeks)

Investor Capitulation: daily flows show massive $19bn redemptions from equity funds on Tuesday (8/25) = 2nd largest since 2007 (when daily EPFR data became available)

Credit exodus: $4.2bn outflows from EM debt funds; $4.9bn outflows from HY bond funds; $3.8bn outflows from IG bond funds (largest combined outflows since Jun’13 “taper tantrum”)

 

Fixed Income Flows:

  • $4.9bn outflows from HY bond funds (largest outflows in 2015)
  • $4.2bn outflows from EM debt funds (largest since Jun’13 “taper tantrum”)
  • $3.8bn outflows from IG bond funds (largest since Jun’13 “taper tantrum”)
  • $0.8bn outflows from bank loans (4 straight weeks) (largest outflows since Jan’15)
  • $1.7bn inflows to govt/tsy funds (8 straight weeks)

 

Bull & Bear Index: falls to extreme “fear” territory of 0.5 (scale of 0-10)…most bearish since Jan’12 (Chart 2)

end

University of Michigan Consumer sentiment tumbles again as ”
hope finally drops to its lowest level in almost 2 years:

(courtesy University of Michigan Consumer Sentiment/zero hedge)

UMich Consumer Sentiment Tumbles As “Hope” Drops To Lowest Since 2014

After July’s disappointing drop in UMich Consumer Confidence, August did not help. Printing 91.9, below expectations of 93.0, UMich is hovering at the 2015 lows. Both current and future sub-indices dropped with hope falling to its lowest since 2014 (biggest 7mo decline in 2 years). Income growth expectations dropped and business expectations dropped to lowest since Sept 2014. This follows the highest conference board confidence in 2015 and lowest Gallup confidence in a year. Bill Dudley will be disappointed after proclaiming this a key driver of The Fed’s rate hike call (more important than jobs).

 

 

Charts: Bloomberg

end Consumer spending misses by most since January.  Remember that the consumer is 70% of GDP.  The Atlanta Fed will no doubt lower its expectations for 3rd quarter GDP: (courtesy zero hedge) Personal Spending Misses Expectations By Most Since January, Income Juiced By Government Handouts

While the headline spending and income data consists of marginal moves, personal spending missed expectations by the largest amount since the dismal weather-strewn days of January. Consumption rose 0.3% in July, less than the 0.4% expectation and flat from the 0.3% June print. Income rose 0.4% – in line with expectations – ticking up YoY to 4.3% 0 juiced by a $13 billion government transfer receipts print – the most since March. The savings rate ticked up once again as those darned consumers refuse to spend as the elite demand.

 

 

Spending missed hopeful expectations by the most since January…

 

With YoY changes echoing the pre-collapse pathway…

 

And aggregated:

 

As the savings rate ticked up once again from 4.7% to 4.9%, matching the March 2009 level,  and hardly indicative of a consumer who is willing to “charge” everything.

 

Finally, disposable personal income per capita: at just why of $38,000 it is up a whopping $2000 from the December 2007 level.

 end Wow!! that did not take long.  The Atlanta Fed totally rebuffed other members of the Fed by lowering its 3rd quarter GDP forecast to a paltry 1.2% (courtesy zero hedge) Atlanta Fed Cuts Q3 GDP Forecast To A Paltry 1.2%

Earlier today, following the disappointing July personal spending data and yesterday’s record surge in inventories as part of the spike in Q2 GDP, we predicted that the Atlanta Fed would cut its already painfully low Q3 GDP forecast of 1.4%.

Moments ago, it did just that, when the Atlanta Fed GDPNow “nowcast” was revised lower to just a 1.2% annualized growth rate, more than two-thirds below the BEA’s first revision of Q2 GDP.

If officially confirmed in two months, this would be the lowest GDP since Q1 2014, and just fractionally higher than the “harsh winter” double-seasonally adjusted GDP print from the first quarter which economists tell swear was due only to harsh weather. So what was the culprit this time: the record hot July?

Here are the reasons:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.2 percent on August 28, down from 1.4 percent on August 26. The forecast for real GDP growth in the third quarter decreased by 0.2 percentage points following this morning’s personal income and outlays report from the U.S. Bureau of Economic Analysis. The slight decline in the model’s forecast was primarily due to some weakness in real services consumption for July, which lowered the model’s estimate for personal consumption expenditures from 3.1 percent to 2.6 percent for the third quarter.

And while normally this downward would be vehemently opposed by the permabulls, today it comes as a welcome relief as this may be just the catalyst those who are terrified about a market drop  “premature” rate hike will latch on to, crying how it would be foolhardy for the Fed to hike rates in a quarter in which GDP is set to tumble.

end China’s largest automobile maker warns of a grim outlook and that causes the USA automakers to panic as they have built up huge inventories (we brought this to your attention this week) (courtesy zero hedge) US Automaker Panic Button Looms After China’s Top Carmaker Warns Of “Grim” Outlook

Just two weeks ago we explained in a few simple charts why US auotmakers have a major problem looming over them. Today, as Reuters reports, that “if we build them, they will come” strategy has imploded as China’s largest automaker warns “the domestic market situation in the second half of the year remains grim.” With Q2 US GDP driven by a massive inventory surge, and the majority of that from autos, any hope for a sales rebirth to burn through that over-burden is a long-lost dream now as SAIC sees little to no growth over 2014.

As we previously noted, Automakers just unleashed a massive production surge to keep the dream alive…

 

With inventories at record highs (having risen for 61 straight months)…

 

Which would be fine if sales were keeping up – but they are not…

 

And now the subprime auto loan market is set to collapse… And further, exactly as we warned, the region where sales were supposed to soar is collapsing… As Reuters reports,

China’s largest automaker SAIC Motor Corp Ltd warned on Thursday of a grim outlook for the overall vehicle market in the second half of the year, as the slowest economic growth in 25 years and a downturn in the stock market puts off buyers.

 

Vehicle sales in China, the world’s largest car market, rose a meagre 0.4 percent in the first seven months and are predicted to grow 3 percent this year, less than half the 2014 growth rate, the China Association of Automobile Manufacturers said.

 

The forecast by SAIC, which has joint ventures with Volkswagen AG and General Motors Co in addition to making its own brand of vehicles, follows similar warnings of a slowdown in sales from several automakers.

 

“In the short term, although the domestic market situation in the second half of the year remains grim, following the macro economy’s stabilized recovery, there are still structural growth opportunities,” the company said in its earnings statement.

 

SAIC forecast overall sales of passenger and commercial vehicles in China to total 24.1 million this year, a slight increase from 2014. It did not elaborate.

*  *  *
We’re gonna need a bigger bailout…

end The Volatility ETF Index continues to be in backwardation as there are more short shares outstanding than there is total longs outstanding and the authorities do nothing!!!  why?  JPMorgan owns the clearing house. If you play with these crooks you will be trampled upon. (courtesy zero hedge) VIX ETF Short Squeezes For 6th Day In A Row, Long-Dated Vol Above Monday’s Peak

While all eyes are on the front-end of the VIX term structure, today’s volatility term structure in the out-dates is now higher than they were at the close on Monday at “peak crisis.” VXX – the VIX ETF – is still surging, as the massive short position continues to get squeezed amid the ongoing backwardation in VIX…

 

6th day of short squeeze in a row… It sems picking up pennies in front of the steam roller does have consequences…

 

 

And VIX is now higher than in it was during Monday’s crisis in the out-months…

 

This is the longest period of sustained bakcwardation since 2011…

 

and The skew (cost of downside tail risk vs ‘normal’ risk) is extreme…

 

Chart: BBG

 

Finally, a 1 year time series of the implied vol surface: 

h/t @noalpha_allbeta

end The very popular, Michael Snyder: CNN Tells Americans That The Stock Market Is Not Going To Crash By Michael Snyder, on August 26th, 2015

On Wednesday we witnessed the third largest single day point gain for the Dow Jones Industrial Average ever.  That sounds like great news until you realize that the two largest were in October 2008 – right in the middle of the last financial crisis.  This is a perfect example of what I wrote about yesterday.  Every time the market crashes, there are huge up days, huge down days and giant waves of market momentum.  Even though the Dow was up 619 points on Wednesday, overall we are still down more than 2,000 points from the peak of the market.  During the weeks and months to come, we are going to see many more wild market swings, but the overall direction of the market will be down.

Sadly, the mainstream media is still peddling the lie that everything is going to be just fine.  So millions upon and millions of Americans are just going to sit there while their investments get wiped out.  In the six trading days leading up to Wednesday, Americans lost a staggering 2.1 trillion dollars as stocks plunged, and the truth is that this nightmare is only just beginning.

Early on Wednesday morning, CNN published an article entitled “Why U.S. stocks aren’t headed for a crash“.  I had to laugh when I saw that headline.  If CNN is going to make this kind of a claim, they better have something very solid to base it on.  But instead, these are the five reasons we were given for why the stock market is not going to collapse…

1. “The U.S. economy isn’t on the verge of a recession.”

This is exactly what all of the “experts” told us back in 2007 and 2008 too.  In America today, the homeownership rate is at a 48 year low, 46 million Americans go to food banks, and economic growth has slowed to a standstill (and that is if you actually buy the highly manipulated official numbers).  The truth, of course, is that things continue to progressively get worse as our long-term economic decline continues to unfold.  For much more on this, please see my previous article entitled “12 Ways The Economy Is Already In Worse Shape Than It Was During The Depths Of The Last Recession“.

2. “China’s effect on U.S. is limited.”

Really? Go to just about any major retail store and start reading labels.  You will likely find far more things that were “made in China” than you will American-made products.  The global economy is more interconnected than ever before, and the Chinese stock market is the second largest on the entire planet.  Of course what is happening in China is going to affect us.

3. “American businesses are doing pretty well (outside of energy).”

Actually, they were doing pretty well for a while, but now things are turning.  Many large corporations are reporting declining orders, declining revenues and declining profits.  Unsold inventories are beginning to pile up and the pace of layoffs is starting to increase.  All of the things that we would expect to see just prior to another recession are happening.

4. “The Federal Reserve sounds cautious.”

This is laughable.  Ultimately, it isn’t going to matter much at all whether the Federal Reserve barely raises rates or not.  The era of “central bank omnipotence” is at an end.  Just look at what is happening over in Europe.  All of the quantitative easing that the ECB has been doing has not kept their markets from crashing in recent days.  Those that believe that the Federal Reserve can somehow miraculously keep the stock market from crashing this time around are going to end up deeply, deeply disappointed.

5. “Stock prices aren’t crazy high anymore.”

There is some truth to this last point.  Instead of stock prices being really, really, really crazy now they are just really, really crazy.  But as I have pointed out inmany previous articles, the technical indicators are very clearly telling us that U.S. stocks still have a long, long way to go down.

But let’s hope that CNN is actually right – at least in the short-term.

Let’s hope that markets settle down and that things stabilize for at least a few weeks.

In order for that to happen, markets need to become a lot less volatile than they are right now.  The rollercoaster ride that we have been on in recent days has been extraordinary

The Dow traveled another 1,600 points during Tuesday’s trading session, adding to the 4,900 points the index traveled in down and up moves on Monday.

Markets tend to go up slowly and steadily when things are calm, and they tend to go down rapidly when things are volatile.

If you are rooting for a return of the bull market, you should be hoping for nice, boring trading days where the Dow goes up by about 100 points or so.  Wild swings like we have seen on Friday, Monday, Tuesday and Wednesday are very strong indicators that we have entered a bear market.

What we have been witnessing over the past week is almost unprecedented.  Just check out this piece of analysis from Bloomberg

By one metric, investors would have to go back 75 years to find the last time the S&P 500’s losses were this abrupt.

Bespoke Investment Group observed that the S&P 500 has closed more than four standard deviations below its 50-day moving average for the third consecutive session. That’s only the second time this has happened in the history of the index.

Of course after such a dramatic plunge it was inevitable that we were going to have a “bounce back day” where there was lots of panic buying.  Initially it looked like it would be Tuesday, but it turned out to be Wednesday instead.

But if you think that the big gain on Wednesday somehow means that the crisis is “over”, you are going to be sorely mistaken.

Personally, I am hoping that we at least see a bit of a pause in the action, but there is absolutely no guarantee that we will even get that.

As the markets have been flying around, more and more Americans are becoming curious about the potential for a full-blown stock market crash.  The following comes from Business Insider

This one’s pretty easy: according to Google search trends, more Americans are searching for “stock market crash” now that at any point since the last crash.

Right now, search traffic for the term “stock market crash” is hitting about 70% of the most volume this term has ever gotten through Google search.

And so while this data doesn’t convey absolute search volume for the term, we do know that Americans appear to be looking for information about a stock market crash at the highest level in about 7 years.

Very interesting.

In addition, Americans are also becoming more pessimistic about the overall economy.  According to Gallup, the level of confidence that Americans have about the future performance of the U.S. economy is the lowest that it has been in about a year.

And remember – it isn’t just U.S. markets that are starting to go crazy.  All over the planet stocks are crashing and recessions are starting.  In fact, I can’t remember a time when there has been this much economic chaos erupting all over the world all at once.

So can the U.S. resist the overall trend and pull out of this market crash?

Please feel free to share what you think by posting a comment below…

end let’s wrap this week with our usual offering from greg Hunter of USAWatchdog (courtesy Greg Hunter/USAWatchdog) Market Pre-Crash, China Bumps US Debt, Biden Better than Hillary, Dems for Iran Deal By Greg Hunter On August 28, 2015 In Weekly News Wrap-Ups 19 Comments

By Greg Hunter’s USAWatchdog.com (WNW 205 8.28.15)

To say the stock market was on a roller-coaster ride this week is an understatement. Already, some are saying this action is just a blip. They say it’s a buying opportunity. They say it’s a correction and nothing more. My sources say none of that is true, that this is just the warm-up act of a much bigger downturn. Charles Nenner told me this is just the pre-crash. The big crash is coming. Gregory Mannarino of TradersChoice.net, who called the top in this market more than 2,000 points ago, says market crashes are not a one and done event but a process. He says the 2008 meltdown started in September and didn’t finish until March of 2009. It only ended with massive QE and money printing and suspension of accounting rules by FASB. Fast forward to today, and we have reports of China selling U.S. debt (Treasuries) because China’s markets are in turmoil. In simple terms, they need the cash to try to stabilize their markets. ZeroHedge.com is reporting that when China sells Treasuries, it is really QE or money printing in reverse. It is reported that if China sells enough Treasuries, it could spike interest rates. Funny, former Fed Head Alan Greenspan also recently warned that a bond bubble could explode and spike interest rates. What happens if every other country sells a chunk of the more than $16 trillion of liquid U.S. government debt all at the same time? This is the scenario economist John Williams has been warning against and will be here for an update next week.

Hillary Clinton now says she “madea bad choice” for having her own private server doing government email at the State Department. That is an interesting description, “made a bad choice.” I guess you can say fraudster Bernie Madoff “made a bad choice.” I guess you could say David Petraeus, former head of the CIA, “made a bad choice.” He pled guilty to a felony charge on how he mishandled documents. He did not put national security at risk. It is alleged that Clinton broke the law and jeopardized national security by her use of a private server. This server was magically wiped clean before it was taken by the FBI. This story is far from over, which is why you are hearing loud rumblings of Vice President Joe Biden getting into the race. You think he has some inside view of how much trouble Hillary is in after decades in Washington? In a new national poll, Biden does better than Hillary in a national election against Republicans. Do you really think the Democrats are going to take a big chance on Hillary? I still think she will not be President, and she may be out of the race before the first Democratic debate next year.

The White House is pushing hard for votes in the Iran Nuke deal. Obama is picking up Senate votes from Democrats, even though the deal allows Iran to inspect its own military facilities. The deal is a sham, but that hasn’t stopped 28 Democratic Senators who have come out in favor of the deal. Obama needs 34 yes votes from Democrats in the Senate, and it is still too close to call if Congress will be able to override a Presidential veto. Meanwhile, it is reported that Iran will continue to support Hamas, which is intent on destroying Israel just like Iran. This deal will give the Iranians $150 billion, and all restrictions will basically be finished. This so-called deal is not going to usher in a new more peaceful Middle East but bring it to war. By the way, new reports say Pakistan is on its way to being the third largest nuclear arsenal within 10 years but already has many nukes, and Saudi Arabia has said many times it wants nuclear weapons and is very friendly with Pakistan.

Finally, former adviser to UK Prime Minister Gordon Brown is telling his fellow countrymen to “stock up on tinned goods and bottled water.”  Also, Damian McBride says get “hard cash in a safe place” because you won’t be able to count on the banks being open. This was reported this week in the Independent, a large UK news outlet. It sounds to me that the top insider knows full well time is short, and some of them have a conscience. I hope people will take note no matter where you are in the world. What is coming will be a global phenomenon.

Join Greg Hunter as he looks at these stories and more in the Weekly News Wrap-Up.

end

Well that about does it for today

I will see you Monday night

harvey.


august 27/China official announces liquidating USA treasuries/They also state that the market crashes have been the USA’s fault and orders them not to raise interest rates in September/JPMorgan head of Quant division states a second crash is imminent...

Thu, 08/27/2015 - 19:00

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1122.40 down $2.20   (comex closing time)

Silver $14.42 up 37 cents.

In the access market 5:15 pm

Gold $1125.60

Silver:  $14.50

Here is the schedule for options expiry:

Comex:  options expired last night

LBMA: options expire Monday, August 31.2015:

OTC  contracts:  Monday August 31.2015:

needless to say, the bankers will try and contain silver and gold until Sept 1.2015:

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

At the gold comex today, we had a good delivery day, registering 552 notices for 55,200 ounces  Silver saw 48 notices for 240,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 225.59 tonnes for a loss of 78 tonnes over that period.

In silver, the open interest rose by 21 contracts despite the fact that silver was down in price by 56 cents yesterday. Again, our banker friends are totally perplexed with the silver situation .  The total silver OI now rests at 167,264 contracts   In ounces, the OI is still represented by .836 billion oz or 119% of annual global silver production (ex Russia ex China).

In silver we had 48 notices served upon for 240,000 oz.

In gold, the total comex gold OI rests tonight at 422,803 for a loss of 9,351 contracts. We had 552 notices filed for 55,200 oz today.

We had another addition in tonnage at the GLD today to the tune of 1.49 tonnes of gold /  thus the inventory rests tonight at 682.59 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold.  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 will be the FRBNY and the comex.   In silver, we had no changes in silver inventory at the SLV  tune of / Inventory rests at 324.968 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver rise by 21 contracts up to 167,264 despite the fact that silver was down by 56 cents in price with respect to yesterday’s trading.   The total OI for gold fell by 9,351 contracts to 422,803 contracts, as gold was down by $13.60 yesterday. We still have 16.099 tonnes of gold standing with only 14.70 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3. Six stories on China tonight.  The markets were rescued in the last 1/2 hour by POBC as nobody wanted to be arrested.  The big news was official announcement of China selling its hoard of USA treasuries.  China is angry at the USA as they state that the market crash is USA’s fault.

(Reuters/Bloomberg/Dave Kranzler)

4.Former Greek Finance Minister is set to start a new Pan European party that outlaws austerity.

(Keep Talking Greece)

5.  The Ukraine has been offered a debt deal with a haircut. Only one problem:  Russia states that it will not accept any haircut and Putin wants the entire 3 billion USA returned

(zero hedge)

6 Trading of equities/ New York

(zero hedge)

7.  USA stories:

a) Jobless claims remain in neutral territory (BLS)

b) Pending home sales falter (zero hedge)

c) Inventories rise raising 2nd quarter GDP to 3.5% from 2.3%.  However Atlanta Fed does not buy the data and states that 2nd Quarter GDP will rise only to 1.4%.

(zero hedge)

d)Jim Grant of Grant’s Interest Rate Observer states that the stock market is nothing but a house of mirrors.

e) Kansas City Fed survey misses for the 8th straight month’

f) VIX surges and the VIX ETF’s is in backwardation signalling greater shorts than longs outstanding.

g. JPMorgan’s head of Quants warns of a second market crash

(JPMorgan/zero hedge)

 

8.  Physical stories:

  1. JPMorgan customer deliver 500 gold contracts/picked up by Goldman (Jessie/Americain cafe)
  2. Mike Kosares on China’s increasing influence on the price of gold
  3. Alasdair Macleod on the “Economics of a Crash”
  4. New York Sun on cash being a barbaric relic
  5. Freeport McMoRan (gold/copper producer) has Carl Icahn as a suitor

Let us head over and see the comex results for today.

The total gold comex open interest fell from 432,154 down to 422,803, for a loss of 9,351 contracts as gold was down $13.60 with respect yesterday’s trading. Seems our specs have been obliterated.  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, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. Tonight we have a net 739 contracts outstanding for 73,900 oz of gold.  Today the gold contract goes off the board and yet last night only 552 notices were filed.  It seems that our banker friends are having trouble locating physical gold. We are now in the contract month of August and here the OI fell by 54 contracts falling to 1291 contracts. We had 0 notices filed yesterday and thus we lost 54 contracts or 5400 additional ounces will not stand for delivery.(they were no doubt cash settled). The next delivery month is September and here the OI fell by 1908 contracts down to 443. The next active delivery month is October and here the OI rose by 1,789 contracts up to 29,638.  The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was fair at 140,485. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 227,452 contracts. Today we had 552 notices filed for 55200 oz. And now for the wild silver comex results. Silver OI rose by 21 contracts from 167,243 to 167,264 despite the fact that silver was down by 56 cents in price yesterday . We continue to have some short covering as our bankers pulling their hair out with respect to the continued high silver OI (and extremely low price) as the world senses something is brewing in the silver arena.  We are in the delivery month of August and here the OI rose by 35 contracts to 49. We had 0 delivery notices filed yesterday and thus we surprisingly gained 35 contracts or an additional 175,000 oz will stand.  Somebody again must have been in urgent need of physical silver . The next major active delivery month is September and here the OI fell by 10,219 contracts to 31,170. The estimated volume today was excellent at 104,014 contracts (just comex sales during regular business hours).  (First day notice is Monday, August 31.2015. The confirmed volume yesterday (regular plus access market) came in at 108,061 contracts which is huge in volume. (equates to 540 million oz or 77.1 % of annual global production) We had 48 notices filed for 240,000 oz.

August contract month:

initial standing

August 27.2015

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz  89,170.43 oz  (Manfra, HSBC)

( includes 10 kilobars) Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz nil No of oz served (contracts) today 552 contracts (55,200 oz) No of oz to be served (notices) 739 contracts (73,900 oz) Total monthly oz gold served (contracts) so far this month 4437 contracts

(443,700 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 663,736.1   oz Today, we had 0 dealer transactions total Dealer withdrawals: nil  oz we had 0 dealer deposits total dealer deposit: zero we had 2 customer withdrawals  i) out of Manfra:  321.5 oz (10 kilobars) ii) Out of HSBC:  88,848.93 oz total customer withdrawal: 89,170.43 oz  We had 0 customer deposits:

Total customer deposit: nil  oz

We had 0  adjustment:

JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz)  and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes

. Today, 0 notices was issued from JPMorgan dealer account and 500 notices were issued from their client or customer account. The total of all issuance by all participants equates to 552 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.   To calculate the total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (4437) x 100 oz  or 443,700 oz , to which we add the difference between the open interest for the front month of August 1291) and the number of notices served upon today (552) x 100 oz equals the number of ounces standing.   Thus the initial standings for gold for the August contract month: No of notices served so far (4437) x 100 oz  or ounces + {OI for the front month (1291) – the number of  notices served upon today (552) x 100 oz which equals 517,600 oz standing so far in this month of August (16.099 tonnes of gold).

We lost 54 contracts or an additional 5400 ounces will not stand for delivery. Thus we have 16.099 tonnes of gold standing and only 14.70 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.

Total dealer inventory 472,783.087 or 14.705 tonnes Total gold inventory (dealer and customer) =7,220,717.704 or 224.59  tonnes) Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.59 tonnes for a loss of 78 tonnes over that period.  The Comex is bleeding gold. end Jessie discusses the 500 issued contracts from JPMorgan which was picked up by Goldman: 27 August 2015 JPM Customer Delivers 500 Gold Contracts of Bullion, Goldman Takes Most For the House

It is not possible to interpret the action fully from this report below. Let me stipulate that up front.

It seems that a ‘customer’ trading with JPM has allowed 500 of their August gold receipts to be taken for ‘delivery.’ And most of them, 442 to be exact, were picked up by Goldman Sachs for their ‘House’ account.

In and of itself this may not be so significant. For example, we do not know who the ‘customer’ at JPM might be, or why they might have been selling their bullion receipts. Perhaps they were just raising some cash to cover stock losses.

And we do not know why Goldman picked up receipts for 442,000 ounces of gold at $1124. And what exactly this ‘house account’ might be.

Goldman has been stopping, or taking deliveries, for their House account pretty steadily this month.

Don’t be too impressed by the words, because a ‘delivery’ just means paper receipts change hands. Most of the time nothing really happens to the bullion, at least in The Bucket Shop. It just gets shoved around the plate. Up for delivery, back to storage, rinse and repeat.

I do like to keep track of how many receipts are marked ‘deliverable’ or offered for sale at the prevailing price, compared to the potential number of claims, or active contracts.

This is how it is for gold. Silver, not so much.

CNT seems to be using the Comex for an actual sale and delivery and withdrawal mechanism for their actual business of obtaining a supply of bullion for their wholesale customers.

What an odd thing to do, actually transact deals between people who will take and use what they sell. Well, they are an oversized coin shop, so you will have to excuse them.

And as the pit slugs will be quick to point out, we do not know exactly what this transaction on this report ‘means.’ That is in the nature of these markets and their reports. It could have been this, it could have been that. Don’t stand too close to the table kid.

I just thought it was interesting, and wanted to make a note of it for future reference. I am curious to see how things in the warehouse reports set up for the big month of December.

And besides, it’s nice to watch someone busy doing God’s work.

***

end And now for silver August silver initial standings

August 27 2015:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory 405,668.84 oz (Brinks,CNT,  HSBC) Deposits to the Dealer Inventory  nil Deposits to the Customer Inventory 150,299.47 oz (HSBC) No of oz served (contracts) 48 contracts  (240,000 oz) No of oz to be served (notices) 1 contract (5,000 oz) Total monthly oz silver served (contracts) 373 contracts (1,865,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month 85,818.47 oz Total accumulative withdrawal  of silver from the Customer inventory this month 8,830,354.6 oz

total dealer deposit: nil   oz

Today, we had 0 deposits into the dealer account:

we had 0 dealer withdrawal: total dealer withdrawal: nil  oz We had 1 customer deposit: i) Into  HSBC: 150,299.470 oz

total customer deposits: 150,299.470 oz

We had 3 customer withdrawals: i) Out of Brinks:  300,609.69 oz ii) Out of CNT:  5035.000 oz ??? iii) Out of HSBC:  100,024.15 oz

total withdrawals from customer: 405,668.84   oz

we had 2  adjustments i) Out of Scotia: 67,953.40  oz was removed from the customer account as an accounting error. ii) Out of CNT: We had 113,218.04 oz was removed from the dealer and this entered the customer account of CNT Total dealer inventory: 54.775 million oz Total of all silver inventory (dealer and customer) 171.193 million oz The total number of notices filed today for the August contract month is represented by 48 contracts for 240,000 oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (373) x 5,000 oz  = 1,865,000 oz to which we add the difference between the open interest for the front month of August (49) and the number of notices served upon today (48) x 5000 oz equals the number of ounces standing. Thus the initial standings for silver for the August contract month: 348 (notices served so far)x 5000 oz + { OI for front month of August (49) -number of notices served upon today (48} x 5000 oz ,= 1,870,000 oz of silver standing for the August contract month.

we gained 35 contracts or an additional 175,000 oz of silver will stand in this non active month of August.

for those wishing to see the rest of data today see:http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com 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 shareholdersii) demand from the bankers who then redeem for gold to send this gold onto Chinavs no sellers of GLD paper. And now the Gold inventory at the GLD: August 27./ a huge addition of tonnage at the GLD to the tune of 1.49 tonnes/Inventory rests at 682.59 tonnes (I believe that the GLD has now run out of physical gold and they cannot supply China from this vehicle) August 26.2015/ no change in tonnage at the GLD/Inventory rests at 681.10 tonnes August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes. August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 17.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 14.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 13.2015:/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 27 GLD : 682.59 tonnes end

And now SLV:

August 27.no change in inventory at the SLV/Inventory rests at 324.698 million oz  (for the 11th straight trading day)

August 26.2015/no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 21.2015/ no change in inventory at the SLV/Inventory rests at

324.698 million oz

August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz

August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.

August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.

August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz

August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.

August 27/2015:  tonight inventory rests at 324.968 million oz end   And now for our premiums to NAV for the funds I follow: Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that) 1. Central Fund of Canada: traded at Negative 8.3 percent to NAV usa funds and Negative 7.4% to NAV for Cdn funds!!!!!!! Percentage of fund in gold 63.1% Percentage of fund in silver:36.6% cash .3%( August 27/2015). 2. Sprott silver fund (PSLV): Premium to NAV falls to-.03%!!!! NAV (August 27/2015) (silver must be in short supply) 3. Sprott gold fund (PHYS): premium to NAV falls to – .59% to NAV August 27/2015) Note: Sprott silver trust back  into negative territory at -.03% Sprott physical gold trust is back into negative territory at -.59%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *

>end And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Why Gold Was the Best Buy in 2008-9 Crash and Will Be Again This Time Too

By Mark O’ByrneAugust 27, 20150 Comments

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DAILY PRICES
Today’s Gold Prices: USD 1128.50, EUR 728.91 and GBP 990.38 per ounce
Yesterday’s Gold Prices:  USD 1134.40, EUR 724.63 and GBP 990.05 per ounce.

(LBMA AM)

Gold in US Dollars – 5 Years
Yesterday, gold fell $15.40 to $1124.10 in New York – down 1.3%.  Silver fell another 3% or 46 cents to $14.18 per ounce.

Why gold was the best buy in 2008-9 and will be this time too…

What was the best asset class to buy for the recovery that followed the 2008-9 crash in global financial markets? Step forward gold whose rise was only exceeded by silver.

Precious metals not only delivered the fastest recovery from that huge sell-off but offered increases way above the pre-crash levels. Gold tripled from its low in the crash, while silver went on to record an eight-fold increase, still just shy of its 1980 all-time high.

Read More on GoldSeek.com

IMPORTANT NEWS

Gold coasts along as stocks perk up, possible Fed hike delay supports – Reuters
Relief Rally Takes Hold in Asia After U.S. Rebound; Metals Gain – Bloomberg
Fed’s Dudley: September rate hike looks less compelling – CNBC
Gold Gets Ignored Amid Market Turmoil as Focus Stays on Fed – Bloomberg
Lost Nazi train full of gold ‘discovered’ beneath Polish city – Independent.ie

IMPORTANT COMMENTARY Why gold was the best buy in 2008-9 crash and will be this time too – GoldSeek.com Stock up on canned food for stock market crash, warns former Gordon Brown adviser – The Independent Jim Grant Warns “The Fed Turned The Stock Market Into A ‘Hall Of Mirrors’ – Zero Hedge
Why We Can’t Handle An Equities Bear Market, Part 1: State Budgets Will Implode – DollarCollapse.com
How Washington will try to rig the stock market – New York Post Download Essential Guide To Storing Gold Offshore end Mike Kosares: Key trade in gold market signals China’s intentions

Submitted by cpowell on Thu, 2015-08-27 17:15. Section:

1:14p ET Thursday, August 27, 2015

Dear Friend of GATA and Gold:

Despite the slowing of its economy, China will have increasing influence on the price of gold and will push the gold trade toward physical delivery, USAGold’s Michael Kosares writes today. His commentary is headlined “Key Trade in Gold Market Signals China’s Intentions” and it’s posted at USAGold’s Internet site here:

http://www.usagold.com/cpmforum/2015/08/27/key-trade-in-gold-market-sign…

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

end

A good one tonight from Alasdair…

(courtesy Alasdair Macleod)

 

 

Alasdair Macleod: Economics of a crash

Submitted by cpowell on Thu, 2015-08-27 16:35. Section:

By Alasdair Macleod
GoldMoney, St. Helier, Jersey, Channel Islands
Thursday, August 27, 2015

For the moment investors are in shock, seeking reassurance and keenly intent on preserving their diminishing assets, instead of reflecting on the broader economic reasons behind it. To mainstream financial commentators, blame for a crash is always placed on remote factors, such as China’s financial crisis, and has little to do with events closer to home. Analysis of this sort is selective and badly misplaced. The purpose of this article is to provide an overview of the economic background to today’s markets as well as the likely consequences. …

Equity markets are telling us that the debt crisis is now upon us again. The detailed course that events will take from here cannot be predicted, but we can be certain that over the coming months governments will be ready to move heaven and earth to prevent a deepening crisis, by any means at their disposal. In this respect the lesson of the Lehman crisis is that flooding the system with money and guarantees of more money actually works.

Gone will be any pretence of monetary discipline, gone will be any pretense of higher interest rates, and gone will be any constraint on the issuance of yet more debt. A crisis of malinvestment has become a crisis of the financial system, and will soon become a crisis of currencies. We can be increasingly certain that debt will be extinguished not by debtors reckoning with creditors, but by the debasement of money, and that this outcome becomes the unstated objective of policy makers. …

… For the complete commentary:

https://www.goldmoney.com/research/analysis/economics-of-a-crash?gmrefco…

end

(courtesy New York Sun/GATA)

 

an important read..

New York Sun: Another ‘barbarous relic’

Submitted by cpowell on Thu, 2015-08-27 15:15. Section:

Another ‘Barbarous Relic’

From the New York Sun
Thursday, August 27, 2015

That’s the headline over a Financial Times editorial calling on authorities to consider phasing out the use of cash — by everyone, not just governments. This is what it has come down to. The government has run down the value of the dollar to less than 2 percent of what it was worth when our parents were born. Now it is itching to ban the use of banknotes and gets an endorsement from, of all broadsheets, the “world business newspaper.” The FT refers to the banknotes as “another ‘barbarous relic,'” which, it says, is the “moniker Keynes gave to gold.”

Actually, it was to the gold standard that Keynes gave that moniker. He did so in his 1924 “Tract on Monetary Reform,” in which he wrote: “In truth, the gold standard is already a barbarous relic.” Added he: “All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices, and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma, which had its value once, of 3 pounds, 17 shillings, 10 1/2 pence per ounce.” …

… For the remainder of the commentary:

http://www.nysun.com/editorials/another-barbarous-relic/89266/

end The following is also discussed with zero hedge in the body of my commentary. (courtesy Bloomberg) China sells U.S. Treasuries to support yuan

Submitted by cpowell on Thu, 2015-08-27 12:49. Section:

From Bloomberg News
Thursday, August 27, 2015

China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.

Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.

The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey. …

… For the remainder of the report:

http://www.bloomberg.com/news/articles/2015-08-27/china-said-to-sell-tre

end

Here is more on the silver premiums from the large dealer Apmex:

From a big customer:
i have a VIP account at apmex. brandi just verified
that the BEST they can offer is $4 over spot. we have
finally gotten what we want- proof the paper prices
are meaningless.

end

 

Carl Icahn is now going over gold/copper mining giant Freeport McMoRan

 

(courtesy zero hedge)

Freeport-McMoRan Up Nearly 50% Today After Carl Icahn Goes Activist, Announces 8.5% Stake

One of the biggest casualties of the Chinese economic crash, and the resultant collapse in copper prices to 6 year lows, has been Phoenix-based copper mining giant Freeport-McMoRan, whose stock had cratered from a 52-week high of $36 to just under $8 as of a few days ago. The harsh reality of the new normal finally manifested itself on the company early today when FCX announced it was lowering its spending and production in response to plunging copper prices and in addition would cut 10% of its employees.

FCX announced that it now expects $4 billion in capital expenditures for 2016, down from a prior estimate of $5.6 billion. Its 2015 capital expenditure budget currently stands at $6.3 billion.

The company said that it will reduce copper sales by about 150 million pounds per year in 2016 and 2017 and cut 2016 unit site production by 20 percent. It also plans to slash 2016 minerals exploration costs from $100 million to $50 million.

The resultant surge in the company, which exploded by 30% in the regular hours, made many wonder if there wasn’t more to the story.

The answer is: yes, there was, and moments ago none other than Carl Icahn announced an 88 million, or 8.46% stake in the copper miner, in a 13D which said that said the company was “undervalued” and that Icahn is now seeking a board seat. To wit from the just filed 13-D:

The Reporting Persons acquired their positions in the Shares in the belief that the Shares were undervalued. The Reporting Persons intend to have discussions with representatives of the Issuer’s management and board of directors relating to the Issuer’s capital expenditures, executive compensation practices and capital structure as well as curtailment of the Issuer’s high-cost production operations. The Reporting Persons may also seek shareholder board representation and to discuss the size and composition of the board.  As of August 26, 2015, the Reporting Persons have not had any discussions with representatives of the Issuer’s management or board of directors.

 

The Reporting Persons may, from time to time and at any time: (i) acquire additional Shares and/or other equity, debt, notes, instruments or other securities (collectively, “Securities”) of the Issuer (or its affiliates) in the open market or otherwise; (ii) dispose of any or all of their Securities in the open market or otherwise; or (iii) engage in any hedging or similar transactions with respect to the Securities.

And after soaring 29% in the regular session, FCX was up another 19% in the after hours, which means Icahn is almost in the money on his accumluation which began on July 17.

The reason for Icahn’s interest is clear: despite major cash flow problems, FCX only has 3.0x debt/EBITDA which to Icahn means it can lever up at least 2-3 more turns, and use the proceeds to be more shareholder friendly. That the resultant company will inevitably go default is a different matter.

As to how the beleagured company responds, remains to be seen. One thing is clear: Icahn’s accumulation pattern which as disclosed in the 13D, is shown below.

 

Two words – average down…

 

What is also known: any FCX shorts, which are as much as 6% of the float, are not having a good day.

That said, we now wait for an update of what Icahn plans to do with his 11% stake in just as troubled energy company Chesapeake which recently traded at decade lows. Or whether AAPL is still a no-brainer here, after soaring by $120 billion market cap from the Monday flash crash lows.

 

 

end

 

 

And now your overnight Thursday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan rises considerably this  time to   6.4055/Shanghai bourse: green and Hang Sang: green

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei up 197.61   or 1.08.%

3. Europe stocks all deeply in the red  (even with the new Chinese rate cut)  /USA dollar index up to  95.33/Euro down to 1.1305

3b Japan 10 year bond yield: rises to .386% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 130.20

3c Nikkei now below 19,000

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

3e WTI 39.98 and Brent:  44.66 (this should blow up the shale boys)

3f Gold down  /Yen down 

3gJapan 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 .724 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate falls slightly to 12.02%/Greek stocks this morning up by .49%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 9.43%

3k Gold at $1122.50 /silver $14.22  (8 am est)

3l USA vs Russian rouble; (Russian rouble up 1 5/8 in  roubles/dollar) 67.29,

3m oil into the 39 dollar handle for WTI and 44 handle for Brent/Saudi Arabia increases production to drive out competition.

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.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9549 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0789 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/

3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.724%

3s The ELA lowers to  89.7 billion euros, a reduction of .7 billion euros for Greece.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.

4. USA 10 year treasury bond at 2.17% early this morning. Thirty year rate below 3% at 2.92% / yield curve flatten/foreshadowing recession.

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

 

 

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

Aggressive Chinese Intervention Prevents Another Rout, Sends Stocks Soaring 5% In Last Trading Hour; US Futures Jump

After a 5 day tumbling streak, which saw Chinese stock plunge well over 20% and 17% in just the first three days of this week, overnight the Shanghai Composite was hanging by a thread (and threat) until the last hour of trading. In fact, this is what the SHCOMP looked like until the very end: Up 2.6%, up 1.2%, up 2.8%, up 0.6%, up 2%… down 0.2%. And then the cavalry came in: “Heavyweight stocks like banks and insurance companies helped pull up the index, and it’s possibly China Securities Finance entering the market again to shore up stocks,” Central China Sec. strategist Zhang Gang told Bloomberg by phone. Net result: the Composite, having been red just shortly before the close, soared higher by 156 points or 5.4%, showing the US stock market just how it’s down.

 

Then again, today’s move was telegraphed a mile away: in fact as we said just yesterday when comparing Chinese stocks to the Nasdaq circa 1999-2001, we said “If past is indeed prologue, now may be a good time to buy some Shanghai Composite calls, especially with China’s desperation getting more profound with each passing day.”

End result, if only for now:

It wasn’t just stocks: as the WSJ reported on its weibo account, China’s central bank also intervened in the yuan swap market, with the PBOC aiming to minimize the impact of yuan devaluation. It would achieve this by confirming what we first reported two days ago, namely that it was liquidating Treasurys in a move that is certain to attract the Treasury attention, and one which, if taken too far, has practically guaranteed the Fed’s QE4 which will be needed not so much to stabilize the stock market as to prevent a rout in the long end. More on that shortly in a follow up post.

Elsehwere in Asia, equities resided in positive territory following the strong tech led gains on Wall Street, where indices posted their best day since 2011 after Fed’s Dudley dampened expectations of a September rate hike. Tech stocks performed strongly across all markets particularly in China, where the Shanghai Comp. (+5.3%) saw some interesting price action where it fell briefly into negative territory before the close before rising relatively sharply to end the session higher by over 5% to snap a 5-day losing streak, with some commentators suggesting state purchasing of Chinese equities was behind the late move. Nikkei 225 (+1.1%) received additional support from USD/JPY regaining the 120.00 level while ASX 200 (+1.2%) was further boosted by a bout of strong earnings. JGBs (-8 ticks) traded lower amid strength across Asian equities, while a well-received Japanese 2yr bond auction failed to stoke demand.

PBoC injected CNY 150bIn via 7-day reverse repos for a net weekly injection of CNY 60bIn vs. CNY 150bIn injection last week, while the PBoC offered today’s repos at a lower rate of 2.35% vs. Prey. 2.50%.

The euphoria carried over into the European session, as market participants reacted positively to yesterday’s comments by Fed’s Dudley who dampened expectations of a September rate hike which in turn spurred the biggest gain by US equity indices since 2011.

The upside traction by stocks (Euro Stoxx: +3.2%) was led by materials and energy sectors, with WTI and Brent crude advancing over USD 1.00, while copper prices also rebounded following the recent selling pressure. Elsewhere, Bunds traded lower since the open, with peripheral bond yield spreads tighter as market participants sought higher yield assets.

Commodity and energy sensitive currencies such as AUD, CAD and RUB, all posted decent gains on the back of the latest rally across energy and metals markets. At the same time , EUR/USD ebbed lower amid modest gains in the USD (USD-Index: +0.2%) and the pick-up in sentiment seeing EUR under pressure as a result of its role as a funding currency. Elsewhere, the pick-up in sentiment resulted in broad based JPY weakness and in turn saw USD/JPY advance above 120.00 level.

The upside surge by energy prices comes amid a sharp reversal in risk appetite which prompted US equity indices to post their best day since 2011 after Fed’s Dudley dampened expectations of a September rate hike. As such the metals complex has also benefitted, with the likes of gold and copper both firmly in the green heading into US hours. Looking ahead, the notable commodity data comes in the form of EIA natural gas storage change update, which is expected to show a build of 63mmbtu.

Going forward, market participants will get to digest the release of the latest US GDP report (Q2), weekly jobs report and US pending home sales data. More importantly, the focus will be on the latest Kansas City Fed symposium (Jackson Hole) which is due to commence today.

In Summary: Europe’s Stoxx 600 rises 2.9% as of 11:21 am U.K. time on volume that is ~131% of the 30-day average, with the basic resources and oil & gas sectors outperforming and the food & beverage and real estate sectors underperforming.  Index close to intraday highs  Shangai Composite rebounds, rises over 5%. China said to intervene today to shore up stocks, also said to sell Treasuries as dollars needed for yuan support.

Market Wrap (or where were central banks most active overnight)

  • Equities: Shanghai Composite (+5.3%), DAX (+3.1%)
  • Bonds: Italian 10Yr yield (-2.9%), Spanish 10Yr yield (-2.8%)
  • Commodities: WTI Futures (+4.1%), Brent Futures (+3.8%)
  • FX: EUR/GBP (+0.4%), Dollar Index (+0.3%)
  • U.S. jobless claims, continuing claims, Bloomberg consumer comfort, Kansas City Fed index, GDP, personal consumption, core PCE, pending home sales due later.
  • Ukraine Eurobonds surge most on record after country agrees to 20% principal writedown with main creditors, Russia says won’t participate.
  • FTSE 100 up 2.4%, CAC 40 up 3.1%, DAX up 3.1%, IBEX 35 up 2.7%, FTSE MIB up 2.5%, S&P 500 futures up 1.2%, Euro Stoxx 50 up 3.2%
  • Bonds: German 10yr yield up 1bps to 0.71%, Greek 10yr yield down -26bps to 9.05%, Portugal 10yr yield down -8bps to 2.61%, Italian 10yr yield down -6bps to 1.92%
  • Credit: iTraxx Main down 3.6 bps to 71.02, iTraxx Crossover down 19.8 bps to 324.57
  • FX: Euro spot down -0.26% to 1.1285, Dollar index up 0.32% to 95.406
  • Commodities: Brent crude up 3.8% to $44.77/bbl, Gold up 0.3% to $1129.03/oz, Copper up 1.7% to $5020.5/MT, S&P GSCI up 2.4%
  • Asian stocks rise with the Shanghai Composite outperforming and the Kospi underperforming
  • Nikkei 225 +1.1%, Hang Seng +3.6%, Kospi +0.7%, Shanghai Composite +5.3%, ASX +1.2%, Sensex +2%
  • All 10 sectors rise with energy and financials outperforming and consumer discretionary and materials underperforming
  • M&A

Bulletin Headline Summary:

  • Risk-on sentiment dominated the European session, as market participants reacted positively to yesterday’s comments by Fed’s Dudley as well as the positive close in Asian equities
  • Source reports suggested that China is to reduce the amount of its US Treasury holdings in order to facilitate manageable depreciation of the CNY and that the rally in Chinese equities may be a result of purchases from the state
  • Notable highlights include the release of the latest US GDP report (Q2 S), weekly jobs report and US pending home sales data as well as the latest Kansas City Fed symposium (Jackson Hole) which is due to commence today
  • Treasuries gain, 10Y rebounding from decline that pushing yield ~17bps higher over last two sessions; global stocks higher as China’s government said to intervene to end $5t rout.
  • Week’s auctions conclude today with $29b 7Y notes, WI 1.885%, lowest since May, vs 2.115% in July
  • China wants to stabilize stocks before a Sept. 3 military parade celebrating the 70th anniversary of the victory over Japan during World War II, said the people, who asked not to be identified because the move wasn’t publicly announced
  • China has cut its holdings of Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter. Channels include China selling directly as well as through agents in Belgium and Switzerland, according to one of the people; China has communicated with U.S. about the sales, said another person
  • As Greece’s Tsipras steps down, his bid to regain a parliamentary majority with early elections risks failing as low turnout and disarray within his Syriza party threaten to yield no clear winner
  • Ukraine agreed to a restructuring deal with creditors after five months of talks, giving President Petro Poroshenko some breathing room as he seeks to avert default and revive an economy decimated by a war with separatists backed by Russia
  • No IG or HY deals priced yesterday. BofAML Corporate Master Index holds at +172, widest since Sept 2012; YTD low 129.High Yield Master II OAS +1bp to +591; reached +614 Tuesday, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mixed. Asian and European stocks higher, U.S.equity-index futures higher. Crude oil, gold and copper gain

 

DB’s Jim Reid completes the overnight recap

markets this week have not offered much opportunity for deep relaxing sleep. The sudden surge last night in US equities felt like something of a mirror image compared to what we saw on Tuesday as the S&P 500 shrugged off weaker sessions in China and Europe to close up 3.90%, its largest one-day gain since the 30th November 2011. Despite a strong start on the back of some decent durable and capital goods orders numbers, nerves appeared to settle in once again with the index paring nearly 2% of the initial gains as Europe declined into the close (Stoxx 600 -1.75%, DAX -1.29%). Some dovish comments from the Fed’s Dudley however, which we’ll touch on shortly, helped lift sentiment and spark a wave of buying in the last few hours of trading which finally brought to an end the six-day rout for US equities.

This morning markets in Asia appear to be following much of the lead from the US session yesterday with decent gains across the board. We’ve seen the usual volatility in China once again where at the midday break the Shanghai Comp is +1.55%, having at one stage more or less wiped out an early 3% gain. The Shenzhen (+1.06%) and CSI 300 (+2.10%) are also off to better starts. Elsewhere, it’s a sea of green across our screens with the Nikkei (+1.10%), Hang Seng (+2.53%), Kospi (+0.75%) and ASX (+1.28%) all up. S&P 500 futures are pointing towards a modestly firmer start while US Treasury yields have dropped 3bps. After a fairly subdued day yesterday, Oil markets have climbed this morning with WTI and Brent up some 2.5%. Elsewhere credit markets are benefiting from the better tone with Asia and Australia indices 3bps tighter.

Coming back to China and digging further into the violent reaction from global markets over the last two weeks, DB’s George Saravelos believes that there is a strong case to be made that it is neither the sell-off in Chinese stocks nor the weakness in the currency that matters the most. Instead, George believes that the bigger picture is what is happening to China’s FX reserves. Back in 2003, China started accumulating almost 4tn of foreign assets (more than all of the Fed’s QE program’s combined) with a global impact equivalent to QE; the PBoC printed domestic money and used liquidity to buy foreign bonds, keeping Treasury yields low and curves flat. Looking ahead to now and following plenty of rounds of global QE, George notes that this may be the first time that a major central bank is effectively unwinding its QE program. The sudden shift in currency policy has prompted a big shift in RMB expectations towards further weakness and correspondingly a huge rise in China capital outflows. In response the PBoC has been defending the RMB, selling FX reserves and reducing its ownership of foreign FI assets, the equivalent of a QE unwind – or Quantitative Tightening (QT). This has seen curves steepen over the last two weeks with real yields moving higher and inflation expectations lower. George argues that there could be more QT to go with China having a sizeable amount of non-sticky liabilities on its balance sheet which could be a source of outflows. An interesting argument and one that supports our view that the world’s financial markets are being propped up by central bank’s balance sheets and that anything that changes this is likely to be a problems for markets. We suspect that at a global level this era isn’t over yet and the ECB, BoJ and the Fed will have to compensate by easing policy relative to where they expected to be at this stage. So the first two might end up buying more and the Fed may stay lower for longer.

Talking of the Fed, yesterday saw interesting comments from the NY Fed’s Dudley. The bulk of the focus was on Dudley’s line that ‘from my perspective, at this moment, the decision to begin the normalization process at the FOMC meeting seems less compelling to me than it was a few weeks ago’. This of course comes after we got some subtle hints from his Fed colleague Lockhart on Monday showing less conviction for a September liftoff. Dudley unsurprisingly, kept the door open, saying that ‘normalization could become more compelling by the time of the meeting as we get additional information on how the US economy is performing, and more information on international and financial market developments’. The probabilities of a September move is now at 24%, down from 26% on Tuesday and well below the 54% highs we saw earlier in the month. The chatter this week from Lockhart and Dudley makes this Saturday’s comments Fed Vice-Chair Fischer, due to speak at the Jackson Hole meeting, all the more important.

The other focus yesterday was on the US dataflow. The main release was the durable goods print for July with the headline showing a decent beat (+2.0% mom vs. -0.4% expected) along with an upward revision to the prior month. There was a strong beat also for core capex orders (+2.2 mom vs. +0.3% expected), the biggest monthly gain since June 2014, with a 50bps upward revision to the June print. Core shipments rose +0.6% mom meanwhile (vs. +0.4% expected) with the June reading revised up a full percentage point to +0.9%. Following the reading, the Atlanta Fed upgraded their Q3 GDP forecast on the back of higher equipment spending in the durable goods orders reading to 1.4% from 1.3%.

Despite Dudley’s more dovish comments, the better than expected data helped support a decent rise in Treasury yields yesterday with the benchmark 10y in particular closing up 10.4bps at 2.176% and now 28bps off the intraday lows we saw on Monday. 2y and 30y yields closed up 7.1bps and 13.3bps while weak demand at a 5y auction also helped support some of the weakness in Treasuries yesterday with the bid-to-cover ratio of 2.34 falling to the lowest level since July 2009.

Also speaking yesterday was the ECB’s Praet. Following on from Constancio’s comments on Tuesday, the board member said that ‘developments in the world economy and in commodity markets have increased the downside risk of achieving the sustainable inflation path towards 2%’. In response to this, Praet reassured the market that ‘there should be no ambiguity on the willingness and ability of the Governing Council to act if needed’ and that the current asset purchasing program ‘provides sufficient flexibility to do so, in particular in terms of size, composition and length’. Those comments helped drag the Euro down yesterday, tumbling 1.76% while sovereign bond yields fell across the region, with 10y Bunds in particular down 2.5bps to 0.702%.

Elsewhere, according to a Reuters article yesterday outgoing Greek PM Tsipras has said that he would be willing to accept an easing of Greece’s debt load should he win fresh elections, without the need for any write-offs. This appears to be a change in stance from Tsipras who had previously argued that Greece would be unable to repay its debt unless write-offs were made, but seemingly now switching his view to one of more acceptance for longer maturities and a lowering of interest rates.

Looking at today’s calendar now, Euro area money supply and credit aggregates readings along with French confidence indicators are the main highlights in the European session. Over in the US this afternoon the focus will be on the second reading for Q2 GDP (with the market expecting an upward revision to 3.2% from 2.3% on the back of the latest data on construction, inventories and trade) along with the Core PCE print. Pending home sales data, initial jobless claims and the Kansas City Fed manufacturing activity index are the other releases due today.

 end Last night:  9:30 pm Chinese stocks open for trading. Kuroda denies the existence of a currency war.  China initially devalues the yuan to a fresh 4 year low but it later recovers.  It injects another 150 billion yuan liquidity into the markets.

(courtesy zero hedge)

Japan’s Kuroda Denies Existence Of Currency War As China Devalues Yuan To Fresh 4 Year Lows, Injects CNY150bn Liquidity

The night began much like any other morning in Asia – with pure comedy gold from Japanese leadership with BOJ’s Kuroda saying he is “not concerned about currency wars, there is no currency war,” adding that he has “no plans for further easing.” That coincided with a drift lower in Japanese stocks from the US close – but most of Asian stock markets were green buoyed by America’s victory against malicious sellers for the first time in a week. Meanwhile, in China, margin debt drops to a 7-month lows (but is still up 133% YoY). But as rumor-mongers face death squads and any broker caught not buying with both hands and feet faces prison, it is no surprise that Chinese stocks are higher in the pre-open (A50 +5%, CSI +2.7%) but large corporate bond issues are being cancelled willy nilly even as China devalues Yuan to fresh 4-year lows (6.4085) and adds CNY150bn liquidity.

 

First we turn to Japan…

Some comedy genius from Japan’s central banker

  • *KURODA: NOT CONCERNED ABOUT CURRENCY WAR, IS NO CURRENCY WAR
  • *KURODA: CENTRAL BANKS NOT TARGETING EXCHANGE RATES
  • *KURODA: SOME IN MARKET TOO PESSIMISTIC ABOUT CHINA ECONOMY
  • *KURODA: FX POLICY IN JAPAN IS UP TO FINANCE MINISTRY

Well yeah apart from China (directly intervening to devalue), Japan (printing $80bn a month doesn’t count), Kazakhstan (devalue 25% or die)…

 

but none of the EMs should worry…

  • *KURODA: UNDERSTANDS CONCERNS EXPRESSED BY EMERGING ECONOMIES

And then he dropped this little gem…

  • *KURODA: NO PLANS FOR FURTHER EASING

Which sparked a little run…

Don’t worry, we got this (just like the PBOC)..

  • *KURODA: CAN AVOID ANY SERIOUS FINANCIAL INSTABILITY DURING QQE

What a farce – and these are the people “in charge!!”

*  *  *

Having got that off our chest, we pivot to China…

Some more good news… the deleveraging continues…

  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN SEVEN MONTHS

But its still up a stunning 133% YoY…

 

But with witch hunts growing, is it any wonder today’s US rally is being escalated in China…

  • *FTSE CHINA A50 SEPT. FUTURES RALLY 5.5%

 

But not everything is awesome…

  • *CHINA CSI 300 STOCK-INDEX FUTURES EXTEND GAINS TO 2.7%

 

But let’s get some context for this bounce in light of the last 3 days’ utter collapse…

 

But everything is not awesome in bond land…

  • *XIAMEN HAICANG INVESTMENT CANCELS BOND SALE ON MKT VOLATILITY
  • *XIAMEN HAICANG INVESTMENT CANCELS 1B YUAN BOND SALE

And even with everything awesome in stocks, it appears The PBOC still needed to devalue to frsh 4 year lows,…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.4085 AGAINST U.S. DOLLAR

 

and inject more liquidity…

  • *PBOC TO INJECT 150B YUAN WITH 7-DAY REVERSE REPOS: TRADERS

But they have other problems for now…

  • *SHANGHAI WARNS CHILDREN, ELDERLY STAY INDOORS ON POLLUTION
  • *SHANGHAI AIR `HEAVILY POLLUTED’ AS OF 9 A.M.: MONITORING CENTER

And finally another probe…

  • *TIANJIN PORT SAYS CHAIRMAN UNDER PROBE
  • *TIANJIN PORT SAYS CO. KNOWS ABOUT CHAIRMAN PROBE FROM XINHUA
  • *TIANJIN PORT SUSPENDS TRADING IN HONG KONG: 3382 HK

The witch-hunting, blame-mongering, and scape-goating will go on until morale improves.

 

Charts: Bloomberg

end

 

Then early this morning as promised this news certainly shook the USA:

This passage is the most important one of the last decade!!

 

(courtesy zero hedge)

It’s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington

On Tuesday evening, we asked what would happen if emerging markets joined China in dumping US Treasurys. For months we’ve documented the PBoC’s liquidation of its vast stack of US paper. Back in July for instance, we noted that China had dumped a record $143 billion in US Treasurys in three months via Belgium, leaving Goldman speechless for once.

We followed all of this up this week by noting that thanks to the new FX regime (which, in theory anyway, should have required less intervention), China has likely sold somewhere on the order of $100 billion in US Treasurys in the past two weeks alone in open FX ops to steady the yuan. Put simply, as part of China’s devaluation and subsequent attempts to contain said devaluation, China has been purging an epic amount of Treasurys.

But even as the cat was out of the bag for Zero Hedge readers and even as, to mix colorful escape metaphors, the genie has been out of the bottle since mid-August for China which, thanks to a steadfast refusal to just float the yuan and be done with it, will have to continue selling USTs by the hundreds of billions, the world at large was slow to wake up to what China’s FX interventions actually implied until Wednesday when two things happened: i) Bloomberg, citing fixed income desks in New York, noted “substantial selling pressure” in long-term USTs emanating from somebody in the “Far East”, and ii) Bill Gross asked, in a tweet, if China was selling Treasurys.

Sure enough, on Thursday we got confirmation of what we’ve been detailing exhaustively for months. Here’sBloomberg:

China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.

 

Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.

 

The latest available Treasury data and estimates by strategists suggest that China controls $1.48 trillion of U.S. government debt, according to data compiled by Bloomberg. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.

 


 

The PBOC has sold at least $106 billion of reserve assets in the last two weeks, including Treasuries, according to an estimate from Societe Generale SA. The figure was based on the bank’s calculation of how much liquidity will be added to China’s financial system through Tuesday’s reduction of interest rates and lenders’ reserve-requirement ratios. The assumption is that the central bank aims to replenish the funds it drained when it bought yuan to stabilize the currency.

Now that what has been glaringly obvious for at least six months has been given the official mainstream stamp of fact-based approval, the all-clear has been given for rampant speculation on what exactly this means for US monetary policy. Here’s Bloomberg again:

China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”

 

“By selling Treasuries to defend the renminbi, they’re preventing Treasury yields from going lower despite the fact that we’ve seen a sharp drop in the stock market,” David Woo, head of global rates and currencies research at Bank of America Corp., said on Bloomberg Television on Wednesday. “China has a direct impact on global markets through U.S. rates.”

As we discussed on Wednesday evening, we do, thanks to a review of the extant academic literature undertaken by Citi, have an idea of what foreign FX reserve liquidation means for USTs. “Suppose EM and developing countries, which hold $5491 bn in reserves,reduce holdings by 10% over one year – this amounts to 3.07% of US GDP and means 10yr Treasury yields rates rise by a mammoth 108bp ,”Citi said, in a note dated earlier this week.

In other words, for every $500 billion in liquidated Chinese FX reserves, there’s an attendant 108bps worth of upward pressure on the 10Y. Bear in mind here that thanks to the threat of a looming Fed rate hike and a litany of other factors including plunging commodity prices and idiosyncratic political risks, EM currencies are in free fall which means that it’s not just China that’s in the process of liquidating USD assets.

The clear takeaway is that there’s a substantial amount of upward pressure building for UST yields and that is a decisively undesirable situation for the Fed to find itself in going into September. On Wednesday we summed the situation up as follows: “one of the catalysts for the EM outflows is the looming Fed hike which, when taken together with the above, means that if the FOMC raises rates, they will almost surely accelerate the pressure on EM, triggering further FX reserve drawdowns (i.e. UST dumping), resulting in substantial upward pressure on yields and prompting an immediate policy reversal and perhaps even QE4.”

Well now that China’s UST liquidation frenzy has reached a pace where it could no longer be swept under the rug and/or played down as inconsequential, and now that Bill Dudley has officially opened the door for “additional quantitative easing”, it would appear that the only way to prevent China and EM UST liquidation from, as Citi puts it, “choking off the US housing market,” and exerting a kind of forced tightening via the UST transmission channel, will be for the FOMC to usher in QE4.

end

Late Wednesday night

Zero hedge warns what would happen if all the emerging nations dump their treasuries at once!!!

another must read..

(courtesy zero hedge)

What Would Happen If Everyone Joins China In Dumping Treasurys?

On Tuesday evening in “Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks,” we quantified the cost of China’s near daily open FX operations in support of the yuan.

As BNP’s Mole Hau put it on Monday, “whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” And a reduced role for the market means a larger role for the PBoC and that, in turn, means burning through more FX reserves to steady the yuan.

Translation and quantification (with the latter coming courtesy of SocGen): as part of China’s devaluation and subsequent attempts to contain said devaluation, China has sold a gargantuan $106 (or more) billion in US paper just as a result of the change in the currency regime.

Notably, that means China has sold as much in Treasurys in the past 2 weeks – over $100 billion – as it has sold in the entire first half of the year.Today, we got what looks like confirmation late in the session when Bloomberg, citing fixed income desks, reported “substantial selling pressure in long end Treasuries coming from Far East.”

The question or rather, the series of questions, that need to be considered going forward are:

“What happens when China liquidates all of its Treasury holdings is anyone’s guess, and an even better question is will anyone else decide to join China as its sells US Treasurys at a never before seen pace,and best of all: will the Fed just sit there and watch as the biggest offshore holder of US Treasurys liquidates its entire inventory…”

And make no mistake, these are timely questions, because the combination of collapsing commodity prices, China’s devaluation, and the threat of a Fed hike have put enormous pressure on EM currencies the world over and that, in turn, means a drawdown of EM FX reserves and pressure on DM bonds. As JP Morgan put it last month, “the sharp reversal in EM FX reserve accumulation between Q1 and Q2 is consistent with the sharp reversal in DM core bond markets. Core bond market yields collapsed in Q1 but saw a big rise in Q2. This is a good reminder of how important FX reserve managers remain in driving core bond markets.”

Indeed. And just how important, you ask, is that for US Treasurys and, in turn, for Fed policy going forward? For the answer, we go to Citi:

Taken in isolation, a reserves drop of 1% of USD GDP (=$178bn) would infer a rise in 10y UST yields by 15-35bp based on a range of academic studies.

And more to the point:

Suppose EM and developing countries, which hold $5491 bn in reserves, reduce holdings by 10% over one year. This amounts to 3.07% of US GDP and means 10yr Treasury yields rates rise by a mammoth 108bp (35bp*3.07).

In other words, if EM currencies remain under pressure – and there is every reason to believe that they well – the reserve drawdown necessary to stabilize currencies and maintain unsustainable pegs means more Treasury liquidation and massive upward pressure on yields. Here’s a look at EM reserve accumlation vs. the yield on the 10Y (inverted):

As for what this means in the US, we go to Citi one more time:

These moves are unlikely to happen in a vacuum. For instance, any move by these magnitudes would choke off the US housing market and see the Fed stand still or ease. 

Of course one of the catalysts for the EM outflows is the looming Fed hike which, when taken together with the above, means that if the FOMC raises rates, they will almost surely accelerate the pressure on EM, triggering further FX reserve drawdowns (i.e. UST dumping), resulting in substantial upward pressure on yields and prompting an immediate policy reversal and perhaps even QE4.

And as we never, ever tire of reminding readers, it allharkens back to last November

end

 

OH OH!!! the head of the POBC exclaims that “they were wronged”. They demand that the Fed delay their rate hike!! He states that it is the Fed that is to be blamed for the Chinese rout.

What do you think he is stating to the USA “behind the scenes”?

No doubt he is warning them that if they raise raises he will dump all of their treasuries.  Who would absorb 1.4 trillion in treasuries?

The threat may also be gold.  It is quite possible that China has not received the quantity that they had wished for and thus the threat..

you decide….

(courtesy zero hedge)

China Exclaims “We Were Wronged” – Demands Fed Delay Rate Hike, Reiterates Blame For Market Rout

With all mainstream media blame fingers pointing at China – because a market crash could never be America’s fault – Chinese authorities are not best pleased with the rhetoric. As we noted earlier in the week, China’s central bank blames The Fed for the market rout, and now, as Reuters reports, The PBOC has reiterated that a Fed rate hike will push EM into crisis and Yuan devaluation is not responsible for global market turmoil.

As Reuters reports,

  • CHINA CENTRAL BANK OFFICIAL SAYS CAN’T BLAME YUAN DEVALUATION FOR GLOBAL MARKET TURMOIL
  • U.S. FEDERAL RESERVE SHOULD DELAY RATE HIKE, COULD PUSH SOME EMERGING MARKETS INTO CRISIS – CHINA OFFICIAL

 

“China’s exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move,” Yao said. “We were wronged.”

*  *  *

They may have a point…

 

Of course, now if The Fed delays, it will be seen a yielding to Chinese demands (perhaps for fear of more Treasury selling).

As a reminder, in addition to China, the Fed is now being bombarded with demands from the IMF, Larry Summers and of course the petulant market – not to hike!

end We get a clear picture today as to the extent of 7 day repos supplied by the POBC trying to contain the huge number of USA treasuries being liquidated: (courtesy zero hedge) Behold: A Chinese Liquidity Crunch

Earlier on Thursday we got official confirmation of what has been quite obvious for months. Namely, China is liquidating hundreds of billions in USTs in a frantic effort to stabilize the yuan following this month’s historic devaluation.

Of course selling USD assets sucks liquidity out of the system which works at cross purposes with the multiple policy rate cuts Beijing has resorted to over the past several months, which means that the more China intervenes in FX markets the more offsetting RRR cuts will be required in a race to the bottom that will see rates at zero, along with China’s UST reserves. Over the past two weeks, China has sought to mitigate this self-feeding loop by injecting liquidity via short- and medium-term lending ops and, most dramatically, via 7-day reverse repos. 

For the full backstory, see “China Rushes To Inject Hundreds Of Billions In Liquidity To Offset Yuan Intervention,” but the extent to which China is desperate to save its RRR cut dry powder by trying to mitigate short-term, FX intervention-induced tightening via emergency liquidity injections can be readily observed in the following chart.

end

Dave Kranzler discusses the Chinese devaluation and their reasoning for doing it: (courtesy Dave Kranzler/IRD) China Is Headed For The Exits August 27, 2015Financial Markets, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , , ,,

A few years ago, we opined that Bernanke and his ilk created a stock market Frankenstein with their desire to generate ‘the wealth effect.’ We also regularly stated that eventually, markets stage violent revolts against central planning and command control. The revolt has only just begun.  –The King Report, Thursday, August 27

I have maintained that part of China’s “hidden” agenda in devaluing its currency is to let the air out of its bubbles ahead of every other asset bubble-infested system – the U.S. assets bubbles being the biggest (ignore the western propaganda slamming China).

It was revealed yesterday that China is now unloading its massive U.S. Treasury bond holdings.  The entire astute segment of the financial has been wondering for years when and how this would occur.  China has even given the U.S. Government a “courtesy call:”  China Selling Treasuries.

Rather than re-invent the wheel on my analysis, here’s some comments I made in an email exchange with Jay Taylor, who asked me if yesterday’s and today’s stock market action was a sign that the criminals running our system had “won:”

I’m trying to figure out why everyone is pegging Sept 23 as a key date.  If you go to Google maps and type in 09/23/2015, the map zeroes in on CERN – the European nuclear research facility.  I didn’t even know you could type dates in to Google maps. I’m wondering if that’s Google screwing around with the conspiracy crowd.

No, history tells us that the bad guys eventually always lose.  It’s just that they keep reappearing over time – it’s the human condition.  I personally think that China is letting the air out of its bubbles ahead of the crowd.  Now we see they are starting to really unload their Treasuries. I believe part of the reason that China is devaluing is to use this as “cover” for its desire to unload as much of their massive Treasury holdings as possible without trashing the market or losing the Fed’s “bid” for Treasury paper.

You won’t see this analysis in any of the mainstream media, or even a lot of the alternative media, because most of these “information purveyors” just regurgitate the script Wall Street puts in front of them or drool out the obvious explanations.  But we know that China never puts a plan into motion without a lot of planning and forethought.  There’s a lot more going on than the obvious.  Most “analysts” and commentators either have a very rudimentary understanding of economics and how markets really operate or they knowingly prefer to spoon-feed the public their snake-oil propaganda.

China was the first to “jump out of its seat in the crowded theatre” and head for exits, before the crowd see the inferno that’s been ignited.  It’s classic “prisoner’s dilemma” behavior.  Their doing this will likely mean that they suffer the least when the real brown stuff hits the fan blades.  The U.S. keeps trying to inflate its bubbles.  Look at yesterday/today.  Look at that absurd GDP “revision.”  The U.S. is interminably pumping money into the asset bubbles and churning out Orwellian propaganda.  It will end a lot worse for the United States than for China.

I think the market action starting last Friday is the beginning of the end for this era.  Just a question of how long the U.S. criminals can keep kicking that can.

end

 

This is fascinating.  The Ukrainians need to have the Russians on side with bond refinancing.  The Russians want full value and no haircut. I guess the IMF (and USA) will need to fork over another 3 billion USA to the Ukraine in order for them to pay the Russians:

(courtesy zero hedge)

Russia Refuses To Participate In Ukraine Debt Restructuring

War-torn Ukraine has reportedly reached a restructuring deal with a group of creditors headed by Franklin Templeton, according to the country’s finance minister Natalie Jaresko. The terms of the agreement call for a 20% writedown and a reprofiling that includes a maturity extension of four years and an across-the-board 7.75% coupon. 

President Petro Poroshenko hopes the restructuring deal will save the country billions on the way to helping Kiev adhere to the terms of its subsidized Gazprom payments IMF bailout. Here’s more from Bloomberg:

The 49-year-old Ukrainian leader, elected last year after becoming a billionaire in the chocolate business, was racing to reach a comprehensive accord with creditors before a $500 million bond comes due next month. Ukraine will temporarily suspend payments on that bond and a 600 million-euro ($677 million) note due in October, the Finance Ministry said in today’s statement. The country has a further $4 billion of payments scheduled by year’s end.

 

A final agreement requires the approval of 75 percent of bondholders of each note at a meeting in which at least two-thirds of them are represented. Ukraine’s debt contains cross-default clauses that mean missing a payment on one results in default on all. The government earlier threatened to declare a debt moratorium to push negotiations along.

 

Franklin Templeton, which owns about $7 billion of Ukrainian bonds, were joined in the talks by fellow creditors BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc.

One person who will not be accepting the new terms is newly-minted bond vulture Vladimir Putin who, back in March, threatened to undermine negotiations with other creditors by holding out on some $3 billion in 2-year notes Moscow bought back in 2013 to help out then-President Viktor Yanukovych. “Russia won’t participate in Ukraine’s debt restructuring,” Finance Minister Anton Siluanov told Bloomberg by telephone.

Jaresko said she’s “offering Russia a restructuring opportunity that is the same as everyone else’s” which she figures is “the best way to depoliticize” the issue and “for us to all move forward together.” That, apparently, is not in the cards, but there is still a distinct possibility that everyone will move backward together. Just ask Poroshenko who told a crowd on Monday at a ceremony in central Kiev to mark 24 years of Ukrainian independence from Moscow that “we have to get through the (coming) 25th year of independence as if on brittle ice. We must understand that the smallest misstep could be fatal. The war for Ukrainian independence is continuing.” 

And then there’s this, via Reuters:

Seven Ukrainian servicemen have been killed and 13 wounded in fighting with pro-Russian separatists in the past 24 hours, military spokesman Oleksander Motuzyanyk said on Thursday.

The casualties were the highest daily losses for the Ukrainian army since mid-July, as violence continues to test a six-month-old ceasefire deal.

Meanwhile, Ukraine’s central bank took the country 300 bps “closer” to ZIRP, slashing rates 300bps to only 27% citing, amusingly, “a fall in inflationary risks.”

Needless to say, the situation in Ukraine is a very, very long way from stabilizing and as we’ve detailed extensively of late, there’s a non-zero possibility that one or more of the country’s unofficial militias (whose leaders have been the subject of not-so-flattering comparisons to a certain fascist political movement that attempted to take over the world in 1939) will attempt a military coup even as the separatists push for autonomy.

Summed up in one picture…

*  *  *

Here’s Goldman’s take

Main points:

1. Finance Minister Jaresko, in a special government session called today, announced that Ukraine has reached agreement with the ad hoc creditor committee on a bond restructuring deal. This deal includes a 20% nominal haircut, a coupon of 7.75% (up from 7.25% previously) and a maturity extension of 4 years for each bond. It also includes GDP warrants that pay out over the period 2021-40 if growth exceeds 3%, subject to nominal GDP exceeding US$125.4bn (the IMF’s projection for 2019 GDP). Minister Jaresko argues that these deal parameters are consistent with the IMF’s three objectives for the debt operation.

2. While the 20% nominal haircut was reported in the press last week, in our view the coupon increase to 7.75% and the 4-year maturity extension are likely more favourable than market expectations for a lower coupon and longer extension.

3. In order for the restructuring to take place, bondholders will have to approve the exchange offer on a bond-by-bond basis with a sufficient majority and subject to a minimum quorum. In our view, given the attractiveness of the offer relative to market expectations, the risk of a holdout scenario is relatively low.

4. Based on our estimates, the deal parameters imply average bond prices across the curve of 57 cents at a 14% exit yield, 63 cents at a 12% exit yield and 70 cents at a 10% exit yield. Our base case remains for a 14% exit yield, based on our estimated fair value as a function of Ukraine’s macro fundamentals and also consistent with past episodes of restructuring. These estimates assume zero value for the GDP warrants, likely a conservative assumption.

5. In addition, given that the same parameters apply to all bonds on the curve, this deal favours lower-coupon bonds over higher-coupon ones. The relatively shorter maturity extension than expected, in our view, favours the front end over the long end of the curve. Based on our estimates, at a 14% exit yield, the premium for the shortest-maturity (2015) bond over the longer-maturity (2023) bond should stand at 12 points. At a 12% exit yield, it should be 10 points, and at a 10% exit yield, 5 points.

6. Russia has said that it will not participate in the bond exchange. Minister Jaresko has reiterated that Ukraine will not treat Russia differently from other creditors. Thus, how Ukraine and the IMF (which likely views the Russian-owned bond as official debt) will address the issue of this bond maturing in December remains an open issue and should, ceteris paribus, require a higher exit yield.

7. While the terms of the debt restructuring will likely satisfy the IMF’s criteria, in our view, the question of the sustainability of Ukraine’s debt remains open. As we have argued previously, this will likely hinge on the willingness and ability of the Ukrainian authorities to follow through on structural and governance reforms and on developments in the conflict in Eastern Ukraine. Relative to the IMF’s forecasts, our macroeconomic outlook for Ukraine is considerably weaker in the medium term, with trend growth of around 2% during the structural adjustment and the Hryvnia weakening in our projections to UAH 30 vs. the USD. In our view, under this scenario, questions of debt sustainability may well resurface in the coming years. Uncertainty about the outlook as well as the geopolitical conflict, in our view, is an additional reason why we argue for a higher exit yield of 14% than consensus market expectations (which we estimate stand at around 12%).

end

Good for him.  Varoufakis is launching a Pan European, Anti Austerity political party which is totally against austerity.

(courtesy zero hedge)

Former Greek FinMin Varoufakis Launches Pan-European Anti-Austerity Political Party

Via KeepTalkingGreece.com,

Varoufakis’ fans get ready! The ex finance minister is preparing to launch a European movement that will develop into a political party. Yanis Varoufakis will push for a Pan-?uropean network for fight austerity. Instead of running for the upcoming elections, he will put his energy into political action on European level.

Speaking to Late Night Live program of Australian ABC National Radio, Yanis Varoufakis described the elections campaign as “sad and fruitless” and said that he will not be running for Greek parliament in the September elections, as he no longer believes in what Syriza and its leader, Tsipras, are doing.

‘The party that I served and the leader that I served has decided to change course completely and to espouse an economic policy that makes absolutely no sense, which was imposed upon us.

 

I don’t believe that we should have signed up to it, simply because within a few months the ship is going to hit the rocks again. And we don’t have the right to stand in front of our courageous people who voted no against this program, and propose to them that we implement it, given that we know that it cannot be implemented.”

Varoufakis indirectly described Alexis Tsipras as a ‘fool’ saying that Tsipras was like mythical Sisyphus “carrying on pushing the same rock of austerity up the hill, against the laws of economics and against very profound ethical principles.” He added “as a child I considered Sisyphus a fool. I would have simply stopped pushing the rock.”

He expressed sympathy for the SYRIZA rebels of Panagiotis Lafazanis and the Popular Unity, but he added that he fundamentally disagrees with their ‘isolationist’ stance of desiring a return to the drachma.

“Instead of becoming engaged in an election campaign which in my mind is quite sad and fruitless, I’m going to be remain politically active—maybe more active than I have been so far—at the European level, trying to establish a European network.”

 

He criticized the bloc formations of national parties within the European Parliament and stressed that “this model doesn’t work anymore.”

 

“I think we should try to aim for a European network that at some point evolves into a pan-European party.”

Full interview text & audio here

PS Wise decision, Yanis, to initiate a European spring. As for Varoufakis’ fans they now know who will vote for in the next European Parliament elections.

end Your early Thursday morning currency, and interest rate moves

Euro/USA 1.1305 down .0032

USA/JAPAN YEN 120.20 up 0.149

GBP/USA 1.5452 down .0027

USA/CAN 1.3230 down .0070

Early this Thursday morning in Europe, the Euro fell by 32 basis points, trading now just above the 1.13 level falling to 1.1305; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes and another Chinese currency devaluation,  Last night the Chinese yuan strengthened a considerable .0035 basis points. The rate at closing last night:  6.4055

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a southbound trajectory  as settled down again in Japan up by 15 basis points and trading now just above the 120 level to 120.20 yen to the dollar, 

The pound was down this morning by 27 basis points as it now trades just below the 1.55 level at 1.5452.

The Canadian dollar reversed course by rising 70 basis points to 1.3230 to the dollar. (Harper called an election for Oct 19)

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)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).

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: up by 347.48 or 1.89% 

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

2/ Asian bourses mostly in the green except India … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the red/

Gold very early morning trading: $1127.15

silver:$14.26

Early Thursday morning USA 10 year bond yield: 2.17% !!! par  in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield rose to 2.92 down 1 basis points as word got out that China was selling treasuries like mad!

USA dollar index early Thursday morning: 95.33 up 24 cents from Tuesday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Thursday morning And now for your closing numbers for Thursday night: Closing Portuguese 10 year bond yield: 2.62% down 7 in basis points from Wednesday Closing Japanese 10 year bond yield: .373% !!  up 2.1 in basis points from Wednesday Your closing Spanish 10 year government bond, Thursday, down 5 in basis points Spanish 10 year bond yield: 2.06% !!!!!! Your Thursday closing Italian 10 year bond yield: 1.93% down 5  in basis points from Wednesday: trading 13 basis point lower than Spain. IMPORTANT CURRENCY CLOSES FOR WEDNESDAY Closing currency crosses for Thursday night/USA dollar index/USA 10 yr bond:  3:00 pm  Euro/USA: 1.1255 down .0083 (Euro down 83 basis points) USA/Japan: 120.81 up .773 (Yen down 77 basis points) * allows for the ramp up of the Dow Great Britain/USA: 1.5414 down .0065 (Pound down 65 basis points USA/Canada: 1.3225 down .0075 (Canadian dollar up 75 basis points)

USA/Chinese Yuan:  6.4035  down .0055  ( Chinese yuan up 5.5 basis points)

This afternoon, the Euro fell dramatically again falling by 83 basis points to trade at 1.1255. The Yen fell to 120.81 for a loss of 77 basis points and this fuels the Dow/Nasdaq. The pound was down 65 basis points, trading at 1.5414. The Canadian dollar rose 75 basis points to 1.3225. The USA/Yuan closed at 6.4035 Your closing 10 yr USA bond yield: par basis points from Wednesday at 2.17%// ( well below the resistance level of 2.27-2.32%). USA 30 yr bond yield: 2.91 down 2 basis points on the day.  Your closing USA dollar index: 95.72 up 44 cents on the day . European and Dow Jones stock index closes: England FTSE up 212.83 points or 3.56% Paris CAC up 157.13 points or 3.49% German Dax up 318.19 points or 3.18% Spain’s Ibex up 305.70 points or 3.06% Italian FTSE-MIB up 727.43. or 3.39% The Dow up 369,26 or 2.27% Nasdaq; up 115.17 or 2.45% OIL: WTI:  $42.64  and  Brent:  $47.26 Closing USA/Russian rouble cross: 66.38  up  2 1/2 roubles per dollar on the day And now for your more important USA stories. Your closing numbers from New York Biggest 2 Day Surge In History Saved As Epic 3pm ‘VIXtermination’ Ramp Undoes “Quant Omen” Tumble

No lesser Fed-questioner than Pedro da Costa provides the visual entertainment for today…

But then, with 30 mins to go….

 

While stocks is “wot reelly mattahs” today’s move in crude oil was simply epic…biggest single day surge since March 12th 2009 – this is a 6 sigma move based on the vol of the last 6 years (the equivalent of passing a man in the street who is 6’11” tall)

 

The Dow just went from its biggest 2-day point loss to the biggest 2-day point gain… this is not going to normalize quickly…and sure enough once JPMorgan unleashed their reality omen, and Plosser pointed the finger at GDP and a ‘decent’ economy, everything fell…only to be rescued in the last 30 mins by a VIXtermination

 

Quite a week… well over 7500 Points in the The Dow…

 

While the volatility comparisons are all tothe 2008/9 period, we noted another more accurate comparison… This surge looks like the August 2007 period when Geithner leaked the news of a 50bp discount rate cut and enabled the last hoorah for banks to unwind over-extended longs into retail greater fools…

 

And there is no volume in this bounce at all…

 

VIX remains in backwardation… but plunged today at the front-end…beforee ripping back higher after JPM/Plosser

 

After its biggest 2-day rise ever, today’s retracement was of similar extreme size to other events over the last 10 years…before it broke higher

 

*  *  *

The day was very wild…

Starting with stocks, we contonued to ramp after China unleashed exuberant plunge protection into their close… a 5.3% bounce into the close!

 

And US equities kept running all day as business media cheerleaded mom-and-pop ” did you miss your chance to buy low?” – until JPMorgan unleashed some factsand Fed’s Plosser peed in the party punch… and then VIX was punched lower in a panic-buying last 30 mins…

 

So US Stocks LIFTED 2.3% in last 30 mins… in context China LIFTED its stock market 5% – so Ken Henry must do better.

 

Just look at the noise in VIX in the last 30 mins…

 

Thanks to the biggest 2-day short squeeze in 4 years…

 

The equity exuberance was not experienced in credit land…

 

Today’s rip was driven by energy stocks which in turn were driven by total idicoy as above in Crude…

 

Because how manhy times has buying the dip in Energy stocks completely and utterly failed…

 

Thinking out loud on levels…

 

On the week, everything was awesome to start… but then the Quant Omen hit… but then again – there is always panic-selling driven by VIX collapse…

 

But we thought it notable that Small Caps and Nasdaq rolled over after touchingthe opening gap down levels fromlast Friday’s tumble…

 

The Nasdaq managed to get green year-to-date, but everything else remains red…

 

Treasury yields rallied as stocks fell in the afternoon – closing around unch on the day…

 

The US Dollar strengthened once again on the day but faded post EU Close with USDJPY dropping after JPM dropped its reality bomb…

 

Commodities were where the real action was today…

 

With crude the standout craziness…

 

But copper and Silver also surged…

 

But But But… the clever chap on CNBC yesterday said “this proves investors confidence in the market is back”??

Charts: Bloomberg

Initial jobless claims remain unchanged (courtesy BLS/zero hedge) Initial Jobless Claims Ends Losing Streak, Unchanged Since January

After four weeks of rising – the longest streak since Feb 2009 – initial claims dropped very modestly to 271k this week. This means initial jobless claims has gone nowhere since January 23rd.

 

 

Charts: Bloomberg

 end The housing sector seems to be in disarray (courtesy zero hedge) Pending Home Sales Miss, NAR Says Stock Plunge Is Good For Housing Affordability

The US housing market has, inexplicably, been touted by the economy bulls as the bastion of stability and growth in an economy that has otherwise been sinking in recent months (the reality is that the high end of the market continues to be supported by Chinese and other offshore capital flows, while the middle-remains gutted as recently confirmed by a record low homeownership rate and record high asking rents). So perhaps to moderate that euphoria, moments ago the NAR reported pending home sales for July, which printed at half the expected pace of a 1.0% monthly growth, rising 0.5%.

 

This was also the slowest Y/Y growth in pending home sales since January:

While the overall index remains in comfortable territory, at 110.9 it has risen 7.4% from a year ago, it appears to have hit a resistance level as the July level is below both April (111.6) and May (112.3). The reason? According to NAR’s inimmitable chief “economist” Larry Yun, there are simply not enough affordable houses. From the report:

Lawrence Yun, NAR chief economist, says the housing market began the second half of 2015 on a positive note, with pending sales slightly rising in July. “Led by a solid gain in the Northeast, contract activity in most of the country held steady last month, which bodes well for existing-sales to maintain their recent elevated pace to close out the summer,” he said. “While demand and sales continue to be stronger than earlier this year, Realtors® have reported since the spring that available listings in affordable price ranges remain elusive for some buyers trying to reach the market and are likely holding back sales from being more robust. “

In other words, just like the stock market, the leadership group is declining to just those homes purchased by price-indescriminate buyers, while everyone else is left in the dust. However, since this will pull the broader everage higher, the NAR is happy to forecast that  the national median existing-home price will increase 6.3% in 2015 to $221,400. It was not added that this would come entirely from the most expensive end. Yun also forecasts total existing-home sales this year to increase 7.1 percent to around 5.29 million. Putting this in context, it is about 25% below the prior peak set in 2005 (7.08 million).

But the biggest surprise came from the following Yun statement: “Uncertainty in the equity markets — even if the Fed raises short-term rates in September — could stabilize long-term mortgage rates and preserve affordability for buyers.

So with China, Larry Summer and the IMF now calling for a rate hike, the NAR – of all entities – is suddenly quite happy to see the recent market rout continue, which would keep rates lower and promote “affordability.”

Guess nobody tell Larry that China has now started dumping bonds.

end Inventories are rising which is a plus to GDP.  However if goods are not sold and inventories liquified in the 3rd quarter GDP, then it becomes a negative in the following GDP period.  However the Atlanta Fed with this data in hand sticks to GDP of 1.4% rising a touch from 1.3% expect major revisions on this… (courtesy zero hedge) September Rate Hike Back On Table: Q2 GDP Soars In Revision From 2.3% To 3.7% Driven By Record Inventory Build

Well, if the Fed is truly data-dependent, September is now squarely back on the table following the first revision of (double seasonally-adjusted) Q2 GDP data which soared from 2.3% to a whopping 3.7%, blowing out the Wall Street consensus estimate of 3.2%, and printing above the highest Wall Street forecast (the 3.6% from JPM).

 

This is what the BEA said about the source of the upside:

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

 

The acceleration in real GDP in the second quarter reflected an upturn in exports, an acceleration in PCE, a deceleration in imports, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment that were partly offset by decelerations in private inventory investment, in federal government spending, and in residential fixed investment.

Here is the breakdown:

 

But the real reason for the surge is shown in the chart below: from an inventory build of $124 in the first GDP estimate, the BEA now sees a total of $136.2 billion in inventory build in Q2. This is an all time record, and a number which suggests the upcoming inventory liquidation will be truly epic, not to mention recessionary.

 

So, paradoxically, as the market bulls scramble to find some bad news in this report which in isolation puts a September rate hike back on the table, the reality is that the inventory liquidation is result in a tumble in Q3 GDP (or Q4, or Q1 2016 – whenever it does take place). As such, the market bulls can point to the latest Atlanta Fed “nowcast“, which after yesterday’s “strong” durable goods number was revised from 1.3% to just 1.4%.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 1.4 percent on August 26, up from 1.3 percent on August 18. The forecast for real GDP growth increased 0.1 percentage point to 1.4 percent after this morning’s advance report on durable goods from the Census Bureau. The report boosted the model’s forecast for equipment spending in the third quarter from 7.7 percent to 8.9 percent, and led to a slight improvement in the contribution of real inventory investment to third-quarter GDP growth.

As a result of the record increase in inventories, expect the Atlanta Fed to promptly cut its already painfully low Q3 GDP estimate, which may just be the hook the Fed will use to avoid hiking rates in three weeks time.

  end Jim Grant, of Grant’s Interest Rate Observer: Grant discusses how the Fed has turned the stock market into a Hall of Mirrors:  what is real and what is whipped cream? I urge you to watch… (courtesy Jim Grant) Jim Grant Warns “The Fed Turned The Stock Market Into A ‘Hall Of Mirrors'”

The question we appear to be getting answered this week is, as Grant’s Interest Rate Observer’s Jim Grant so poetically explains, “how much of this paper moon market is real, and how much is governmental whipped cream?” In this brief but, as usual, perfectly to the point interview with Reason.com’s Matt Welch, Grant asks (and answers), “are prices meant to be imposed from on high, or discovered by individuals acting spontaneously in markets?” noting that, while many readers here may know the answer, “they’re regrettably in the minority.” The always entertaining Grant then goes on to discuss the underlying causes of the recent market turbulence, why we don’t really “have interest rates anymore.”

“One thing to recall is that markets are meant to be two-way propositions – they go up, they go down – but it has been almost four years since we have seen a 10% correction…what’s unusual is not the occasional down day but The Great Sedation that preceded.”

 

“Confoundingly to me, people have come to be quite accepting of the value attached by fiat to these pieces of paper we call currency.”

Well worth the price of admission during a week when financial markets start to show their true colors…

end The Kansas City Fed survey misses for the 8th straight month and this flashes a recessionary signal (courtesy zero hedge) Kansas City Fed Survey Misses For 8th Straight Month – Flashes Recessionary Signal

The last two times the Kansas City Fed survey was this low, the US was in recession.The KC Fed survey has missed expected for eight straight months, falling to -9 in August from -7 (missing the -4 estimate). Across the board, underlying components were ugly with Shipments collapsing, Order backlogs echoing earlier surveys in demise, New Orders tumbling, and Prices received crashing.

 

 

But still the mainstream sees “no recession imminent”

 

Charts: Bloomberg

end

To all my American friends..sorry about this!!

(courtesy AntiMedia.org)

Media Blackout: Canada Plans To Dump Nuclear Waste Less Than Mile From US Border

Submitted by TheAntiMedia.org,

Over the last few years, the United States has not had the best track record with Deep Geologic Repositories (DGR) for nuclear waste. In February of 2014, the U.S.’ DGR, known as the Waste Isolation Pilot Plant (WIPP), had two separate incidents that compromised the integrity of the project by releasing airborne radioactive contamination. While most U.S. citizens were relatively unaffected by the events, ourCanadian neighbors have proposed a plan to construct a DGR 0.6 miles from America’s largest source of fresh water, the Great Lakes — and the U.S. State Department is remaining relatively uninvolved.

In 2004, Ontario Power Generation (OPG) signed an agreement with the mayor of the Municipality of Kincardine that detailed the million-dollar payments OPG would make to Kincardine and four other shoreline municipalities for their support in the construction of a DRG. On December 2nd, 2005, OPG submitted a proposal to the Canadian Nuclear Safety Commission (CNSC) to construct a long-term DGR for low and intermediate level nuclear waste on the Bruce Nuclear site within Kincardine. Bruce Nuclear is situated on the banks of Lake Huron — the same Lake Huron that borders the state of Michigan.

The 157-page document the OPG submitted to the CNSC outlined their plan to bury low and intermediate level nuclear waste — radioactive contaminated mops, rags, and industrial items as well as, resins, filters, and irradiated components from the nuclear reactors.

The OPG’s 2005 plan included thirty-one limestone burial caverns carved 680 meters below ground, extending approximately 1 kilometer (0.62 miles) from Lake Huron. In the initial report, the OPG published a favorable community reaction:

The results of Public Attitude Research indicate that…a large number of local residents feel a long-term waste management facility would have no effect on their level of satisfaction with the community,” it said.

Fast forward ten years, and some important public attitudes outside of the Municipality of Kincardine have vehemently voiced their opposition towards a nuclear waste dump less than a mile from one of the world’s largest fresh water sources. There are 41 million people living in the Great Lake region, and the OPG’s plan for a DGR is rightfully rubbing them the wrong way — so much so that groups like Stop the Great Lakes Nuclear Dump, the Canadian Environmental Law Agency (CELA), and the Sierra Club Canada are actively and vocally calling attention to the invalidity of the OPG’s plan, which includes a $35.7 million payment to fund construction.

In a statement to VICE, the Sierra Club’s program director, John Bennet, questioned the integrity of the OPG’s review panel, as it is full of “ex-nuclear industry officials.” He stated, “…[the panel has] never not approved a [nuclear] project.”  If you are wondering why a site so close to such an important body of fresh water was chosen to store radioactive nuclear material, you’re not alone. In CELA’s assessment of OPG’s research and plans, they stated:

OPG has not described how the alternatives to the proposed DGR and the alternative means of carrying out the project were evaluated and compared in light of risk avoidance, adaptive management capacity, and preparation for surprise…The DGR project cannot be identified as the preferred option until this has been done.

The aforementioned environmental groups are not the only constituents fighting against the DGR. In the United States and Canada, 169 resolutions have been passed against the DGR. Further, U.S. Senators Debbie Stabenow and Gary Peters have co-introduced the Stop Nuclear Waste by Our Lakes Act. The act calls for the State Department to invoke the 1909 Boundary Waters Treaty, mandating a study of OPG’s plan by the International Joint Commission.

Given the United States’ failure to build its own secure DGR, you would think the State Department would be concerned about its largest fresh water source’s close proximity to one. But, according to a VICE source,

“…[a representative from the State Department] said they have no plans to call for the binational review the senators are demanding.

Above all, given the risk inherent to the generation, disposal, and storage of nuclear power and waste, it is essential we use cases like this to support the aggressive promulgation of sustainable, clean energy. Beyond the threat imposed to those living in Kincardine and the Great Lakes region, everyone along the three hour drive between the Pickering and Darlington nuclear stations and the Bruce Nuclear site will be at risk while the waste is transported to the dump. Our current system is literally toxic and until citizens step up and stop millions of dollars from swaying government municipalities’ support of nuclear power companies, we will have few solutions to this poisonous problem.

end The following is very dangerous:  the VIX is rising  (VIX = volatility index) I also asked Bill Holter to explain how VIX ETF’s can be in backwardation. His answer and he is correct: From me to Bill: Harvey Organ <harveyorgan@gmail.com>

3:13 PM (34 minutes ago)

to Bill can you explain the phenomena of VIX in backwardation? answer: Bill Holter

3:40 PM (7 minutes ago)

to me

“more shares short than actually exist!”

Here is this very important commentary

(courtesy zero hedge)

VIX ETF Surges After Serious Short Squeeze For 5th Day In A Row

That’s what happens Larry when you have 64.08mm shares short against 59.5mm shares outstanding... and the VIX is stuck in backwardation.

 

 

as backwardation remains…

 

Charts: Bloomberg

end

 

Oh OH!@

 

Just look what the head of JPMorgan’s Quant desk just came out with;

(courtesy JPMorgan/zero hedge)

JPM Head Quant Warns Second Market Crash May Be Imminent: Violent Selling Could Return On Thursday

Last Friday, when the market was down only 2%, wepresented readers with a note which promptly became the most read piece across Wall Street trading desks, which was written by JPM’s head quant Marko Kolanovic, who correctly calculated the option gamma hedging imbalance into the close, and just as correctly predicted the closing dump on Friday which according to many catalyzed Monday’s “limit down” open.

Recall:

Given that the market is already down ~2%, we expect the market selloff to accelerate after 3:30PM into the close with peak hedging pressure ~3:45PM. The magnitude of the negative price impact could be ~30-60bps in the absence of any other fundamental buying or selling pressure into the close.

 

We bring it up because Kolanovic is out with another note, one which may be even more unpleasant for bulls who, looking at nothing but price action, were convinced that after the biggest two day market jump in history, the worst is behind us.

In the just released note, the head JPM quant warns that a large pool of assets controlled by price-insensitive managers including derivatives hedgers, Trend Following strategies (CTAs), Risk Parity portfolios and Volatility Managed strategies, which is programmatically trading equities regardless of underlying fundamentals, is about to start selling equities, “and will negatively affect market in coming days and weeks.” For good measure, he casually tosses the word “crash” in the note as well.

By way of reference, JPM notes that a good example of how price-insensitive sellers can cause market a disruption/crash is the price action on the US Monday open. It says that technical selling related to various hedging programs, in an environment of low (pre-market) liquidity indeed caused a ‘flash crash’ on Monday’s open. S&P 500 futures hit a 5% limit down preopen, and then a 7% limit low at 9:31 and 9:33. The inability of hedgers to short futures spilled over into large cap stocks that were still trading and could be used as a proxy hedge. Had it not been for the futures limit down event, the selloff would likely have been worse as indicated by the price of the index implied by individual stocks. The figure below shows the S&P 500 futures, SPY ETF and S&P 500 replicated from
the largest stocks that were trading near the market open.

Kolanovic correctly takes credit for his prediction and notes that “in our Friday note we forecasted end-of-the-day selling pressure due to option gamma hedging. We saw similar price impacts on Thursday, Friday, and Monday (pushing the market lower into the close) and an upside squeeze on Wednesday. Our estimate is that up to 20% of market volume was driven by hedging of various derivative exposures such as options, dynamic delta hedging programs, levered ETF stop loss orders, and other related products and strategies (note that levered ETFs have gamma exposure of only ~$1bn per 1%, i.e., much smaller than that of S&P 500 options). We estimate the cumulative selling pressure from options hedging during the market selloff to be ~$100bn. Options gamma is expected to remain substantially (in excess of $20bn) tilted towards puts while the S&P 500 is between 1850 and 2000.

The figure below shows Put-Call Gamma assuming current open interest and different spot prices. JPM expects high volatility to persist (should we stay in this price range) and cause quick intraday moves up or down, particularly towards the end of the trading day.

According to the quant, it is not only derivative hedgers who are pushing the market around like a toy with barely any resistance: :in fact, there is a much larger pool of assets that is programmatically trading equities regardless of underlying fundamentals.”

It is these investors who, “in the current environment” are selling equities and “will negatively impact the market over the coming days and weeks.

Trend Following strategies (CTAs), Risk Parity portfolios, and Volatility Managed strategies all invest in equities based on past price performance and volatility. For instance, in our June market commentary we showed that if the equity indices fall 10%, these trend followers may need to subsequently sell ~$100bn of equity exposure. These types of ‘price insensitive’ flows are starting to materialize, and our goal is to estimate their likely size and timing. These technical flows are determined by algorithms and risk limits, and can hence push the market away from fundamentals.

This is where it gets scary for the bulls who thought we may be out of the woods, and that the crash was behind us. If Marko is right, as of this moment we are merely in the eye of the hurricane:

The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity,they may cause a market crash such as the one we saw at the US market open on Monday. We attempt to estimate the amount of these flows from three groups of investors: Trend Following strategies (CTA), Risk Parity portfolios, and Volatility Managed strategies. These investors follow different signals and have different rebalancing time frames. The time frame is important as it may give us an estimate of how much longer we may see selling pressure.

So, how much longer may we see the selling pressure?

1. Volatility Target (or Volatility Control) strategies provide the most immediate selling as a reaction to the increase in volatility. These strategies adjust equity leverage based on short-term realized volatility. Typical signals are 1-, 2-, or 3-month realized volatility. Volatility target products are provided by many dealers, index providers and asset managers. Volatility targeting strategies also became very popular with the insurance industry. After the 2008 financial crisis, many Variable Annuity (VA) providers moved from hedging their equity exposure with options to investing directly in volatility target indices (e.g., 10% volatility target S&P 500). It is estimated that VA issuers have ~$360bn in strategies that are managing volatility; some of these use options to manage tail risk, some buy low volatility stocks, and some invest in volatility target strategies. We estimate that strategies that are targeting a particular level of  volatility or managing to an equity floor could have $100-$200bn of assets.

Assuming that, on average, these strategies follow a 2-month realized volatility signal, we can estimate their selling pressure. 2M realized volatility increased over the past week from ~10% to ~20% (i.e., doubled), so these strategies need to reduce equity exposure by up to ~50% to keep volatility constant. This could lead to $50-$100bn of selling, and it likely started already this week. There is often a delay of 1-3 days between when a signal is triggered and trade implementation, and positions are often reduced over several days. We think  this could have contributed to the ‘unexpected’ selloff that happened in the last hour of Tuesday’s trading session. While these flows may continue to have a negative impact over the next few days, they would be the first to reverse (start buying the market) when volatility declines.

2. Trend Following strategies/CTA funds have an estimated ~$350bn in AUM. We modelled CTA exposures in our May and June commentaries, and estimated flows under different scenarios for asset prices. In particular, under a 10% down scenario in equites we estimated CTAs need to sell ~$100bn of equities. In our model, the bulk of selling was in US markets, some in Japan and relatively little in Europe. S&P 500 futures did underperform Europe (by ~3%) and Japan (by ~2%) over the last two trading sessions (European hours), which may indicate that CTA flows have started to impact equity markets. The rebalance time frame for CTA strategies is typically longer than for volatility control strategies. CTA funds may act on their signal in a period that ranges from several days to a month. We believe thatselling from CTAs may have just started and will continue over the next several days/weeks.

3. Risk Parity is one of the most popular and (historically) successful portfolio construction methodologies. Risk Parity allocates portfolio weights in proportion to assets’ total contribution to risk (a simplified version, called Equal Marginal Volatility allocates inversely proportional to the asset’s realized volatility). In a survey of quantitative investment managers (~800 clients in US and Europe), we found that ~50% prefer a Risk Parity approach (vs. 15% for traditional fixed weights (e.g., 60/40), 20% Markowitz MVO, and ~20% active asset timing). Estimated assets in Risk Parity strategies are ~$500bn and ~40% of these assets may be allocated to equities. Risk Parity portfolios may also incorporate leverage, often 1-2x. Risk parity funds often rebalance at a lower frequency (e.g., monthly, vs. daily for volatility target) and use slower moving signals (e.g. 6M or 1Y realized volatility). The increase in equity volatility and correlation would cause Risk Parity portfolios to reduce equity exposure. For instance, 6M realized volatility increased from 11% to 15% and a modest increase in correlations would result in approximately a ~20% reduction of equity exposure.Based on our estimate of Risk Parity equity exposure, this could translate into $50bn-$100bn of selling over the coming weeks.


 

In summary, JPM estimates that “the combined selling of Volatility Target strategies, CTAs and Risk Parity portfolios could be $150-$300bn over the next several weeks. Rebalancing of these funds may appear as a persistent and fundamentally unjustified selling pressure as these funds execute their programs.In addition, there may be a positive feedback loop between all of these sellers – Gamma hedging of derivatives causes higher market volatility, which in turn leads to selling in Risk Parity portfolios, and the resulting downward price action invites further CTA shorting. All of these flows pose risk for fundamental investors eager to buy the market dip. Fundamental investors may wish to time their market entry to coincide with the abatement of these technical selling pressures.”

* * *

In other words, if JPM is right, yesterday and today are merely the eye of the hurricane – enjoy them; tomorrow is when the winds return full force.

end

 

 

For your enjoyment;

 

 

(courtesy zero hedge)

 

Art Collectors Pawn Masterpieces To Meet Market Rout Margin Calls

Earlier this year, Picasso’s Women of Algiers (Version O), set an auction house record when it sold for $179,365,000, including the house’s premium, prompting us to remark that if you were looking for signs of runaway inflation, Christie’s may be a good place to start. We remarked further:

The nearly $200 million price tag for the “riot of colors focused on scantily dressed women” is, according to WSJ, reflective of the work’s “trophy” status which it earned as a result of its “ownership pedigree”. Translated from high-end art world parlance to plain English: for billionaires who have seen their obscene fortunes balloon under monetary policies designed to inflate financial assets at the expense of everything else (including market stability), purchasing art affords the buyer an even greater opportunity to “boast” than hoarding $100 million homes because after all, there a lot of mega mansions, but there’s only one vibrant, multi-hued Picasso riff on a Delacroix, so really, $180 million is a bargain, especially when most of the purchase price will be recouped by S&P 2,500, or SHCOMP 6,000 (depending on the nationality of the unnamed buyer).

 


Well that was then, and this is now, and after the close of trading in Shanghai and New York on Monday, the SHCOMP was sitting at 3,209 and the S&P was at 1,893, prompting some of the collectors who had so willingly forked over tens and even hundreds of millions for “riots of colors” on canvas were suddenly forced to consider pawning these treasures for cash as the margin calls rolled in.

Here’s Bloomberg with more:

Art dealer Asher Edelman’s vacation in Comporta, Portugal, was interrupted Monday by inquiries from clients as global equities plunged.

 

Some asked about borrowing against their art collections from Edelman’s art-financing company ArtAssure Ltd. Others wanted to sell works. Everyone was looking for the same thing: liquidity.

 

“There are many margin calls,” Edelman said in a phone interview, adding that no deals were struck yet.

 

Boutique lenders said they were unusually busy in late August, when most of the art world is on holiday. Global equities and the art market have become intertwined as art prices have soared and more wealthy buyers view their collections as an investment they can borrow against.

 

“Ten years ago no one in the art market paid close attention to these corrections in the stock market,” said Elizabeth von Habsburg, managing director of Winston Art Group, an independent art appraisal and advisory firm. “Now clients respond immediately.”

 

“When liquidity leaves the marketplace people will consider art loans as an option to replace volatile margin securities loans,” said John Arena, senior credit executive for Bank of America’s Private Wealth Management Business. He said his group — which didn’t see a spike in art loan inquiries Monday — doesn’t limit its credit exposure to art loans during market turmoil.

 

Edelman said his clients asked about the borrowing terms against works ranging from Iranian artifacts to Andy Warhol paintings. 

And while some clients were content to borrow, others apparently opted for firesales, causing dealers to line up bank financing in order to take advantage of opportunistic prices.

Collectors aren’t the only ones looking for liquidity with art-backed loans. Art Finance Partners, a New York-based firm, was contacted on Monday by dealers looking to borrow money to close private sales.

 

In one instance, market uncertainty spurred the seller of a painting by Camille Pissaro, with the asking price of about $500,000, to close the transaction with a dealer, who will use a loan to buy the work, said Andrew Rose, president of Art Finance Partners.

 

With the deadlines to consign art for the November auctions coming up, some collectors have decided to sell works rather than wait.

 

“Some are pulling the trigger,” Rose said. “People want certainty.”

So it would appear that China, via the pressure its collapsing stock market and currency shocker have put on global equities, has single-handedly reversed the fortunes of the hyperinflating high-end art world as collectors’ collective scramble for liquidity is creating a buyer’s market and indeed, as one expert told Bloomberg, “hot emerging artists whose prices exploded in the past year [have] recently started to cool off.”

In other words, even Picasso isn’t immune from exported Chinese deflation.

 

 

end

 

 

Well that about does it for tonight

I will see you tomorrow night

 

harvey

 


August 26/China devalues again/Chinese stocks fall despite the cut in RRR and other interest rates/USA 30 yr bond yield skyrockets on news that China is selling treasuries/Very poor USA auction/Dudley kills the chance for a rate hike in September/This...

Wed, 08/26/2015 - 19:05

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1124.60 down $13.60   (comex closing time)

Silver $14.05 down 56 cents.

In the access market 5:15 pm

Gold $1125.30

Silver:  $14.12

Here is the schedule for options expiry:

Comex:  options expired  tonight

LBMA: options expire Monday, August 31.2015:

OTC  contracts:  Monday August 31.2015:

needless to say, the bankers will try and contain silver and gold until Sept 1.2015:

 

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

At the gold comex today, we had a poor delivery day, registering 0 notice for nil 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 226.94 tonnes for a loss of 76 tonnes over that period.

In silver, the open interest fell by 1,868 contracts as silver was down in price by 15 cents yesterday. Again, our banker shorts are using the opportunity of the lower price to cover their shortfall.  The total silver OI now rests at 167,243 contracts   In ounces, the OI is still represented by .836 billion oz or 119% 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 rests tonight at 432,154 for a loss of 7486 contracts. We had 0 notice filed for nil oz today.

We had no change in tonnage at the GLD today /  thus the inventory rests tonight at 681.10 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold.  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 will be the FRBNY and the comex.   In silver, we had no changes in silver inventory at the SLV  tune of / Inventory rests at 324.968 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver fall by 1868 contracts down to 167,243 as silver was down by 15 cents in price with respect to yesterday’s trading.   The total OI for gold fell by 7,486 contracts to 432,154 contracts,as gold was down by $15.20 yesterday. We still have 16.26 tonnes of gold standing with only 14.70 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3. Six stories on the collapsing Chinese markets,another  devaluation of the yuan and the huge downfall in trading last night despite yesterday’s announcement of an RRR cut and also interest rate cuts. The authorities are on a witch hunt as they are now trying to arrest commissioners as well as traders.

(Reuters/Bloomberg)

4. Troubles with Greek pensions as the Greek authorities raid an emergency fund as they just ran out of money.

(zero hedge)

5. India now warns that it may enter the currency wars

(zero hedge)

6. The largest cement company in Mexico having huge troubles as the peso falters and yet its debt is foreign, mostly in USA dollars

(zero hedge)

 7.  Two oil related stories (Oil Price Andy Tully/com/zero hedge)

8 Trading of equities/ New York

(zero hedge)

9.  USA stories:

  1. Durable goods order falter in July/capex spending on orders also decline
  2. Bill Dudley, of the FRBNY just killed a rate hike in Sept (3 stories)
  3. Poor bond auction and China is nowhere to be found!!
  4.   Bill Gross formally of PIMCO and now JANUS asks is China selling long term USA bonds?
  5. Graham Summers,of Phoenix Capital Research on what can the Fed do to avert a crisis: Answer not much (Phoenix Research Capital)

10.  Physical stories:

  1. Bill Holter’s commentary tonight:  “Look out Below”
  2. Jim Sinclair’s interview with Greg Hunter..a must view
  3. John Crudele of the NY Post believes that the authorities will rig the NY markets  (Crudele/NY Post)
  4. Precious Metals Probe by the EU and New York (Bloomberg)

11. London’s Financial times reports on the huge downfall in global trade

(London’s Financial Times)

12. Today’s wrap up courtesy of Raul Meijer and he discusses the events in China.

Let us head over and see the comex results for today.

The total gold comex open interest fell from 439,640 down to 432,154, for a loss of 7,486 contracts as gold was down $15.20 with respect 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, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there.Last night we have a net 1392 contracts outstanding for 139200 oz of gold.  Today the gold contract goes off the board and yet 0 notices were filed.  It seems that our banker friends are having trouble locating physical gold. We are now in the contract month of August and here the OI fell by 106 contracts falling to 1345 contracts. We had 59 notices filed yesterday and thus we lost 47 contracts or 4700 additional ounces will not stand for delivery.(they were no doubt cash settled). The next delivery month is September and here the OI fell by 516 contracts down to 1951. The next active delivery month is October and here the OI rose by 107 contracts up to 27,849.  The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was fair at 216,960. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 217,128 contracts. Today we had 0 notices filed for nil oz. And now for the wild silver comex results. Silver OI fell by 1869 contracts from 169,111 down to 167,243 as silver was down by 15 cents in price yesterday . We continue to have some short covering as our bankers pulling their hair out with respect to the continued high silver OI (and extremely low price) as the world senses something is brewing in the silver arena.  We are in the delivery month of August and here the OI fell by 9 contracts falling to 14. We had 24 delivery notices filed yesterday and thus we surprisingly gained 15 contracts or an additional 75,000 oz will stand.  Somebody again must have been in urgent need of physical silver . The next major active delivery month is September and here the OI fell by 10,219 contracts to 31,170. The estimated volume today was excellent at 94,276 contracts (just comex sales during regular business hours).  (First day notice is Monday, August 31.2015. Options expiry on the comex contract ends tonight.) The confirmed volume yesterday (regular plus access market) came in at 111,411 contracts which is huge in volume. (equates to 570 million oz or 81.4% of annual global production) We had 0 notices filed for nil oz.

August contract month:

initial standing

August 26.2015

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz 32.15 oz  (Manfra)

i kilobar Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz 13,778.53 oz (Delaware) No of oz served (contracts) today 0 contracts (nil oz) No of oz to be served (notices) 1345 contracts (134,500 oz) Total monthly oz gold served (contracts) so far this month 3885 contracts

(388,500 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 574,565.7   oz Today, we had 0 dealer transactions total Dealer withdrawals: nil  oz we had 0 dealer deposits total dealer deposit: zero we had 1 customer withdrawals  i) out of Manfra:  32.15 oz total customer withdrawal: 32.15 oz  We had 1 customer deposit: i) Into Delaware:  13,778.53 oz

Total customer deposit: 13,778.53  oz

We had 1  adjustment: i) Out of Delaware: 796.795 oz was adjusted out of the customer and this landed into the dealer account of Delaware

JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz)  and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes

. 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 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.   To calculate the total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (3885) x 100 oz  or 388,500 oz , to which we add the difference between the open interest for the front month of August (1345) and the number of notices served upon today (0) x 100 oz equals the number of ounces standing.   Thus the initial standings for gold for the August contract month: No of notices served so far (3885) x 100 oz  or ounces + {OI for the front month (1345) – the number of  notices served upon today (0) x 100 oz which equals 523,000 oz standing so far in this month of August (16.26 tonnes of gold).

We lost 47 contracts or an additional 4700 ounces will not stand for delivery. Thus we have 16.26 tonnes of gold standing and only 14.70 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.

Total dealer inventory 472,783.087 or 14.705 tonnes Total gold inventory (dealer and customer) =7,309,888.134 or 227.368  tonnes) Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 227.368 tonnes for a loss of 76 tonnes over that period.  end And now for silver August silver initial standings

August 26 2015:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory 75,200.715 oz (Delaware,  Scotia) Deposits to the Dealer Inventory  nil Deposits to the Customer Inventory 512,012.42 oz (Scotia) No of oz served (contracts) 0 contracts  (nil oz) No of oz to be served (notices) 14 contract (70,000 oz) Total monthly oz silver served (contracts) 325 contracts (1,625,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month 85,818.47 oz Total accumulative withdrawal  of silver from the Customer inventory this month 8,424,685.7 oz

total dealer deposit: nil   oz

Today, we had 0 deposits into the dealer account:

we had 0 dealer withdrawal: total dealer withdrawal: nil  oz We had 1 customer deposit: i) Into  scotia: 512,012.42 oz

total customer deposits: 512,012.42 oz

We had 2 customer withdrawals: i) Out of Delaware: 14,886.875 oz ii) Out of Scotia;  60,313.840 oz

total withdrawals from customer: 75,200.715   oz

we had 1  adjustments i) Out of Delaware: 43.937 oz was removed as an accounting error. Total dealer inventory: 54.888 million oz Total of all silver inventory (dealer and customer) 171.517 million oz The total number of notices filed today for the August contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (325) x 5,000 oz  = 1,625,000 oz to which we add the difference between the open interest for the front month of August (14) 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 August contract month: 325 (notices served so far)x 5000 oz + { OI for front month of August (14) -number of notices served upon today (0} x 5000 oz ,= 1,695,000 oz of silver standing for the August contract month.

we gained 15 contracts or an additional 75,000 oz of silver will stand in this non active month of August.

for those wishing to see the rest of data today see:http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com 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 shareholdersii) demand from the bankers who then redeem for gold to send this gold onto Chinavs no sellers of GLD paper. And now the Gold inventory at the GLD: August 26.2015/ no change in tonnage at the GLD/Inventory rests at 681.10 tonnes August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes. August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 17.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 14.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 13.2015:/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 26 GLD : 681.10 tonnes end

And now SLV:

August 26.2015/no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 21.2015/ no change in inventory at the SLV/Inventory rests at

324.698 million oz

August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz

August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.

August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.

August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz

August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.

 

August 26/2015:  tonight inventory rests at 324.968 million oz end   And now for our premiums to NAV for the funds I follow: Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that) 1. Central Fund of Canada: traded at Negative 8.9 percent to NAV usa funds and Negative 8.6% to NAV for Cdn funds!!!!!!! Percentage of fund in gold 62.9% Percentage of fund in silver:36.7% cash .4%( August 26/2015). 2. Sprott silver fund (PSLV): Premium to NAV rises to+.79%!!!! NAV (August 26/2015) (silver must be in short supply) 3. Sprott gold fund (PHYS): premium to NAV falls to – .52% to NAV August 26/2015) Note: Sprott silver trust back  into positive territory at +.79% Sprott physical gold trust is back into negative territory at -.52%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *

>end And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Gold “Insurance Policy” and Deserves a Place in Portfolios – Carmignac

By Mark O’ByrneAugust 26, 20150 Comments

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Gold has a place in high-net worth individuals portfolios as an insurance policy against systemic risk in the banking system, says Carmignac commodity investor Michael Hulme.

 

EW: Hello, and welcome to Morningstar series, “Why Should I Invest With You?” I’m Emma Wall and I’m joined today by Carmignac’s Michael Hulme. Hi, Michael.

MH: Hi Emma

EW: So, we’re here today to talk about commodities. That’s your bag. I thought we’d start with that headline grabbing commodity, gold. Gold has hit the headlines this week because $2.3 billion worth of gold ETFs have been sold as gold hit a five-year low. How much further can gold can go and should we care?

MH: Very interesting question. Yes, gold has certainly lost some of its luster recently and I guess, many people are asking the question, is it foolish to invest in gold?

I think gold still has a place in portfolios. I think gold, in particular, has a place in high net worth individuals portfolios and I think there were several reasons for that.

Gold is really an insurance policy against systemic risk in the financial system now.

While it’s been nearly seven years since the last melt down, given the jitters we’ve seen in China recently and the ongoing concerns about leverage and credit worthiness globally, I still think gold has a role to play as a modicum of insurance policy.

I think that’s compounded by the fact that although we’ve seen a lot of sales of gold, actually if you look at China recently, over the last several years they’ve actually been increasing their stocks of gold and adding to them over time. And I think the prudent investor — while you can make a case for saying gold is actually any worth as much as anyone thinks it should be worth, but the prudent investor might take heed of the fact that what the Chinese are doing.

Yes, they are devaluing and to a certain extent that’s exporting deflation. But actually overall across the world what we’re seeing is a series of competitive devaluations, and ultimately they are inflationary in terms of (fear of) currency.

So what we will see over time, I think is a reasonable chance that we’ll see an inflationary risk rising across the spectrum.

There are also risks obviously of a more systematic nature. In that context, I think certainly from a technical perspective, gold looks quite intriguing here.

Founded in 1989 by Edouard Carmignac and Eric Helderlé, Carmignac is now one of Europe’s leading asset managers.

Read transcript and watch video here

DAILY PRICES

Today’s Gold Prices: USD 1134.40, EUR 724.63 and GBP 990.05 per ounce
Yesterday’s Gold Prices:  USD 1,154.25, EUR 999.35 and GBP 730.56 per ounce.
(LBMA AM)

August Month to Date Performance
Yesterday, selling in the futures market saw gold fall $13.60 to $1139.50 in New York – down 1.1%.  Silver slipped 0.95% or 14 cents to $14.64 per ounce.

As ever, it is vitally important to focus on asset performance and investments over the long term – months, quarters and of course years. So far in August, gold has outperformed the vast majority of major assets (see table above) and is 3.57% higher for the month while leading stock indices have fallen by more than 10%.

Gold’s hedging and safe haven characteristics are being shown again and we believe this important safe haven importance of gold in a diversified portfolio will again become evident in the coming months.

BREAKING NEWS

Gold prices consolidate but currency weakness may provide support – The Bullion Desk
Precious-Metals Trading Is Probed by EU After U.S. Inquiry – Bloomberg
Dow, S&P close lower in biggest reversal since Oct. 08 – CNBC
Mood Getting Worse on Wall Street as S&P 500 Floor Eludes Bulls – Bloomberg
World shares sag as China jitters persist – Reuters

IMPORTANT COMMENTARY

Gold a ‘Buy’ says Barrat – Bloomberg Video
Gold Facts and Gold Speculations – GoldSeek
Donald Trump, Fascist – Daily Reckoning
The cronies are on the run – MoneyWeek
Chinese alarm over? No, this is merely a pause in an ongoing debt crisis – The Telegraph

Click on News and Commentary

Download Essential Guide To Storing Gold Offshore

end

 

I brought this to your attention yesterday, but it is worth repeating

(courtesy GATA/Bloomberg)

Precious metals trading is probed by EU after U.S. inquiry

Submitted by cpowell on Tue, 2015-08-25 15:03. Section:

By Gaspard Sebag Stephen Morris
Bloomberg News
Tuesday, August 25, 2015

European Union antitrust regulators are probing precious-metals trading following a U.S. investigation that embroiled some of the world’s biggest banks.

The European Commission disclosed the probe after HSBC Holdings said in a filing this month that it had received a request for information from the EU in April.

“The commission is currently investigating alleged anti-competitive behavior in precious metals spot trading” in Europe, Ricardo Cardoso, a spokesman for the regulator, said in an e-mail on Tuesday.

U.S. prosecutors have been examining whether at least 10 banks, including Barclays, JPMorgan Chase & Co., and Deutsche Bank, manipulated prices of precious metals such as silver and gold. The scrutiny follows international probes into the rigging of financial benchmarks for rates and currencies, which have yielded billions of dollars in fines. …

… For the remainder of the report:

http://www.bloomberg.com/news/articles/2015-08-25/eu-commission-is-probi..

 

 

end

And the rigging continued today

(courtesy john Crudele/NY Post)

John Crudele: How Washington will try to rig the stock market

Submitted by cpowell on Wed, 2015-08-26 11:46. Section:

By John Crudele
New York Post
Tuesday, August 25, 2015

How long will it be before Washington decides to rig the U.S. stock market?

Well, it could have happened Monday around noon.

The U.S. Treasury admitted that it had been in touch with “market participants.” Was that just a social call or was Treasury Secretary Jack Lew lining up his market manipulators?

The rig didn’t take, even though the Dow Jones Industrial Average went from a loss of more than 1,000 points to one-tenth that amount around lunchtime.

But by the end of the day, the Dow still lost an incredible 586.13 points, or 3.6 percent.

But just because the market manipulation didn’t work on Monday doesn’t mean Washington will stop trying. …

… For the remainder of the report:

http://nypost.com/2015/08/24/how-washington-will-try-to-rig-the-stock-ma.

end

Dave Kranzler of IRD updates us on the silver shortage from Apmex,

silver premiums.  He also updates us on gold:

 

(courtesy Dave Kranzler/IRD)

Silver Shortage Update: Another Delay From Apmex

August 26, 2015Financial Markets, Gold, Market Manipulation, Precious Metals, U.S. Economy90% bags of silver, APMEX, Comex, GLD, LBMA, silver eagles, silver shortage,SLVhttp://investmentresearchdynamics.com/author/admin/

There has to be a big problem in the financial system coming that the Fed knows about but we can’t see it yet. Why? The behavior of the Fed and its ECB/BOE cohorts with respect to the paper gold/silver market conveys a sense of terror on their part.

We learned yesterday from an “official” source, Reuters believe it or not (Reuters has furiously been spreading anti-gold propaganda ), that India is on track to import 900-1000 tonnes of gold this year. This does not take into account smuggled gold which is estimated to be another 25%. India alone, it seems, will inhale 50% of the amount of gold produced in a year.

Then there’s China…China it’s hard to say for sure. If you go by Hong Kong exports into China, it only captures a portion of China’s gold demand. If you go by Shanghai Gold Exchange Withdrawals, China is on track to scoop up over 2000 tonnes of gold this year.

China + India combined are going to import at least 30% more than the total amount of gold produced in a year. Both India and China are entering their seasonally strongest period of gold buying, which will last through the end of the year.

Then there’s silver. By all apparent market indications, there is a serious shortage of silver that has developed, at least at the retail level. Although charlatans from down under who avoided taking economics in undergrad seem to think the 1000 oz Comex bar market is the bellweather, I would like to see a bona fide independent audit of the inventory reportedly being held in Comex vaults. Note: those reports are prepared by the banks – do you trust them?

Premiums on silver products in the U.S. have widened to levels not seen since 2008, when silver eagle premiums approached 100%. Currently, my “bellweather” indicator is Apmex. The premiums on 500 oz monster boxes have widened today to $3.79 over spot. This is the lowest premium product and it’s 27% over spot. If you want to buy just one mint roll of 20, you will have to pay $5.75 over spot, or a 41% premium.

But it’s worse, certain products are not available. We know 90% bags of coins are not available, although they can be had in onesies and twosies for about $7 over spot. But a friend of mine ordered a 100 unit gold gram product from Apmex and was notified this morning that there is “a delay in processing” his order. In the past he said shipment was immediate. This particular product is minted by Valcombi and is a “tear away” sheet of 100, 1 gram units. It’s perfect for preppers who seek fungability. And now there’s a shortage of them…

Base on all the evidence from the physical market – and there’s a lot more evidence of shortages in silver – how do we explain the behavior of the price of gold and in the paper market? Here’s two graphs of the trading in paper gold and silver – click to enlarge:

GOLD: SILVER:

This type of price action that can only occur by the exertion of an exogenous outside force. In this case it’s the western Central Banks and, specifically, the NY Fed in conjunction with the Treasury’s Working Group on Financial Markets’ Exchange Stabilization Fund. The decline in the price of gold and silver nearly every night for the past four years seems to occur primarily only in the NY/London paper markets.

Certainly everyone by now knows that the Plunge Protection Team is working overtime to keep the U.S. stock market from collapsing. And it is also exerting at least as much effort, and probably more, in keeping the price of gold and silver from exploding.

For now, the banks are finding enough physical gold and silver to keep the Indians and Chinese happy. My best guess is that the GLD, SLV, and the Comex and LBMA custodial vaults are being looted for this purpose. The U.S. retail market is another matter – it’s mind over matter: the Fed doesn’t mind and they don’t matter – for now.

But this will become problematic once those sources are tapped. If you think you have bars being kept in the non-bank vaults on Comex (Brinks, CNT, Delaware Depository and Manfra, Tordella) I would suggest paying a personal visit and verify serial numbers. And then leave with your bars in hand.

If you are looking to buy silver from a big U.S. internet-based dealer in order to minimize the premium you pay, I would suggest instead taking your fiat cash and buying from a local dealer. At least you can guarantee that you will have the product in hand when you tender payment. Otherwise you risk seeing this in your email tomorrow:

Thank for your recent order xxxxxxxx. While processing your order, we encountered a short delay. APMEX strives to ship every order as quickly as possible, but in rare cases order processing may take longer than expected. (Apmex)

http://investmentresearchdynamics.com/silver-shortage-update-another-delay-from-apmex/

end

The legendary Jim Sinclair interviewed by Greg Hunter

(courtesy Jim Sinclair/Greg Hunter)

Plunge Protection Team Losing Control of Markets-Jim Sinclair By Greg Hunter On August 26, 2015 In Market Analysis 2 Comments

By Greg Hunter’s USAWatchdog.com

Legendary gold expert Jim Sinclair says what is going on right now in the stock market is just the warm-up act. Sinclair contends, “This is a pre-crash, and we are not making it through September without the real thing.Everybody is on credit. Main Street is on credit. This seems to be a bubble of historical proportion when it comes to the amount of money supporting the accepted lifestyles as being the new normal. Raising interest rates is impossible today. The market is so fragile. Nothing can come out that causes people any concern or derivatives any change, nothing whatsoever. We are going through a period of time where expecting nothing meaningful is a dream. These are times never experienced in financial history. . . .It is very possible that we are going to have a super civilization change. ”

The US Plunge Protection Team is losing control of the markets, and Sinclair warns, “They got the dickens scared out of them. They actually backed off providing the funds necessary. . . . That’s your warning. The warning is markets can overrun plunge protection teams. Markets can and will overrun the manipulation of metals and currencies. The market will overrun the false strength in the US dollar. The idea that a lift in interest rates would be beneficial to the dollar is absolutely incorrect. We do know the limits of the Plunge Protection Team, and we do know the omnipotent power of the Fed is a total fallacy.”

On gold, Sinclair says, “I didn’t call the top in gold in 1980 because of any kind of a system. I was told, I acted on what I was told.”

His sources are talking again, and Sinclair says he was told: “Number one, the downside on gold is extraordinarily limited here. Two, the rally we are facing that will come in gold is going to be stupendous. Three, they tell me we may never call you back because this may be the rally you don’t sell. This may be the rally you don’t sell because gold is moving from a currency form to a valuation form. . . . This may be the last time we call you means this is a rally that is not meant to be sold. What is coming up in front of us is the Great Reset where currencies wear their gold like ladies wear a necklace, and the most beautiful necklace will be the strongest currency. The ladies without the necklace won’t be invited to the ball. Huge changes are coming. The dollar is always going to be with us, and the yuan and all of the currencies are still going to be there. We are not going to one single currency. The SDR (Special Drawing Rights) is nothing more than a glorified index of currencies. It’s a cure to nothing. How can a package of junk cure the problem of junk? It can’t. The two last men standing will be gold and gold on steroids—silver.”

Sinclair stands by his prediction last year of an eventual gold price of $50,000 per ounce. Sinclair explains, “You have to understand we are going into unprecedented deflation, and it’s the reaction of central banks around the world to the concept of deflation that brings about hyperinflation. . . . There will be debt monetization of all kinds of debt to maintain some sort of equilibrium. The price of gold is going to go to a level that is going to surprise everybody. I was told that this is a rally that you won’t sell. That means gold will go to a level and not react violently down from that level. . . . This is when gold is going to levels that today are considered more mental illness than monetary analysis. Silver is best understood as gold on steroids because whatever potential and direction is taken up by gold, silver will be multiplied by 2 or by 5. . . .Silver will outperform gold.”

Join Greg Hunter as he goes One-on-One with renowned gold expert Jim Sinclair of JSMineset.com.

(There is much more in the video interview.)

end

And now Bill Holter:

LOOK OUT BELOW!

Posted August 25th, 2015 at 6:43 PM (CST) by & filed under Bill Holter.

Dear CIGAs,

When planning to write this piece, the Dow was up 250 points or so with 45 minutes of trading left. The anticipated bounce (if China cut rates) arrived this morning with a 442 point upward thrust. This on a report card could be categorized as a “C-” or even a “D+”, very poor in my estimation. As I sat down to write the Dow was up 24 points and turned negative before I wrote the first word! This is HORRIBLE ACTION and outright scary if you are a Bull! The PPT (plunge protection team) got their butts kicked for the third or fourth day running. To let the market give up 500 points in just one hour shows their weakness or lack of capitalization. Many will look at today’s close and say “UH OH”!

What will this mean for tomorrow? We first have to see what happens tonight in the Asian markets and in particular China …which I suspect the big money brokers have already done. Somehow, my guess is they already sense a rout in Asia and this is the reason for the abrupt turnaround to front run another big dump tomorrow. The bounce was weak, it turned negative and closed at the worst levels of the day …NOT exactly that warm fuzzy feeling! “Look out below” seems to now be a continuing theme.

To reiterate what I’ve written over the last few days, this is all about the Great Credit Unwinding. It is my belief the players are beginning to sense this. Lower rates did nothing to fix Japan’s economy for 25 years, it has done less than nothing in aiding the U.S. economy for the last 8 years …why will it do anything for China? So far China has used versions of the Western playbook to thwart the rout. They have outlawed short selling, made it illegal for many institutions to sell and the PBOC has overtly come in to support the markets… to no avail!

This is really scary folks, even the most bearish expected a better bounce than we got today. What happens tomorrow if Asia/China get no bounce at all? The Fed has no room to lower rates, neither does the ECB. To be a central bank(er) and to get no “respect” from the markets is the most terrifying event one could think of.

Digging deeper, what do you suppose has happened over the last few days in the derivatives arena? There have been HUGE gains and losses in the $trillions or even $10′s of trillions! Notice I wrote “gains and losses”? How would you like to be an institution with a losing position of some sort …hedged so there would be no loss …only to find out your counterparty cannot pay? Do you suppose this might have already happened? I can almost guarantee it already has and in many different markets, we just haven’t heard about it nor “who” died. In reality, it doesn’t matter “who died”. Just as someone drowning hangs on to their rescuer, the derivatives chain is connected from start to finish and loops back where the “start connects with the end”. In other words, when losers cannot pay, the gleeful winners get the bad news they are also losers. If one drowns, they all drown!

I also mentioned yesterday it would be good to monitor interest rates. The 10 year yield was as low as 1.9% yesterday and as high as 2.13% today. I believe the panic number will be 2.4%. Should this yield level give way (and you will hear it spun as “good” on CNBC), it will signal major central bank selling (led by China) overwhelming the Fed’s ability to sop up the selling. Time will tell but this is something I will continue to monitor.

The overleveraged world is experiencing deflation. “Beggar thy neighbor” by central banks to increase trade at the expense of other nations is the game. The “game” by the way is a static or shrinking (global GDP)! This is a no win strategy on a global basis because someone has to lose …and then you have the same scenario as in derivatives. Sovereign nations will default! The point is this, “losses” which have been hidden so far will need to be booked and realized. There are NO BALANCE SHEETS left, strong enough to absorb the losses! The Fed commencing another round of QE is now a lock. Outright monetization will be sniffed out and the current outsized demand for gold and silver may double or more …just as inventories and vaults in the West are running out.

Lastly let’s look at the dollar. Commodities including oil are being sold …for dollars. Demand for product is down and so is “price”. The petro dollar cannot function with 60% haircuts in dollar usage. This acts to also lessen velocity of dollars. A very bad combination for any Ponzi scheme, less demand and lower velocity. The previous “good” leverage reverses and comes down on itself. In this instance, the world’s reserve currency loses acceptance for the very reason “safety capital” should flock to it, deflation! Can you see this? The dollar cannot survive with deflation because not enough new money comes in to prop it up. The dollar MUST have inflation, without it, it dies. Today’s dollar is not the 1930′s dollar, pegged to gold that was deflation proof. The foundation then was gold. Today the dollar’s foundation is nothing more than debt, TOO MUCH DEBT! In fact, dollars are only promises …to pay you more dollars! The perfect financial storm? Yes. There is still time (probably very little) to get your affairs and positions in order. I pray anyone reading this does so!

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com

end And now your overnight Wednesday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan falls considerably this  time to   6.4135/Shanghai bourse: red and Hang Sang: red

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei up 570.13   or 3.20.%

3. Europe stocks all deeply in the red  (with the new Chinese rate cut)  /USA dollar index up to  94.58/Euro down to 1.1414

3b Japan 10 year bond yield: falls to .376% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.46

3c Nikkei now below 19,000

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

3e WTI 39.50 and Brent:  43.52 (this should blow up the shale boys)

3f Gold down  /Yen down  (options expiry today)

3gJapan 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 hugely to .722 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate falls slightly to 12.68%/Greek stocks this morning up by 1.70%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 9.72%

3k Gold at $1130.50 /silver $14.33  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 1/2 in  roubles/dollar) 69.55,

3m oil into the 39 dollar handle for WTI and 44 handle for Brent/Saudi Arabia increases production to drive out competition.

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.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9440 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0780 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/

3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.722%

3s The ELA lowers to  89.7 billion euros, a reduction of .7 billion euros for Greece.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.

4. USA 10 year treasury bond at 2.11% early this morning. Thirty year rate below 3% at 2.85% / yield curve flatten/foreshadowing recession.

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

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

Here We Go Again: US Equities Surge Even As Chinese Stock Market Rollercoaster Tumbles To 8 Month Low

It seemed like finally China’s relentless and increasingly futile attempts to have a green stock close would work: interest rate cuts, liquidity injections, direct stock interventions, even threats on the Prime Minister’s head, and just to make certain moments before the close news very deliberately broke that government funds are buying large financial stocks, especially state-owned banks, to support the index, in the latest clear signs of government support, the Shanghai Composite seemed on pace to end an unprecedented series of consecutive tumbles which have dragged the composite down nearly 1000 points, or 25% in one week, and then… red close, with the SHCOMP down 1.3% to 2927, and a stunned China watching in horror as the central bank and government lose control, and everything they throws at the biggest market bubble of 2015 does absolutely nothing.

Well, not nothing: what was a 60% stock market gain for the year on June 12 has turned into a -8% rout two months later.


Here are the cliff notes: the Shanghai Composite today has been up 1%, down 3.5%, up 4%, down 1.5% and closed down 1.3%. As Bloomberg’s Richard Breslow noted, the composite is the poster child for and magnified image of how all sorts of assets have moved.

“The PBOC has serially announced aggressive and long-lasting market support measures, a cessation of support measures pending further study, a devaluation with murky explanation, a belated rate cut, followed up with ’’the recent interest rate and reserve requirement ratio cuts don’t represent a shift in China’s prudent monetary policy.’’ It isn’t just about a bubble being burst.”

Actually it is: this is precisely what an asset bubble, which grew with everyone’s blessing looks like, when all control is lost. For now, however it is all in the BOJ’s hands, whose support of the USDJPY is all that is keeping the world from falling apart.

Here is a snapshot of tthe biggest selected cross-asset moves overnight:

  • Equities: Nikkei 225 (+3.2%), Stoxx 600 (-1.7%)
  • Bonds: German 10Yr yield (-8.4%), French 10Yr yield (-5.7%)
  • Commodities: LME 3m Copper (-2.4%), LME 3m Nickel (-1.9%)
  • FX: Euro (-0.5%), Yen spot (-0.5%)
  • U.S. mortgage applications, durable goods data due later
  • FTSE 100 down -1.5%, CAC 40 down -1.6%, DAX down -1.5%, IBEX 35 down -1.6%, FTSE MIB down -1.6%, S&P 500 futures up 1.3%, Euro Stoxx 50 down -1.7%

Elsewhere in Asia stock markets saw volatile trade as the region digested the PBoC rate cuts, however, aside from China, stocks were seen higher across the board. This comes despite some analysts suggesting the cuts could be too little too late , reports that China raised fees and margin requirements for stock index futures trading and the S&P 500 closing lower by 1.35%. Nikkei 225 (+3.2%) led the region higher. 10yr JGBs (+4 ticks) and T notes (+15 ticks) were supported amid volatility in Asian stock markets.

Price volatility across various asset classes failed to be contained by yesterday’s actions by the PBOC, which in turn resulted in European stocks opening lower across the board (Euro Stoxx: -1.4%), while Bunds subsequently gained on safe-haven related flows and moved above the key 100DMA line at 154.02 , with City suggesting buying Bunds as sell off is not part of a bigger correction. As a result of the safe-haven related flows, peripheral bond yield spreads widened, albeit marginally, as any upside there was likely contained by the growing likelihood of dovish ECB and bond buying.

Despite coming off the lowest levels of the session, stocks remained pressured by the ongoing underperformance in energy and materials sectors, with copper and other base metals trading lower overnight, as it remains to be seen whether the actions by the PBOC will spur an economic rebound. At the same time, EM sensitive stocks were particularly sensitive to the sell-off, with the likes of SABMiller down 3%, Standard Chartered down 2% and Antofagasta down nearly 3%.

US equity futures have continued their ridiculously volatile moves, and after tumbling by over 1% overnight, were set to open higher by over 2% driven by what appears to have been another BOJ/GPIF-driven surge in the USDJPY.  Where have we seen this before? Oh yes, yesterday! Let’s see if today we get a different outcome than yesterday’s biggest intraday bearish reversal since Lehman.

WTI and Brent head into the North America crossover fairly flat after yesterday saw a higher than previous drawdown in API inventories (-7.3mln, prey. -2.3mIn), with sources suggesting that cushing inventories are little changed. Meanwhile, the metals complex has seen a continuation of the recent bearish trend, with many suggesting that the PBoC action is focused on the stock market as oppose to the economy as a whole, seeing precious metals generally in the red today.

Of note palladium remains in the red today after weakness yesterday saw the metal fall as much as 8% to reach 5 year lows after seeing 13 year highs last year. Palladium is generally used in gasoline engines and as a result is heavily exposed to both Chinese and US markets, with the former being the fastest growing and largest vehicle market and making up 20% of global palladium consumption. Palladium has also been weighed on by South African PGM production data yesterday, which was much higher than June and has now returned to normal levels after of 2014’s 5 month strike.

Today’s highlights include latest US durable goods orders, weekly DOE inventories data, comments by Fed’s Dudley and the US Treasury will auction off USD 13bIn in 2y FRNs, as well as USD 35b1n in 5y notes

Market Wrap:

  • Asian stocks rise with the Nikkei 225 outperforming and the Hang Seng underperforming
  • Nikkei 225 +3.2%, Hang Seng -1.5%, Kospi +2.6%, Shanghai Composite -1.3%, ASX +0.7%, Sensex -1.3%
  • German 10yr yield down -6bps to 0.67%, Greek 10yr yield down -4bps to 9.45%, Portugal 10yr yield down -6bps to 2.67%, Italian 10yr yield down -4bps to 1.95%
  • Credit: iTraxx Main up 1.9 bps to 75.17, iTraxx Crossover up 2 bps to 345.99
  • FX: Euro spot down -0.53% to 1.1456, Dollar index down -0.2% to 94.338
  • Commodities: Brent crude up 0.1% to $43.25/bbl, Gold down -0.5% to $1134.3/oz, Copper down -2.4% to $4941/MT, S&P GSCI down -0.3%

Bulletin headline summary from Bloomberg and RanSquawk:

  • Price volatility across various asset classes failed to be contained by yesterday’s actions by the PBOC, which in turn resulted in European stocks trading lower across the board
  • The USD-index continues to pare back some of its black Monday losses and resides firmly in the green ahead of the North America crossover
  • Treasuries decline amid gains in U.S. stock-index futures, steady oil; week’s auctions continue with $35b 5Y notes, WI 1.440%, lowest since April, vs. 1.625% in July.
  • Chinese police are investigating people connected to China Securities Regulatory Commission, Citic Securities and Caijing magazine on suspicion of offenses including illegal trading and spreading false information, Xinhua reported yesterday
  • Xinhua also called for efforts to “purify” the markets and carried remarks by a central bank researcher attributing rout to expected Fed hike
  • Shanghai Composite Index fell 1.3% after rising as much as 4.3%; has plunged more than 40 percent from its peak, after concerns over the Chinese economy helped snap a months-long rally encouraged by state-run media
  • The European Central Bank is becoming more aggressive in trying to procure ABS after its purchase program drew criticism from investors and traders disappointed by its reach
  • Merkel will head this afternoon to Heidenau, the eastern German town near Dresden where anti-immigrant riots erupted last week, while President Joachim Gauck is visiting a Berlin shelter in the morning
  • Turkey’s governing AK Party would fail to regain its majority in a repeat election were it to be held now, according to the most accurate pollster for the ruling party’s vote before June’s inconclusive election
  • No IG or HY deals priced yesterday. BofAML Corporate Master Index holds at +172, widest since Sept 2012; YTD low 129. High Yield Master II OAS -28bp to +590 from +614, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields lower. Asian stocks mixed, European stocks fall, U.S.equity-index futures higher. Crude oil little changed, gold and copper lower

 

DB’s Jim Reid completes the overnight recap

Yesterday we reiterated our view that the plates were likely to be spun again pretty soon by central bankers and lo and behold we saw a China rate cut and lower reserve requirement ratios which initially helped lift markets which were already bouncing through the early European session. However a late reversal in the US saw a 4.1% sell-off in the S&P 500 from the highs around the European close. Overall the index closed -1.35% and basically ended down at Monday’s intra-day lows when chaos ensued at the open.

Following on, China has seen another volatile morning session in reaction to the PBoC easing. As we hit the break, the Shanghai Comp is +0.80%, but that’s having passed between gains and losses 8 times already with a high-to-low range of 5%. The market seemingly unsure as to how to react. The CSI 300 is +1.68% while the Shenzhen is down 0.23% after similar huge swings this morning. Elsewhere it’s generally a better start across much of Asia. The Nikkei has climbed +2.21% along with a +2.19% rise for the Kospi, while there are gains also for the Hang Seng (+0.18%) and ASX (+0.34%). Aside from further turmoil for the Malaysian Ringgit (-0.95%), it’s been a better start for most EM currencies while US equity futures are more or less unchanged. Treasury yields have ticked up another basis point while Oil markets are off to a modestly better start (+0.5%).

A bit more detail on China’s easing move yesterday. In terms of the cuts, the PBoC cut the benchmark interest rates by 25bps and the RRR by 50bps, while at the same time also removed the ceiling on interest rates for term deposits with maturities greater than one year. DB’s Chief China Economist, Zhiwei Zhang saw the cuts as broadly in line with his expectations, but of more surprise to Zhiwei was that the cuts took place yesterday evening rather than over the past two weekends. In his mind this suggests that the cuts were likely triggered by the financial market turmoil in China as well as overseas, rather than the weak economic data or capital outflows. Zhiwei continues to forecast for another RRR cut this year (and biased towards Q4) but no further cut to the benchmark interest rate. This view is based on Zhiwei’s growth outlook which he highlights may now stabilize, although acknowledges that the risks are tilted to the downside. Interestingly the PBoC press release yesterday did mention that monetary policy will become more flexible in the future and so suggestive that policy will become more data dependent.

After Tuesday’s sharp declines (Shanghai -7.63%) there were also headlines suggesting that China hadn’t intervened in the stock market of late and alongside the interest rate move this could be interpreted as a sign that their focus has moved from trying to get in the way of a bubble bursting to trying to ease economic conditions.

So despite more huge falls in China on Tuesday (as well as Japan), the rebound seen elsewhere in the region helped fuel a decent rally through the European session and for most of the US session. European equity markets had already rebounded some 3% prior to the PBoC announcement, but that spin of the plate helped to nudge markets up further in the session as we saw the Stoxx 600 close up +4.20%, along with similar gains for the DAX (+4.97%), CAC (+4.14%), FTSE MIB (+5.86%) and IBEX (+3.68%). Along with the S&P 500, there were similar moves lower for the DOW (-1.29%) and NASDAQ (-0.44%) also, meaning we’ve now seen six consecutive daily declines for US equities while Tuesday’s reversal from the highs was the biggest one-day correction since October 29th 2008. Putting these latest moves into perspective, the S&P 500 is now less than 20pts off of where it was at the end of 2013, or just 1% away from erasing the gains since then.

It wasn’t obvious what changed sentiment late in the US session last night. Most of the wires are pointing towards the initial optimism on the back of the PBoC easing breaking down and swiftly turning to apprehension that the move will fail to bring a sense of calm to markets there. Other commentary is pointing towards a bout of profit taking in the brief period of respite. So an unexplained move which no doubt was exacerbated by August liquidity levels. The turnaround in sentiment was also evident in US credit where we saw CDX IG tighten by as much as 5bps at one stage intraday, only to then selloff into the close and finish more or less unchanged.

Treasury yields also saw a late turnaround, with yields dropping some 6bps lower into the close but still up 6.8bps on the day at 2.072%. Prior to this, sovereign bond yields in Europe saw a decent leg higher, led by a 13.8bps move higher for 10y Bunds in particular. The US Dollar recovered some of the previous few days’ losses with the DXY finishing +1.28% while the Euro declined off its recent highs. Oil markets were choppy meanwhile, but overall closed with reasonable gains as WTI and Brent finished up +2.80% and +1.22% respectively while there were decent gains also for Aluminum (+2.37%), Copper (+2.30%) and Zinc (+1.82%).

The dataflow is something of a sideshow to the moves in equity markets at the moments but in truth it was mostly a mixed bag in the US yesterday. The S&P/Case Shiller house price index pointed to a small decrease in house prices in June (-0.12% mom vs. +0.12% expected), while the FHFA house price index printed a tad below expectations (+0.2% mom vs. +0.4% expected). New home sales in July were, although coming in below consensus, still strong (+5.4% mom vs. +5.8% expected), lifting the annualized rate up to 507k from 481k in June. The notable surprise in the data yesterday came in the form of the August consumer confidence print, which rose 10.5pts to 101.5 (vs. 93.4 expected), the second highest reading in eight years and reflective of the improved job market and lower oil prices leading up to the recent downturn in the equity market. Elsewhere, the flash services PMI reading for August declined 0.5pts to 55.2 (vs. 55.1 expected), while the August Richmond Fed manufacturing index was weak, having fallen 13pts to 0 (vs. 10 expected) and the new orders index slumping 16pts to 1.

Elsewhere, dataflow in Europe yesterday and specifically in Germany was relatively upbeat. In particular there were positives to take out of the August IFO survey which showed a 0.3pt rise to 108.3 (vs. 107.6 expected). While the expectations survey was left unchanged at 102.2, the survey of current conditions showed a 0.9pt rise to 114.8. Meanwhile Germany’s final Q2 GDP reading was left unchanged at +0.4% qoq and +1.6% yoy. Meanwhile, the ECB’s Constancio, speaking yesterday, reiterated the stance that ECB’s Governing Council ‘stands ready to use all instruments available within its mandate to respond to any material change to the outlook for price stability’.
The ECB Vice-President also played down the recent volatility in China, saying
that country’s stock market is ‘not so connected’ to activity on the ground.

end

 

China’s opening Tuesday evening

(courtesy zero hedge)

China Devalues Yuan To Fresh 4-Year Lows, Arrests Top Securities Firm Exec As Stocks Slide Despite Rate Cuts

Update: Chinese stocks are seeing no lift whatsoever from the rate cuts…

CSI-300 is fading fast…

 

And

  • *SHANGHAI COMPOSITE INDEX SLIDES 3.3%
  • *SUGA: HOPE CHINA RATE CUT WILL CONTRIBUTE TO CHINA GROWTH

 

Confusion reigns at Bloomberg also… (look at URL – original title, and compared to title posted at 8pmET)…

And now…

h/t Beermunk

As we detailed earlier:

The Asia morning begins mixed in stock markets, The PBOC explains itself “this is not a shift in monetary policy,” – except it is the first such set of measures since 2008, further deleveraging as China margin debt drops CNY1 Trillion from June peak to lowest since March, Regulators begin probing securities firms (and their malicious short sellers), Index futures trading fees will be raised and trading positions restricted. Stocks are limping only modestly higher (after the rate cuts) as Yuan is fixed at 6.4043 – the lowest since August 2011.

 

Yuan fix weaker for 2nd day to new 4 year lows…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.4043 AGAINST U.S. DOLLAR
  • *CHINA LOWERS YUAN FIXING TO WEAKEST SINCE AUG. 2011

 

Before China opens, it’s worth noting that all the post-China close, pre-China open exuberance from the PBOC multiple rate cut has been eviscerated…

 

So The PBOC explains why it did something it hasn’t done since 2008…

  • *PBOC’S MA SAYS RATE CUTS NOT A SHIFT OF MONETARY POLICY: XINHUA
  • *PBOC’S MA SAYS RATE CUTS TO KEEP MODERATE CREDIT GROWTH: XINHUA
  • *PBOC’S MA SAYS CHINA MONETARY POLICY REMAINS PRUDENT: XINHUA

The rate cut did have some impact…

  • *CHINA ONE-YEAR IRS FALLS 7 BPS TO 2.47%
  • *CHINA ONE-YEAR IRS HEADS FOR BIGGEST DROP SINCE JUNE
  • *CHINA SEVEN-DAY REPO RATE DROPS 25 BPS TO 2.30%

And stocks are only marginally higher..

  • *CHINA’S CSI 300 STOCK-INDEX FUTURES RISE 0.7% TO 2,852
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN UP 0.5% TO 2,980.79

And bearin mind that…

  • *ABOUT 17% OF MAINLAND STOCKS STILL HALTED FROM TRADING

Some more good news as deleveraging continues…lowest since March 2015

  • *CHINA MARGIN TRADING DEBT DROPS 1 TRILLION YUAN FROM JUNE PEAK
  • *SHANGHAI MARGIN DEBT BALANCE HALVES FROM JUNE RECORD HIGH – Balance is lowest since Jan. 12

But more restrictions are put in place:

  • CHINA TO RAISE TRANSACTION FEES ON STOCK INDEX FUTURES TRADING – EXCHANGE STATEMENT
  • CHINA TO RESTRICT TRADING POSITIONS IN STOCK INDEX FUTURES – EXCHANGE STATEMENT

As things are not going well in the Communist intervention – so the probes begin (as ForexLive reports)

The South China Morning Post report that four brokers say the CSRC is probing their business

  • Haitong Securities, GF Securities, Huatai Securities and Founder Securities
  • All made stock exchange statements that they had received notices from the China Securities Regulatory Commission
  • For suspected failure to review and verify clients’ identities

Along similar lines, Xinhua reported:

  • 8 people from Citic Securities were being investigated for  possible involvement in illegal securities trade
  • A staff member from Caijing magazine was also being probed for spreading rumours
  • A current and a former staff member at the CSRC  were also being investigated for suspected insider trading

*  *  *

This morning, as China wakes up…

…And realizes that PBOC policy changes have not been working. As BofAML explained,

The combined rate and RRR cuts announced today, clearly targeted to boost A-share market sentiment in our view, may provide some temporary sentiment relief. However, we doubt that this represents the bottom of the market…

 

It appears to us that the government has significantly reduced its direct purchase in the market in recent days and is now trying to replace the direct intervention with the softer, more market oriented, and indirect support.We doubt this will work beyond a few days. As a result, we recommend selling into any rebound. A few things worth highlighting:

  • Psychologically, the cuts may have some impact in the short termbecause they are the first combined interest rate and universal RRR cuts since Dec 2008, after a sharp market fall. Nevertheless, we doubt the impact will be significant as they are already the eighth cut to either rate or RRR since late 2014.
  • The key overhangs of the A-share market are stretched valuation and high leverage. It’s our view that the only way that the government can hold up the market is by being the buyer of last resort, i.e., the direct support that the government appears to be withdrawing
  • From real economy’s perspective, we doubt monetary loosening is the solution to China main problem – overcapacity/a lack of consumption, and leverage. All it does may be to encourage property speculation, likely using more leverage
  • If the government fails to defend the A-share market ultimately, the key risk we should watch out for is financial system instability.

It’s not just BofA that is not buying it… As Bloomberg reports, China’s latest cuts in RRR and interest rates will limited boost to stks, according to most analysts and economists. Move is mainly aimed at supporting economy, not starting another mkt rescue.

DEUTSCHE BANK
Move largely in-line with expectations, reaffirmed leadership’s policy priority is growth support: strategist Yuliang Chang
Stk mkt appears oversold amid “jittery” sentiment
Recommends investors buy H-shrs to position for macro improvement

 

EVERBRIGHT SEC.
Cuts should not be interpreted as beginning of fresh round of strong mkt rescue; move may help stabilize capital mkts though boost to stk mkt will be limited: chief economist Xu Gao
Cuts won’t be able to reverse mkt trend; focus seen returning to macro fundamentals amid valuation bubble burst, deleveraging, pressure from exit of earlier rescue policies
Need for govt to intervene in stk performance greatly reduced after decline in leveraged positions; stk mkt declines posing less threat to financial stability
Mkt rescue policies exited steadily, though at slower pace

 

GUOTAI JUNAN SEC.
Cuts to improve overly pessimistic mkt sentiment, reduce possibility of further accelerated decline in mkt: analysts led by Qiao Yongyuan
Shanghai Composite may trade in range 2,800-3,200 pts
Sees relative gains in:
Stks with high div.: transport, home appliances, auto, financials, property
Low valuation with earnings support: food & beverage, power
Beneficiaries of fiscal policies: rail transit

 

JPMORGAN
Cuts to bring temporary support for stk mkt; earlier correction in stks partly due to disappointment over later- than-expected RRR cut: chief China economist Zhu Haibin
Absence of govt support during recent mkt declines indicate changes in intervention strategy, which is focused more on mkt mechanism restoration than maintaining index level

 

MACQUARIE
Central bank reacted to shore up confidence in stk mkt to stop panic: analysts led by Larry Hu

 

UBS
Cuts signal authorities’ determination of arresting passive tightening and safeguarding financial stability, should help boost sentiment in financial mkts: economists led by Wang Tao

 

BNP PARIBAS
Cuts look like response to panic selling in A-shr mkt, main aim is to support economy: analyst Judy Zhang
Banks to be key beneficiaries of cuts as earnings more sensitive to asset quality improvement than NIM contraction
H-shr-listed China banks present attractive risk/reward for long-term investors

 

CICC
Monetary easing good for valuation recovery in property stks: analysts led by Yu Zhang
Strong momentum in property sales to continue into Sept., Oct. after reduction in mortgage repayment
Buy CR Land, COLI on dips; sees >30% upside in H-shr property players

*  *  *

Putting China’s demise into context – off the March 2009 lows…

 

And here’s a gentle reminder of who to listen to from now (or not!)…

Charts: Bloomberg

 

end

 

 

China loses all control: China Loses All Control: Arrests Journalist, Financial Executive Over Market Crash

For two months, China has been on a quest to control both the stock market itself and the narrative around the stock market.

After an unwind in the CNY1 trillion back alley margin lending complex sparked a late June selloff, China cobbled together a plunge protection team run by China Securities Finance (an arm of CSRC) and began intervening in the market.

That effort has cost an estimated CNY900 billion so far.

On July 20, Caijing magazine suggested that CSF was setting up to scale back the market interventions which many believed had kept the SHCOMP from collapsing altogether. Here’s what happened next:

That suggestion caused futures to slide in China and in short order, the “rumor” was denied by CSRC. Now, the reporter who penned that story has been arrestedfor, as Bloomberg put it earlier today, “spreading fake stock and futures trading information.”

This comes on the heels of a move by Beijing earlier this week to suppress discussion of Monday’s market rout, which, along with the selloffs it triggered in bourses across the globe, was dubbed “Black Monday.”

Of course this isn’t the first time – and it probably won’t be the last – that China has cracked down on the media for “subversive” coverage of financial markets. Early last month, Beijing reportedly banned the use of the phrases “equity disaster” and “rescue the market.” That said, throwing reporters in jail marks a new escalation in the war on financial reporters, or, as the managing editor of The South China Morning Post put it, “you already know it’s risky to be political journalists in China – Now financial reporter is risky job too.”

But reporters weren’t the only ones getting arrested in China overnight in connection with the country’s stock market collapse. As we tipped on Tuesday evening, China has also arrested CITIC Securities Managing Director Xu Gang.

Here’s his profile, via Bloomberg:

Mr. Gang Xu serves as the Managing Director at CITIC Securities Company Limited. Mr. XU serves as Chairman of the brokerage development at CITIC Securities Co., and head of the research department with responsibility for brokerage business as well as research.Mr. Xu joined CITIC Group in 1998 and served as Senior Manager, Deputy General Manager and Executive Director in departments such as the asset management department, the financial products development team, the research department and the equity sales and trading department. Mr. Xu serves as Vice Chairman of Analysis Commission of SAC. Mr. Xu serves as Director of CITIC Wantong Securities Co., Ltd. He holds a Bachelor’s Degree in Planned Economics in 1991 from Renmin University of China, a Master’s Degree in Economics in 1996, and a Ph.D. in Political Economics in 2000 from Nankai University.

 


And some context on CITIC’s market share:

 


Details around the arrest are sparse, with Caixain sayingonly that the investigation revolves around “illegal trading,” and indeed, it’s certainly possible that Beijing is simply out to send a message by arresting a high profile investment banker for no reason at all.

That said, it’s worth noting that earlier this month, CITIC suspended its short selling business in an effort to “comply with urgent changes in exchange rules.”

So perhaps Mr. Gang Xu failed to fully “comply”, in the process becoming no better than a sinister foreign short-selling speculator.

Or perhaps it’s much simpler than that. Perhaps he just sold something.

And while US regulators aren’t big on throwing powerful bankers in jail, when it comes to censoring the media for spreading “false information” about markets and those who control them, America isn’t much better than China:

end We are not making this thing up!! (courtesy zero hedge) Full Witch Hunt: Chinese Police Probe Securities Regulator While Securities Regulator Probes Brokers

Another session came and went in China and stocks closed in the red – again.

The 5-day slide is the worst run since 1996 and Wednesday’s 1.3% loss, while certainly an improvement from the harrowing declines logged on Monday and Tuesday, came on the heels of a PBoC desperation rate cut which many hoped would stabilize the market.

While the RRR cut was certainly designed to keep money markets loose and free up liquidity that was becoming increasingly scarce with each passing intervention in the FX market, there’s little question that officials in Beijing had hoped the move would have the ancillary benefit of stabilizing stocks. Here’s what we said on Tuesday:

But the PBoC likely hopes it can kill two birds with two stones (to adapt the analogy). That is, by bundling a lending rate cut with the RRR cut (which the PBoC also did in June), the central bank may be trying to send a forceful message to the stock market while freeing up liquidity at the same time.

 

If the market gets the message (or perhaps “takes the bait” is the better way to put it), investors will take solace in the move, Chinese stocks will find their footing, and the CSF can quietly fade into the background for a while. That way, should the meltdown begin anew down the road, China can intervene directly with the national team and point to the fact that it hasn’t done so in quite some time. 

That assumes, of course, that the plunge protection team hasn’t all been arrested and thrown in jail.

Overnight we reported that China was making a renewed push to find scapegoats for the market crash and this morning, we detailed the arrest of a prominent investment banker and a journalist. The most amusing part of the stepped up effort to find a culprit – any culprit – is that it now appears as though China may scapegoat the plunge protection team itself, or at least the regulator that controls it. Here’s Bloomberg:

Faced with a renewed stock market slide that has wiped out $5 trillion in trading value, China is again on the prowl for scapegoats.

 

Authorities announced a probe of allegations of market malpractice involving the stocks regulator on Tuesday, while the official Xinhua News Agency called for efforts to “purify” the capital markets. The news service also carried remarks by a central bank researcher attributing the global rout to an expected Federal Reserve rate increase.

 

The Shanghai Composite Index has plunged more than 40 percent from its peak, after concerns over the Chinese economy helped snap a months-long rally encouraged by state-run media. Authorities have repeatedly blamed market manipulators and foreign forces since the sell off began in June and led officials to launch an unprecedented stocks-support program.

 

Now, after suspending that program, the administration has embarked on a new round of allegations and fault-finding.

 

“The authorities have been too involved in the stock market and now they’re trying to pass the responsibilities to others,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. “In fact, they have to be responsible for the market crisis. It’s the authorities trying to act like a referee and a player at the same time.”

 

Police are investigating people connected to the China Securities Regulatory Commission, Citic Securities Co. and Caijing magazine on suspicion of offenses including illegal securities trading and spreading false information, Xinhua reported.

 

Citic Securities said Wednesday in a statement posted to the Shanghai stock exchange that it hasn’t received notice related to the report and said the company’s operating as normal. Caijing in a statement Wednesday confirmed a reporter had been summoned by police. The magazine said it didn’t know the reason and would cooperate with authorities. Calls and a fax to the CSRC went unanswered.

Note that China Securities Finance is effectively an arm of CSRC. In other words, the probe into the regulator looks to be the start of a probe into the plunge protection team itself.

It’s impossible to know where exactly Beijing intends to go with this particular ruse (i.e. whether the the “investigation” will center on CSRC employees or employees of CSF itself) and the story would be amusing enough as it is, but perhaps the most hilariously absurd thing to note here is that less than two months ago, CSRC was busy investigating the same sorts of alleged shenanigans for which it is now being investigated:

And while details on the investigation are as yet scarce, Xinhua offered some clues, noting that “we have reason to believe that more criminals and their hidden crimes will be exposed.”

Yes, “more criminals” and “hidden crimes,” crimes which will likely remain hidden although we’re quite sure that the punishments doled out will be displayed for all to see.

Finally, in yet another irony of ironies, while CSRC is under investigation, it will itself launch new investigations into a series of brokers:

Separately, Haitong Securities Co., GF Securities Co., Huatai Securities Co. and Founder Securities Co. — four of China’s largest brokerages — said they’re being investigated by the CSRC on suspicion of failing to comply with identity verification and “know-your-clients” requirements, according to statements to the Hong Kong and Shanghai exchanges Tuesday.

Summarizing the above in one clip:

 

end It sure looks like China is targeting a 20% devaluation.  Here is why!! (courtesy zero hedge) Is China Quietly Targeting A 20% Devaluation?

When China took the “surprising” (to anyone who was naive enough to think that the country’s economy isn’t in absolute free fall) step of resorting to a dramatic yuan devaluation on the heels of multiple ineffectual policy rate cuts, Beijing pitched the move as a “one-off” effort to erase a ~3% persistent dislocation in the market.

Seeing the effort for what it most certainly was – a tacit admission of underlying economic malaise and a last ditch effort to rescue the export-driven economy via an epic beggar thy neighbor along with the whole damn EM neighborhood competitive devaluation – analysts were quick to note that the PBoC may ultimately be targeting a 10% or more depreciation in order to provide a sufficient boost to exports.

Well, official protestations to the contrary, it appears as though even some Party agencies are assuming a much weaker yuan both over the near- and medium-term. Here’s Bloomberg:

Some Chinese agencies involved in economic affairs have begun to assume in their research that the yuan will weaken to 7 to the dollar by the end of the year, said people familiar with the matter.

 

The research further factors in the yuan falling to 8 to the dollar by the end of 2016, according to the people, who asked not to be identified because the studies haven’t been made public. 

 

Those projections — which suggest a depreciation of more than 8 percent by Dec. 31 and about 20 percent by the end of 2016 — were adopted after the currency was devalued this month and compare with analysts’ forecasts for the yuan to reach 6.5 to the dollar by the end of this year.

 

While the rate used in the research isn’t a government target, it suggests China may allow the yuan to fall further after a depreciation in which the currency was allowed to weaken by nearly three percent on Aug. 11 and 12. The yuan weakened for a second day in Shanghai to 6.4124.

 

“It wouldn’t be totally unreasonable for China to allow a weakening like this,” said Zhou Hao, an economist at Commerzbank AG in Singapore, referring to the 7 level against the dollar at the end of this year. “A certain level of depreciation can be accepted according to China’s international payments situation, but it may bring unforeseeable pressure on foreign debt repayments and capital outflows.”

 

The rate used in the research constitutes reference levels used for economic assessments and projections, according to the people. The PBOC didn’t respond to a fax seeking comment.

A dollar-yuan rate of 7 would be a more than 8 percent depreciation from Tuesday’s level.At an Aug. 13 briefing on the yuan, PBOC Deputy Governor Yi Gang dismissed the idea that China would devalue the yuan by 10 percent to boost exports, calling it “nonsense.”

Yes, “nonsense”, just like how Chinese QE “doesn’t exist” despite the fact that untold billions in stocks have been transferred from CSF to the sovereign wealth fund just so the PBoC can continue to insist that its balance sheet isn’t expanding.

In any event, a more dramatic devaluation may ultimately be necessary not only to boost exports, but to alleviate the necessity of interveing constantly to arrest the yuan’s slide. As BNP’s Mole Hau put it in a note out Monday,“what appears to have happened is that, whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” Which explains why the FX reserve drain may well be continuing unabated causing the massive liquidity crunch that’s forced the PBoC to inject hundreds of billions of liquidity via reverse repos and ultimately forced today’s RRR cut.

Of couse as we said earlier today, “while global markets received China’s announcement with their typical ‘a central bank just came to our rescue’ exuberance, the reality is that as least today’s RRR cut will have zero impact on spurring aggregate demand, and is merely a delayed response to FX interventions that have already taken place [which means] for China to net ease, it will have to do more, much more [but] ironically, doing so, will merely accelerate the capital outflows as a result of the ongoing plunge in the CNY, which leads to the circular logic of China’s intervention … the more it intervenes in an attempt to stabilize every aspect of its economy and finance, the more it will have to intervene, until either it wins, or something snaps.”

Ultimately, that “something” may end up being the daily yuan management effort because the intervention game is getting expensive and incremental easing will only make it more so.

A free float may be the better option and if the passages excerpted above from Bloomberg are any indication, the yuan is going to be much, much lower by the end of next year one way or another. The only question is how much pain China incurs on the way there. We’ll close with the following quote from SocGen:

If the PBoC wants to stabilise currency expectations for good, there are only two ways to achieve this: complete FX flexibility or zero FX flexibility. At present, the latter is also increasingly unviable, since the capital account is much more open.Therefore, the PBoC has merely to keep selling FX reserves until it lets go.

end

As we promised you, the real reason for the RRR cut and interest rate cut was not to save the stock market but due to the fact that over 100 billion USA has left Chinese reserves to offer a little support to the yuan. (courtesy zero hedge) Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks

On August 11, China devalued its currency, and in the subsequent 3 days the onshore Yuan, the CNY, tumbled by some 4% against the dollar. Then, as if by magic, the CNY stabilized when China started intervening massively, only this time not through the fixing, but in the actual FX market.

This means that while China has previously been dumping reserves as a matter of FX policy, after August 11 it was intervening directly in the FX market, with the intervention said to really pick up after the FOMC Minutes on August 19, the same day the market finally topped out, and has tumbled into a correction since then. The result was the same: massive FX reserve liquidations to defend the currency one way or the other.

And yet something curious emerges when comparing the traditionally tight, and inverse, relationship between the S&P and the Treausry long-end: the tumble in stocks has not been anywhere near as profound as the jump in yields. In fact, the 30 Year is wider now than where it was the day China announced the Yuan devaluation.

Why is that?

We hinted at the answer on two occasions earlier (hereand here) and yet the point is so critical, and was missed by virtually all readers, that it deserves to be repeated once again: as part of China’s devaluation and subsequent attempts to contain said devaluation, it has been purging foreign reserves at an epic pace. Said otherwise, China has sold an epic amount of Treasurys in the past two weeks.

How epic? We turn it over to SocGen once again:

The PBoC cut the RRR for all banks by 50bp and offered additional reductions for leasing companies (300bp) and rural banks (50bp). All these will take effect as of 6 September, and the total amount of liquidity injected will be close to CNY700bn, or $106bn based on today’s onshore exchange rate.  In perspective, the PBoC may have sold more official FX reserves than this amount since the currency regime change on 11 August.

There you have it: in the past two weeks alone China has sold a gargantuan $106 (or more) billion in US paper just as a result of the change in the currency regime!

But wait, there’s more: recall that one months ago we posted that “China’s Record Dumping Of US Treasuries Leaves Goldman Speechless” in which we reported that China has sold some $107 billion in Treasurys since the start of 2015.

When we did that article, we too were quite shocked at that number. However, we – just like Goldman – are absolutely speechless to find out that China has sold as much in Treasurys in the past 2 weeks, over $100 billion, as it has sold in the entire first half of the year!

In retrospect, it is absolutely amazing that the 10 and 30 Year Bonds have cratered considering the amount of concentrated selling by China.

But the bigger question is how much more does China have left to sell, if this pace of outflows continues. Here is SocGen again:

From an operational perspective, China’s FX reserves are estimated to be two-thirds made up of relatively liquid assets.According to TIC data, China held $1,271bn US treasuries end-June 2015, but treasury bills and notes accounted for only $3.1bn. The currency composition is said to be similar to the IMF’s COFER data: 2/3 USD, 1/5 EUR and 5% each of GBP and JPY. Given that EUR and JPY depreciation contributed the most to the RMB’s NEER appreciation in the past year, it is plausible that

the PBoC may not limit its intervention to selling only USD-denominated assets.

 

* * *

 

China’s FX reserves are still 134% of the recommended level, or in other words, around $900bn (1/4 of total) and can be used for currency intervention without severely impacting China’s external position.

Should the current pace of liquidity outflows continue, and require the dumping of $100 billion in FX reserves, read US Treasurys, every two weeks this means China has, oh, call it some 18 weeks of intervention left.

What happens when China liquidates all of its Treasury holdings is anyone’s guess, and an even better question is will anyone else decide to join China as its sells US Treasurys at a never before seen pace, and best of all: will the Fed just sit there and watch as the biggest offshore holder of US Treasurys liquidates its entire inventory…

end

 

 

 

We may see another major de pegging this week: absolutely amazing will be the devaluing of the Hong Kong dollar to the USA: (courtesy zero hedge) Dollar Depeg Du Jour: 32-Year Old Hong Kong FX Regime In The Crosshairs

On Monday, we brought you two charts which vividly demonstrated market expectations for the abandonment of more currency pegs in the wake of Kazakhstan’s decision to float the tenge and China’s “unexpected” move to devalue the yuan.

As you can see from the following, the market seems to be convinced that Saudi Arabia and UAE, under pressure from falling crude revenue, will ultimately be either unwilling or unable to maintain their dollar pegs (incidentally, the Saudis did succeed in jawboning USDSAR forwards down 125bps on Tuesday):

Of course no discussion of global dollar pegs and entrenched FX regimes would be complete without mentioning the Hong Kong dollar and as you can see, the 12-month forward chart looks remarkably similar to those shown above:

Needless to say, the dynamic here is complicated by the degree to which Hong Kong is effectively wedded to US monetary policy (which is itself now thoroughly confused), the extent to which HKD has tended to sit at the strong end of the band, economic links to the mainland, exposure to weakening regional currencies via tourism, and expectations of an eventual yuan peg.

Below, for what it’s worth, is some commentary from the sellside.

*  *  *

From Citi

Our long-standing house view remains that the HKD peg will stay status quo, with an eventual re-peg to RMB when the latter is fully convertible. The LERS has weathered HK through even larger external shocks since 1983, and it is an important sign of stability for businesses in HK, and policymakers of HK and China. The current Linked Exchange Rate System is likely to withstand regional FX moves, but the economy would have to adjust with (1) moderate raw food prices decline with a lag, (2) other second-round price impacts from an overall slower economy, but (3) likely sharper reversals in asset prices appreciation that we have witnessed in recent years (as already started in the equity market, and worries could spread to the property market).

RMB and other regional FX depreciation will make tourist shopping more expensive…It is important to gauge both tourist arrivals and tourists spending trends — if we start seeing even tourist arrivals fall, then it will be quite worrying, and should force shop rents to fall more broadly and faster.

From BNP

Predictably, Hong Kong’s peg with the USD has, once again, come under scrutiny. On the same day Kazakhstan abandoned control of its exchange rate, one-month implied volatility of HKD options spiked to a ten-year high (Chart 1).

Periodic bouts of price and pay swings are inevitable, as Hong Kong has effectively delegated the determination of its monetary policy to the US, even when the business cycles of the two economies do not move in tandem. As the Federal Reserve moves ever closer to delivering the first interest rate hike in almost a decade, Hong Kong is condemned to import tighter US monetary policy. In fact, Hong Kong is caught in a pincer movement between a prospective US monetary policy tightening and the continued slowdown and travails of the mainland economy with whom Hong Kong’s economic cycle is increasingly more correlated. Downward pressures on domestic costs and asset prices, including property values, will build, adding to more popular discontent against the peg (Chart 2).

But painful as the operation of the peg may be in the short term, there remains a distinct lack of alternatives.

From Barclays

In contrast to other currency pegs, including the VND and SAR, the HKD is not facing depreciation pressures due to the capital outflows but rather the contrary. In fact, over the past year the HKD has been trading near the strong side of the Convertibility Undertaking of 7.75 (Figure 3), despite the rising USD against most majors and EM currencies. Even after the PBoC announced changes to the USDCNY fixing mechanism, after an initial spike spot USDHKD has moved little, although HKD forwards and option vols have moved more sharply in recent days.

Importantly, unlike the oil producers, Hong Kong does not face the same extent of downward pressures on its current account and fiscal balances due to the collapse in oil and commodity prices. That said, it is likely that Hong Kong will face more downward pressures on business activity and BoP services receipts due to China’s growth slowdown. This raises the question was to whether the link to the USD and the US monetary policy – especially now that the Fed is closer to tightening – remains relevant for the Hong Kong SAR given the growth drag from China.

A depreciating CNY could perhaps make it easier for the Hong Kong and Chinese authorities to change the anchor of the HKD currency peg, although there are few signs that a policy change will happen in the near term. The HKMA has said that pegging to a strong and appreciating CNY would pose downward pressures on Hong Kong’s domestic prices (including wages, consumer prices and property prices), or could lead to structural deflationary pressures.

*  *  *

Finally, it’s worth noting that, back in 2011, Bill Ackman took to a 150-page presentation to explain why betting on an HKD revaluation was a slam dunk.

Bonus: History of the peg via Citi


end

Last night:

There is not enough money in the pension funds to pay for Greek pensioners as these funds tap emergency loans.  Despite the bailout it does not look good as funds disappear down a rabbit hole; (courtesy zero hedge) Meanwhile In Greece, Pension Funds Tap Emergency Loans

This has not been a great year to be a pensioner in Greece. 

Over the course of the country’s fraught bailout talks, Greece’s pension system was frequently in the troika’s crosshairs. As for PM Alexis Tsipras, pension cuts were generally considered to be a so-called “red line” and intractable disagreements over pension reform quite frequently resulted in the total breakdown of negotiations.

Meanwhile, the increasingly untenable financial situation and acute liquidity squeeze very often meant that payments to pensioners were in doubt, even as Athens went out of its way to assure the public that whatever funds were left in Greece’s depleted coffers would go to public sector employees before they would go to EU creditors or to Christine Lagarde.

The situation reached it’s “heartbreaking” low point on July 1 when Greek banks that had been shuttered after the institution of capital controls opened for a few hours to ration payments to long lines of pensioners who were forced to effectively beg for €120.

In theory, the bailout agreement – while promising more austerity and more pressure on the bloated pension system – should at least guarantee that there will be money in the banks to make monthly payments, but that assumption now looks to be in doubt because as Kathimerini reports, both IKA and ETAA are tapping a contingency fund that guarantees social security programs for fear that the provisions of the bailout will not provide for sufficient enough savings to fund the remainder of this year’s payouts. Here’s the story:

 

Greece’s state insurance funds are resorting to external loans to cover their needs as fears grow that the measures of the third bailout will not be enough to cover the rest of 2015’s liquidity needs.

 

The Unified Fund for the Self-Employed (ETAA) received funding from the Generational Solidarity Insurance Fund (AKAGE) to cover its legal and notary workers’ branch. A similar application for 180 million euros has been approved by the board of the country’s biggest insurance fund, the Social Insurance Institute (IKA).

 

A ministerial decision by Labor Minister Giorgos Katrougalos and Alternate Finance Minister Dimitris Mardas foresees economic assistance to the tune of 20 million euros from AKAGE to ETAA to cover part of the latter’s deficit.

Of the course the punchline to the idea that funds from AKAGE will be used “to cover part of ETAA’s deficit” is this:

The deficit of AKAGE is expected to grow due to the dramatic increase in unemployment, political and economic uncertainty, capital controls, the measures of the third memorandum and the early elections, which are expected to impact on the revenues of insurance funds this autumn.

So in short, the pension funds are broke as is the contingency fund meant to guarantee payouts from those funds.

So Greece, we truly do wish you the best of luck and as you head back to the polls next month, don’t forget, if things get really bad, you can always storm the mint

 end Now one of the members of the emerging nations warns it may retaliate against the Chinese devaluation: (courtesy zero hedge) The Latest Currency War Entrant: India Warns May Retaliate To Chinese Devaluation

When China moved to devalue the yuan earlier this month, it was seen by virtually everyone for exactly what it was: a tacit admission that the country’s economy was in freefall and a desperate attempt to boost exports stinging from REER appreciation of more than 14% in just a little over twelve months.

Of course coming out and accusing China of entering the global currency wars for the sole purpose of supporting the export-driven economy isn’t something that’s politically correct and if you’re China, you want to deflect that criticism so naturally, there was plenty of polite talk about the need to allow the yuan to move in a more market determined way and that rhetoric squares nicely with China’s SDR inclusion hopes.

Ultimately though, trade competitiveness is now front and center in everyone’s minds, especially Asia ex-Japan nations who will now see their respective REERs appreciate even as the weaker yuan means demand from the mainland will be suppressed.

And while we’ve talked plenty about the impact on Asia-Pac and LatAm (especially Brazil, where the trade ministry immediately acknowledged the adverse effect of the yuan deval), we haven’t yet mentioned India where yesterday, in the midst of the turmoil, Central bank governor Raghuram Rajan sought to calm nervous markets by reassuring the world that India is not, for now anyway, in any danger thanks to ample FX reserves and a low CA. Here’s more from Reuters:

Central bank governor Raghuram Rajan told a banking conference Asia’s third-largest economy was in a good position relative to other countries to withstand the current global markets volatility.

 

“India is better placed compared to other countries with low current account deficit, and fiscal deficit discipline, moderate inflation, low short-term foreign currency liabilities, very sizeable base of forex reserves,” he said.

 

“We will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee.”

 

The rupee fell to as low as 66.74 per dollar on Monday, its lowest since September 2013, as Asian markets reeled under fears of a China-led global economic slowdown.

 

The 30-share Sensex dropped 5.94 percent, its biggest daily percentage fall since Jan. 7, 2009. The index fell to as low as 25,624.72 points at one point, its lowest intraday level since Aug. 11, 2014.

Amusingly, Rajan also pledged to stick to a disciplined monetary policy noting that “rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading.”

Be that as it may, economic realities are economic realities and a currency war is a currency war, which is why, we suppose, the Indian government’s chief economic advisor Arvind Subramanian thinks the country might just have to hit back. Here’s Bloomberg:

India may need to respond to China’s monetary policy stance

 

India’s exports to be hurt if global slowdown persists, ET Now television channel reports, citing Finance Minister’s Chief Economic Adviser Arvind Subramanian.

Underscoring this is the following from Deutsche Bank:

India’s export sector continues to be under pressure, with merchandise exports contracting yet again in July by 10.3%yoy. The weakness in India’s exports is striking (this is the eighth consecutive month of decline), not only in terms of past trend, but also from a cross country perspective. Indeed, India’s exports performance has been the weakest in the region thus far in 2015. In the first quarter of the current fiscal year (April-June’15), Indian exports have contracted by 17%yoy, one of the sharpest declines on record. The main reason for such a weak Indian export performance can be attributed to the sharp decline in oil exports (down 51%yoy between April-June’15), which constitute 18% of total exports. 

Another factor that could likely explain the weak performance of exports is the probable overvaluation of the rupee. As per RBI’s 36-country trade based real effective exchange rate, rupee remains overvalued at this juncture and this could be impacting exports to some extent, in our view. 

 


 

Currency competitiveness is an important factor in influencing exports performance, but global demand is even more important, in our view, to support exports momentum. As can be seen from the chart [below], global demand remains soft at this stage which continues to be a key hurdle for exports momentum to gain traction.

 

And that, in turn, helps to explain this (from Citi):

The likelihood of a rate cut at the RBI policy review on September 29 has risen given the downside surprise from July CPI inflation and the disinflationary impulse from the continued slide in commodity prices. But market pricing does not seem too far from that outcome. 1y ND-OIS is pricing in about 80% probability of a 25bp rate cut in September (and unchanged rates thereafter). 

So while we wait to see if indeed India decides to return fire, the ECB isn’t biting. Or at least that’s the line from Vice President Vitor Constancio who, as MNI reports, “on Tuesday signalled that he saw no reason for the ECB to step up policy support, as it was too early to assess what impact economic turmoil in China and renewed oil prices declines would have on medium-term price stability.”

“It is really too early to understand the effect of what is happening, which is now being corrected. Markets are now correcting the initial overreaction to the events in China. [The] yuan devaluation is not a major factor” for the euro-area inflation outlook, Constancio continued. So while Europe may be putting on a brave face for the time being, if exports from the currency bloc’s economic growth engine (Germany) begin to take a hit from the weaker yuan, we shall see how calm the ECB remains.

 end Global world trades falls off a cliff (exactly as we have been telling you) London’s Financial Times (courtesy London’s Financial times) World trade suffers biggest fall in 6 years

©BloombergThe figures showing a contraction in global trade fuel a debate over whether globalisation has peaked

World trade recorded its biggest contraction since the financial crisis in the first half of this year, according to figures that will fuel a debate over whether globalisation has peaked.

The volume of global trade fell 0.5 per cent in the three months to June compared with the first quarter, the Netherlands Bureau for Economic Policy Analysis, keepers of the World Trade Monitor, said on Tuesday.

Economists there also revised down their result for the first quarter to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis.

Global trade actually rebounded 2 per cent in June, according to the World Trade Monitor but its authors warned that the monthly numbers were volatile and the more revealing pattern lay in the longer term figures.

Those numbers built on what has been a grim pattern for global trade in recent years and the unwinding of a decades-old rule that saw trade grow at twice the rate of the global economy as a result of what some have called hyperglobalisation.

In the three months to June, global trade grew just 1.1 per cent from the same quarter of 2014, according to the new Dutch figures. The International Monetary Fund expects the global economy to grow 3.5 per cent this year.

“We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organisation, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to revise that estimate down in coming weeks.

Much of this year’s slowdown in global trade has been due to a halting recovery in Europe as well as a slowing economy in China, Mr Koopman said.

The global economy’s “growth engine” had been operating as if it had a mechanical fault for some time with “good growth in some countries offset by weak growth in others”.

But there is also clearly a structural shift happening in theglobal economy, he said, and that means slowing global trade is likely to endure for some time.

So too do the changing energy dynamics in the US, which is becoming a net exporter of energy, and a pattern of manufacturers deciding to shorten their global supply chains and bring production closer to home as part of a “nearshoring” and even “reshoring” movement.The attempted shift in China from an export-led economy to one that is more driven by domestic consumption has structural implications for global trade, Mr Koopman said.

“There’s an adjustment going on in the global economy and trade is a place where that adjustment becomes pretty visible,” Mr Koopman said.

The slowdown in global trade has led some to proclaim that globalisation has peaked with technological innovations such as 3D printing creating more disruptions.

But while it may have peaked there are no signs yet that globalisation has gone into reverse, Mr Koopman said.

While growth in trade has slowed to “mimic global GDP [gross domestic product]” it remained stable as a component of the global economy with merchandise exports accounting for a steady third of global output when measured in constant 2005 prices.

 

end Take a look at Mexico’s largest cement company.  It back orders are priced in their home currency, the peso while their debt is foreign based. (namely dollars).  The peso is plunging while the dollar is rising. You can just about say that this is the norm for a huge number of companies in the emerging markets: (courtesy zero hedge) Something Is Very Wrong At Mexico’s Largest Construction Company…

Let’s say, for argument’s sake, that you’re a big company in an emerging market and suddenly, a commodities crash for the ages and a “surprise” devaluation by the world’s engine for global growth and trade sends your country’s currency into a veritable tailspin.

If that were the case, just about the worst possible situation you could find yourself in would go something like this (adapted from Bloomberg): “Eighty-five percent of [your] backlog is denominated in the [home currency], which plunged to a record low this week [and] almost half of [your] debt is in foreign currencies, mostly dollars.”


Well, that’s precisely what the situation looks like for Mexico’s largest construction company Empresas ICA SAB which spooked bond investors earlier this month by selling a key 3% stake in an airport operator for $56 million in order to pay down debt.

That has sparked liquidity worries and as you can see from the following, investors are slightly concerned.

As Bloomberg notes, this is the “hardest hit bond in emerging markets” and it should serve as a poignant reminder of just how bad it is out there for the world’s emerging economies.

 

 

end

And in Venezuela:

Their answer to rising inflation!!

(courtesy Bloomberg)

Venezuela Is Adding More Zeroes to Its Currency to Deal With Hyperinflation August 26, 2015 — 12:17 PM EDTUpdated on August 26, 2015 — 1:44 PM EDT

Venezuela is preparing to issue bank notes in higher denominations next year as rampant inflation reduces the value of a 100-bolivar bill to just 14 cents on the black market.

The new notes — of 500 and possibly 1,000 bolivars — are expected to be released sometime after congressional elections are held on Dec. 6, said a senior government official who isn’t authorized to talk about the plans publicly.

Many Venezuelans have to carry wads of cash in bags instead of wallets as soaring inflation and a declining currency increase the number of bills needed for everyday purchases. The situation is set to get worse. Inflation, already the fastest in the world, could end the year at 150 percent, said the official.

The government stopped releasing regular economic statistics in December, when it reported inflation had reached 69 percent.

A customer would need at least 1,280 bank notes to purchase a 24-inch Samsung television on sale at a mall in eastern Caracas for 128,000 bolivars. Some banks, meanwhile, have reduced daily withdrawal limits at ATMs because of shortages of the highest denominated notes.

Exchange Rates

The country is not planning to change it’s three-tiered exchange rate system in the short term, said the official, adding that the government is working on plans to increase dollar revenue by developing mining and petrochemical projects and reduce its dependence on oil.

One dollar is currently worth 725 bolivars on the black market, which Venezuelans use when they can’t get government approval to purchase foreign currency at the three official exchange rates of 6.3, 12.8 and 200.

Venezuela’s monthly minimum wage of 7,422 bolivars equates to about $37 at the weakest legal exchange rate and is only $10 at the black market rate.

A unified exchange rate would not be possible until the economy becomes more diversified and domestic production rises, said the official.

Press officials at the central bank and finance ministry declined to comment when contacted by telephone Wednesday.

Market Manipulation

The black market rate is being manipulated by traders in Cucuta, Colombia and the Miami-based website dolartoday.com, the official added. While the rate has become a reference for some minor sectors of the economy, it’s a small market and not representative of the overall economy, the official said.

Venezuela maintains its willingness to pay foreign debt and is buying back bonds when it can, said the official, adding that the government could consider selling or swapping gold reserves if it needed to. Gold currently held in Caracas could easily be transported abroad if the need arose, the official said.

The country’s foreign reserves fell to a 12-year low of $15.4 billion on July 27 and have since rebounded to about $16.5 billion, according to data compiled by Bloomberg.

New loans from China will slowly be reflected in the country’s reserves, the official said.

Oil related stories: DOE Confirms Major Inventory Draw, Crude Production Slowest In 3 Months

Following last night’s huge drawdown in inventories, according to API, The DOE data shows a huge 5.45mm bbl draw (against expectations of a 3.7mm bbl draw). This is the biggest draw since early June and 2nd biggest draw in 13 months. Production data showed a 3rd weekly drop in a row (4th of last 5 weeks) but of lesser magnitude. WTI crude’s reaction was an initial surge to test API-spike highs but then weakness ensued as Fed’s Dudley started speaking...

Crude inventory tumbled…

 

And Production continues to slow… though only modestly

 

The reaction for now…Surge on oil fundamentals and purge on Dudley…

 

 

Charts: Bloomberg

end

This should cause oil to drop!

 

(courtesy Andy Tully/Oil Price.com)

Iran Prepared To Defend Old Market Share “At Any Cost”

Submitted by Andy Tully via OilPrice.com,

Iran’s oil minister says his country supports calls for an emergency OPEC meeting to explore ways to shore up the price of oil, but even without such an effort, Tehran is willing to regain its market share “at any cost.”

Iran once was OPEC’s second-leading producer, after Saudi Arabia, but output has plunged since 2012, when international sanctions forbade any country or energy company to buy, ship, finance and insure its crude because of Tehran’s nuclear program. In 2011, Iran’s output was 3.7 million barrels per day. With the sanctions, production dropped to 1.2 million barrels per day.

Iran and six world powers – Britain, China, France, Germany, Russia and the United States – reached an agreement in July on controlling that program and lifting the sanctions, probably by early 2016. Oil Minister Bijan Zanganeh has said repeatedly that his country can quickly boost production by more than 1 million barrels per day within a month after the sanctions are lifted.

This could further depress the price of oil, which has dropped precipitously since summer 2014.Already there is a glut of oil, and OPEC members lately have been producing at near-record levels. The group already is exceeding its output cap of 30 million barrels a day by at least 1.5 million barrels per day. Once Iran returns to the market, the price probably will fall further.

So be it, Zanganeh said in Tehran on Aug. 23. “We will be raising our oil production at any cost and we have no other alternative,”he was quoted by his ministry’s website, Shana. “If Iran’s oil production hike is not done promptly, we will be losing our market share permanently.”

But Zanganeh also said he was aware that his country’s return to the world oil market could further weaken prices, and declared Tehran’s support of a call for OPEC to hold an extraordinary meeting to discuss ways to stabilize oil’s price. The cartel’s next scheduled meeting will be Dec. 4.

“If [such a meeting meeting] is convened, it will have an impact on oil prices,” the minister said. “The urgent meeting must be held with all OPEC members in attendance. It is only through such consensus that one can say all members have decided to reach results.”

But Zanganeh said he has little hope that such a meeting will take place because of opposition by at least one member that is using low oil prices as a weapon in its own war to reclaim OPEC’s market share from non-OPEC producers, especially shale oil producers in North America.

“I find it unlikely that some countries with political agendas to reduce oil prices would agree to this meeting,” Zanganeh said. He didn’t specify the country, but clearly was referring to Iran’s arch-rival, Saudi Arabia.

At OPEC’s meeting in Vienna last fall, Saudi Oil Minister Ali al-Naimi used his country’s influence to persuade its 11 fellow members to keep crude production at 30 million barrels a day, rather than limit production to bolster oil’s price.

Low prices put pressure on oil producers in America, who helped create the current oil glut by using hydraulic fracturing, or fracking, to produce crude from shale. Fracking, however, is more expensive than conventional oil production, and, under al-Naimi’s strategy, depressing the price eventually could make shale production unprofitable.

 end Your early Wednesday morning currency, and interest rate moves

Euro/USA 1.1414 down .0137

USA/JAPAN YEN 119.46 up 0.894

GBP/USA 1.5597 down .0099

USA/CAN 1.3275 down .0069

Early this Wednesday morning in Europe, the Euro fell by a huge 137 basis points, trading now just above the 1.14 level falling to 1.1414; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes and another Chinese currency devaluation,  and blood letting Asian bourses. Last night the Chinese yuan weakened a considerable .0175 basis points for its 6th devaluation.  The rate at closing last night:  6.4135

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a southbound trajectory  as settled down again in Japan up by 89 basis points and trading now just above the 120 level to 119.46 yen to the dollar, 

The pound was down this morning by 99 basis points as it now trades just below the 1.56 level at 1.5597.

The Canadian dollar reversed course  by rising 69 basis points to 1.3275 to the dollar. (Harper called an election for Oct 19)

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)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).

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: up by 570.13 or 3.20% 

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

2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the red/

Gold very early morning trading: $1131.40

silver:$14.42

Early Wednesday morning USA 10 year bond yield: 2.11% !!! down 1  in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield rose to 2.93 up 14 basis points as word got out that China was selling treasuries like mad!1

USA dollar index early Wednesday morning: 94.58 up 62 cents from Tuesday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Wednesday morning And now for your closing numbers for Wednesday night: Closing Portuguese 10 year bond yield: 2.69% down 4 in basis points from Tuesday Closing Japanese 10 year bond yield: .371% !!  up 1.4 in basis points from Tuesday Your closing Spanish 10 year government bond, Wednesday, up 1 in basis points Spanish 10 year bond yield: 2.11% !!!!!! Your Wednesday closing Italian 10 year bond yield: 1.98% par  in basis points from Thursday: trading 13 basis point lower than Spain. IMPORTANT CURRENCY CLOSES FOR WEDNESDAY Closing currency crosses for Wednesday night/USA dollar index/USA 10 yr bond:  3:00 pm  Euro/USA: 1.1357 down .01960 (Euro down 196 basis points) USA/Japan: 119.54 up .985 (Yen down 99 basis points) Great Britain/USA: 1.5472 down .0224 (Pound down 224 basis points USA/Canada: 1.3335 down .0009 (Canadian dollar up 9 basis points)

USA/Chinese Yuan:  6.4095  up .0135  ( Chinese yuan down 14.5 basis points)

This afternoon, the Euro fell dramatically again falling by 196 basis points to trade at 1.1357. The Yen fell to 119.54 for a loss of 99 basis points. The pound was down 224 basis points, trading at 1.5472. The Canadian dollar rose 9 basis points to 1.3335. The USA/Yuan closed at 6.4095 Your closing 10 yr USA bond yield: up 5 basis points from Tuesday at 2.17%// ( well below the resistance level of 2.27-2.32%)  Your closing USA dollar index: 95.07 up 111 cents on the day . European and Dow Jones stock index closes: England FTSE down 102.14 points or 1.68% Paris CAC down 63.81 points or 1.40% German Dax down 130.69 points or 1.29% Spain’s Ibex down  130.90 points or 1.29% Italian FTSE-MIB down 175.88. or 0.81% The Dow up 619.07 or 3.95% Nasdaq; up 191.05 or 4.24% OIL: WTI 38.63 !!!!!!! Brent:43.19!!! Closing USA/Russian rouble cross: 69.09 down 7/100 roubles per dollar on the day And now for your more important USA stories. Your closing numbers from New York Dow Follows Biggest Crash Since Lehman With Third Biggest One Day Surge Ever As China Dumps Treasurys

Another dead cat bounce… but this one didn’t completely collapse… which means…

Victory!!!

 

As Nasdaq gets back into the green for the week!! Mission Accomplished…

 

As post-European close panic-buying hit US Stocks…

 

And Bonds were brutalized today as the realization that China is selling spreads… This is the worst 2-day percentage  yield rise for 30Y bonds since Oct 2011.

And bond liquidity was absymal….

Another day, another overnight ramp on vapor-thin volume to maintain the illusion into the US open…

 

And then the panic-buying ensued.

CNBC cheerleaders out en masse today once again… which made one tweeter think…

But thanks to USDJPY, eveything was awesome…

 

Volume was weaker than it has been in the flush…Today was the biggest short squeeze since early Feb 2015.

NOTE – today saw another lower high!! Be Careful

Perhaps a little context is required for this ‘healthy correction’… Todsay is The Dow’s biggest point gain since Oct 2008 (and biggest percentage gain since Nov 2011)

 

AAPL’s best day since April 2014…

 

And VIX saw its signal early on and pushed down to meet it… VIX crashes below 30 once again…

 

Chatter that credit risk has turned are overstated… ascounterparty risk seems notably bid still…

 

But the S&P has caught down to the weakness in the credit cycle…

 

EUR weakness and Cable hammered drove the USD Index higher on the day and back into the green for the week…

 

Commodities were all sold with silver and gold worst hit. The PMs did stabilize a little after Europe closed as copper & crude kept sliding…

 

WTI ended at the lows of the day with a $38 handle once again  (despite weak production and a big draw)…

 

We leave you with this comment from one bruight CNBC anchor, smiling gormelssly at thblionkg green lights…

“Concfidence In The Market Has Been Restored”

So no need for ‘Markets In Turmoil” shows anymore then?

Charts: Bloomberg

Bonus Chart: A Change In Trend Is Coming…

Average:

5 Durable goods growth slows in July as well as another capex order decline…a good reason for the Dow to rise: (courtesy zero hedge) Recession Watch – Durable Goods Growth Slows In July, Core Capex Orders Decline 6 Straight Months

Durable Goods Orders rose a better than expected 2.0% in July (but that is notably slower than the 4.1% revised growth in June) mostly driven by another surge in aircraft orders which however was nowhere near last year’s bumper Boeing-driven surge, resulting in a 20% drop Y/Y in the headline data. A more realistic assessment came from the durables ex-transports series, which rose just 0.6%, better than the 0.3% expected, and down 2.5% from a year ago. This is the 6th consecutive drop in the annual data.

Non-defense Capital Goods growth remains stagnant as core capex orders have also now been in deceline 6 straight months year-over-year.  Finally, durable goods ex aircraft shipments also moderated, rising 0.6%, down from last month’s upward revised 0.9%, and a paltry 0.5% up from a year ago.

The big Boeing order from last year washes through the NSA data:

 

But ex-Transports the data remains ugly YoY:

 

Non-defense Capital Goods remain stuck in a recessionary slump:

 

As Core Capex is now down 6 straight months YoY:

 

It may really be time for the economists, who still refuse to see any recessionary signals in the data, to invent some new climatic seasonal adjustments: at least it was record hot in July.

Charts: Bloomberg

end Bill Dudley just killed the rate hike in September.  The next question is of course, when will QE4 begin: (courtesy zero hedge) Dudley Just Killed The Rate Hike: “September Less Compelling; I Hope We Can Raise Rates This Year”

Goodbye September rate hike. From the much anticipated Dudley Q&A:

  • DUDLEY: CASE FOR SEPT RATE HIKE LESS COMPELLING
  • DUDLEY:INTNL DEVELOPMENTS TIGHTHEN FINL CONDNS, MAY HURT ECON
  • DUDLEY: RATE HIKE CASE COULD BE MORE PANICKY BY SEPT FOMC
  • DUDLEY SAYS INTL DEVELOPMENTS HAVE RAISED DOWNSIDE RISKS
  •  10:36 08/26  DUDLEY: HAVE TO CONSIDER INTNL DEVELOPMENTS; CAN AFFECT ECON

Transitory:

  • DUDLEY: EXPECTS DOLLAR, OIL EFFECTS TO BE TRANSITORY ON U.S. INFLATION

On inflation:

  • DUDLEY: LOW INFL APT TO BE TRANSITORY

Because it is only a matter of time before the money paradrops begin?

  • DUDLEY: US DATA GOOD, BUT CAN’T JUST LOOK AT DOMESTIC DATA

Yes, have to also look at domestic stocks. Oh but wait:

  • DUDLEY: I DON’T HAVE A VIEW ON WHY THE STOCK MARKET IS DOING WHAT IT IS DOING
  • DUDLEY: STOCK DROP HAS LITTLE S-TERM EFFECT ON U.S. ECON

And the punchline:

  • DUDLEY: I REALLY HOPE WE CAN RAISE RATES THIS YEAR

But the markets won’t allow us.

TSYs jumping on the news, USDJPY dumping on USD weakness with stocks shocked, and waiting until the algos reverse the correlation trackers so they can push stocks higher on a weaker dollar, resulting from this latest admission of Fed policy failure.

end And the net effect of Dudley’s comments on financials: Dudley Sends Rate-Hike Odds Plunging, Hammers USDJPY, Slams Stocks

Comments from Fed’s Dudley have sparked USD weakness as a sooner-rather-than-later rate-hike appears off the table. USD weakness drags USDJPY lower which in turn fun-durr-mentally slams US Stocks. September rate-hike odds slide to 26% from 28% yesterday…

Odds tumbling…

 

as are stocks thanks to USDJPY…

 

Did today’s VIX flash crash signal traders to sell vol…

 

Charts: Bloomberg

end Dudley Says “We Are A Long Way From Additional QE”

And scene:

  • FED’S DUDLEY SAYS “WE ARE A LONG WAY FROM” ADDITIONAL QUANTITATIVE EASING

So, how far is the “away”: another 5% drop in the S&P “data”? 10%? 20%? And what is measured in: milliseconds or nanoseconds. Inquiring frontrunning vacuum tubes want to know.

 end Today’s auction confirms that not only is China not buying treasuries but they are dumping them: (courtesy zero hedge) Lowest Bid-To-Cover Since 2009 In Ugly, Tailing 5 Year Auction As China Dumping Story Picks Up Steam

While yesterday’s ugly auction can be attributed mostly to the tumble in repo “specialness” heading into the auction, perhaps as a result of a surge in supply coming from China, today’s just as ugly 5 Year had one catalyst: the one which Zero Hedge broke first last night – concerns about China selling.

As the following table shows, going into today’s auction, the 5Y was barely negative, or -0.01% in repo.

The uglyness started at the very top, with the pricing of 1.463% a tail of 0.6bps to the 1.457% When Issued. But the biggest concern was the bid to cover of just 2.34: this was the lowest BTC since July 2009.

Worse, and confirming that China is clearly out of the market for the time being, was the Indirect take down, which at 50.1% was the lowest since October and with Directs of 7.3% not stepping up, it meant Dealers were stucking holding 42.5% of tthe auction, the lowest since January 2014.

Why: because as we first reported last night and as virtually every bond desk today is confirming today, China is not only not buying any more, but is actively dumping US paper here. For the sake of the Fed, we can only hope that said dumping will not continue indefinitely because very soon the market’s natural ability to soak up paper (recall equity sellers are traditionally bond buyers) will be exhausted very fast, and then the debate whether or not the Fed should do QE4 will become moot very fast.

end

 

BILL GROSS is now asking the question:  Is China dumping USA treasuries?:

Bill Gross Asks The $64 Trillion Question: Is China Dumping Treasurys?

For months, we’ve been at pains to explain to anyone and everyone listening that China is dumping US paper at a record pace.

As we detailed on Tuesday evening, the new FX regime (i.e. the system in place since the dramatic August 11 yuan devaluation) is costing China dearly in terms of FX reserves.

The reason: the new, more “market-based” regime is ironically requiring more intervention than the previous system and this has led directly to the liquidation of more than $100 billion in USTs in the past two weeks alone (by SocGen’s math), which means that incredibly, Beijing has sold more US paper in the past two weeks than it had previously sold all year!

And as SocGen, and now Zero Hedge readers, are acutely aware, this will only continue, as a stable currency requires either “complete FX flexibility or zero FX flexibility” and because China is stuck somewhere in between, the UST firesale is set to continue unabated.

Now, the world has awoken, and indeed Bill Gross is out asking the $64 trillion question:

end

As soon as the USA/JPY rose above 119, that was the signal to ramp up the Dow:

 

The Fun-Durr-Mental Reason Why Stocks Are Bouncing (Again)

. or why the number 119.00 is the most important in the world right now…

 

 

Quite clearly the moment USDJPY hit 119.00 it was majestically ramped – leading stocks higher just as everyone was talking about pre-margin call selling…

And this was the perfect environment for central bank manipulation….

 

h/t @Not_Jim_Cramer

end

 

Graham Summers sums up the USA financial scene perfectly: (courtesy Graham Summers/Phoenix Capital Research). What Can the Fed Do to Hold Back the Crisis? Not Much

The financial system is in uncharted waters… and it’s not clear that the Fed has a clue how to navigate them.

A number of key data points suggest the US is entering another recession. These data points are:

1)   The Empire Manufacturing Survey

2)   Copper’s sharp drop in price

3)   The Fed’s own GDPNow measure

4)   The plunge in corporate revenues

Why does this matter? After all, the US typically enters a recession every 5-7 years or so.

This matters because interest rates are currently at zero. Never in history has the US entered a recession when rates were this low. And it spells serious trouble for the financial system going forward.

Firstly, with rates at zero, the Fed has little to no ammo to combat a contraction. Some Central Banks have recently cut rates into negative territory. However, this is politically impossible in the US, particularly with an upcoming Presidential election.

This ultimately leaves QE as the last tool in the Fed’s arsenal to address an economic contraction.

However, at $4.5 trillion, the Fed’s balance sheet is already so monstrous that it has become a systemic risk in of itself. And the Fed knows this too… Janet Yellen, before she became Fed Chair, was worried about how the Fed could safely exit its positions back when its balance sheet was only $1.3 trillion during QE 1 in 2009.

Moreover, it’s not clear that the Fed could launch another QE program at this point. For one thing there is that aforementioned upcoming Presidential election. Another QE program would just be fuel for the fire that is growing public anger with Washington’s meddling in the economy. And this would lead to greater scrutiny of the Fed and its decision making.

Even if the Fed were to launch another QE program in the next 15 months, it’s not clear how much it would accomplish. A psychological shift has hit the markets in which investors’ faith in Central Bank policy is no longer sacrosanct.

Consider China, where despite rampant money printing, the stock market has continued to implode, crashing to new lows. China’s Central Bank is pumping $29 billion into its stock markets per day.  This bought a few weeks of a bounce before Chinese stocks continued to collapse.

 

 

In short, as we predicted, Central Banks will indeed be powerless to stop the next Crisis as it spreads. The Fed could potentially go “nuclear” with a massive QE program if the markets fall far enough, but this would only accelerate the pace at which investors lose confidence in Central Banks’ abilities to rein in the carnage.

 

end

 

Let’s close with this terrific paper from Raul Meijer on the true story behind China:

 

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

“I Fear For The Chinese Citizen”

ook, it’s very clear where I stand on China; I’ve written a lot about it. And not just recently. Nicole Foss, who fully shares my views on the topic, reminded me the other day of a piece I wrote in July 2012, named Meet China’s New Leader : Pon Zi. China has been a giant lying debt bubble for years. Much if not most of its growth ‘miracle’ was nothing but a huge credit expansion, with an outsize role for the shadow banking system.

A lot of this has remained underreported in western media, probably because its reporters were afraid, for one reason or another, to shatter the global illusion that the western financial fiasco could be saved from utter mayhem by a country producing largely trinkets. Even today I read a Bloomberg article that claims China’s Q1 GDP growth was 7%. You’re not helping, boys, other than to keep a dream alive that has long been exposed as false.

China’s stock markets have a long way to fall further yet. This little graph from the FT shows why. The Shanghai Composite closed down another 1.27% today at 2,927.29 points. If it ‘only’ returns to its -early- 2014 levels, it has another 30% or so to go to the downside. If inflation correction is applied, it may fall to 1,000 points, for a 60% or so ‘correction’. If we move back 10 or 20 years, well, you get the picture.

That is a bursting bubble. Not terribly unique or mind-blowing, bubbles always burst. However, in this instance, the entire world will be swept out to sea with it. More money-printing, even if Beijing would attempt it, no longer does any good, because the Politburo and central bank aura’s of infallibility and omnipotence have been pierced and debunked. Yesterday’s cuts in interest rates and reserve requirement ratios (RRR) are equally useless, if not worse, if only because while they may provide a short term additional illusion, they also spell loud and clear that the leadership admits its previous measures have been failures. Emperor perhaps, but no clothes.

Every additional measure after this, and there will be many, will take off more of the power veneer Xi and Li have been ‘decorated’ with. Zero Hedge last night quoted SocGen on the precisely this topic: how Beijing painted itself into a corner on the RRR issue, while simultaneously spending fortunes in foreign reserves.

The Most Surprising Thing About China’s RRR Cut

[..] how does one reconcile China’s reported detachment from manipulating the stock market having failed to prop it up with the interest rate cut announcement this morning. The missing piece to the puzzle came from a report by SocGen’s Wai Yao, who first summarized the total liquidity addition impact from today’s rate hike as follows “the total amount of liquidity injected will be close to CNY700bn, or $106bn based on today’s onshore exchange rate.” And then she explained just why the PBOC was desperate to unlock this amount of liquidity: it had nothing to do with either the stock market, nor the economy, and everything to do with the PBOC’s decision from two weeks ago to devalue the Yuan. To wit:

In perspective, the PBoC may have sold more official FX reserves than this amount since the currency regime change on 11 August.

Said otherwise, SocGen is suggesting that China has sold $106 billion in Treasurys in the past 2 weeks! And there is the punchline. It explains why the PBOC did not cut rates over the weekend as everyone expected, which resulted in a combined 16% market rout on Monday and Tuesday – after all, the PBOC understands very well what the trade off to waiting was, and it still delayed until today by which point the carnage in local stocks was too much. Great enough in fact for China to not have eased if stabilizing the market was not a key consideration.

In other words, today’s RRR cut has little to do with net easing considerations, with the market, or the economy, and everything to do with a China which is suddenly dumping a record amount of reserves as it scrambles to stabilize the Yuan, only this time in the open market!

The battle to stabilise the currency has had a significant tightening effect on domestic liquidity conditions. If the PBoC wants to stabilise currency expectations for good, there are only two ways to achieve this: complete FX flexibility or zero FX flexibility. At present, the latter is also increasingly unviable, since the capital account is much more open. Therefore, the PBoC has merely to keep selling FX reserves until it lets go.

And since it can’t let go now that it has started off on this path, or rather it can but only if it pulls a Swiss National Bank and admit FX intervention defeat, the one place where the PBOC can find the required funding to continue the FX war is via such moves as RRR cuts.

Ambrose Evans-Pritchard, too, touches on the subject of China’s free-falling foreign reserves.

China Cuts Rates To Stem Crisis, But Doubts Grow On Foreign Reserve Buffer

The great unknown is exactly how much money has been leaving the country since the PBOC stunned markets by ditching its dollar exchange peg on August 11, and in doing so set off a global crash. Some reports suggest that the PBOC has already burned through $200bn in reserves since then. If so, this would require a much bigger cut in the RRR just to maintain a neutral setting. Wei Yao said the strategy of the Chinese authorities is unworkable in the long run.

 

If they keep trying to defend the exchange rate, they will continue to bleed reserves and will have to keep cutting the RRR in lockstep just to prevent further tightening. They may let the currency go, but that too is potentially dangerous. She said China can use up another $900bn before hitting safe limits under the IMF’s standard metric for developing states.

 

“The PBOC’s war chest is sizeable, but not unlimited. It is not a good idea to keep at this battle of currency stabilisation for too long,” she said. Citigroup has also warned that China’s reserves – still the world’s largest at $3.65 trillion but falling fast – are not as overwhelming as they appear, given the levels of short-term external debt. The border line would be $2.6 trillion. “There are reasons to question the robustness of China’s reserves adequacy. By emerging market standards China’s reserves adequacy is low: only South Africa, Czech Republic and Turkey have lower scores in the group of countries we examined,” it said.

It is a dangerous game they play, that much should be clear. And you know what China bought those foreign reserves with in the first place? With freshly printed monopoly money. Which is the same source from which the Vinny the Kneecapper shadow loans originated that every second grandma signed up to in order to purchase ghost apartments and shares of unproductive companies.

And that leads to another issue I’ve touched upon countless times: I can’t see how China can NOT descend into severe civil unrest. The government at present attempts to hide its impotence and failures behind the arrest of all sorts of scapegoats, but Xi and Li themselves should, and probably will, be accused at some point. They’ve gambled away a lot of what made their country function, albeit not at American or European wealth levels.

If the Communist Party had opted for what is sometimes labeled ‘organic’ growth (I’m not a big afficionado of the term), instead of ‘miracle’ Ponzi ‘growth’, if they had not to such a huge extent relied on Vinny the Kneecapper to provide the credit that made everything ‘grow’ so miraculously, their country would not be in such a bind. It would not have to deleverage at the same blinding speed it ostensibly grew at since 2008 (at the latest).

There are still voices talking about the ‘logical’ aim of Beijing to switch its economy from one that is export driven to one in which the Chinese consumer herself is the engine of growth. Well, that dream, too, has now been found out to be made of shards of shattered glass. The idea of a change towards a domestic consumption-driven economy is being revealed as a woeful disaster.

And that has always been predictable; you can’t magically turn into a consumer-based economy by blowing bubbles first in property and then in stocks, and hope people’s profits in both will make them spend. Because the whole endeavor was based from the get-go on huge increases in debt, the just as predictable outcome is, and will be even much more, that people count their losses and spend much less in the local economy. While those with remaining spending power purchase property in the US, Britain, Australia. And go live there too, where they feel safe(r).

I fear for the Chinese citizen. Not so much for Xi and Li. They will get what they deserve.

 

end See you tomorrow night Harvey

August 25.2015: A huge reversal in the Dow not seen since Lehman/Dow closes down 212 points after being up greater than 400 points/Gold and silver fall as options expiry on the comex ends tomorrow/China lowers its interest rate and lowers reserve...

Tue, 08/25/2015 - 19:26

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1138.20 down $15.20   (comex closing time)

Silver $14.61 down 15  cents.

In the access market 5:15 pm

 

Gold $1140.00

Silver:  $14.70

 

Here is the schedule for options expiry:

Comex:  options expire tomorrow night

LBMA: options expire Monday, August 31.2015:

OTC  contracts:  Monday August 31.2015:

 

needless to say, the bankers will try and contain silver and gold until Sept 1.2015:

 

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

At the gold comex today, we had a good delivery day, registering 59 notice for 5900 ounces  Silver saw 24 notices for 120,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 226.94 tonnes for a loss of 76 tonnes over that period.

In silver, the open interest fell by 1537 contracts as silver was down in price by 54 cents yesterday. Something, again really spooked our shorts as they ran to the hills to cover. The total silver OI now rests at 169,111 contracts   In ounces, the OI is still represented by .845 billion oz or 120% of annual global silver production (ex Russia ex China).

In silver we had 24 notices served upon for 124,000 oz.

In gold, the total comex gold OI rests tonight at 438,785. We had 59 notice filed for 5900 oz today.

We had another huge addition of 3.27 tonnes to the GLD today /  thus the inventory rests tonight at 681.10 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold.  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 will be the FRBNY and the comex.   In silver, we had no changes in silver inventory at the SLV  tune of / Inventory rests at 324.968 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver fall by 1537 contracts down to 169,111 as silver was down by 54 cents in price with respect to yesterday’s trading.   The OI for gold rose by 855 contracts to 439,640 contracts, despite the fact that  gold was down by $6.20 yesterday. We still have 16.4140 tonnes of gold standing with only 14.68 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3. Six stories on the collapsing Chinese markets, the devaluation of the yuan and the huge downfall in trading last night followed by today’s announcement of an RRR cut and also interest rate cuts. The move was to provide needed liquidity because China lost huge reserves protecting the yuan these past 6 weeks.

(Reuters/Bloomberg)

4. Troubles in Saudi Arabia

(zero hedge)

5. Troubles in one of the big emerging nations, Brazil

(two commentaries)

6. These emerging nations are already in correction mode:

(zero hedge)

 

 

 

8 Trading of equities/ New York

(zero hedge)

 

10.  USA stories:

  1. Shiller home prices falters a bit in today’s report(Case Shiller)
  2. Richmond Manufacturing Fed falls to lowest level this year.(Richmond Fed/zero hedge)
  3. USA PMI service index falls to lows of the year  (PMI/zero hedge)
  4. Take your pick on confidence levels: Government conference board high/Gallup low
  5.  Zero hedge on the real truth behind yesterday’s HFT trading

11.  Physical stories:

  1. Bill Holter interview
  2. John Embry talks with Eric King
  3. EU Probe on gold/silver manipulation (Bloomberg)
  4. Koos Jansen on the reason for the devaluation of the yuan/revaluation of gold against the yuan.

 

Let us head over and see the comex results for today.

The total gold comex open interest rose from 438,785 up to 439,640, for a gain of 855 contracts despite the fact that gold was down $6.20 with respect 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, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. We are now in the contract month of August and here the OI fell by 25 contracts falling to 1451 contracts. We had 0 notices filed yesterday and thus we lost 25 contracts or 2,500 additional ounces will not stand for delivery. The next delivery month is September and here the OI fell by 53 contracts down to 2467. The next active delivery month is October and here the OI fell by 84 contracts down to 27,742.  The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was fair at 197,332. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 284,999 contracts. Today we had 59 notices filed for 5900 oz. And now for the wild silver comex results. Silver OI fell by 15,37 contracts from 170,648 down to 169,111 as silver was down by 54 cents in price yesterday . We continue to have some short covering as our bankers pulling their hair out with respect to the continued high silver OI as the world senses something is brewing in the silver arena.  We are in the delivery month of August and here the OI fell by 0 contracts remaining at 25. We had 0 delivery notices filed yesterday and thus we neither gained nor lost any silver ounces standing in this non active month of August. The next major active delivery month is September and here the OI fell by 12,282 contracts to 41,389. The estimated volume today was excellent at 82,827 contracts (just comex sales during regular business hours).  First day notice is Monday, August 31.2015. Options expiry on the comex contract ends tomorrow night. The confirmed volume yesterday (regular plus access market) came in at 142,737 contracts which is huge in volume.  We had 24 notices filed for 120,000 oz. As a side note, the volume today equates to 713 million oz which is greater than annual production in silver from all of the world’s mines ex China ex Russia.

August contract month:

initial standing

August 25.2015

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz 14,680.971 oz  (Scotia) Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz nil No of oz served (contracts) today 59 contract (5,900 oz) No of oz to be served (notices) 1392 contracts (139,200 oz) Total monthly oz gold served (contracts) so far this month 3885 contracts

(388,500 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 574,533.5   oz Today, we had 0 dealer transactions total Dealer withdrawals: nil  oz we had 0 dealer deposits total dealer deposit: zero we had 1 customer withdrawals  i) out of Scotia:  14,680.971 oz total customer withdrawal: 14,680.971 oz  We had 0 customer deposits:

Total customer deposit: nil oz

We had 1  adjustment: i) Out of HSBC: 3,396.227 oz was adjusted out of the dealer and this landed into the customer account of HSBC

JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz)  and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes

. 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 59 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 10 notices were stopped (received) by JPMorgan customer account.   To calculate the total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (3885) x 100 oz  or 388,500 oz , to which we add the difference between the open interest for the front month of August (1451) and the number of notices served upon today (59) x 100 oz equals the number of ounces standing.   Thus the initial standings for gold for the August contract month: No of notices served so far (3885) x 100 oz  or ounces + {OI for the front month (1451) – the number of  notices served upon today (59) x 100 oz which equals 530,200 oz standing so far in this month of August (16.414 tonnes of gold).

We lost 25 contracts or an additional 2500 ounces will not stand for delivery. Thus we have 16.414 tonnes of gold standing and only 14.78 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.

Total dealer inventory 471,986.292 or 14.68 tonnes Total gold inventory (dealer and customer) =7,296,141.754 or 226.94  tonnes) Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 226,94 tonnes for a loss of 76 tonnes over that period.  end And now for silver August silver initial standings

August 25 2015:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory 21,323.33 oz (HSBC,Brinks) Deposits to the Dealer Inventory  nil Deposits to the Customer Inventory 891,995.34 oz (Brinks,JPMorgan) No of oz served (contracts) 24 contracts  (120,000 oz) No of oz to be served (notices) 1 contract (5,000 oz) Total monthly oz silver served (contracts) 325 contracts (1,625,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month 85,818.47 oz Total accumulative withdrawal  of silver from the Customer inventory this month 8,349,485.0 oz

total dealer deposit: nil   oz

Today, we had 0 deposits into the dealer account:

we had 0 dealer withdrawal: total dealer withdrawal: nil  oz We had 2 customer deposit: i) Into Brinks: 299,937.14 oz ii) Into JPMorgan:  592,058.200 oz

total customer deposits: 891,995.340 oz

We had 2 customer withdrawals: i) Out of HSBC:  20,336.64  oz ii) Out of Brinks;  986.69 oz

total withdrawals from customer: 21,323.33   oz

we had 2  adjustments i) Out of CNT: we had 1,007,304.510 oz adjusted out of the dealer and this landed into the customer account of CNT ii) out of Brinks: we had 24,012.100 oz adjusted out of the customer and this landed into the dealer account of Brinks: Total dealer inventory: 54.888 million oz Total of all silver inventory (dealer and customer) 171.080 million oz The total number of notices filed today for the August contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (325) x 5,000 oz  = 1,625,000 oz to which we add the difference between the open interest for the front month of August (25) and the number of notices served upon today (24) x 5000 oz equals the number of ounces standing. Thus the initial standings for silver for the August contract month: 325 (notices served so far)x 5000 oz + { OI for front month of August (25) -number of notices served upon today (24} x 5000 oz ,= 1,630,000 oz of silver standing for the August contract month.

we neither gained nor lost any silver ounces standing in this no active delivery month of August.

for those wishing to see the rest of data today see:http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com 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 shareholdersii) demand from the bankers who then redeem for gold to send this gold onto Chinavs no sellers of GLD paper. And now the Gold inventory at the GLD: August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes. August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 17.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 14.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 13.2015:/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes

August 12./ a huge deposit of 4.18 tonnes of gold into the GLD/Inventory rests at 671.87 tonnes

August 11.2015: no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes August 10/no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes

August 7./no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes August 6/no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes August 5.we had a huge withdrawal of 4.77 tonnes from the GLD tonight/Inventory rests at 667.93 tonnes

August 4.2015: no change in inventory/rests tonight at 672.70 tonnes

August 3.2015: no change in inventory at the GLD./Inventory remains at 672.70 tonnes August 25 GLD : 681.10 tonnes end

And now SLV:

August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 21.2015/ no change in inventory at the SLV/Inventory rests at

324.698 million oz

August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz

August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.

August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.

August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz

August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.

August 11./ no changes in SLV inventory/rests tonight at 326.209 million oz.

August 10: no changes in SLV inventory/rests tonight at 326.209 million oz.

August 7.no changes in SLV/Inventory rests this weekend at 326.209 million oz

August 6/no changes in SLV/inventory rests at 326.209 million oz

August 5/ a small withdrawal of 142,000 oz of inventory leaves the SLV/Inventory rests tonight at 326.209 million oz

August 4.2015: a small withdrawal of 476,000 oz of inventory at the SLV/Inventory rests at 326.351 million oz August 3.2015; no change in inventory at the SLV/inventory remains at 326.829 million oz

August 25/2015:  tonight inventory rests at 324.968 million oz end   And now for our premiums to NAV for the funds I follow: Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that) 1. Central Fund of Canada: traded at Negative 9.7 percent to NAV usa funds and Negative 9.5% to NAV for Cdn funds!!!!!!! Percentage of fund in gold 62.6% Percentage of fund in silver:37.1% cash .3%( August 25/2015). 2. Sprott silver fund (PSLV): Premium to NAV falls to -0.13%!!!! NAV (August 25/2015) (silver must be in short supply) 3. Sprott gold fund (PHYS): premium to NAV rises to – .35% to NAV August 25/2015) Note: Sprott silver trust back  into negative territory at -13% Sprott physical gold trust is back into negative territory at -.35%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *

>end And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Gold Glimmers as Global Market Fear Grips Investors

By Mark O’ByrneAugust 25, 20150 Comments

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DAILY PRICES
Today’s Gold Prices: USD 1,154.25, EUR 999.35 and GBP 730.56 per ounce.
Yesterday’s Gold Prices: USD 1,153.50, EUR 1,005.93 and GBP 734.34 per ounce.
(LBMA AM)

Gold in USD – 1 Year

Yesterday, gold rose initially prior to selling in the futures market saw gold fall $6.30 to $1153.10 in New York and ended down just 0.5%.  Silver slipped 50 cents to $14.78 per ounce.  Gold in euros and sterling fell by slightly more but still outperformed falling stock markets.

Gold performed well considering the stock market bloodbath yesterday. The fact that it is was only marginally lower despite market carnage bodes very well indeed for the coming months.

Frequently, gold is correlated with equities in the very short term and can fall when stock markets suffer sharp one day corrections. However, over the month and the quarter, gold has an inverse correlation with equities.

Gold appears to have once again anticipated the crisis and is acting like a safe haven in recent days – just at the moment when western investors need a safe haven and wealth preservation most.

We appear to be on the verge of new bear market in stocks and as we have been warning for some months now there is a real risk of a 1929 or 1987 style crash.

It is time to take stock and reduce allocations to equities and increasing allocations to cash and gold bullion.

Gold Glimmers as Global Market Fear Grips Investors
Gold last week broke above its 50-day moving average as a fresh round of negative news from around the globe rekindled investors’ interest in the yellow metal as a safe haven.

The ‘Fear Trade’, it seems, is in full force. Below are just a few of the recent news items that have made some investors skittish, which has supported gold prices:

  • China, the world’s second-largest economy, continues to slow. Its preliminary purchasing managers’ index (PMI) reading, released on Friday, came in at 47.8, a 77-month low. This follows China’s decision to devalue its currency, the renminbi, close to 2 percent. For the first time in a year, the Shanghai Composite Index fell below its 200-day moving average.
  • Crude oil is on an eight-week losing streak, the longest in 29 years. West Texas Intermediate (WTI) slipped below $40 per barrel in intraday trading Friday, the first time it’s done so since 2009.
  • U.S. stocks are undergoing an ugly selloff. They just had their worst week since September 2011 and are on track to post their worst month since May 2012. The Dow Jones Industrial Average, down 10 percent since its all-time high, is nearing correction territory. All 10 S&P 500 Index sectors were off last week.
  • We can also add to this list the high levels of margin lending on the New York Stock Exchange (NYSE) right now. At the end of every month, the exchange discloses margin amounts, and it appears that everyone is leveraged. Real margin debt growth since 1995 is twice as much as real S&P 500 growth.

Frank Holmes is a leading expert on gold, precious metals and the natural resource market. He is CEO and chief investment officer at U.S. Global Investors Inc.. He is a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Timesand other publications. He came up with the concept of the ‘fear trade’ and the ‘love trade’ in gold. This simply means many investors particularly in the West buy gold on ‘fear’ or concerns about risks in markets but that there are also many who buy gold due to their cultural affinity and a ‘love’ of gold – particularly in the Middle East, India, China and most of Asia.

Holmes latest research piece on gold is timely and as ever well worth a read and is published on Forbes here

IMPORTANT NEWS

“Frequently, gold is correlated with equities in the very short term” said GoldCore  – MarketWatch
Gold holds below seven-week high as dollar, equities recover – Reuters
Dow Industrials Tumble Nearly 600 Points Amid Global Market Selloff – The Wall Street Journal
China share plunge smacks world markets; S&P, Nasdaq in correction – Reuters
Chinese Stocks Crash Again to Extend Biggest Plunge Since 1996 -Bloomberg

IMPORTANT COMMENTARY

Gold Glimmers as Global Market Fear Grips Investors – Forbes
Peak Gold Is Looming – Bloomberg
SWOT Analysis: Will Gold’s Oversold Rebound Continue? – GoldSeek.com
AEP: China’s market Leninism turns dangerous for the world – The Telegraph
“Hang On To Your Gold” – Stepek – MoneyWeek

Click on News and Commentary

end

 

Koos Jansen: Theory on China’s gold strategy

Submitted by cpowell on Mon, 2015-08-24 12:05. Section:

8a ET Monday, August 24, 2015

Dear Friend of GATA and Gold:

Gold researcher and GATA consultant Koos Jansen writes today that the policies of the People’s Bank of China imply more moves toward gold for itself and for the country’s population as the bank uses gold as a mechanism for adjusting the value of the nation’s currency — just as the enabling act for the European Central Bank authorizes that bank to trade currencies and gold to adjust the value of the euro.

Jansen reports that when China devalued its currency, the yuan, by 3 percent the other day, the gold price in yuan rose 5 percent.

Of course the U.S. government, through the Gold Reserve Act of 1934, as amended, long has authorized itself to trade secretly in any market not just to adjust the value of the dollar but to rig any market whatsoever, even as the U.S. government preaches free markets to the rest of the world.

Jansen’s analysis is headlined “Theory on China’s Gold Strategy” and it’s posted at Bullion Star here:

https://www.bullionstar.com/blogs/koos-jansen/theory-on-chinas-gold-stra…

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

end

 

 Bill Holter, last night talking about yesterday’s events; extremely important…. Posted August 24th, 2015 at 5:53 PM (CST) by & filed under Bill Holter. Dear CIGAs,

As a follow up from yesterday’s A Weekend’s Heads Up , my thoughts were truly an understatement for today’s action! The open was far weaker than I had anticipated, down 1,089 points. This was the biggest point drop in Dow history. The volatility was out of control with the VIX trading to 53, the highest since Feb. 2009! An illustration of how much and how fast the volatility was, total point movement in the first 90 minutes was 3,000 Dow points, 4,900 total for the day! Truly incredible!

So where do we go from here? Unless we get some sort of central bank news out of China, we open down again tomorrow and see if they can get a reversal going. We are well over sold and due a bounce …but ALL crashes have occurred from oversold readings. While talking to Jim after the close, he initially said “the PPT got their ass kicked today, it would not have happened if I was running their desk”. Let me explain this because it is SO IMPORTANT.

Today was all about credibility and confidence. “They” could not allow what actually happened because it showed weakness. Or better yet, it exposed their inability to hold it all together. Today was not about margin calls, Mom and Pop selling or even mutual fund/pension plans. No, you saw “algorithms” go wild today and it turned out the algos were bigger than the PPT. Huge mistake by the PPT because just as in a street fight, “weakness” provokes aggression and now the algos know how powerful their punch is! They could not let “it happen” …they did, HUGE MISTAKE!

After the close, the muppets at CNBC are already pleading for help from the Fed. Jim summed it up when he penned this:

“A market break like today (called recalibration by financial TV money bunnies) in which the PPT was defeated screams “ultimate deflation.”

The immediate implication of “Ultimate Deflation” among the unwashed and not knowing is bearish on gold.

The basis for our thesis on gold and major new highs in metals is “Ultimate Deflation” and how global central banks will react.”

For those who do not understand, the Fed (as I mentioned yesterday and previously) has a zero percent chance of raising rates and will in fact be forced into further QE. The “Ultimate Deflation” we are experiencing guarantees that central banks ALL OVER THE WORLD will be forced to print and debase furiously! It is not the current action that will kill you…it is the REACTION from the central banks!

Today was a “warning shot” to start, maybe even a shot INTO the bow as the close stunk up the joint. I still expect some sort of stabilization where investors (lead on by the CNBC muppets) will breathe a very short term sigh of relief. Whether this lasts only a day or two or several weeks, I have no idea. I would suggest that any stability should be used as an exit!

Speaking of “exits”, if I were the Chinese or other large holders of Treasuries, I would be using the current strength as my exit plan. Capital poured into Treasuries in a safe haven bid, I would use these bids and hit them with everything I had. In fact, I believe we may very soon see the day when the U.S. Treasury market gets hit hard along with stocks and the dollar. This will be your clue the “end” is quite imminent. WATCH TREASURY YIELDS, when they inexplicably begin to rise, understand what they are telling you!

Lastly, this is not about China, it is not a “correction”, it is not because of a “slowdown”. This is the beginning of the Great Credit Unwinding and will take EVERYTHING “credit” with it. Do you understand what “everything credit” actually is?

In today’s world, anything and everything financial (including real estate) is credit. EVERYTHING is now credit! By now I probably should not have to explain what is “not credit”. Simply put, “real physical gold and silver unencumbered”.

You will soon see this as the credibility of central banks will be called into question. The viability of derivatives will be called into question. The solvency of sovereigns (including the U.S. Treasury) will be called into question. The entire global fiat system will be called into question! The conversation may go something like this;

You have been weighed. You have been measured.

And you have absolutely…

Been found wanting!

Welcome to the New World. God save you, if it is right that he should do so.

It has been and is all about “confidence”. Confidence has been the ONLY thing holding the Ponzi scheme together. The PPT allowed confidence a very black and swollen eye today. Nothing “credit” on the planet will stand upon the knockout of confidence!

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome  bholter@hotmail.com

Disastrous Day that Confidence Broke! end The following is interesting: we are finally getting a serious precious metals probe by the EU (courtesy Gaspard Morris/Bloomberg/GATA)

Precious-Metals Trading Is Probed by EU After U.S. InquiryGaspard Sebag Stephen Morris

August 25, 2015 — 5:15 AM EDT Updated on August 25, 2015 — 11:35 AM EDT

European Union antitrust regulators are investigating precious-metals trading following a U.S. probe that embroiled some of the world’s biggest banks.

The European Commission disclosed the review after HSBC Holdings Plc said in a filing earlier this month that it had received a request for information from the EU in April. The watchdog is examining possible anti-competitive behavior in spot trading, Ricardo Cardoso, a spokesman for the regulator, said in an e-mail.

“This is just another potential scandal where fines will suppress banks’ earnings, and rightly so,” said Sandy Chen, a London-based banking analyst at Cenkos Securities Plc.

U.S. prosecutors have been examining whether at least 10 banks, including Barclays Plc, JPMorgan Chase & Co. and Deutsche Bank AG, manipulated prices of precious metals such as silver and gold. The scrutiny follows international probes into the rigging of financial benchmarks for rates and currencies, which have yielded billions of dollars in fines.

The trio was among financial companies that agreed in an EU settlement to pay a total of 1.7 billion euros($1.9 billion) in December 2013 for colluding over derivatives linked to the London and euro interbank offered rates. HSBC remains under investigation in the Euribor case after refusing to join the accord.

HSBC ‘Cooperating’HSBC said in its half-year earnings report on Aug. 3 that the Brussels-based commission in April sought details about its precious-metals operations and that it’s “cooperating” with the authorities.

In the U.S., UBS Group AG said in May that it won immunity from criminal fraud charges in a Justice Department investigation into misconduct in the trading of precious metals.

The Swiss bank has successfully dodged antitrust penalties after blowing the whistle. It avoided a 2.5 billion-euro EU fine after helping officials with their yen Libor case. The company is also poised to get immunity in the EU’s currency rigging case, a person familiar with that probe said last year.

UBS declined to comment on the EU metals inquiry beyond its second-quarter report, which noted investigations by a number of authorities into precious-metals prices.

Barclays said in a July filing it has been “providing information to the DOJ and other authorities in connection with investigations into precious metals and precious metals-based financial instruments.”

Joanne Walia, a Barclays spokeswoman, declined to comment on whether the authorities included the EU. Representatives for the other banks didn’t immediately respond to requests for comment.

The EU’s investigation is preliminary at this stage and the regulator doesn’t always levy fines or sanctions.

http://www.bloomberg.com/news/articles/2015-08-25/eu-commissi
on-is-probing-precious-metals-operations

 

end

(courtesy John Embry/Kingworldnews/Eric King)

On KWN, Embry discusses China crash and PPT’s rescue of U.S. stocks

Submitted by cpowell on Tue, 2015-08-25 12:11. Section:

8:10a ET Tuesday, August 25, 2015

Dear Friend of GATA and Gold:

Sprott Asset Management’s John Embry, interviewed by King World News, discusses China’s stock market crash and the work of the Plunge Protection Team in pushing the U.S. stock market back up on Monday. An excerpt from the interview is posted at the KWN blog here:

http://kingworldnews.com/worldwide-chaos-in-global-markets-continues-as-…

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

end

And now your overnight Tuesday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan falls considerably this  time to   6.4115/Shanghai bourse: red and Hang Sang: green

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei down 733.98  or 3.96.%

3. Europe stocks all deeply in the green  (with the new Chinese rate cut)  /USA dollar index up to  94.03/Euro down to 1.1504

3b Japan 10 year bond yield: rises to .378% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.08

3c Nikkei now below 20,000

3d USA/Yen rate now just below the 121 barrier this morning

3e WTI 39.36 and Brent:  44.00 (this should blow up the shale boys)

3f Gold down  /Yen down

3gJapan 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 hugely to .695 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate falls slightly to 13.27%/Greek stocks this morning up by 8/36%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield rises to  : 10.06%

3k Gold at $1148.50 /silver $14.80  (8 am est)

3l USA vs Russian rouble; (Russian rouble up 1 1/4 in  roubles/dollar) 69.62,

3m oil into the 39 dollar handle for WTI and 44 handle for Brent/Saudi Arabia increases production to drive out competition.

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.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9421 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0837 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/

3r the 4 year German bund now enters in negative territory with the 10 year moving further from negativity to +.695%

3s The ELA lowers to  89.7 billion euros, a reduction of .7 billion euros for Greece.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.

4. USA 10 year treasury bond at 2.07% early this morning. Thirty year rate below 3% at 2.81% / yield curve flatten/foreshadowing recession.

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

 

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

 

end

US Equity Futures Soar 4% After PBOC Rate Cut; Chinese Futures Jump After Overnight Market Crash

The PBOC was supposed to cut rates over the weekend – the risk, as we warned on Friday, was that it would not. It did not, and the result was a 16% plunge for the Shanghai Composite over the past two days as China’s underwater investors realized China may have finally forsaken them, which dragged down the benchmark index not only red, but down 7% for the year after it had been up 60% in mid-June.

Still, while China was crashing overnight (it closed down 7.6% at 2,965, or below the “other” hard support level, down 16% in the past two days), other markets were relatively stable, if weak toward the end such as the Nikkei which tumbled 5%, soared 2% then retumbled 4% into the close although both Europe and the US posted solid gains in overnight trading as if they knew that an intervention by China was imminent. Whether or not they did is irrelevant but as we reported minutes ago, the PBOC finally did what everyone had expected it would do over the weekend, and cut the benchmark lending and deposit rates by 25%, while cutting its Required Reserve Ratio by 50bps, in the process sending global risk soaring because this time China’s rate cut will supposedly be different than the last one just two months ago on June 27.

Here is the recent history of China RRR cuts:

  • February 4: 50 bps
  • April 19: 100 bps
  • June 27: 50 bps
  • August 25: 50 bps

Including regular benchmark rate cuts, this is the 5th time the PBOC has cut since November.

The strategists are promptly lining up to predict even more RRR cuts in coming days as China tacitly admits its economic situation is far worse than expected: case in point HSBC’s co-head of Asian economic research Fred Neumann who told Bloomberg that China’s central bank will probably cut the reserve requirement ratio by at least another 100 basis points “in the coming months.”

  • Rate cuts should have stabilizing effect on investor sentiment; in itself not enough to boost economic growth
  • “It does signal that Chinese officials have become more worried about the prospects for the economy and makes it more likely that they’ll follow up with further easing measures in the coming weeks and months”: Neumann
  • “Investors had been hoping for more policy easing and Chinese officials finally delivered”: Neumann
  • Beijing will probably roll out further easing measures, including monetary easing to support construction sector and fiscal measures to boost consumer spending: Neumann

Needless to say, the PBOC cut itself was not surprising, considering the PBOC now has to juggle and micromanage every aspect of the economy, from its sliding currency, to the bursting stock bubble, to record capital outflow, to soaring real interest rates, to the slowing economy. In fact, bulls around the globe will welcome the latest central bank bailout. Which also happens to be the worst aspect of today’s intervention, because one can once again toss all the talk that China would finally stop intervening in asset pricing, with today’s decision merely perpetuating the market’s reliance on central bank bailouts around the globe. As a reference, this was the second time China cut both RRR and interest rates in 2 months: the last time it did so was during the depths of the financial crisis.

Algos, however are happy to buy now and ask questions later, and as of moments ago the market reaction was initially ebulient:

  • China A50 stock futures soar +435
  • Dow futures +602, up 4%
  • S&P500 futures +72, up 4%
  • Nasdaq Futures +184
  • Germany’s Dax up over 3%
  • USD/JPY rises to 119.98
  • EUR/USD tumbles 1.22% to 1.1477 after stops below 1.15 are triggered
  • Stoxx 600 rises 14.79 to 356.80; fell 19.27 yday
  • Sept. bund future falls as much as 141 ticks to 154.27
  • German 10Y yield +10bps to 0.69%, US 10Y yield +8bps to 2.08%
  • iTraxx Main index -4bps to 74, iTraxx Crossover index -20bps to 345
  • WTI futures +$1.38 to $39.68/bbl, up 3.5% at last check

As a warning, the kneejerk reaction numbers are moving so fast by the time we hit save, we fully expect them to be no longer even remotely close to the current situation.

So while we, the vacuum tubes, and everyone else processes the latest Chinese monetary bailout, here are some of tonight’s highlights from Bloomberg and RanSquawk:

  • Treasuries decline after overnight rebound in stocks and oil and as China cuts benchmark lending rate and reserve requirement ratio; week’s auctions begin with $26b 2Y, WI 0.665% vs. 0.69% in July.
  • China halted intervention in stock market so far this week as policy makers debate merits of government campaign to prop up share prices and what to do next, according to people familiar with situation
  • PBOC cut its benchmark lending rate for fifth time since Nov., lowering it by 25bps to 4.6% and the deposit rate by 25bp to 1.75% effective Wednesday; cut reserve ratio by 0.5ppt, effective Sept 6
  • Some Chinese agencies involved in economic affairs have begun to assume in their research that the yuan will weaken to 7 to the dollar by the end of the year, said people familiar with the matter
  • Franklin Templeton’s Mark Mobius says investors should hold off from buying developing nation shares as a rebound from six-year lows will be shortlived amid widening price swings
  • Germany’s Ifo institute business climate index climbed to 108.3 from 108 in July. The median estimate was for a decline to 107.6, according to a Bloomberg survey of economists
  • NYC Mayor Bill de Blasio, a Democrat who vowed to use the 2016 presidential campaign to raise the nation’s awareness of income inequality, has become the target of Republican candidates who call him a symbol of inept liberalism
  • No IG or HY deals priced yesterday. BofAMLCorporate Master Index +3 to new YTD wide +172, widest since Sept 2012; YTD low 129. High Yield Master II OAS +28bp to new YTD wide 614, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields higher. Asian stocks mixed, European stocks and U.S.equity-index futures gain. Crude oil and copper higher, gold falls

end

 

Last night:  China devalues

 

China again devalues, as stocks plummet.  China desperately trying to stem the flow of liquidity out of the country.  After the market closed in desperation they cut rates  (see second commentary)

(courtesy zero hedge)

AsiaPac Stocks Continue Collapse As Yuan Deposit Rates Spike To Record High, China Devalues, Japan Denies “G7 Response” Being Planned

Following yesterday’s bloodbath (and the continued carnage around the world), AsiaPac stocks are lower with Japan unable to mount any sustained bounce despite every effort to lift JPY. The propaganda-fest is in full swing as Amari claims JPY is safe-haven asset and Aso denies any coordinated G7 response is being planned (which means they are all feverishly trying to fgure out how to ‘save’ the world again from a 4-day stock drop). China is ugly with stocks down hard in the pre-open (CSI-300 -4.3%) as offshore Yuan depo rates spike to 22.9% – a record high – as liquidty outflows must be accelerating (as PBOC adds another CBNY150bn liquidty). China devalues Yuan 0.2% – most in 11 days.

 

The Japanese are in full propaganda mode…

  • *SUGA: WATCHING MARKET MOVES ATTENTIVELY
  • *ASO: FX MOVES HAVE BEEN ROUGH (“rough” – well that’s one word for complete and utter carnage)
  • *ASO: CONTINUING TO CLOSELY WATCH MARKET MOVES
  • *ASO: I HAVEN’T CONTACTED U.S. TREASURY(which means he has!)
  • *ASO: NOT AT STAGE FOR G-7, G-20 RESPONSE(which means there is)
  • *AMARI: UP TO BOJ TO DECIDE ON ADDL EASING (how’s that last QQE2 working out?)
  • *AMARI: YEN IS BEING BOUGHT AS SAFE ASSET (nope it’s a forced carry unwind sorry!)
  • *AMARI:YEN SEEN AS SAFE ASSET SHOWS VALUATION OF JAPAN ECONOMY (what utter crap!)

So we await the coordinated response to the global vicious circle of carry unwinds and forced liquidations… but remember, RRR cuts so far have done absolutely nothing to hold back wave after wave of frenzied malicious Chinese sellers just wanting out of the ponzi.

The talk is not working as Chinese stocks are weak in the pre-open…

  • *FTSE CHINA A50 SEPT. FUTURES DROP 3.4% IN SINGAPORE
  • *CHINA CSI 300 STOCK-INDEX FUTURES FALL 4.3%

Some good news… China is deleveraging…

  • *SHANGHAI MARGIN DEBT DECLINES TO LOWEST IN FIVE MONTHS

As China devalues Yuan by most in 11 days..

  • *PBOC WEAKENS YUAN FIXING BY 0.2%, MOST SINCE AUG. 13
  • *CHINA SETS YUAN REFERENCE RATE AT 6.3987 AGAINST U.S. DOLLAR

And China adds yet more liquidity…

  • *PBOC TO INJECT 150B YUAN WITH 7-DAY REVERSE REPOS: TRADER

The desperation to keep liquidity from flooding out is very evident:

  • *ONE-WEEK OFFSHORE YUAN DEPOSIT RATE JUMPS 840 BPS TO 22.9%
  • *YUAN DEPOSIT RATE HEADED FOR RECORD CLOSE IN HONG KONG

 

“Some are converting yuan back into USD or HKD amid the devaluation,’’ says Lawrence Kung, head of deposits department at Wing Lung Bank in Hong Kong

*  *  *

Hope continues for a huge broad-based RRR cut but The PBOC – just as it said – remains fixed on small targeted liquidity injections. This will not please the ‘people’ or Jim Cramer… “they know nothing.”

*  *  *

And finally, we could not have put it better than The Onionas they explain how the “Shoddy Chinese-Made Stock Market Collapses”…

Proving to be just as flimsy and precarious as many observers had previously warned, the Chinese-made Shanghai Composite index completely collapsed Monday, sources confirmed.

 

“Sure, it looked fine from the outside, but anybody who saw it up close knew that it was of such poor quality that it wasn’t built to last,” said Allen Sigman of the London School of Economics, adding that the stock market, which he described as a crude knockoff of Western versions, was practically slapped together overnight and featured countless obvious structural weak points.

 

“They pretty much ignored regulations, and inspections were a joke. The only surprise is that it didn’t fall apart sooner.” Sigman added that he just hopes there weren’t too many people who were hurt in the disaster.

*  *  *

We assume that is satire… though it does seem a little too real.

end Tuesday morning est /  Tuesday evening Chinese time) China cuts its benchmark interest rate.  Now the big fear will be a huge loss of capital flow: (courtesy zero hedge) China Cuts Benchmark Interest Rate By 25bps, Cuts RRR By 50bps

What China was supposed to do over the weekend, and waited until its stock market tumbled another 16%, it has just done, because as MarketNews, Reuters and Bloomberg all just blasted, moments ago the PBOC cut both the benchmark and RRR rates:

  • CHINA PBOC CUTS INTEREST RATES
  • CHINA PBOC CUTS REQUIRED DEPOSIT RESERVE RATIO
  • CHINA PBOC CUTS 1Y DEPOSIT RATE BY 25 BPS
  • CHINA PBOC CUTS 1Y LENDING RATE BY 25 BPS
  • CHINA PBOC CUTS BANKS DEPOSIT RESERVE RATIO BY 50 BPS
  • CHINA PBOC: OVERALL PRICE LEVEL STILL LOW DESPITE PORK PRICE
  • CHINA PBOC: GLOBAL FINANCIAL MKT SEES BIG VOLATILITY
  • CHINA PBOC: ECO STILL FACING DOWNWARD PRESSURE
  • CHINA PBOC LIFTS CEILING ON DEPOSIT INTEREST RATES

From the PBOC:

People’s Bank of China, from August 26, 2015, down financial institutions RMB benchmark lending and deposit interest rates in order to further reduce financing costs. Among them, one-year benchmark lending rate by 0.25 percentage point to 4.6%; year benchmark deposit rate by 0.25 percentage point to 1.75%; all other grades of loans and deposit benchmark interest rate, adjusted individual housing provident fund deposit and lending rates. Meanwhile, the release of more than one year (excluding one year) fixed deposit interest rate floating ceiling, demand deposits and time deposits of one year or less floating interest rate ceiling unchanged.

 

Since September 6, 2015, down financial institutions RMB deposit reserve ratio by 0.5 percentage points, in order to maintain reasonably adequate liquidity in the banking system, guide steady moderate growth of money and credit. Meanwhile, to further enhance the financial institutions to support the “three rural” and the ability of small and micro enterprises, additional lower county rural commercial banks, rural cooperative banks, rural credit cooperatives and rural banks and other rural financial institutions reserve ratio by 0.5 percentage points. Additional reduction of financial leasing companies and auto finance companies reserve ratio three percentage points, to encourage it to play a good role in the expansion of consumption.

This move takes the RRR from 18.50% to 18.00%, the deposit rate from 2.00% to 1.75%, the lending rate from 4.85% to 4.60%, and the PBOC also announced a further 300 bps RRR cut for financial leasing and auto leasing companies.

Here is the initial take from the WSJ:

China on Tuesday cut interest rates by one-quarter of a percentage point and reduced bank-reserve requirements by half of a percentage point amid market turmoil.

 

China also did away with its ceiling on most bank deposits.

 

The People’s Bank of China said in a statement on its website that it also cut bank reserve requirements for rural banks by an additional half a percentage point.

 

The interest-rate cut is effective Wednesday, while the reserve-requirement reduction is effective Sept. 6. The rate cut is the fifth by the Chinese central bank since November, while the reserve-requirement cut for all banks is the third this year.

 

The moves came after China’s stock-market slumped again amid worries over a slowdown in growth. Its main stock index fell 7.6% on Tuesday after an 8.5% fall on Monday, bringing it down more than 20% over four trading days.

This is what the PBOC said in connection to the rate cut (google translated):

1. what the introduction of the combination of measures to cut interest rates drop quasi major consideration is?

A: At present, China’s economic growth is still downward pressure, steady growth, adjusting structure, promoting reform, benefit people’s livelihood and risk prevention task is still very arduous, global financial markets recently greater volatility, the need for more flexible use of monetary policy tools to create a favorable environment for monetary and financial adjustment of economic structure and stable and healthy economic development.

The lower the benchmark interest rate loans and deposits, the main purpose is to continue to play a guiding role good benchmark interest rate, help lower the cost of financing community to support the sustainable and healthy development of the real economy. Since November 2014, the PBC has four lowered the benchmark interest rate loans and deposits, guide financial institutions lending rates continued to decline. July 2015, the weighted average interest rate of loans from financial institutions was 5.97%, the first decline since 2011 to the level of financing high social cost below 6% effective mitigation. Although the past two months, CPI rose slightly, but the main impact of structural factors such as rising pork prices are significantly affected, the overall price level is still at historically low levels, but also for the re-use price tools to further contribute to the reduction of social financing the cost of providing the conditions. To this end, the approval of the State Council, the People’s Bank of China decided to further cut the benchmark interest rate loans and deposits, lending rates of financial institutions and to promote all kinds of market interest rates continue downward, to consolidate the macro-control policy effects preliminary.

The lower the deposit reserve ratio, mainly based on changes in the banking system liquidity, adequate long-term liquidity, in order to maintain adequate liquidity and reasonable, and promote stable and healthy economic development. People’s Bank recently improved the exchange rate of the RMB against the US dollar quotation mechanism, and spreads over the central parity and the market exchange rate correction, reaching equilibrium in the foreign exchange market in the process, can cause fluctuations in liquidity, requiring remedy the resulting liquidity gap and reduce the deposit reserve ratio may play such a role. In addition, the county additionally reduce rural commercial banks, rural cooperative banks, rural credit cooperatives, rural banks and financial leasing companies, auto finance companies RRR, related primarily to guide financial institutions to further increase the “three rural “Small and micro enterprises and the expansion of consumer support.

2, the combination of interest rate cuts open the background and significance of what one-year deposit rate over the floating ceiling is? Why should we continue to keep the upper limit of the floating interest rate deposits and demand deposits within the same year?

A: According to the State Council’s strategic plan, in recent years, the People’s Bank to accelerate market-oriented interest rate reform, and made important progress. Currently, in addition to the deposit interest rate controls have been fully liberalized, the deposit rate floating ceiling has been expanded to 1.5 times the benchmark interest rate for businesses and individuals formal certificates of deposit issued, the market interest rate pricing mechanism and continuously improve self-discipline, the central bank interest rate management capacity to gradually enhance the smooth introduction of the deposit insurance system, further promote market-oriented reform of interest rate conditions are more mature. Meanwhile, the current overall price level in China is low, the total amount of ample liquidity in the banking system, relatively small upward pressure on market interest rates, but also to promote market-oriented interest rate reform to provide a better macroeconomic environment and the time window.

In this case, put the reform in regulation with a combination of interest rate cuts and further promote the interest rate market-oriented reforms, open the one-year deposit interest rate floating above the upper limit of interest rate reform marks another important step forward. As financial institutions to further expand the independent pricing space, is conducive to the promotion of independent pricing capability of financial institutions to improve and accelerate the transformation of the business model, improve financial services, but also help promote the fund price more realistically reflect the market supply and demand, give full play to the market decisive action, and further optimize the allocation of resources, promoting economic structure adjustment and transformation and upgrading, create favorable conditions for healthy and sustainable economic and financial development.

Remain within the one-year deposit and deposit interest rate floating ceiling unchanged, reflecting the “first long-term, short-term,” the basic order of progressive liberalization of deposit interest rate ceiling of reform ideas, but also with international practice consistent. Judging from past experience, this order to promote market-oriented interest rate reform, help foster and exercise independent pricing capability of financial institutions, to lay a more solid foundation for the full realization of the final interest rate market; but also conducive to the stability of financial institutions deposit interest rate and overall financing costs, contribute to the reduction of social financing costs, for the sustained and healthy economic development has a positive meaning.

3, release the one-year deposit rate over the floating cap, how to guide scientific and rational pricing of financial institutions?

A: The release of more than a year after the floating deposit rate cap, the PBC will continue to improve related measures, further scientific and rational pricing guide financial institutions to maintain a fair and orderly market competition order. First, we continue to publish benchmark deposit rate by existing maturities. Further play the guiding role of the benchmark rate, providing an important reference for the one-year deposit rate over pricing. Second is to improve the regulation of interest rates and the transmission mechanism. Further improve the central bank interest rate management system, enhance the ability to control interest rates. Strengthen financial market benchmark interest rate to cultivate and improve the market interest rate system, improving monetary policy transmission. Third is to play the role of industry self-regulation. Guide market interest rate pricing discipline mechanism to further play an important role in a good industry pricing discipline, in accordance with the principles of compliance with laws and regulations, incentives and constraints of both, for a better interest rate pricing financial institutions continue to give priority to give more power market pricing and product innovation, expand the main issue certificates of deposit and interbank deposit investment range; with the necessary self-restraint on deposit interest rates beyond a reasonable level, disrupt the market order financial institutions.

4. recent central bank action to provide liquidity What?

A: The central bank to provide liquidity more channels and tools, in addition to the RRR, the recent expansion of the central bank has also implemented a reverse repo, the medium-term lending to facilitate (MLF), supplementary mortgage loans (PSL) and so increase market liquidity and loanable funds initiatives. Since August, the cumulative carry out reverse repo operations put in 565 billion yuan of liquidity to carry out the central treasury cash management deposits at commercial banks operating liquidity put 60 billion yuan. August 19 six-month period to carry out MLF operating 110 billion yuan, 3.35% interest rate, at the same time increase market liquidity and guide financial institutions to increase small and micro enterprises and the “three rural” and other key areas of the national economy and weak links support. Continue to provide long-term stability, adequate sources of funding for the development costs of the financial support shed change by PSL, 7 PSL amounted to 846.4 billion yuan at the end, an increase of 463.3 billion yuan over the beginning. The timely play of price leverage, as well as adjustments to adapt keep the benchmark lending rate, since the funds rate three times this year cut PSL to increase the shantytowns, support, promote lower financing costs. In addition, the central bank continues through agriculture, support small refinancing and rediscount support financial institutions to increase the “three rural” small and micro enterprises credit. The end of July, the balance of agriculture lending 213.9 billion yuan, an increase of 26.2 billion yuan over the previous year; supporting small balance lending 62.5 billion yuan, an increase of 25.4 billion yuan over the previous year; rediscount balance of 127.2 billion yuan over the previous year increased 11.8 billion yuan.

Next, the central bank will continue to closely monitor changes in liquidity, comprehensive use of various instruments properly adjusted combinations of liquidity, to maintain adequate liquidity and reasonable and stable operation of the money market, to guide steady moderate growth of money and credit, and promote stable and healthy economic development.

 

end

Zero hedge explains the futile attempt by the POBC trying to rescue its stock market:

 

(courtesy zero hedge)

With Stocks In Free Fall, China Ditches Plunge Protection For Desperation Rate Cuts

Over the weekend, the PBoC was radio silent on a highly anticipated RRR cut and the results, to say the least, were not favorable.

Gulf markets set the tone on Sunday and then from the word “go” in Shanghai on Monday morning until, well, until now, it’s been unabated selling. Selling which spilled over onto Wall Street yesterday and left the Dow down nearly 600 points at the close. 

With Chinese stocks still reeling, we got a dual policy rate cut out of the PBoC first thing this morning which is interesting considering that, as Bloomberg reports, the plunge protection national team operating through China Securities Finance has apparently given up on trying to support stocks directly. Here’s whatBloomberg said earlier today:

China has halted intervention in the stock market so far this week as policy makers debate the merits of an unprecedented government campaign to prop up share prices, according to people familiar with the situation.

 

Some officials argue that falling stocks will have a limited impact on the world’s second-largest economy and that the costs of supporting the market are too high, said one of the people, who asked not to be identified because the deliberations are private. Officials who back intervention say tumbling shares pose a risk to the banking system, the people said.

 

The Shanghai Composite Index sank 15 percent over the past two days, extending a $4.5 trillion rout since mid-June that has shaken confidence among equity investors around the world. President Xi Jinping’s government is trying to balance a pledge to loosen its grip on markets against the need to maintain financial stability amid projections for the weakest economic expansion since 1990.

“From now on, the CSRC has abandoned the idea of protecting an index level – maybe it’s a sign of maturity,” one source reportedly told Caixan. “Analysts believe this episode marks the end of Beijing’s attempts to directly manage the level of the Shanghai Composite Index. Monday’s action has shattered any illusions about the government’s appetite for direct intervention,” MNI adds.

And a bit more from Bloomberg:

“Government intervention has dropped substantially,” Michelle Leung, the chief executive officer at Xingtai Capital in Hong Kong, said in e-mailed comments on Tuesday. “The reform-minded camp within the government that favors letting the market do its work seems to be driving decision making right now.”

Or perhaps not, as indicated by Tuesday morning’s desperation rate cuts.

It appears as though, on the heels of comments the CRCS made earlier this month which indicated that, although the plunge protection team would linger in the background “for years,” intervention would only come during times of extreme dislocations and stress, and while one might well be able to argue that Monday and Tuesday most certainly qualify, the global attention that China’s CNY900 in billion direct interventions have garnered looks to have left the CSF feeling gun shy. 

So what’s a central planner to do?

Well, if you’re Beijing, one thing you can try is a simultaneous policy rate cut, which is exactly what we got on Tuesday morning.

Part of the aim is quite obviously to free up liquidity, which has suffered in the wake of China’s frequent open FX ops. We got still more evidence of the liquidity shortage last night when the PBoC decided to conduct CNY150 billion in reverse repos. Just last week we remarked on the extraordinary effort to inject cash via a CNY120 billion reverse repo and another CNY110 billion via medium term lending facilities (which, incidentally, the PBoC indicated it is looking to use again earlier today).

But the PBoC likely hopes it can kill two birds with two stones (to adapt the analogy). That is, by bundling a lending rate cut with the RRR cut (which the PBoC also did in June), the central bank may be trying to send a forceful message to the stock market while freeing up liquidity at the same time.

If the market gets the message (or perhaps “takes the bait” is the better way to put it), investors will take solace in the move, Chinese stocks will find their footing, and the CSF can quietly fade into the background for a while. That way, should the meltdown begin anew down the road, China can intervene directly with the national team and point to the fact that it hasn’t done so in quite some time.

So in short, the dual policy rate cut looks to be an effort to i) free up liquidity being sucked out by China’s FX interventions to support the yuan, and ii) shore up confidence in the stock market without resorting to direct purchases of equities on the part of CSF. 

We suspect the effects may be short lived on both accounts because after all, aggressive easing only fuels further depreciation necessitating further liquidity-sapping FX interventions in a vicious loop (as Commerzbank’s Hao Zhou put it this morning, “the side effect of monetary easing is the depreciation pressure on CNY”), and loose monetary policy likely won’t be much comfort to China’s 90 million retail investors who now, more than ever before, are virtually guaranteed to sell any rip they can get in a desperate attempt to claw back their life savings which they naively poured into stocks back in April and May.

end Why Did China Just Cut Rates, Again: Here Are Goldman’s Three Reasons

China has cut rates 5 times since November, including 4 full or partial RRR cuts since February. All those previous rate cuts did nothing to alter the downward glideslope of China’s economy which recently recorded its worst manufacturing performance since Lehman, and while the Chinese stock market benefited briefly, soaring 60% by mid-June, it had since given up all gains and was down 7% as of this morning, when the PBOC “surprised” everyone with its 5th RRR cut. The cut was not surprising – everyone had predicted it – what was surprising is that the PBOC waited until after market close on Tuesday to announce it instead of doing it over the weekend, which would have avoided a 16% rout in stocks in the past 2 days.

So why did China proceed with its latest rate cut? Short answer: because it had no other choice with everything else that it has been micromanaging so far in shambles, even if it means risking another acceleration in capital outflows but the PBOC will worry about crossing that bridge when it gets to it… in a few days.

Here is Goldman’s take:

PBOC cuts RRR and benchmark rate amid weakening economy, falling equity market and accelerating FX outflows

The PBOC has just announced that it will lower the benchmark lending and deposit interest rates by 25 bps (effective Aug 26) and the RRR (reserve requirement ratio) for all financial institutions by 50 bps (effective September 6).

Besides the cut in benchmark interest rates, the ceiling for deposit rates of time deposits of longer than one year will be removed (while the ceiling for demand deposits and time deposits of less than one year will remain unchanged). In addition to the broad RRR cut of 50 bps, an additional 50 bps cut will be applied for rural credit cooperative, rural commercial banks and village banks, and an additional 300 bps cut will be applied for financial leasing companies and auto financing companies (Our banking team estimates that total liquidity release will be around RMB 600 bn).

We believe the PBOC’s move was mainly driven by the following:

  • Activity growth weakened meaningfully after a brief rebound in 2Q.  July activity data were disappointing. July IP sequential growth moderated to 3% mom ann from 10% mom ann in June. While we still need hard activity data to confirm, August activity growth has probably also been weak, as reflected in the Caixin manufacturing PMI flash reading. Shutdown of factories (from August 20 to September 4) around major international events will add further downward pressures on activity growth in August and September. The official GDP target of “around 7%” this year is clearly under threat, and policy easing measures therefore must be stepped up to support growth.
  • Outflows re-emerged and drained liquidity.  On the back of a weakening economy and FX rate devaluation, FX outflows re-emerged in July (see China: FX outflow re-emerged in July, Aug 18, 2015) and very likely worsened in August. The PBOC needs to keep at least a steady level of liquidity supply and interbank rate. The RRR cut is therefore called for to offset the liquidity drain from FX outflows. Compared with open market operations, the RRR cut sends a much clearer message about policy intention which is much needed.
  • Equity market has been falling very rapidly.  As of the time of writing, SHCOMP broke the 3000 level, down 16% from last Friday. We believe this decision to cut the RRR is also partly due to the recent equity market performance.

The liberalization of the long term (above 1 year) deposit rate is another positive step in the process of interest rate liberalization. The targeted RRR cuts will release some additional liquidity but the amount is likely to be modest compared to the broad 50bps cut.

These cuts are positive moves which are much needed to support the economy and market. But they are unlikely to be sufficient by themselves. Our baseline forecast is for another 100bp of RRR cuts by the end of the year, most likely in two moves–the exact timing will be data and market dependent. Further benchmark interest rate cuts are relatively less likely compared with further RRR cuts, in our view, given policy makers’ residual worry over inflation and concerns on FX outflows, though we still have another 25bp cut in our baseline. In our view, the interbank rate needs to fall at least back to its May level (closer to 2.0% pa in terms of the 7 day repo) though the PBOC has not given clear indication about whether and when it might do it. Besides monetary policies, fiscal and administrative policy support will likely be stepped up also. We will likely see more government bond issuance, better utilization of idle fiscal deposits, more support to policy banks, and administrative measures pushing for the implementation of these policies in the near term.

 

end

 

the real reason that China cut its RRR: the unlocking of the rate cut provided 106 billion equivalent of yuan into the market i.e. badly needed liquidity.  The POBC has spent huge amounts of money stabilizing the yuan and they needed the rate cut as a counterbalancing tool.  It had nothing to do with the market fall these past few days:

 

(courtesy zero hedge/Soc Gen)

The Most Surprising Thing About China’s RRR Cut

Following China’s 50bps RRR cut this morning, coupled with a 25 bps easing in deposit and lending rates, there have been numerous strategist reactions, most of which suggesting what the PBOC did was in response to China’s crashing stock market and slowing economy. But mostly the market, and not so much China’s perhaps as that of Europe: moments ago Eurostoxx closed up a whopping 5.0% with the Dax soaring 5.32%. As a reminder, the German stock market has been the most punished among western bourses due to concerns trade with China will deteriorate leading to a drop in German exporter revenue and profitability.

And yet, hours before the RRR announcement, a Bloomberg note came citing “people familiar with situation ” which said that China halts intervention in stock market so far this week as policy makers debate merits of an unprecedented government campaign to prop up share prices and what to do next. The note added that some leaders support argument that stock market is too small relative to broader economy to cause crisis, adding that “leaders also believe intervention is too costly.”

So how does one reconcile China’s reported detachment from manipulating the stock market having failed to prop it up with the interest rate cut announcement this morning.

The missing piece to the puzzle came from a report by SocGen’s Wai Yao, who first summarized the total liquidity addition impact from today’s rate cut as follows “the total amount of liquidity injected will be close to CNY700bn, or $106bn based on today’s onshore exchange rate.” And then she explained just why the PBOC was desperate to unlock this amount of liquidity: it had nothing to do with either the stock market, nor the economy, and everything to do with the PBOC’s decision from two weeks ago to devalue the Yuan. To wit:

In perspective, the PBoC may have sold more official FX reserves than this amount since the currency regime change on 11 August.

And there is the punchline. It explains why the PBOC did not cut rates over the weekend as everyone expected, which resulted in a combined 16% market rout on Monday and Tuesday – after all, the PBOC understands very well what the trade off to waiting was, and it still delayed until today by which point the carnage in local stocks was too much. Great enough in fact for China to not have eased if stabilizing the market was not a key consideration.

In other words, today’s RRR cut has little to do with net easing considerations, with the market, or the economy, and everything to do with a China which is suddenly dumping a record amount of reserves as it scrambles to stabilize the Yuan, only this time in the open market!

 

The battle to stabilise the currency has had a significant tightening effect on domestic liquidity conditions. It is the PBoC’s decision whether or not to keep at it. If the PBoC wants to stabilise currency expectations for good, there are only two ways to achieve this: complete FX flexibility or zero FX flexibility. At present, the latter is also increasingly unviable, since the capital account is much more open. Therefore, the PBoC has merely to keep selling FX reserves until it lets go.

And since it can’t let go now that it has started off on this path, or rather it can but only if it pulls a Swiss National Bank and admit FX intervention defeat, the one place where the PBOC can find the required funding to continue the FX war is via such moves as RRR cuts.

SocGen makes some other key observations:

Based on our calculations, the effective RRR rate of the Chinese banking system is actually below 15%, rather than the reported headline of 18% (include the cut today). If the PBoC were to reduce the RRR quickly to a minimum level, say 5% effectively, the amount of the liquidity injection would be over CNY13tn or $2tn, which should be large enough scope for FX intervention.

It should, unless the escalation from all the other countries that have also seen their currencies tumble in value is not proportional enough to require constant intervention by China.

A question arises: just what is China selling. SocGen has an answer for that as well:

From an operational perspective, China’s FX reserves are estimated to be two-thirds made up of relatively liquid assets. According to TIC data, China held $1,271bn US treasuries end-June 2015, but treasury bills and notes accounted for only $3.1bn.The currency composition is said to be similar to the IMF’s COFER data: 2/3 USD, 1/5 EUR and 5% each of GBP and JPY. Given that EUR and JPY depreciation contributed the most to the RMB’s NEER appreciation in the past year, it is plausible that the PBoC may not limit its intervention to selling only USD-denominated assets.

SocGen’s conclusion: “In a nutshell, the PBoC’s war chest is sizeable no doubt, but not unlimited. It is not a good idea to keep at this battle of currency stabilisation for too long.”

Still, for the time being many more such RRR-cuts (and other interim reliquifications) are imminent if only for the duration of China’s FX war, with the critical distinction that the proceeds will not reach the banks, nor the economy, but remain locked in within the PBOC’s FX devaluation machinery!

Since the RRR cut is for reversing liquidity tightening and the rate cut is diluted by liberalisation, we need to monitor the development of onshore interbank rates in the coming weeks to assess whether the PBoC’s move today would amount to any net easing. It seems to us that 7-day repo rate at 2.5% is a critical line. If this rate drops below that level and remains low, then we can say with more confidence that there is monetary policy easing. If not, then more, a lot more, needs to be done.

And there you have it: while global markets received China’s announcement with their typical “a central bank just came to our reascue” exuberance, the reality is that as least today’s RRR cut will have zero impact on spurring aggregate demand, and is merely a delayed response to FX interventions that have already taken place.

Said otherwise, for China to net ease, it will have to do more, much more.

Ironically, doing so, will merely accelerate the capital outflows as a result of the ongoing plunge in the CNY, which leads to the circular logic of China’s intervention: the more it intervenes in an attempt to stabilize every aspect of its economy and finance, the more it will have to intervene, until either it wins, or something snaps.

Our money is on the latter.

 

 

end

 

 

Expect another rout tonight from China especially after the huge reversal of the Dow today:

 

(courtesy zero hedge)

This Could Be Bad News Ahead Of China’s Open Tonight

 

Earlier today we explained why far from supporting the stock market, all the Chinese RRR cut did was offset already used funds to support currency intervention following the August 11 devaluation: the one sentence from SocGen that put it in perspective was tthe following: “In perspective, the PBoC may have sold more official FX reserves than this amount since the currency regime change on 11 August.

Hence, the RRR cut was a retroactive move, not at all proactive as the market’s initial euphoria indicated.

Which, ahead of China’s close tonight, could be very bad news for those hoping for a rebound in China’s Shanghai Composite which as a reminder closed below 3000 for the first time since its bubble runup which started last July.

Here, according to Bloomberg, is the reason why:

China halts intervention in stock market so far this week as policy makers debate merits of an unprecedented government campaign to prop up share prices and what to do next, according to people familiar with situation.

 

Some leaders support argument that stock market is too small relative to broader economy to cause crisis, says one of the people, who asked not to be identified as deliberations are private

 

Leaders also believe intervention is too costly, person says.

 

Those who back intervention argue that market meltdown could pose danger because banks offer wealth-management products tied to market performance, people say

 

Government’s current priority is success of military parade set for Sept. 3 in Beijing commemorating end of World War II, people say

 

China Securities Regulatory Commission doesn’t immediately respond to faxed request for comment

So if the liquidity from the RRR had been already used up, and if China will not step in to prop up stocks, what will? And why is China doing this? The FT had an interestingtheory earlier today:

The China-led turmoil that has rocked global markets in the past two weeks has also shaken the ruling Communist party and left Li Keqiang, the prime minister, fighting for his political future, according to analysts and people familiar with the internal workings of the party.

 

Among party officials and politically connected people in Beijing, the hottest topic of conversation is whether Mr Li will take the fall for Beijing’s perceived mismanagement of the stock market crash and the country’s broader economic slowdown.

 

“Premier Li’s position has certainly become more precarious as a result of the current crisis,” said Willy Lam, an expert on Chinese politics at the Chinese University of Hong Kong. “If the situation worsens and if there comes a point where [President Xi Jinping] really needs a scapegoat, then Li fits the bill.”

 

* * *  

 

Mr Li is already regarded by most analysts and political insiders as the country’s weakest premier in decades, thanks largely to Mr Xi’s aggressive concentration of power in his own hands.

 

* * *

 

“In any other country facing such a big crisis you would see senior officials coming out to reassure the public, but since early July no Chinese political heavyweight has come out to say what’s going on or what the government plans to do about it,” said Mr Lam. “This has fuelled speculation that there are real divisions at the apex of the party.”

Maybe Li rubbed Xi the wrong way, maybe Li just wants to put one of his own people in the premier’s shoes, maybe the two just don’t see eye to eye, whatever the reason, what matters is that Xi now has an “out” from the whole market mess: his prime minister, whom he can hand over to the furious masses to deal with as they see fit, thus washing his hands of the whole Chinese epic stock market bubble pop and moving to bigger and better bubbles.

 

 

end

 

Oh OH!! this does not look good for Saudi Arabia

(courtesy zero hedge)

For Saudi Arabia, The Music Just Stopped: Scramble To Slash Spending Begins As Oil Math Reveals Dire Picture

Over the weekend, just as Gulf state stocks were in full-on meltdown mode, we outlined Saudi Arabia’s increasingly precarious financial situation. The problem – which is at least partially of the kingdom’s own making – can be visualized as follows:

As you can see, Saudi Arabia is staring down a fiscal deficit on the order of some 20% of GDP while the country faces its first current account deficit in over a decade.

The culprit, of course, is persistently low crude prices for which Saudi Arabia can partially blame itself. As we’re fond of putting it, the country has “Plaxico’d” both itself and the petrodollar in an epic quest to bankrupt the US shale space, an effort which has been complicated by US drillers’ access to capital markets which are of course quite forgiving thanks to years of ZIRP.

Now, with declining crude revenues clashing head on with the cost of simultaneously financing the state while intervening militarily in Yemen, the Saudis are looking to tap the bond market (a move which could increase debt-to-GDP by a factor of 10 by the end of next year) and some are speculating that the riyal’s dollar peg could ultimately prove unsustainable. 

So that is the backdrop and as Bloomberg reports, it’s forcing the Saudis to consider ways to cut the critical 2016 budget. Here’s the story:

Saudi Arabia is seeking to cut billions of dollars from next year’s budget because of the slump in crude prices, according to two people familiar with the matter.

 

The government is working with advisers on a review of capital spending plans and may delay or shrink some infrastructure projects to save money, the people said, asking not to be identified as the information is private. The government is in the early stages of the review and could look at cutting investment spending, estimated to be about 382 billion riyals ($102 billion) this year, by about 10 percent or more, the people said. Current spending on areas such as public sector salaries wouldn’t be affected, the people said.

 

The Arab world’s largest economy is expected to post a budget deficit of almost 20 percent of gross domestic product this year, according to the International Monetary Fund. With income from oil accounting for about 90 percent of revenue, a more than 50 percent drop in prices in the past 12 months has put pressure on the nation’s finances. The country has raised at least 35 billion riyals from local bond markets this year, the first time it has issued securities with a maturity of over 12 months since 2007.

 

Capital investment accounts for less than half the government’s outgoings, with current spending estimated at 854 billion riyals, according to a report issued by Samba Financial Group on Aug. 18. Saudi Arabia needs “comprehensive energy price reforms, firm control of the public sector wage bill, greater efficiency in public sector investment,” the IMF said this month. “The sharp drop in oil revenues and continued expenditure growth would result in a very large fiscal deficit this year and over the medium term, eroding the fiscal buffers built up over the past decade.”

 

The Ministry of Finance declined to comment.

So while we’re not sure if the Saudis are open to taking advice from outside their circle of “advisers”, we offer the following observations free of charge:

  • deliberately undermining a system that has worked to your benefit for years (and helped create a vast store of FX reserves) in a spiteful attempt to undercut high cost producers an ocean away might not have been the best idea
  • using crude prices to achieve “ancillary diplomatic benefits” (to quote The New York Times) like forcing the Kremlin to give up Assad, is now costing a whole lot of money
  • getting involved in regional proxy wars is expensive

*  *  *

Bonus: this is what a dual deficit problem looks like

end

And now onto one of our next basket cases:   Brazil

 

Two commentaries

 

(courtesy zero hedge)

Return To Junk Status “Only A Matter Of Time” For Latin America’s Most Important Economy: Barclays

Brazil’s embattled President Dilma Rousseff suffered another setback on Monday when Vice President Michel Temer elected to drop his role as Rousseff’s day-to-day liaison in Congress.

As Reuters reports, “Temer is an important ally of Rousseff and his decision will further hamstring the unpopular president, who is facing calls for her resignation or impeachment as the economy flounders.” Here’s more:

Temer’s decision is seen as a prelude to the departure of his Brazilian Democratic Movement Party (PMDB), the nation’s largest, from the governing coalition of the Workers’ Party to field its own candidate in 2018.

 

Valor Economico newspaper reported on Friday that the PMDB would formally announce its decision to break with the Rousseff government at a party congress on Nov. 15.

 

PMDB officials told Reuters the party would break with Rousseff’s coalition at some point because it plans to field its own presidential candidate in 2018, but it was not considering leaving this year. The PMDB controls both houses of Congress and its break with the government would seriously weaken Rousseff.

The move comes as the government elected to drop one in four ministries in an effort to rein in spending although, as one Sao Paulo political analyst told Reuters, “[Temer’s decision] will reinforce market worries about the government’s ability to execute economic policies.”

Those worries come as the country struggles to cope with both fiscal and current account deficits and a nasty bout of stagflation, all of which we’ve discussed at length. Visually, the problem looks like this:

The political and economic turmoil (with the latter punctuated by a horrendous unemployment print for July) couldn’t come at a worse time.

The country sits at the center of the global EM unwind and between the uncertainties surrounding the government’s ability to implement austerity combined with the pain from falling commodity prices and sluggish demand from China, there are now very real questions about how long the country can maintain its investment grade rating.

Here’s Barclays with more:

The global and domestic environments have soured, and the clock is ticking for Brazil to prove its creditors that it still belongs to the investment grade club. The Fed is about to embark on policy normalization that should, albeit gradually, put the period of easy dollar funding behind us. China seems to be accepting the inevitable fact that its large economy is structurally slowing and has so far resisted fighting the slowdown with fiscal stimulus as it did in the past. Commodity prices have been responding to this new outlook for some time, and they now look particularly vulnerable following China’s recent steps. 

 

For Brazil, the global backdrop, while still better than during most of its history, feels hostile relative to the one it faced in its recent past.

 

As they should, excesses have been exposed by tough times; however, this time, policy mismanagement likely carries more blame than complacency to the now gone good times. Brazil’s fiscal slippage accelerated ahead of the elections (Figure 1), in line with most of LatAm’s well-documented historical pattern. To varying degrees, most observers were not surprised by the Rousseff administration’s decision to boost spending before the polls. The surprise, instead, was how it handled it after winning the election.

 

The Petrobras corruption scandal eroded what was left of President Rousseff’s already damaged political goodwill.

 

This backdrop has left the country in a recession, its fiscal accounts shaky and consumer sentiment depressed. Latent social unrest may deprive the already weakened administration of the vigor needed to keep the country from losing its hard-earned investment grade rating.

 

The country is at a crossroads and markets are taking note. With the economy contracting and the central bank raising rates, 2y inflation breakevens are receding from recent highs. At the same time, however, long-dated breakevens are creeping up, likely a sign of rising fiscal concerns. Markets may be pricing risks that Brazil’s challenging fiscal dynamics could end up being monetized (Figure 2).

 

Doubts about the fiscal plan are thus raising questions of whether the central bank will remain committed to honor its inflation target at all times. The central bank, which is not independent, will be left between a rock and a hard place. On one hand it will be tempted to ease rates to support its battled economy as soon as near-term inflation and expectations stabilize. On the other, it will have to keep a hawkish eye on long-dated breakevens to avoid worsening credibility concerns.

 

*  *  *

The takeaway: “We conclude that, under current circumstances, it is only a matter of time until Brazil loses its investment grade status.”

Or, summed up in a picture:


end Unemployment rises dramatically: (courtesy zero hedge) Brazil’s Economy Is Now A Job Destruction Machine

In more ways than one (or two, or three) Brazil is the poster child for the global emerging market unwind that, thanks to China’s yuan devaluation, has accelerated dramatically over the course of the last week.

To be sure, the combination of slowing demand from China, the (now lower) possibility of a Fed rate hike, and, perhaps most importantly, the end of the commodities supercycle which has seen prices crash to theirlowest levels of the 21st century, would be more than enough to put Latin America’s most important economy into a tailspin.

But unfortunately, a political crisis stemming from allegations of fiscal book cooking and corruption charges tied to Petrobras where President Dilma Rousseff was chairwoman for seven years have exacerbated the country’s woes and recently, Brazilians went (back) to the streets by the hundreds of thousands to call for Rousseff’s impeachment.

The fallout for the real economy has been catastrophic and indeed Brazilians suffered through the worst growth-inflation outcome (i.e. stagflation) in over a decade during Q2. Whether or not Rousseff can survive (politically speaking, we hope) and whether or not the government can hit primary fiscal surplus targets is an open question, but as we noted on Thursday, the populace is under tremendous pressure in the meantime with unemployment rising for a seventh consecutive month and soaring to its highest level in half a decade in July.

On that note, we bring you the following chart and commentary from Barclays which underscores precisely what we said last month, namely that Brazil may well be in the midst a depression:

In July, 157,905 jobs were eliminated in Brazil, compared to the creation of 11,796 positions in July 2014, according to data from CAGED, Brazil’s employment register. Year-to-date, 547,738 job positions have been eliminated (versus the creation of 504,914 jobs in the same period of 2014). In seasonally adjusted terms, today’s print is compatible with 140,939 job eliminations, pretty close to the historical low of -154,355 in June (Figure 1).

 

Sector-wise, the industrial and retail sectors accumulate the largest job eliminations, which together sums up to 454k. The construction sector follows with a job destruction of 152k, and the only positive highlight is the agricultural sector, which created 99k formal jobs (Figure 2).

 

The magnitude of the deterioration of the labor market continues to surprise in Brazil. This week the unemployment rate rose by the fastest pace in the historical series, with the data showing that even more people are looking for job positions, however without finding them (see Brazil unemployment rate: Increased pace of deterioration).

 

The consequence of this is an even more prolonged recession, as disposable income falls and household consumption contracts. Coupled with business confidence indexes for August showing further drops to minimum-lows, this suggests that the worst in terms of growth is still ahead of us.

Which means that BofAML is exactly right to say that out of all the charts one cares to examine for Brazil, the most important one may ultimately be this:

end And a map of the emerging nations, half of which are in bear territory: Half Of Emerging Market Stocks Are Now In Bear Territory: The Map

We have, over the past two weeks, spent quite a bit of time documenting the veritable collapse of EM stocks, bonds, and FX in the wake of China’s move to devalue the yuan.

The yuan deval effectively telegraphed Beijing’s concerns about the economy, confirming fears that the situation was worse than the NBR is willing to admit and putting further pressure on commodity prices which are now sitting at their lowest levels of the 21st century.

Now, with EM in turmoil from Brazil to Malaysia, Bloomberg is out with the following map which sums up the carnage by showing just how many EM equity markets are in or closing in on bear market territory.

end

Your early Tuesday morning currency, and interest rate moves

Euro/USA 1.1504 down .0076

USA/JAPAN YEN 120.08 up 1.197

GBP/USA 1.5772 up .0014

USA/CAN 1.3202 down .0083

Early this Tuesday morning in Europe, the Euro fell by a huge 76 basis points, trading now just above the 1.15 level falling to 1.1504; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes and another Chinese currency devaluation,  and blood letting Asian bourses. Last night the Chinese yuan weakened a considerable .0087 basis points for its 5th devaluation.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a southbound trajectory  as settled down again in Japan up by 120 basis points and trading now just above the 120 level to 120.08 yen to the dollar, 

The pound was down this morning by 14 basis points as it now trades well above the 1.57 level at 1.5772.

The Canadian dollar reversed course  by rising 83 basis points to 1.3202 to the dollar. (Harper called an election for Oct 19)

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)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).

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: down by 733.98 or 3.96%

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

2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)red/India’s Sensex in the green/

Gold very early morning trading: $1149.80

silver:$14.85

Early Tuesday morning USA 10 year bond yield: 2.07% !!! up 7  in basis points from Monday night and it is trading well below resistance at 2.27-2.32%

USA dollar index early Tuesday morning: 93.98 up 56 cents from Monday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Tuesday morning And now for your closing numbers for Tuesday night: Closing Portuguese 10 year bond yield: 2.73% up 4 in basis points from Monday Closing Japanese 10 year bond yield: .385% !!  up 4 in basis points from Monday Your closing Spanish 10 year government bond, Tuesday, up 6 in basis points Spanish 10 year bond yield: 2.10% !!!!!! Your Tuesday closing Italian 10 year bond yield: 1.98% up 8  in basis points from Thursday: trading 12 basis point lower than Spain. IMPORTANT CURRENCY CLOSES FOR TUESDAY Closing currency crosses for Tuesday night/USA dollar index/USA 10 yr bond:  3:15 pm  Euro/USA: 1.1429 down .0152 (Euro down 152 basis points) USA/Japan: 119.77 up .893 (Yen down 89 basis points) Great Britain/USA: 1.5688 down .0070 (Pound down 70 basis points USA/Canada: 1.33333 up .0048 (Canadian dollar down 48 basis points)

USA/Chinese Yuan:  6.4112  up .0084  ( Chinese yuan down 8.4 basis points)

This afternoon, the Euro fell dramatically again falling by 152 basis points to trade at 1.1429. The Yen fell to 119.77 for a loss of 89 basis points. The pound was down 70 basis points, trading at 1.5688. The Canadian dollar was back into the toilet, falling by another 48 basis points to 1.3333 a decades low. The USA/Yuan closed at 6.4112 Your closing 10 yr USA bond yield: up 12 basis points from Monday at 2.12%// ( well below the resistance level of 2.27-2.32%) indicating severe recession  Your closing USA dollar index: 94.55 up 112 cents on the day . European and Dow Jones stock index closes: England FTSE up 182.47 points or 3.09% Paris CAC up 181.40 points or 4.14% German Dax up 479.69 points or 4.970% Spain’s Ibex up  358.80 points or 3.68% Italian FTSE-MIB up 1199.26. or 5.86% The Dow down 204.91 or 1.29% (biggest reversal since Lehman) Nasdaq; down 19.76 or 0.44% OIL: WTI 38.98 !!!!!!! Brent:43.02!!! Closing USA/Russian rouble cross: 68.87 up 2.0 roubles per dollar on the day And now for your more important USA stories. Your closing numbers from New York “Biggest Rally Of 2015” Crashes Into Biggest Reversal Since Lehman

Did you drink the Kool-Aid?

 

It appears not everyone did… The first 6-day losing streak for the S&P 500 since July 2012…

The S&P 500 has gapped up +3% and closed down on the day only once since the inception of the futures, 10/16/08 (h/t @sentimenttrader)

 

Call that a bounce-back…?

 

Across asset-classes the last 2 days have been ‘eventful’ to say the least…

 

The Dow is down almost 700 points from the post-PBOC highs!!!

 

Stocks bounced, half-heartedly… but Nasdaq was on target for its best day of the year… (and best since the first trading day of 2013’s meltup) before they puked it all back in the last hour…

 

Cash indices remain red on the week as once again Nasdaq was driven up to unchanged before the selling pressure resumed..

 

While we are well aware of the ‘hope’ priced into this rebound, the actual gains from the China rate cut

 

None other than Eric Hunsader summed it all up perfectly…

What was really driving stocks today was simple – USDJPY fun-durr-mentals…

 

Utes were worst today (as rates soared) and Tech remains the winner on the week – though all S&P sectors are under water…

 

Still financials did not look overly excited…

 

Treasury yields were battered higher today – biggest rise in 10Y yields (13bps) since Feb 2015…the late-day selloff in stocks put a modest bid into bonds… We can’t help but wonder if this move is rate-lock-buying ahead of panic-last-minute corporate issuance before rates go up in Spetember

 

The US Dollar was bid as EUR weakened but JPY was critical…

 

Commodities were mixed with crude and copper bouncing back in anticipation and comfort at the rate cut as PMs dumped as the USD levitated…

 

Charts: Bloomberg

 

 end Let us have a look at USA figures  to get an idea as to how its economy is faring: First off:  Case shiller home prices have dipped in June and it has missed for the 3rd month in a row.  It seems now that the exorbitant prices on homes have leveled off. (courtesy Case Shiller/zero hedge) Case-Shiller Home Prices Dip In June, Miss For 3rd Month In A Row

Home prices rose 4.97% YoY in June, according to Case-Shiller’s 20-City index, missing expectations for the 3rd month in a row. Price appreciation has now been flat for 5 months – despite surging home sales – as bubblicious San Francisco saw price depreciation once again. Portland amd Denver saw the most appreciation in June. This is the second month in a row of sequential seasonally-adjusted declines in home prices, and along with TOL’s dismal report this morning, suggests maybe another pillar of the ‘strong’ US economy meme is being kicked out… and Case-Shiller warn more than one rate hike by The Fed (or a stock market plunge) will stymie housing considerably.

Home price growth stagnates, misses again…

 

 

As Case-Shiller explain,

“Nationally, home prices continue to rise at a 4-5% annual rate, two to three times the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While prices in San Francisco and Denver are rising far faster than those in Washington DC, New York, or Cleveland, the city-to-city price patterns are little changed in the last year. Washington saw the smallest year-over-year gains in five of the last six months; San Francisco and Denver ranked either first or second of all cities in the last five months. The price gains have been consistent as the unemployment rate declined with steady inflation and an unchanged Fed policy.

 

The missing piece in the housing picture has been housing starts and sales. These have changed for the better in the last few months. Sales of existing homes reached 5.6 million at annual rates in July, the strongest figure since 2007. Housing starts topped 1.2 million units at annual rates with almost two-thirds of the total in single family homes. Sales of new homes are also trending higher. These data point to a stronger housing sector to support the economy.

Two possible clouds on the horizon are a possible Fed rate increase and volatility in the stock market.

A one quarter-point increase in the Fed funds rate won’t derail housing. However, if the Fed were to quickly follow that initial move with one or two more rate increases, housing and home prices might suffer.

 

A stock market correction is unlikely to do much damage to the housing market; a full blown bear market dropping more than 20% would present some difficulties for housing and for other economic sectors.”

Perhaps indicating just how fragile all of this really is.

Charts: Bloomberg

 

end

 

Richmond Fed manufacturing collapses to its low for the year.  It has dropped the most in this reading in almost 9 years:

 

(courtesy Richmond Fed/zero hedge)

Richmond Fed Manufacturing Collapses To 2015 Lows, Drops Most In 9 Years

The 3-month bounce in the Richmond Fed Manufacturing survey… is dead. From 13 in July, August saw it collapse to 0 (massivley missing expectations of a 10 print). This is the biggest absolute drop in the index since May 2006. Across the board, underlying factors crashed with Shipments plunging, New Orders cliff-diving, order backlogs disappearing and Capacity Utilization plunging. This is exactly what we would expect after a massive inventory build up that was not accompanied by a surge in sales… but the pundits stil proclaim “no signs of an imminent US recession.”

 

Manufacturing collapses…

 

The biggest drop in Order Backlogs in history…

 

 

Charts: Bloomberg

end

Third:  US PMI Services also sliding back towards its lows for the year:

 

US Services Economy “Momentum Shifts Down A Gear”, Slides Back Towards 2015 Lows

August’s preliminary Services PMI was slightly better than expected but dipped from 55.7 to 55.2 – back towards the lowest levels of 2015. Under the surface things do not look great with New Business Volumes at their weakest since January amd Prices Charged tumbling to the lowest level since June 2013. As Markit notes, “underlying momentum within the U.S. economy had shifted down a gear even before the recent global market turmoil and escalating worries about China’s growth outlook gathered on the horizon.”

 

 

As Markit summarizes,

“August data signals a renewed slowdown in U.S. service sector growth, and this comes hot on the heels of a 22-month low recorded by the latest flash Manufacturing PMI survey. Moreover, service providers’ new business volumes expanded at the slowest pace since January, suggesting that underlying momentum within the U.S. economy had shifted down a gear even before the recent global market turmoil and escalating worries about China’s growth outlook gathered on the horizon.

 

“Job creation nonetheless continued at a solid pace in August, which marked five-and-half years of sustained employment growth across the service economy. Meanwhile, the latest survey highlighted a further slowdown in input cost inflation, as falling fuel prices continued to alleviate pressures on cost burdens. Average prices charged by service sector firms were broadly unchanged in August, thereby ending a 25-month period of rising output prices.”

*  *  *

 

end Take your pick who you think is correct: A government sponsored Conference Board or Gallup? (courtesy zero hedge) US Consumer Confidence Is Both The Highest & Lowest In 2015 Depending On Who You Ask

According to the government-sponsored Conference Board, US Consumer Confidence soared from 91.0 to 101.5 – 2015 highs – in August.

Acording to non-government-sponsored Gallup, US Consumer’s Economic Outlook collapsed to its lowest in a year.

 

You decide…

 

The Conference Board data is driven by a surge in Present Situation from 104 to 115.1 – its highest in the cycle – as it appears higher gas prices, tumbling stocks, and a China meltdown means everything is awesome!! Which is odd because Plans To Buy A Home, Auto or Major Appliance all tumbled.

 

As Gallup explains,

this latest average was the result of 37% of Americans saying the economy is “getting better” and 58% saying it is “getting worse.”

 

The situation in China may continue to reverberate in the U.S., with U.S. stocks closing much lower on Monday and European markets starting the week with large drops. To the extent stock markets continue to suffer, particularly if this affects broader aspects of the economy, Americans’ confidence could be shaken further in the coming week.

Charts: Gallup and Bloomberg

end

Zero hedge explains the lies offered by HFT as to what really happened yesterday:

(zero hedge)

Cutting Through The HFT Lies: What Really Happened During The Flash Crash Of August 24, 2015

One of the fallacies being propagated about yesterday’s flash crash, is that somehow HFTs came riding in as noble white knights and rescued the market from a collapse instead of actually causing it. This particular lie is worth a few quick observations and explanations of what really happened.

What did not happen, is what Doug Cifu, the CEO of HFT titan Virtu, the firm which as we have profiled repeatedly in the past has lost money on 1 day in 6 years

told CNBC when he said it wasn’t Virtu’s fault the market did not work for anyone as a result of countless HFT glitches: “we don’t cause volatility, as a market maker we’re absorbing volatility and we think we soften it.”

http://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=3000411021&size=530_298

The most amusing bit was when Cifu said that “we’re really just in the role of transferring risk from natural buyers to natural sellers.” Considering Virtu and its “special sauce” has never actually taken on risk with its trading record, discussing risk is a little rich for the owner of the Florida Panthers, and here’s why: in a note by Credit Suisse’s Laura Prostic (the typos are because she is in S&T) we now know precisely what happened:

HFT is typically 50% of overall volm, but they have to walk away in this heightened vol envt, which dramatically reduces liquidity. Hightened vol was mainly unwinding of hedges, not panic.

Anyone who actually trades (and is not part of the Modern Market initiative) knows that this precisely what happens every time there is a spike in market vol: HFTs simply walk away leading to the dreaded “HFT STOP” moment, creating a feedback loop of even less liquidity, and even more volatility, until circuit breakers are finally hit or asset prices hit limits. Yesterday, for the first time in history, not only the S&P500, but the Nasdaq and the DJIA all hit their particular “limit down” triggers.

Credit Suisse also directly refutes what Doug Cifu said: HFTs, far from not causing volatility, merely step aside when volatility surges  thus leading to such stunners as VIX soaring above 50 overnight (with the CBOE too ashamed to even report what it would have been in the first 30 minutes of trading).

This also ties in with the summary in our last night’s post comparing the flash crashes of 2010 and 2015:

The good news is that with liquidity inevitably collapsing ever further to a state of near singularity with ongoing central bank interventions, and with markets broken beyond repaid, we will very soon have a repeat flash crash like today, one which will provide enough satisfactory answers to the question of just happened that lead to a market that was completely broken for nearly an hour, and where the VIX was so very off the charts, the CBOE was afraid to show it for at least thirty minutes.

 

One thing is certain though: while the market dies a slow, painful, miserable death, the biggest HFTs will continue pocketing millions. Such as Virtu: “Virtu Financial Inc., one of the world’s largest high-frequency trading firms, was on track to have one of its biggest and most profitable days in history Monday amid a tumultuous 24 hours for world markets, according to its chief executive.”

As we previously reported, while Virtu may have fabricated its role in yesterday’s events, there was one truth: it had an amazingly profitable day because as a result of the total chaos, HFTs were able to frontrun block orders from a mile away and as a result of soarking bid/ask spreads, Virtu raked in millions by simply capitalizing on the chaos it and its peers have created. As Cifu said then “Our firm is made for this kind of market.” We quickly corrected him: “your firm made this kind of market.”

But back to the lies: earlier today the WSJ reported the following:

The speed and depth of the drop harked back to the flash crash of May 2010, when program-driven trading produced a self-reinforcing wave of selling. This time around, high-frequency trading firms like Virtu Financial Inc. and Global Trading Systems LLC were buyers that helped U.S. stocks rebound midday from their early slump.

 

“We were catching those falling knives,” said Ari Rubenstein, co-founder of Global Trading Systems.

Actually no. What happened is that in early trading the entire market was in freefall, and the only thing that saved it was the various major market indices hitting their limit down levels for the first time in history – not even during the Flash Crash of 2010 did this happen. The following Nanex chart documents this beyond a doubt.

 

If HFTs did anything, it was merely to frontrun the buy orders once the selling wave – halted thanks to limit downs being hit – had exhausted itself, and the buying scramble was unleashed around 9:35am leading to a 5% move in less than 10 minutes! It was here that Virtu made its colossal profits, however not from taking the least amount of risk, but merely from frontrunning order flow into a still chaotic market with gargantuan bid-ask spreads, which incidentally not only does not provide liquidity, but reduces it as it competes with other buy offers for any market offers, also known as “providers” of liquidity, only to immediately flip the transaction to those buyers which Virtu knew with 100% certainty were just behind it. In any other market this would be illegal, except for one in which Reg NMS has made such frontrunning perfectly legal (courtesy of billions spent by the same HFTs who now benefit from it).

So what was the real contribution of HFTs: an unprecedented failure of ETFs to trade with their underlying securities and vice versa. As we said yesterday: “for minutes at a time, there was an unprecedented disconnect in ETF fair value as hedge funds sold off ETFs however correlation arbitrageurs were unable to capitalize on the discrepancy with the underlying leading to historic, and extremely lucrative divergences.”

Others added:

… experts are still scratching their heads over what may have caused these ETFs to nosedive. One possible explanation is that liquidity providers — think high-speed traders and other Wall Street firms — charged with stabilizing the market weren’t there when needed. That’s what happened during the flash crash of 2010. “When markets get hairy, sometimes those liquidity providers step out of the way to avoid getting run over,” said Matt Hougan, CEO of ETF.com.

So while we await for the first clear break of the ETF model, thanks to none other than HFTs, here is a visual example of what really happened: some 220 ETFs which all fell by 10% yesterday!

 

But it wasn’t just the “transitory” failure of the ETF model: yesterday the Nasdaq ETF, the QQQ, had itswidest 1 minute price swing in history. Yes, the NASDAQ!

 

And just in case there is still any confusion if yesterday’s event was indeed a flash crash, the answer is yes, most certainly, as can be seen by the 15% tumble in QQQs right at the open. That, ladies and gentlemen, is the definition of a flash crash.

Again: thank you HFTs.

With that we leave matters into the SEC’s capable hands which we know will do absolutely nothing until the time comes when the next marketwide crash does not see a promptly rebound, and the time to finally point the finger at the HFTs comes. It’s just a matter of time, plus someone has to be a scapegoat for the real, and biggest, market manipulator in history: the Federal Reserve.

And since, naturally, the complicit and corrupt SEC won’t do anything, expect another wave of retail investors to drop out of the market forever and to never come back, having seen yet again what a truly broken and rigged casino it has become.

Finally, while we are delighted that firms like Virtu make outside profits on days in which the market crashes and leads to untold losses for retail investors, we have just one simple request – please don’t take us for fools anymore:  by now everyone knows all of your tricks, and can see right through your bullshit.

So, dear Virtu, frontrun whoever you have to, other HFTs, hedge funds, mutual funds, or whoever else is left in this quote-unquote market, and have another Madoff year (one with zero trading losses) but you will have to do it without what was once called the “investing public.” They are now permanently gone until two things happen: i) the market is once again a market, not artificially propped up by $14 trillion in central bank liquidity which makes every asset “price” a illusion, and ii) HFT frontrunning is no longer legal, endorsed and blessed by the SEC, the regulators and all law enforcement agencies.

end Finally here is David Stockman giving us the real answers as to what really transpired: (courtesy David Stockman/Contra Corner) Here Comes The Red Cavalry——Goldman Says Load Up The Trucks, Again! by  • August 25, 2015

Wee! This is becoming a weird form of time travel.

Twenty-five trading days ago the S&P 500 was just 0.1%below its all-time high of 2131 recorded on May 21. Since then we have traveled backwards about 415 days!

That’s right. Yesterday’s 1893 close was down 11.2% from the all-time high, and marked the chart point first crossed way back on May 22, 2014.

^SPX data by YCharts

Do not fret, however. Beijing has called in the Red Cavalry—otherwise known as the PBOC.

In standard central bank fashion, the latter injected (even) moar credit into the Chinese economy via a 25 bps rate cut, reduction of bank reserve requirements by 50 bps and mainlining about $25 billion directly into the banks via reverse repos. Under the latter procedure, the PBOC takes collateral and gives banks cash for a few weeks and then rinses and repeats—over and over, for as long as it takes.

Of course, in recent weeks China’s officialdom has also been feverishly trying to prop-up its currency in order to forestall a tsunami of capital flight. In the last six quarters more than $800 billion of private capital outflows had Beijing scared silly. They were actually sending the paddy wagons out to arrest people for attempting to sneak their capital out of the land of red capitalist miracles.

In fact, according to Soc Gen today’s PBOC actions will inject about $106 billion of fresh cash into the banking system, including bank reserves freed up by the RRR cut.  Apparently, however, during recent weeks China had drawn down its FX reserves in attempting to prop-up the yuan by an even greater amount. That means they drained the banking system first, and have now flushed the same liquidity back in.

Push, pull. Tighten, ease.

These are acts of desperate, stupid madness, and here’s why.

Twenty-five years ago, Mr. Deng discovered the printing press in the basement at the PBOC and let it rip——including a 60% devaluation of the RMB in one fell swoop. Soon the world was flooded with cheap Chinese goods.

As its subsequent giant trade surpluses materialized, however, rather than letting the exchange rate rise in a clean float as Nixon and his guru, Milton Friedman, had prescribed when they trashed Bretton Woods back in August 1971, the communist bosses in Beijing ran the dirtiest float ever conceived.

During  the last two decades the PBOC and its sovereign wealth management affiliates accumulated dollar, euro and other major currency reserves like there was no tomorrow. But as they stuffed the PBOC’s vaults with $4.2 trillion of US treasury notes, Fannie Mae paper  and other so-called FX reserves in the conduct of their currency pegging operation, they perforce expanded their domestic banking and credit system by an equivalent amount of RMB.

At length, the suzerains of Beijing turned China into a credit-fueled house of cards. In the short time of two decades, they morphed a debt-free, quasi-subsistence federation of communes, collectives and state factories into a $28 trillion mountain of IOUs that funded the greatest spree of economically mindless land grabs, construction spending, economic gambling and state corruption in recorded history.

In other words, China is a tottering freak of economic nature. But never mind the deformed foundation upon which the miracle of red capitalism was erected. The Wall Street brokers nearly without exception view it as just one more big economy that can be continuously inflated by deft central bank intervention and other state actions designed to insure stability and growth.

As Nixon might have said, they are all Keynesians now. The job of central banks everywhere and always is to goose trouble-prone economies with printing press money so that households and business will spend more, the GDP will rise more and the stock bourses will be worth more.

Under this regime, there is no reason why economies should ever falter or stock markets should tumble; the state and its central banking branch can purportedly cure any deviations.

Thus, on July 7th Goldman’s China equity strategist gave the all clear signal right after the proceeding 20-day, $3.5 trillion meltdown of the China stock market. Completely ignoring the fact that China’s newly affluent classes have opened 287 million trading accounts, mostly in recent months, and mostly amounting to highly margined table stakes at its red chip casinos,  Goldman saw nothing but blue skies ahead:

Goldman Sachs Says There’s No China Stock Bubble, Sees Rally

Kinger Lau, the bank’s China strategist in Hong Kong, predicts the large-cap CSI 300 Index will rally 27 percent from Tuesday’s close over the next 12 months as government support measures boost investor confidence and monetary easing spurs economic growth. Leveraged positions aren’t big enough to trigger a market collapse, Lau says, and valuations have room to climb.

Goldman Sachs is sticking with its optimistic forecast in the face of record foreign outflows, the biggest-ever selloff by Chinese margin traders and a chorus of bubble warnings from international peers. The call hinges on the success of unprecedented government efforts to revive confidence among individual investors who watched equity values tumble by $3.2 trillion over the past three weeks……“It’s not in a bubble yet,” Lau said in an interview. “China’s government has a lot of tools to support the market.”

Well, not exactly. The Shanghai composite is down 21% since then, and a staggering 43% from the levels attained in late March.  That amounts to a $4 trillion “wealth” implosion in less than 100 trading days.

^SSEC data by YCharts

Did Goldman fire this clown yet? No it didn’t.

Why? Because Goldman’s house economic model is essentially statist, and its agents——Dudley at the Fed, Carney at the BOE, Draghi at the ECB—–are strategically placed to execute that model.

So not surprisingly, Goldman’s chief equity strategist is out this morning with a buy-the-dip note, assuring its clients that the storm is over and that the S&P 500 will be back to its old highs in a jiffy:

…….Concern about China economic growth was the immediate catalyst for the correction. (But) we expect the US economy will avoid contagion and continue to expand. S&P 500 will rise by 11% to reach 2100 at year-end. Such a rebound would echo the trading pattern exhibited in 1998 when US equities rallied and largely ignored the Asian financial crisis. ………

Ultimately, the US economy was relatively unaffected by overseas financial market gyrations in 1998 and we believe a similar situation will occur in 2015. Our analysis of the geographic revenue exposure of S&P 500 constituents reveals that the US accounts for 67% of aggregate sales. Approximately 8% of revenues stemmed from the Asia-Pacific region with 1% disclosed as coming specifically from Japan and 2% from China. From an economics perspective, US exports account for roughly 13% of total US GDP, which  includes 5% to emerging markets and less than 1% to China.

That is just plain gibberish. Goldman’s statist economic model renders it utterly blind to the booby-traps planted everywhere in the world economy. For goodness sakes, this is not 1998!

Back then China had less than $2 trillion of debt outstanding and a minor presence in the world economy. Since then its credit market debt outstanding has exploded to $28 trillion, its steel industry has expanded by 6X, its auto sales by 25X and its exports have risen by 1300%.

China Exports of Goods and Services data by YCharts

In the interim, in fact, it has paved its landscape with a vast excess of everything——60 million empty high rise apartments that function as piggy-banks for speculators; dozens of ghost cities, empty malls and see through office buildings; scores of steel, machinery and auto plants that will soon be shutdown; mountains of copper and iron ore inventories that are hocked to foreign lenders; and trillions worth of high speed rails that are unsafe, airports that have no traffic and roads and bridges to nowhere.

This did not happen in isolation behind a red curtain. The wild west boom of red capitalism now sucks in $2 trillion more per year of imports of energy, raw materials, intermediate components, capital equipment and luxury goods than it did in 1998 when Alan Greenspan panicked in the face of the LTCM meltdown and slashed interest rates three times.

Indeed, Greenspan’s foolish action triggered a spree of coordinated money printing by the worlds central banks, including the PBOC, that was literally unimaginable by even the most wild eyed Keynesian economist at the time Goldman now identified as pivotal to our current prospects.

To wit, the combined central banks of the world sported a collective balance sheet of less than $2 trillion in September 1998—–reflecting a century’s worth of slow and steady build-up. Today that figure is $22 trillion, meaning that the world economy has been hyper-stimulated by a 11X increase in high powered central bank credit.

It is downright foolish, therefore, to claim that the US economy is decoupled from China and the rest of the world. In fact, it is inextricably bound to the global financial bubble and its leading edge in the form of red capitalism.

It might be wondered how stupid Goldman believes its mullet clients actually are. With respect to its non sequitir that China accounts for only 1% of US exports would it not occur to a reasonably alert observer that Caterpillar did not export its giant mining equipment to China; it went there indirectly by way of Australia’s booming iron ore provinces.

Likewise, the US did not export oil to China, but China’s vast, credit-inflated demand on the world market did artificially lift oil prices above $100 per barrel, thereby touching off the US shale boom that is now crashing in Texas, North Dakota, Oklahoma and two other states. And is it not the fact that every net new job created in the US since 2008 is actually in these same six shale states?

Similarly,  US exports to Europe have tripled to nearly $1 trillion annually since 1998, while European exports to China have more than quintupled. Might there possibly be some linkages?

Never mind the obvious, however. All the brokers were out this morning with the decoupling story—–even if it ending up insufficient to prevent another down day in the market.

But let’s see. According to the Wall Street brokers housing and employment will carry the US economy steadily upward.

Really? In the face of an unprecedented collapse of the greatest phony boom known to economic history, here is housing and labor hours employed in the US economy.

Is this a plausible engine of continued expansion for the purportedly “uncoupled” US economy?

US Residential Fixed Investment data by YCharts

Or this?

 

 

 

end

I will see you tomorrow night

Harvey


August 24/Bourses around the world plummet as China sends its deflation circling the globe/gold and silver raid again as orchestrated by our banker friends/another Chinese explosion/Venezuela declares martial law/Another huge demand for gold equating...

Mon, 08/24/2015 - 19:20

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1153.40 down $6.20   (comex closing time)

Silver $14.76 down 54  cents.

In the access market 5:15 pm

Gold $1156.00

Silver:  $14.80

We are now witnessing massive manipulation preventing gold from breaking loose from the shackles of our banking cartel.  The signal to attack today was evident in the lower price of silver on Friday together with the lower gold/silver shares. (Friday night gold was up $6.60 yet silver was down 22 cents).  Generally this is a signal sent to the bankers to continue with its raids.Today with the world crumbling, our bankers could not let gold rise as gold  is a good barometer of global health.

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

At the gold comex today, we had a poor delivery day, registering 0 notice for 0 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 227.397 tonnes for a loss of 75 tonnes over that period.

In silver, the open interest rose by 1456 contracts despite the fact that silver was down in price by 22 cents on Friday. Something, again really spooked our shorts as they ran to the hills to cover. The total silver OI now rests at 170,648 contracts   In ounces, the OI is still represented by .853 billion oz or 121% 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 rests tonight at 438,785. We had 0 notice filed for nil oz today.

We had no changes  at the GLD today /  thus the inventory rests tonight at 677.83 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold.  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 will be the FRBNY and the comex.   In silver, we had no changes in silver inventory at the SLV  tune of / Inventory rests at 324.968 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver rise by 1456 contracts up to 170,648 despite the fact that silver was down by 22 cents in price with respect to Friday’s trading.   The OI for gold fell by 4,556 contracts to 438,785 contracts, despite the fact that  gold was up by $6.60 on Friday. We still have 16.49140 tonnes of gold standing with only 14.78 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.

(report Harvey)

2, FRBNY gold report

(Harvey)

3.Gold trading overnight, Goldcore

(/Mark OByrne)

4. Six stories on the collapsing Chinese markets, the devaluation of the yuan and the huge downfall in trading today

(zero hedge/Bloomberg/Ambrose Evans Pritchard)

 

5. Huge fall in bourses in the Middle east

6. European bourses also in turmoil today

7a. Bloodbath in emerging markets today

7b Venezuela declares martial law.

 

 

8 Trading of equities/ New York

(zero hedge)

9. One oil related stories,

(zero hedge)

10.  USA stories:

  1. Dow falls over 500 points (six stories)
  2. 7 million students have not made one payment

11.  Physical stories:

  1. Bill Holter interview
  2. Ben Davies
  3. Ted Butler (on silver)
  4. Dave Kranzler on gold demand/gold demand from China 65 tonnes in last reporting week.
  5. India imports of gold/silver alloy to double next year (Reuters)

12/  Putting it all together tonight:  Raul Meijer and Ray Dalio

Let us head over and see the comex results for today.

The total gold comex open interest fell from 443,341 down to 438,785, for a loss of 4556 contracts despite the fact that gold was up $6.60 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, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. We are now in the contract month of August and here the OI fell by 19 contracts falling to 1476 contracts. We had 0 notices filed yesterday and thus we lost 19 contracts or 1,900 additional ounces will not stand for delivery. The next delivery month is September and here the OI rose by 20 contracts up to 2520. The next active delivery month is October and here the OI fell by 76 contracts down to 27,826.  The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was fair at 217,499. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 270,977 contracts. Today we had 0 notices filed for nil oz. And now for the wild silver comex results. Silver OI rose by 1456 contracts from 169,650 up to 170,648 despite the fact that silver was down by 22 cents in price on Friday . We continue to have some short covering as our bankers pulling their hair out with respect to the continued high silver OI as the world senses something is brewing in the silver arena.  We are in the delivery month of August and here the OI fell by 242 contracts down to at 25. We had 242 delivery notices filed on Friday and thus we neither gained nor lost any silver ounces standing in this non active month of August. The next major active delivery month is September and here the OI fell by 4,349 contracts to 53,671. The estimated volume today was excellent at 133,020 contracts (just comex sales during regular business hours). As a side note, the volume today equates to 665 million oz or roughly 95% of annual global silver production ex China ex Russia of course. The confirmed volume yesterday (regular plus access market) came in at 78,694 contracts which is excellent in volume.  We had 0 notices filed for nil oz.

August contract month:

initial standing

August 24.2015

Gold Ounces Withdrawals from Dealers Inventory in oz   nil Withdrawals from Customer Inventory in oz 225.05 oz  (Manfra ( 7 kilobars) Deposits to the Dealer Inventory in oz nil Deposits to the Customer Inventory, in oz nil No of oz served (contracts) today 0 contract (nil oz) No of oz to be served (notices) 1476 contracts (147,600 oz) Total monthly oz gold served (contracts) so far this month 3826 contracts(382,600 oz) Total accumulative withdrawals  of gold from the Dealers inventory this month   nil Total accumulative withdrawal of gold from the Customer inventory this month 559,852.5   oz Today, we had 0 dealer transactions total Dealer withdrawals: nil  oz we had 0 dealer deposits total dealer deposit: zero we had 1 customer withdrawals  i) out of Manfra:  225.05 oz  (7 kilobars) total customer withdrawal: 225.05 oz  7 kilobars We had 0 customer deposits:

Total customer deposit: nil oz

 

We had 0  adjustments

JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz)  and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes

. 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 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.   To calculate the total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (3826) x 100 oz  or 382,600 oz , to which we add the difference between the open interest for the front month of August (1476) and the number of notices served upon today (0) x 100 oz equals the number of ounces standing.   Thus the initial standings for gold for the August contract month: No of notices served so far (3826) x 100 oz  or ounces + {OI for the front month (1476) – the number of  notices served upon today (0) x 100 oz which equals 530,200 oz standing so far in this month of August (16.4914 tonnes of gold).

We lost 19 contracts or an additional 1,900 ounces will not stand for delivery. Thus we have 16.4914 tonnes of gold standing and only 14.78 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.

Total dealer inventory 475,382.519 or 14.78 tonnes Total gold inventory (dealer and customer) =7,310,822.72 or 227.397  tonnes) Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 227.397 tonnes for a loss of 75 tonnes over that period.  end And now for silver August silver initial standings

August 24 2015:

Silver Ounces Withdrawals from Dealers Inventory nil Withdrawals from Customer Inventory 768,781.24 oz (CNT) Deposits to the Dealer Inventory  nil Deposits to the Customer Inventory 602,106.67 oz (CNT,Delaware No of oz served (contracts) 0 contracts  (nil oz) No of oz to be served (notices) 25 contracts (125,000 oz) Total monthly oz silver served (contracts) 301 contracts (1,505,000 oz) Total accumulative withdrawal of silver from the Dealers inventory this month 85,818.47 oz Total accumulative withdrawal  of silver from the Customer inventory this month 8,328,161.7 oz

total dealer deposit: nil   oz

Today, we had 0 deposits into the dealer account:

we had 0 dealer withdrawal: total dealer withdrawal: nil  oz We had 2 customer deposit: i) Into CNT:  600,165.62 oz ii) Into Delaware:  1941.05 oz

total customer deposits: 602,106.67 oz

We had 1 customer withdrawals: i) Out of CNT:  768,781.24 oz

total withdrawals from customer: 768,781.24   oz

we had 0  adjustments Total dealer inventory: 55.871 million oz Total of all silver inventory (dealer and customer) 170.209 million oz The total number of notices filed today for the August contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (301) x 5,000 oz  = 1,505,000 oz to which we add the difference between the open interest for the front month of August (25) 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 August contract month: 301 (notices served so far)x 5000 oz + { OI for front month of August (25) -number of notices served upon today (0} x 5000 oz ,= 1,630,000 oz of silver standing for the August contract month.

we neither gained nor lost any silver ounces standing in this no active delivery month of August.

for those wishing to see the rest of data today see:http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com 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 shareholdersii) demand from the bankers who then redeem for gold to send this gold onto Chinavs no sellers of GLD paper. And now the Gold inventory at the GLD: August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 17.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 14.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes August 13.2015:/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes

August 12./ a huge deposit of 4.18 tonnes of gold into the GLD/Inventory rests at 671.87 tonnes

August 11.2015: no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes August 10/no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes

August 7./no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes August 6/no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes August 5.we had a huge withdrawal of 4.77 tonnes from the GLD tonight/Inventory rests at 667.93 tonnes

August 4.2015: no change in inventory/rests tonight at 672.70 tonnes

August 3.2015: no change in inventory at the GLD./Inventory remains at 672.70 tonnes August 24 GLD : 677.83 tonnes end

And now SLV:

August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz

August 21.2015/ no change in inventory at the SLV/Inventory rests at

324.698 million oz

August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz

August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz

August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.

August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.

August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz

August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.

August 11./ no changes in SLV inventory/rests tonight at 326.209 million oz.

August 10: no changes in SLV inventory/rests tonight at 326.209 million oz.

August 7.no changes in SLV/Inventory rests this weekend at 326.209 million oz

August 6/no changes in SLV/inventory rests at 326.209 million oz

August 5/ a small withdrawal of 142,000 oz of inventory leaves the SLV/Inventory rests tonight at 326.209 million oz

August 4.2015: a small withdrawal of 476,000 oz of inventory at the SLV/Inventory rests at 326.351 million oz August 3.2015; no change in inventory at the SLV/inventory remains at 326.829 million oz

August 24/2015:  tonight inventory rests at 324.968 million oz end   And now for our premiums to NAV for the funds I follow: Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that) 1. Central Fund of Canada: traded at Negative 10.7 percent to NAV usa funds and Negative 10.2% to NAV for Cdn funds!!!!!!! Percentage of fund in gold 63.0% Percentage of fund in silver:36.7% cash .3%( August 24/2015). 2. Sprott silver fund (PSLV): Premium to NAV rises to +0.37%!!!! NAV (August 24/2015) (silver must be in short supply) 3. Sprott gold fund (PHYS): premium to NAV falls to – .47% to NAV August 24/2015) Note: Sprott silver trust back  into positive territory at+0.37% Sprott physical gold trust is back into negative territory at -.47%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note compan