Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1166.60 down $1.00 (comex closing time)
Silver $15.82 up 12 cents.
In the access market 5:15 pm
Gold $1166.00
Silver: $15.84
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a very good delivery day, registering 44 notices for 4400 ounces Silver saw 15 notices for 75,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.52 tonnes for a loss of 94 tonnes over that period.
In silver, the open interest fell by a smallish 1066 contracts even though silver was down by a considerable 21 cents yesterday. I guess in silver nobody of importance wants to leave the arena. The total silver OI now rests at 166,508 contracts In ounces, the OI is still represented by .832 billion oz or 119% of annual global silver production (ex Russia ex China).
In silver we had 15 notices served upon for 75,000 oz.
In gold, the total comex gold OI fell to 464,357 for a loss of 3,435 contracts. We had 44 notices filed for 4400 oz today.
We had no change in tonnage at the GLD / thus the inventory rests tonight at 697.32 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 small change in silver inventory, a deposit of 381,000 oz at the SLV / Inventory rests at 315.553 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 a smallish 1066 contracts down to 166,508 despite the fact that silver was down by a considerable 27 cents with respect to yesterday’s trading. The total OI for gold fell by a large 3,435 contracts to 464,357 contracts, as gold was down $10.40 yesterday.
No wonder we continue have raids on our precious metals as the OI for both silver and gold have been rising too fast for our criminal bankers.
(report Harvey)
2.Gold trading overnight, Goldcore
(/Mark OByrne)
iii) England has now stated that it supports the inclusion of the yuan in the SDR basket::
(courtesy Xinhua newspaper/China/)
iii) USA earnings will be slaughtered with the huge fall in the Euro today:
ii) We have another company in trouble this morning, the world’s largest producer of zinc, Nystar hints at default.
9 USA stories/Trading of equities NY
i) As Europe provides more QE, S and P ramps higher and now above its 200 day moving average
(zero hedge)
ii) Obama lays out his roadmap for the bankruptcy of Puerto Rico
(zero hedge)
iii) initial jobless claims hover around 42 month lows which is totally in contrast to the huge job cuts
(zero hedge)
iv) the once darling stock on Wall Street,Valeant, witnessed its stock crashing below 100.00 dollars today as its credit default swaps rise and yields on its bonds rise. It has a 50% chance of default in the next 5 yrs.
Also today, the Quebec Canada regulators are investigating improper filings of Valeant and that allegations against them are “worrisome”
(two commentaries/zero hedge)
v) Chicago Fed National Activity index stagnates signalling the USA is recession bound
(Chicago Fed National Activity/zero hedge)
vi) USA treasury cancels its 2 year auction due to debt ceiling debacle
(zero hedge)
vii) Bloomberg’s USA confidence index falters again
(zero hedge/Bloomberg)
viii) USA’s leading indicators falter again and it is the lowest in 30 months
(zero hedge)
ix) new debt ceiling proposal by the Republicans: 19.6 trillion usa
(zero hedge)
x) Another biotech AbbVie in trouble with the FDA as their two drugs causes liver damage
(zero hedge)
10. Physical stories
i) the future of the London gold market is up for grabs
(London’s Financial times/GATA)
ii Why gold is money/Simon Black/Sovereign Man/zerohedge)
Let us head over to the comex:
October contract month:
Initial standings
Oct 22/2015
| Gold |
Ounces
|
| Withdrawals from Dealers Inventory in oz | nil |
| Withdrawals from Customer Inventory in oz nil | nil |
| Deposits to the Dealer Inventory in oz | nil |
| Deposits to the Customer Inventory, in oz | nil |
| No of oz served (contracts) today | 44 contracts
4400 oz |
| No of oz to be served (notices) | 608 contract (60,800 oz) |
| Total monthly oz gold served (contracts) so far this month | 408 contracts
40,800 oz |
| Total accumulative withdrawals of gold from the Dealers inventory this month | nil |
| Total accumulative withdrawal of gold from the Customer inventory this month | 184,991.8 oz |
Total customer deposit nil oz
we had 0 adjustments:
October silver Initial standings
Oct 22/2015:
| Silver |
Ounces
|
| Withdrawals from Dealers Inventory | nil |
| Withdrawals from Customer Inventory | 109,733.880 oz
Brinks,CNT,Scotia |
| Deposits to the Dealer Inventory | nil |
| Deposits to the Customer Inventory | 17,903.700 oz CNT |
| No of oz served (contracts) | 15 contract (75,000 oz) |
| No of oz to be served (notices) | 8 contracts (40,000 oz) |
| Total monthly oz silver served (contracts) | 81 contracts (405,000 oz) |
| Total accumulative withdrawal of silver from the Dealers inventory this month | nil oz |
| Total accumulative withdrawal of silver from the Customer inventory this month | 9,397,915.5 oz |
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 17,903.700 o oz
total withdrawals from customer: 109,733.88. oz
And now SLV
Oct 22./no change in silver inventory at the SLV/Inventory rests at 315.533 million oz
Oct 21:a we had a small addition in silver ETF inventory of 381,000 oz/inventory rests tonight at 315.533 million oz
Oct 20.2015/ no change in silver ETF/Inventory rests at 315.152 million oz
Oct 19.2016: no change in silver ETF/Inventory rests at 315.152 million oz
Oct 16/no change in silver ETF/inventory rests tonight at 315.152 million oz
Oct 15./no change in silver ETF inventory/rests tonight at 315.152
Oct 14/no change in silver ETF/silver inventory/rests tonight at 315.152 million oz
oct 13/no change in silver ETF /silver inventory/rests tonight at 315.152 million oz
:oct 12/ no change in the silver ETF/silver inventory rests tonight at 315.152 million oz
Oct 9.2015:/no change in the silver ETF SLV inventory/rests tonight at 315.152 million oz/
Oct 8.2015/no changes in the silver ETF SLV/Inventory rests tonight at 315.152 million oz
Oct 7/a huge withdrawal of 3.243 million oz from the SLV/Inventory rests tonight at 315.152 million oz
Oct 6/no change in silver inventory/inventory rests at 318.395 million oz
oCT 5/we had a small withdrawal of inventory at the SLV of 134,000 oz/and this is also to pay for fees/inventory rests at 318.395 million oz
Oct 2.2015: no change in silver inventory at the SLV/inventory rests at 318.529 million oz
Oct 1.2015:another addition of 1,145,000 oz of silver inventory added to the SLV inventory./inventory rests at 318.529 million oz
Sept 30/no change in silver inventory at the SLV/Inventory rests at 317.384 million oz
sept 29.2015: we had another withdrawal of 859,000 oz from the SLV/Inventory rests at 317.384 million oz
Press Release OCT 6.2015
Sprott Increases Offer for Central GoldTrust and Silver Bullion Trust
Offering an Additional Premium of US$0.10 per GTU Unit payable in Sprott Physical Gold Trust Units
and US$0.025 per SBT Unit payable in Sprott Physical Silver Trust Units
When Announced on April 23, 2015, Offers Represented a Premium of US$3.06 per GTU Unit and US$0.91 per SBT Unit for Unitholders Based on Trading Value and the NAV to NAV Exchange Ratio
Premiums as of October 5, 2015 (including the Increased Consideration) are US$1.14 per GTU Unit and US$0.61 per SBT Unit
Notice of Extension and Variation to be Filed Shortly
Offers Will Now Expire on October 30, 2015 –Unitholders Urged to Tender Now
TORONTO, Oct. 6, 2015 (GLOBE NEWSWIRE) — Sprott Asset Management LP (“Sprott” or “Sprott Asset Management”), together with Sprott Physical Gold Trust (NYSE:PHYS) (TSX:PHY.U) and Sprott Physical Silver Trust (NYSE:PSLV) (TSX:PHS.U) (together the “Sprott Physical Trusts”), today announced that it has increased the consideration payable to unitholders in connection with its offers to acquire all of the outstanding units of Central GoldTrust (“GTU”) (TSX:GTU.UN) (TSX:GTU.U) (NYSEMKT:GTU) and Silver Bullion Trust (“SBT”) (TSX:SBT.UN) (TSX:SBT.U) (the “Sprott offers”).
Unitholders will now receive an additional premium of US$0.10 per GTU unit payable in Sprott Physical Gold Trust units and US$0.025 per SBT unit payable in Sprott Physical Silver Trust units (the “Premium Consideration”), in addition to the units of Sprott Physical Gold Trust and units of Sprott Physical Silver Trust, respectively, being offered on a net asset value (NAV) to NAV exchange basis. Based on trading values and the NAV to NAV Exchange Ratio (as such term is defined in the Sprott offers) at the time Sprott announced its intention to make the Sprott offers on April 23, 2015, the offers reflected a premium of US$3.06 per GTU unit and US$0.91 per SBT unit. The premium as of October 5, 2015, based on trading values, the NAV to NAV Exchange Ratio and the Premium Consideration, represents US$1.14 per GTU unit and US$0.61 per SBT unit, respectively. In connection with this increase in consideration, the expiry time for each Sprott offer is extended to 5:00 p.m. (Toronto time) on October 30, 2015.
“Central GoldTrust and Silver Bullion Trust unitholders have been burdened for too long by a group of trustees committed to protecting the interests of the Spicer family. It is only through the public spotlight that the variety of undisclosed fees paid to supposedly independent trustees has forced public disclosures and hollow justifications. Sprott’s offers to unitholders are compelling and momentum is building as we continue to show the clear advantages of the offers. The response of the GTU and SBT trustees has been to penalize unitholders with the burden of paying for costly lawsuits and expensive advisors to protect the Spicer family and the fees they receive. We are accordingly increasing our offer to compensate unitholders for this abuse of trust, and encourage them to take advantage of this opportunity to exchange their units for an immediate premium, and trade a management committed to entrenchment to one committed to their best interests,” said John Wilson, Chief Executive Officer of Sprott Asset Management.
Added Wilson, “We have provided extensions to the offers so that no unitholders are left without this opportunity to exit an underperforming investment and enter into a high quality security that functions as intended, reflecting the value of the bullion held in the trust. Sprott appreciates the support of GTU and SBT unitholders to date and currently anticipates these extensions will be the final extensions to the Sprott offers.”
As of 5:00 p.m. (Toronto time) on October 5, 2015, there were 8,194,265 GTU units (42.46% of all outstanding GTU units) and 2,055,574 SBT units (37.60% of all outstanding SBT units) tendered into the respective Sprott offers. Total units tendered as of October 5, 2015, do not include pending units which are typically received on the date of expiration.
GTU and SBT unitholders who have questions regarding the Sprott offers, are encouraged to contact Sprott Unitholders’ Service Agent, Kingsdale Shareholder Services, at 1-888-518-6805 (toll free in North America) or at 1-416-867-2272 (outside of North America) or by e-mail atcontactus@kingsdaleshareholder.com.
Gold Is Long Term Inflation Hedge – Leading Academic Expert
By Dr Brian Lucey
Recent research has begun to cast some doubt upon the inflation hedging capacity of gold.
The inflation experience over the last 40 years, since gold began to float freely, has been very mixed. In the 1970s we were concerned in relation to inflation, perhaps even fears of hyperinflation; now the talk is of deflation or disinflation.
The reality is that the relationship between gold and inflation is very time varying.
Research of mine (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2320754) found that when you exclude the 1980s there was in fact no stable relationship, on average. The nature of the time variation was mainly explicable by the trade weighted value of the US dollar (which of course is partially determined by inflation) and this strengthened the idea of gold as a money rather than as “just another asset”.
As important as gold being, or not, a hedge is over what period. It is conceivable to have an asset that performs a desired function over the short term but not over longer. More recent work (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2670896), using some sophisticated methods borrowed from audio processing and geophysics, allows us to decompose any hedge characteristic into various frequencies.
A further issue is around what kind of inflation – if we knew that inflation was to be 10% we could act. So it is important to look not only at realized but also at unanticipated inflation. Leaving aside the issue of how to obtain a decent forecast (to allow for a decomposition into anticipated and unanticipated) we find some very interesting findings.
First, yes, the 1970s and early 80s do see gold as a hedge against actual inflation.
But second, there are further periods when this happens.
And third, this happens not just in the USA but also in the UK, Japan (to some extent) and Switzerland.
Fourth, we find that gold works well at different frequencies.
Fifth, we find that it is not just CPI but also a variety of other inflation measures for which gold can act as a hedge.
And sixth, gold can act as a hedge against unexpected inflation but not unexpected deflation.
The paper contains detailed analysis for the UK, Switzerland and Japan, and also analyses gold bullion versus gold futures versus gold equities as alternative ways to seek exposure to gold’s hedging properties against a variety of inflation scenarios. Similar findings to the USA are found.
The graph above shows what we find for the USA. The horizontal axis is time. The vertical axis is the frequency, in months. Warmer colours represent stronger relationships. Upward facing arrows indicate gold leading inflation, downward the opposite.
Looking then at the USA we see a strong relationship from 1968 through 1990. This high coherency band suggests a strong long-run relationship between gold returns and changes in CPI, during a phase of above average inflation. Gold returns lead changes in inflation at this time.
An investment in gold acted as a strong long-run hedge against future increases in inflation.
Beginning from the early parts of the 2000s, a number of short but significant deflationary phases can be identified. In particular, a sharp period of decreasing inflation (deflation) occurred in the later part of 2008.
A band of high coherency centred on a period of one month is followed by a further band of high coherency centred on a period of 2 months. Declining gold presaged deflationary pressure. Furthermore, an extended period of high coherency is evident at periods between 4 and 8 months from 2008 onwards.
Advancing gold presaged increased inflationary pressure. The evidence found for the US indicates that gold returns have a positive relationship with changes in inflation during both inflationary and deflationary phases.
In other words, gold is generally not found to hedge against the risk of deflation, instead frequently displaying concurrent negative returns.
This relationship is particularly evident at long periods greater than four months, suggesting that gold’s inflation hedging properties are strongest for those with long investment holding periods.
In short, while gold can be useful as a hedge against inflation – this is consistently so only in the long run.
Dr Brian Lucey, Professor of Finance at the School of Business, Trinity College Dublin.
He studied at graduate level in Canada, Ireland and Scotland and holds a PhD from the University of Stirling. His research interests include international asset market integration and contagion; financial market efficiency, particularly as measured by calendar anomalies and the psychology of economics.
His research on gold has established that gold is important as a long term diversification due to gold’s “unique properties as simultaneously a hedge instrument and a safe haven.”
GoldCore will be conducting a Webinar next Thursday, October 22nd at 1600 (BST/ London/ UK time) in which we will open up the floor to attendees in our ever popular Question and Answer session.
Register Now and have your question answered by John Butler of Amphora Capital.
John will be giving a keynote speech at the Precious Metals Symposium in Sydney, Australia on October 26th and 27th and we are scheduling meetings with HNW clients for him while he is in Sydney.
Contact us at sales@goldcore.com if you wish to meet John in Sydney to discuss optimal strategies to access and allocate funds to the gold market today.
DAILY PRICES
Today’s Gold Prices: USD 1166.45 , EUR 1031.30 and GBP 753.94 per ounce.
Yesterday’s Gold Prices: USD 1174.40 , EUR 1035.08 and GBP 759.88 per ounce.
(LBMA AM)
Gold fell $9.90 yesterday to close at $1167.30. Silver was down $0.21 for the day, closing at $15.71. Euro gold fell to about €1029, platinum lost $16 to $1001.
Download 7 Key Storage Must Haves
end
(courtesy London’s financial times/GATA)
Future of London gold market is up for grabs
Submitted by cpowell on Wed, 2015-10-21 18:30. Section: Daily Dispatches
One might think that central banks would have an interest in that future, and yet there’s no mention of them here and no indication of any idea about questioning them.
* * *
By Henry Sanderson
Financial Times, London
Wednesday, October 21, 2015
http://www.ft.com/cms/s/0/3595c888-77d5-11e5-933d-efcdc3c11c89.html
The annual meeting of the London Bullion Market Association usually involves a light-hearted debate on the outlook for precious metals prices. But this year delegates had weightier matters on their minds — a battle for the future of London’s gold market.
Whether it was on the sidelines of the Vienna Hilton conference hall or at the Liechtenstein Garden Palace — venue for this year’s gala dinner — the stand-off between some of the world’s biggest banks was a subject of debate for the 600 brokers and analysts in attendance.
The battle could pit banks such as HSBC and JPMorgan who own large bullion vaults — and who have long dominated the gold trade in London — against rivals including Goldman Sachs and Societe Generale, who are active gold traders but do not have large gold storage businesses.
The backdrop is a swath of new regulation that could open the London market to new technology and shake up the top participants in the world’s gold trading hub. Approximately three-quarters of the world’s bullion dealing takes place in London.
The push for greater transparency has been seized on by some banks as an opportunity to push their vision of what the gold market should look like. Millions of ounces of gold a day change hands, and for any bank that can harness the trade flow or help run the new system it could be highly lucrative.
The gold market is being forced to reassess the way its does business because of new rules, many of them introduced in the wake of benchmark rigging scandals in foreign exchange and interest rates.
Until March, the price of gold was still set or “fixed” twice a day by a small group of banks conferring over the phone with clients and declaring if they were a buyer, seller or had no interest. The century-old methodology has now been replaced by an electronic system operated by energy exchange operator Intercontinental Exchange.
The next stage is to bring more transparency to how gold is traded, which is where the split has emerged.
Five banks including Goldman, SocGen and Morgan Stanley are represented by the World Gold Council, which helped launch the world’s largest gold exchange traded fund in 2004.
Their proposal is for London gold trading to move fully on to an electronic exchange and to launch a London gold contract, which could reduce the influence of the largest bullion banks over the market.
In the other camp is the LBMA, the official body set up by the Bank of England in 1987 to regulate the bullion market, which has close ties to the vaulting banks. Many of its biggest members want physical gold trading in London to remain off-exchange, but have conceded that a move towards all trades being cleared in one place could add transparency.
“What we’re trying to do is put the building blocks to enable the market to develop,” said Jeremy East, head of metals trading and commodities at Standard Chartered and a member of the LBMA management committee. “Without that the market will probably fragment. We need to pull together.”
The LBMA is expected to make its decision next year on a new technology platform.
A copy of recommendations from an independent report commissioned by the LBMA and seen by the Financial Times recommends the body goes further than just improving trade reporting and position itself for central clearing and exchange services in the gold market.
“An exchange for the bullion market would be beneficial for both price transparency and discovery,” says a summary of the report by financial services firm EY.
But many bankers say the current London spot market has enough liquidity, having created hundreds of electronic platforms to buy and sell physical bullion. The CME in the US also already operates a well-traded gold futures market.
“There certainly won’t be more liquidity if it goes on to an exchange, it’s fixing a problem that nobody has,” said Adrian Ash, head of research at online broker BullionVault.
The WGC said it always talks to banks, industry bodies and other market participants and is exploring ways to modernise the gold market.
“Any solution needs to be aligned with regulatory developments, improve liquidity, increase transparency, and mitigate conduct risk even further,” it said in an emailed statement.
For now, the market is divided about what direction to go in, and if there could be an agreement between LBMA and the WGC.
Critics say both groups are vying for expansion of their own powers.
“It’s challenging at the moment,” said Ruth Cromwell, head of the LBMA. “As a marketplace we are getting a lot of attention and we have a lot of offers from people who want to help.”
end
this is why gold is money:
(courtesy Simon Black/Sovereign Man)
What Your High School Chemistry Teacher Never Taught You About Gold
Submitted by Simon Black via SovereignMan.com,
One of the more unfortunate developments in human civilization over the last century is the devolution of money.
In fact, the word ‘money’ has now become synonymous with those funny pieces of paper that are conjured out of thin air by unelected central bankers.
Or even more ridiculous, ‘money’ has become the electronic representation of that paper.
Think about your bank account balance; it’s not like the bank has all that paper currency sitting in its vault.
The ‘money’ in your account doesn’t even really exist. There’s just enough of a thin layer of confidence in the system (at the moment) that this is a widely accepted practice.
It seems rather strange when you think about it. Though for thousands of years, early civilizations had some pretty wild ideas about money.
There are examples from history of our ancestors using everything from animals skins, to salt, to giant stones, as their form of ‘money’.
Though I suppose these weren’t any more ridiculous than our version of money– pieces of paper that don’t even really exist, controlled by unelected central bankers.
Of course, over the last 5,000 years, there was at least one form of money that did make sense. And it stuck. I’m talking, of course, about gold.
It’s no accident that gold has become the most consistent form of money in world history.
The metal is uniquely suited to serve as currency, not only amongst precious metals, but compared against nearly everything else on the planet.
You can see for yourself by taking a look at the periodic table of elements, the scientist’s catalog of everything the world has to offer.
Many of the entries on the periodic table are immediately disqualified. Many elements are radioactive. Others are gasses that would be impossible to transport.
Still others are colorless, and hence indistinguishable from air.
Taking these out eliminates most of the list, and you’re left with just a few dozen metals.
Most of these, however, like copper or iron, can be easily eliminated as well. They’re simply too common. And a form of money is useless if its in too much abundance… a lesson that modern central bankers have completely forgotten.
Others (like cesium) are highly reactive and explode on contact with water, or at least corrode easily.
Clearly a currency that kills its holder, or can’t even maintain its physical state without debasing itself, is rather useless.
Even silver, which nearly passes every single test falters at the last point, because it tarnishes slightly in reaction to sulfur in the air.
So out of all the elements we’re left with just one that’s just right: gold.
Gold is inert and non-reactive. It’s stable. It holds its form over the long-term. It’s malleable and easily divisible. And it’s rare. But not too rare.
Judging by its chemical properties, it’s no accident that gold became the most widely-used currency in history.
Of course, defenders of the paper money concept call gold a “barbarous relic”, suggesting that it has no place in modern civilization.
(Curiously, paper is also relic from long ago, dating back to the 2nd century AD in China. . .)
Yes it’s true that gold is a very old concept. But so is the wheel. Language. Arithmetic. And many other ideas passed down from the ages.
Just because something is ancient doesn’t mean it’s not RIGHT.
Empires rise and fall. Governments and central bankers come and go. Paper currencies lose their dominance.
But gold lasts.
And if you hold a long-term view, and believe that the path to prosperity is not paved in debt and money printing it makes sense to consider holding at least a small portion of your savings in the metal.
1 Chinese yuan vs USA dollar/yuan remains constant, this time at 6.3486 Shanghai bourse: in the green, hang sang:red
2 Nikkei closed down 118.41 or 0.64%.
3. Europe stocks mixed /USA dollar index up to 95.51/Euro down to 1.12511
3b Japan 10 year bond yield: falls badly to .308% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.88
3c Nikkei now just above 18,000
3d USA/Yen rate now below the important 120 barrier this morning
3e WTI: 45.98 and Brent: 48.59
3f Gold up /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 falls to .558 per cent. German bunds in negative yields from 5 years out
Greece sees its 2 year rate falls to 8.37%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 7.75%
3k Gold at $1165.80 /silver $15.77 (9 am est)
3l USA vs Russian rouble; (Russian rouble up 41/100 in roubles/dollar) 62.60
3m oil into the 45dollar handle for WTI and 48 handle for Brent/ China purchases huge supplies from Saudi Arabia
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 .9659 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0649 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/
3r the 5 year German bund now in negative territory with the 10 year rising to +.558%/German 5 year rate negative%!!!
3s The ELA lowers to 82.4 billion euros,
The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Next step for Greece will be the recapitalization of the banks and that will be difficult.
4. USA 10 year treasury bond at 2.04% early this morning. Thirty year rate below 3% at 2.86% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Futures Firm On Hope Draghi Will Give Green Light To BTFD
After yesterday’s dramatic late day market rout catalyzed by the tumble in the biotech sector in general, and Valeant in particular, and foreseen in its entirety by Gartman who went bullish just hours before, this morning US equity futures and European stocks have recouped some losses on the recursive, and traditional, hope that Mario Draghi will say something to push risk higher when he speaks in 2 hours at the ECB’s press conference in Malta. And yet, just like Yellen a month ago, Draghi faces the paradox of reflexivity that after years of being ignored, is the “new thing” in town: how does he intervene and demonstrate he is readier than ever to set up stimulus, without panicking investors over euro area’s health.
Francesco Papadia, chairman of Prime Collaterised Securities and a former director general of market operations at the ECB, summarized it best: “The ECB seems more worried about the economy yet less inclined to act; markets are more confident in the economy yet expect something will be done. For Draghi, it’ll be difficult to even hint that something was discussed because it would send two messages: ‘Good, they’re doing something, and wait, the situation is worse than we thought.'”
As a result, threading the needle correctly will be more unpleasant for the former Goldman managing director than even sustaining another unexpected confetti shower.
So while we await the ECB’s announcement, and with the rest of the overnight session quiet, here is how markets did since the start of trading this morning.
Asian equity markets traded mostly lower following the softer close on Wall St. with price action subdued in continuation of the quiet week. ASX 200 (+0.3%) traded relatively flat with losses offset by gains in the energy sector after Santos (+16%) rejected a takeover proposal, while Nikkei 225 (-0.6%) endured minor losses as JPY strengthened. Shanghai Comp. (+1.5%) found respite from yesterday’s late slump amid an improvement in business sentiment coupled with the PBoC conducting a 32nd consecutive injection into the interbank market. Finally, 10yr JGBs closed the 1st half of trade higher amid the cautious tone in markets.
In European stocks price action has failed to find a sustained trend (Euro Stoxx: 0.0%) as market participants wait on the side lines ahead of the aforementioned ECB meeting, where many will be looking out for any clues as to the possibility, timing and details of any possible expansion to the quantitative easing programme. The SMI is the notable outperformer (+0.4%), bolstered by Roche (+1.2%) after their pre-market earnings, whilst elsewhere Daimler (+0.2%) also released their earnings today, to see initial softness in the shares on the back of reducing view of 2015 global vehicle market, however paring these losses throughout the session.
In FX, the notable event of the European morning was the release of the UK retail sales data, which saw GBP/USD outperform to reach its highest level for over a month. The UK retail sales data (Inc Auto Fuel Y/Y 6.50% vs. Exp. 4.80%) is set to boost Q3 GDP by 0.1 percentage point and as such saw immediate strength in GBP on the back of the release, however with GBP/USD failing to holding above the 100 DMA at 1.5495. While elsewhere in FX markets, EUR initially underperformed as European participants got to their desks amid no new fundamental catalyst, with some desks attributing the move to positioning ahead of the ECB meeting today , however EUR/USD found support above the 1.1300 handle as RANsquawk sources noted bids in the pair at 1.1300 (unconfirmed) with around 2.3bIn worth of expiring options set to roll of at the 10am NY cut.
Of note, AUD saw immediate downside after Commonwealth Bank raised interest rates which puts pressure on the RBA to cut rates at the next meeting, however the move has since pared heading into the North American open.
Fixed income markets remain subdued ahead of the ECB decision and press conference, with volumes remaining light in Bunds, while Gilts underperform this morning on the back of the higher than expected UK retail sales.
In terms of the commodity complex, there saw a minor spike higher in precious metals as European participants got to their desks amid no new fundamental catalysts with prices breaking out of their tight overnight ranges, while WTI and Brent continue to trade in positive territory, heading into the NYMEX pit open firmly above the USD 45.00 and USD 48.00 handles respectively. Looking ahead, today sees the release of the EIA NatGas storage change (Exp. 87bcf).
Looking ahead, as well as the aforementioned ECB release, today’s highlights include weekly US job numbers and existing home sales. With the peak of earnings season upon us, today we see another deluge of Q3 results, with the notable highlights including: Alphabet (Google), Microsoft, AT&T, McDonalds, 3M, Caterpillar, Eli Lilly, Amazon, and Perrigo.
Market Wrap
- S&P 500 futures up 0.3% to 2014
- Stoxx 600 up less than 0.1% to 363
- FTSE 100 down 0.1% to 6340
- DAX up 0.3% to 10265
- MSCI Asia Pacific down 0.3% to 134
- Nikkei 225 down 0.6% to 18436
- Hang Seng down 0.6% to 22845
- Shanghai Composite up 1.4% to 3369
- S&P/ASX 200 up 0.3% to 5264
- US 10-yr yield up 1bp to 2.04%
- Dollar Index up 0.1% to 95.13
- WTI Crude futures up 1% to $45.65
- Brent Futures up 1% to $48.33
- Gold spot up less than 0.1% to $1,167
- Silver spot up 0.4% to $15.77
- German 10Yr yield up less than 1bp to 0.57%
- Italian 10Yr yield up 2bps to 1.62%
- Spanish 10Yr yield up 2bps to 1.76%
Bulletin Headline summary from Bloomberg andRanSquawk
- Price action has failed to find a sustained trend as market participants wait on the side lines ahead of the aforementioned ECB meeting
- Looking ahead, as well as the ECB release, today’s highlights include weekly US job numbers, existing home sales, EIA NatGas storage change and earnings from the likes of Alphabet, Microsoft and Amazon
- ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling: Challenge on Thursday is to show that he’s readier than ever to set up stimulus, without panicking investors over euro area’s health
- Ryan Gets Key GOP Group’s Support for U.S. House Speaker Job: ~2/3 of House Freedom Caucus backed Ryan in a vote Wednesday night, less than the 80% needed to make a full endorsement
- China’s leaders are poised to announce a 2020 deadline to dismantle currency controls that have kept the world’s second-largest economy from fully integrating with global financial markets
- China is making more money available to local governments for financing infrastructure projects this year amid concerns about flagging economic growth, according to people familiar with the matter
- China has for the second time this month raised the possibility of taxing forex transactions as record capital outflows from the world’s second-largest economy put pressure on the yuan
- China Said to Consider Consolidation Among Big 3 Airlines: Plan to merge the cargo ops of Air China, China Southern Airlines and China Eastern Airlines said to have been circulated among regulators for their opinions
- Volkswagen AG’s worldwide repair of 11 million diesel vehicles to bring their emissions systems into compliance with pollution regulations is shaping up to be one of the most complex and costly fixes in automotive history as the probe widens
- Neuberger Berman says investors in speculative-grade companies are getting sufficient compensation for U.S. defaults that it expects to expand below historical averages
- Japan’s biggest life insurers face hurdles wherever they seek returns in the fiscal second half, as Bank of Japan debt buying depresses local yields, the yen shows signs of strength and currency hedging costs soar
- Fiat CEO Sees More Need for Consolidation After VW Scandal: Fiat Chrysler will play a role in consolidation and still sees GM as its best-suited partner, CEO told Bloomberg
- Ukraine Sees Signs Truce Can Last as Putin Juggles War and Peace: If accord holds, Ukraine will meet one of Russia’s key demands — passing constitutional changes giving regions more autonomy — but probably not until Dec.
- Other post-mkt news:
- Greenlight Takes Long Positions KORS, UIL; Reduces MU: Letter
- U.S. Said to Investigate Venezuelan Oil Giant PDVSA: WSJ
- S&P: Post Properties Set to Join S&P Midcap 400
- Citrix Systems Boosts 2015 EPS View; Names Calderoni Interim ** AmEx Says It Hasn’t Seen Lower Earnings From US Costco
- LVS 3Q Adj. EPS, Property Ebitda Top Ests.; Raises Dividend
DB’s Jim Reid completes the overnight wrap
Welcome to ECB day which now only occurs every 6 weeks instead of monthly. A recent move that is eminently sensible but when you’re in the business of trying to find something interesting to say on a daily basis it’s a pain as it reduces the amount of newsflow! I may be forced to get the strategist’s union on the ECB for restraint of trade. Given I’ve got an increasing amount of mouths to feed at home I’ll resist downing tools in protest. Anyway, today’s meeting will likely be relatively uneventful given the recent stability in markets and the ‘ok’ data in the Euro area including this week’s ECB bank lending survey. The house view is that the ECB will announce a 6 month extension to QE at the December 3rd meeting with a deposit rate cut not ruled out. As we discussed earlier in the week our economists think Mario Draghi has a communications challenge today. He will want to reiterate the dovish message of an ECB “ready, willing and capable” of action. At the same time, the ECB does not want the market pricing a policy outcome that is not justified by what they see as current fundamentals. However for us there is no getting away from the fact that at the moment the ECB look set to continue to miss their inflation goals as far as the eye can see so even with stability in markets they will likely have to address this before too long. So don’t expect any action today but look for clues as to what future easing will look like. Of note might be any answers Draghi gives to whether the depo rate is at the lower bound. This may give us clues as to the composition of future easing.
We noted in yesterday’s EMR that outside of Japan, there wasn’t a whole lot of direction in Asian equity markets yesterday. Well that swiftly changed after we went to print as Chinese bourses tumbled, the Shanghai Comp eventually closing down over 3% (including a 5% high-to-low swing) and Shenzhen finishing nearly 6% lower as small caps led the huge retreat despite minimal newsflow. This morning has seen the Shenzhen (+1.98%) in particular bounce back, while the Shanghai Comp (+0.24%) has seen only a very modest move higher. There was some better news on the data front where the October MNI business indicator for China rose 4.3pts versus September to 55.6, the percentage jump (+8.4%) the largest since March 2011. This supports the DB view that China data will soon stabilise.
Elsewhere this morning, the Nikkei (-0.79%) is down following yesterday’s gains while the Hang Seng (-0.92%) and Kospi (-1.01%) are also lower, the latter in particular suffering from a steep fall from Samsung after a disappointing earnings report this morning. In the credit space Asia and Australia credit indices are a touch wider this morning.
Despite a modest recovery this morning, it’s been a rough week for Oil markets so far. Yesterday WTI (-1.77%) tumbled back below $46 after the latest EIA data showed stockpiles in the US were up by 8m barrels last week, far exceeding expectations of a rise of 3.75m. That’s seen WTI fall over 5% this week so far and to the lowest closing level since October 1st having briefly passed $51 just 13 days ago. It was much the same for Brent which closed -1.77% yesterday, breaking $48 to the downside where it’s not closed below since August 26th.
Those moves in Oil yesterday helped support a decent sell-off in energy stocks which weighed on US equities in particular. A late swing down saw the S&P 500 close -0.58%, while the Dow (-0.28%) and Nasdaq (-0.84%) also retreated in the last hour of trading. Prior to this it had been a pretty choppy session across the pond. With little macro news to feed off, some big swings in healthcare stocks in particular, coupled with some better than expected earnings saw the S&P 500 cross between gains and losses 14 times during the session.
Much of this attention was placed on US drug developer and distributor Valeant. The company’s share price plummeted as much as 40% intraday on the back of a negative broker report raising questions around the drugmaker’s inventory accounting treatment of drug sales. The company later denied the allegation after the report suggested ‘is this Enron part Deux?’. After trading in the shares was halted at various points in the day, the stock pared a decent amount of the initial leg lower, finishing the day -19% down at the close after a hedge fund run by William Ackman – also one of the largest shareholders – purchased an additional 2m shares. Valeant’s bonds were also heavy hit on the back of the report. Its 2025 USD bonds closed the day down 7pts in cash price to around 88.5c, paring back slightly after initially plunging as much 10pts.
Those moves caused something of a ripple effect through healthcare stocks with the likes of Endo (-13%) and Mallinckrodt (-6%) also coming under downward pressure following the report. The S&P 500 healthcare index did tumble as much as -2.5% and the Nasdaq Biotech index hit an intraday low of -3.5% before both indices recovered slightly into the close (but still finished nearly a percent lower).
Earnings reports yesterday generally did their best to help offset at least some of the pain triggered by the slide in oil and volatility in the healthcare space. Of the 32 S&P 500 companies to have reported yesterday, 24 (75%) reported an earnings beat (with 2 in-line) and 18 (56%) notched up a beat in revenues relative to analyst expectations. That’s a bit better than the overall numbers for earnings season so far. With the count at 118 companies, 75% have beat at the profit line and 47% at the top line. In fact if we go back and look at the last two quarterly earnings seasons in the US, in Q2 the proportion of beats at earnings and revenue respectively was 75% and 49%, while in Q1 this was 73% and 48%. So a similar trend this quarter to what we’ve seen in the two previous quarters even if the raw numbers are weaker due to in particular the global slowdown and stronger dollar. Yesterday’s positive reports came out of Boeing and General Motors (where we saw some evidence of resilience in China in particular), while after the closing bell EBay put out Q3 numbers a touch ahead of expectations and raised its full year forecast sending its share price up 10% in extended trading as investor fears of some post PayPal teething worries were allayed somewhat.
Closer to home yesterday, it was a slightly more mixed session across European equities. The Stoxx 600 (-0.01%) closed pretty much flat and has been stuck in a 10 point range now since October 2nd. The DAX (+0.89%) extended its move higher however, while Italian equities were the notable underperformer with the FTSE MIB down -0.44%. Earnings season is still yet to have picked up pace in Europe. Yesterday though it was Credit Suisse’s turn to deliver some disappointing earnings in the bank space, also announcing a capital raising and a divisional reorganisation.
Before we run over today’s calendar, US politics is starting to attract a few headlines again with the US debt ceiling deadline creeping up on November 3rd. Yesterday US Treasury Secretary Lew said that he is worried that last-minute brinkmanship could cause an ‘accident’ and that this ‘deadline is very real’. According to Bloomberg, House Republicans were said to have met behind closed-doors yesterdays to discuss the options around increasing the debt limit, while the FT is out suggesting that a potential positive outcome is being muddled by the current search for a new speaker in the House. So one to watch with the danger being that we’ve got a bit complacent given we’ve feared this before. In the end its become a case of crying wolf as a compromise has always been reached even after a shutdown.
Looking at the day ahead now, data wise first thing this morning in Europe we’ve got various French confidence indicators for October followed closely by UK retail sales data for September. The aforementioned ECB decision is due at 12.45pm BST with Draghi due to speak at 1.30pm BST. In the US this afternoon there’s a lot of data scheduled and we kick off with the Chicago Fed national activity index and initial jobless claims data. This is closely followed the FHFA house price index before we get existing home sales, the Conference Board leading index and finally the Kansas City Fed manufacturing activity read. Meanwhile it’s another bumper day for earnings with 46 S&P 500 companies due to report. Amazon, AT&T and Microsoft are the highlights from the tech names due to report, while we’ll also hear from Caterpillar and McDonalds.
end
ASIAN AFFAIRS
China Calms Fears, Says “Stock Plunge Is Normal Correction” As Panic-Buying Resumes On Japanese Open
After last night’s bloodbathery in China, analysts and officials are out en masse to ensure a newly re-leveraged Chinese investors that the “stock plunge is a normal correction.” Disappointingly, Chinese stocks are barely bouncing at the open, which is not what we can say for Japan, where the mysterious uneconomic panic-buyer-of-first-resort appeared once again and smashed the Nikkei 225 200 points higher at the open (after weakness in the US).
Japanese stocks meltup to catch up with USDJPY at the open, but are fading back…
And after last night’s carnage in China…
Analysts are anxiously reeassuring everyone… (as Bloomberg reports),
Investors shouldn’t be too pessimistic about market outlook as Wed.’s tumble was “normal correction” from previous strong run, analysts Luo Wenbo and Zeng Yan at Zhongtai Securities said in report.
Some investors sold shares ahead of next week’s Party plenary session on concern gains were excessive, causing “herd effect” on Wed., report said
Room for further downside is limited as liquidity is still adequate, reform motivation is strong and market sentiment has gradually picked up: report
PBOC fixed the Yuan modestly weaker but the Offshore-Onshore spreads remains near 1 month wides…
In addition, China’s central bank added funds to the banking system using six-month loans to keep borrowing costs down as a slowdown in the world’s second-largest economy spurs capital outflows.
The People’s Bank of China supplied 105.5 billion yuan ($16.6 billion) to 11 commercial lenders on Wednesday using the Medium-term Lending Facility, according to a statement posted on its official microblog. The rate was 3.35 percent, the same as for similar-term funds injected in August.
And The USDollar is slipping against Asian FX…
Charts: Bloomberg
end
The truth behind capital leaving China and how China is hiding the figures through derivatives!1
(courtesy zero hedge)
Capital Is Still Flowing Out Of China, Here’s How Beijing Is Hiding It
Earlier this month, we asked if the market was being deceived about the pace of capital outflows in China.
Our concerns came on the heels of a rally in EM FX and other assets that may have been fueled by a “better-than-expected” read on China’s reserve drawdown in September. The figure came in at “just” $43 billion, which of course made no sense because on one measure, outflows totaled more than that by the middle of the month.
This is important because as we outlined three weeks after the deval, the monthly read on China’s FX reserves has to a certain extent become the new risk on/off triggerfor the market which means that if the data is unreliable or otherwise opaque, then investors will be operating with bad information. That is, what we really want to know is how much pressure there is in terms of capital outflows, and to the extent that China’s official FX reserve data doesn’t capture that, the data isn’t a useful indicator of where EM is headed on a more general level.
As Goldman began to discuss in September, Chinese banks appear to be absorbing some of the outflows using their own books. Here’s how they explained the situation last week:
Given possible PBOC balance sheet management (e.g., short-term transactions and agreements between with banks, e.g., forward transactions, FX entrusted loan drawdown or repayment), we interpret the FX reserves data with caution, as it might not give a complete picture of the FX flow situation. The large gap between today’s data and the other PBOC data for September suggests that banks might have used their own spot FX positions to help meet some of the outflow demand, although banks’ overall FX positions might still have been squared with the PBOC via forward agreements.
In short, our argument has been that much like the NBS will obscure any weakness below 7% in China’s GDP data, the PBoC will do “whatever it takes” (central bank pun fully intended) to make sure that the market doesn’t get wind of the fact that there’s still a tremendous amount of pressure in terms of capital outflows.
Now, the word is apparently out. Here’s Bloomberg:
The People’s Bank of China and local lenders increased their holdings in onshore forwards to $67.9 billion in August, positions that would boost China’s currency against the dollar. The amount is five times more than the average in the first seven months, PBOC data show. The positions are part of a three-stage process to support the currency without immediately draining reserves, according to China Merchants Bank Co. and Goldman Sachs Group Inc.
Standard central-bank intervention to support a currency generally involves selling dollars and buying the home tender. In this case, China’s large state banks borrowed dollars in the swap market, sold the U.S. currency in the cash spot market and used forward contracts with the central bank to hedge those positions.
“If you can intervene without actually diminishing your reserves, it’s somehow viewed as better,” said Steven Englander, global head of Group-of-10 foreign exchange-strategy in New York at Citigroup Inc. Such central-bank activity “may not look quite as dramatic as the sale of reserves, and they may prefer that optically,” he said.
Using derivatives for intervention had the benefit of delaying any decline in the PBOC’s $3.5 trillion trove of foreign-exchange reserves, helping calm investors rattled by an economic slowdown and a slumping stock market. It was also faster as the monetary authority’s managers didn’t have to liquidate assets such as U.S. Treasuries to raise the dollars needed for direct yuan purchases.
Major Chinese banks borrowed dollars in the onshore swap market in late August and September, and then undertook “heavy dollar selling” in the spot market, said Frank Zhang, head of foreign-exchange trading at Shenzhen-based China Merchants Bank.
The PBOC then came in to offset, or “square”, the positions with the banks, essentially taking on their trades onto its own balance sheet, according to Goldman Sachs.
On a practical level, buying yuan forwards means the PBOC wouldn’t drain yuan liquidity out of the system as it would otherwise by buying its own currency in the spot market. Policy makers cut interest rates and the reserve-requirement ratio in August, partly to replenish the funds drained during intervention.
“If you have a transaction that settles down the road, the actual liquidity impact in the short term may not be as dramatic,” said Citigroup’s Englander. “Down the road you can’t avoid it.”
In the simplest possible terms (although really, this isn’t that complex a transaction to begin with), they’re just kicking the can in an effort to control the optics around the deval, which would be fine if everyone realized what’s going on, but rest assured they do not, because no matter how many Bloomberg or WSJ articles are published on the subject, the market (or the machines) will still read the headline figures and make a snap judgement about the extent to which the pressure on the yuan has mitigated.
At the end of the day, the takeaway is simply this: the narrative around Chinese capital outflows is extraordinarily important right now, and indeed, it’s influencing the Fed’s reaction function. Even as Beijing doesn’t necessarily want the Fed to raise rates, the PBoC doesn’t want to lose complete control of the narrative either, which is why you can expect to see more efforts on China’s part to mitigate near-term FX reserve burn, even if it means stacking the deck against the yuan down the road. And really, who can blame them? The entire world is involved in the largest can-kicking experiment of all time, so why should China’s central bank be any different?
end
England has now stated that it supports the inclusion of the yuan in the SDR basket::
(courtesy Xinhua newspaper/China/)
LONDON, Oct. 22 (Xinhua) — Britain supports the inclusion of the RMB, or Chinese yuan, into the International Monetary Fund’s (IMF) SDR basket subject to meeting existing criteria in the IMF’s upcoming review, said a China-Britain joint declaration issued here Thursday.
Both sides urge members who have yet to ratify the 2010 quota and governance reforms to do so without delay to further enhance the voice of emerging markets and developing countries, said the document.
The joint statement was signed during Chinese President Xi Jinping’s state visit to Britain, the first of its kind for a Chinese head of state in a decade.
http://news.xinhuanet.com/english/2015-10/22/c_134740650.htm
end
EUROPEAN AFFAIRS
Draghi delivers moar QE as promised!
(courtesy zero hedge)
Draghi Delivers Moar Promises – Stocks Jump As EUR, German Yields Dump
Surprise! A central banker promises moar of the same... and once again the goldfish-like-memory of market particpants forgets that this has all been priced in a thousand times and buys his bullshit. EUR dumped 150 pips to a 1.11 handle, 2Y German notes tumbled 6bps to -32bps, European and US stocks are surging (as USDJPY rises) and US Treasuries have reversed early gains amid equity gains.
Charts: Bloomberg
Deutsche Bank Warns Bonuses Will Be Slashed As Much As 30%
It’s a tough time to be a banker at Deutsche Bank.
The German banking behemoth has nurtured a corporate culture built on chicanery and corruption for years and indeed, it’s managed to stand out in that regard even in a world where the vast majority of large financial institutions have been variously exposed for manipulating everything from FX to benchmark rates as well as engaging in all manner of other deplorable business practices designed to enrich the firm at the expense of, well… at the expense of everyone else in the world.
In short, you have to try pretty hard to stand out as being particularly nefarious in the universe of TBTF institutions, but Deutsche Bank has indeed succeeded.
The above is one reason why co-CEOs Anshu Jain and Jürgen Fitschen were effectively shown the door back in June and over the course of 2015, the company lost several other high profile bankers including the global head commercial real estate and the head of structured finance.
New CEO John Cryan has now embarked on a frantic attempt to right the ship, and that effort recently manifested itself in the dismissal of some 23,000 people, or around a quarter of the bank’s employees.
Next, Deutsche announced a raft of high-level management changes as part of an anticipated and sweeping restructuring of key divisions and senior-level committees.
As WSJ reported, Colin Fan, the investment-banking co-head responsible for securities trading, resigned and Michele Faissola, the head of the bank’s asset and wealth-management business, left too. Deutsche also split its investment bank into two pieces: one, the underwriting and advisory part, focused on mergers and other deals, corporate finance and transaction banking services such as cash management, and the other on trading and global markets.
As we noted last week, “while not as profound as imposing an internal Glass-Steagall wall, or creating a “bad bank” (at least not yet), this may be the first step to much more dramatic org chart overhauls, some which will likely end up in splitting off depositor assets from risk-trading activity.”
In the latest news out of the bank which has over €50 trillion in notional derivatives exposure, Cryan will slash bonuses by a third, or more than half a billion. Here’s Bloomberg:
Deutsche Bank AG may cut the bonus pool for its investment bank by as much as 500 million euros ($566 million), or almost a third, as co-Chief Executive Officer John Cryan seeks to slash costs in the securities unit, according to people with knowledge of the matter.
No decision has been taken and the biggest reductions are likely to impact employees in the fixed-income business, said one of the people, who asked not to be named as the information isn’t public. Some managing directors may have their entire bonus scrapped, according to the person. Deutsche Bank paid staff at the securities unit 1.7 billion euros of variable compensation for 2014, the Frankfurt-based firm’s filings show.
Cryan, 54, who took over from Anshu Jain in July, indicated earlier this month that bonuses may be cut after saying the company will report a third-quarter loss of about 6.2 billion euros after writing down the value of the investment bank and other assets. The bank is also considering suspending its dividend for the first time since Germany’s post World War II reconstruction in an effort to bolster capital.
Deutsche Bank paid staff across its businesses 2.71 billion euros in bonuses for last year, down from 3.16 billion euros they received for 2013, company filings show. Last year marked the first time the bank implemented European Union rules which cap bonuses at twice annual salary.
The investment banking and trading unit, which was previously co-headed by Colin Fan, employed 25,843 people at the end of December, 8,207 of whom were classified as front office staff, who are generally the top earners, according to company filings.
A total of 2,057 so-called material risk-takers at the investment bank, including 58 in management, were paid 1.09 billion euros in bonuses and other discretionary remuneration for last year, the filings show.
So yeah, it’s a bad time to be a fixed income trader and an even worse time to be a fixed income trader at Deutsche Bank.
What’s the world coming to when “material risk-takers” can’t walk away with billions in “well deserved” cash for embedding enormous amounts of systemic risk in markets?
end
EURUSD Crashes 200 Pips, Biggest Drop In 9 Months
So much for The Fed stepping back to weaken the USD and save US Corporate earnings...
EURUSD -205pips…
The biggets percentage drop in 9 months…
Pushing The USD to 3-month highs…
How will that ‘help’ the US earnings picture…
Charts: Bloomberg
end
Goldman Sachs’ Brooks lays out the scenario for the ECB to lower the value of the Euro to the 1.05 area, as Draghi cuts deposit rates more to the negative as well as more monetization. The pain will be felt by many: China, Australia USA etc. The lower Euro will force China to increase their devaluation greater. It also puts on hold the USA rate hike
(courtesy zero hedge)
Goldman Deconstructs Draghi’s Conference, Expects “Plenty Of Downside” For EUR, Reiterates 0.95 Target
There was a reason why last night we laid out an analysis on the pros and cons of QE vs negative rates: quite simply, those are the last two “tools” left in the central bankers’ monetary “twilight zone” arsenal.
And as Mario Draghi made very clear this morning, both are about to be used much more for the simple reason that because they haven’t worked until now, they will surely work when they are expanded.After all that is the full extent of Keynesian 101 logic.
The immediate result: the biggest drop in the EUR in 9 months…
… as Europe prepares to unleash yet another global deflationary wave, in the process likely forcing China to proceed with its second devaluation step now that much of the “benefit” from China devaluation against the EUR has been wiped out.
The move will also lead to substantial pain for US multinationals who have already been screaming Uncle as a result of the soaring dollar. They will do even more of that in the next quarter, even if they will all rush to explain how non-GAAP earnings would be much better if one only excludes the “one-time” pain associated with said strong dollar. It also means that with Draghi now pre-empting the Fed’s rate hike, it leaves Yellen in an even bigger box, whose now have little possibility to hike rates as the rest of the world (recall that according to Citi in addition to the ECB, there will be more imminent easing from Japan, Australia and China).
But before we get there, there may be even more pain for those who conduct business in Europe, or those long the EUR.
According to Goldman Mario Draghi’s upcoming actions (or merely even more jawboning), implies “downside of at least 5-6 big figures from here, i.e. should see us return to near the 1.05 low that EUR/$ made in March.” Goldman’s ultimate target on the EURUSD: 0.95 in 12 months.
Here are the full thoughts by Goldman’s Robin Brooks:
ECB President Draghi today put additional monetary stimulus, above and beyond the measures announced in January, on the map for the December 3 meeting. In particular, he raised the possibility of stepping up the existing QE program and / or cutting the deposit rate further. EUR/$ moved substantially lower during the press conference (Exhibit 1), but we argue in this FX Views that potential downside is still substantial. As we noted in our FX Views earlier this week, we think a 10 bps (surprise) deposit cut is worth two big figures downside in EUR/$. We base that assessment on empirical work we did last year and the September 2014 surprise deposit cut, when EUR/$ fell around two big figures (Exhibit 2). At the very least, following today’s press conference, a December deposit cut is now possible, meaning that EUR/$ – which went into the meeting at around 1.13 – should reprice to 1.11. Of course, there is a good chance that December will instead bring an actual augmentation of the QE program, such that downside in EUR/$ might be larger. The kind of scenarios our European economics team envisage imply downside of at least 5-6 big figures from here, i.e. should see us return to near the 1.05 low that EUR/$ made in March.
From a fundamental perspective, we have argued all year that additional stimulus from the ECB is needed and will come, which formed the basis of our downward revision to our EUR/$ forecast back in March (when we switched to 0.95 in 12 months from 1.08 previously). We developed conviction in our call over the summer, when we showed that developments in the Euro zone, in particular structural reforms on the periphery, look like they are shifting down the Phillips curve, making it harder for the ECB to bring inflation up on a sustained basis. As we argued earlier this week, the Bund sell-off that began in May was harmful to ECB QE, but we think the trend now will be to fix the credibility of the program. Today’s meeting was indeed “decision time” for the ECB, as we had hoped. Given that shift, we think there is plenty of scope for EUR/$ downside from here, in line with our forecasts.
In “Manifest Waste Of Time,” Portugal Reappoints PM In Defiance Of Anti-Euro Left Coalition
As those who followed our coverage of Greece’s protracted negotiations with creditors are no doubt aware, Berlin’s effort to tighten the screws on Alexis Tsipras and Yanis Varoufakis was just as much about sending a message to the rest of the EU periphery as it was about putting Greece on some kind of “sustainable” path to recovery.
Greece is going to be a German debt colony for decades to come and everyone knew that going in.
The real risk was always that Spain, Portugal, and perhaps Italy would get the “wrong” idea about whether it’s possible to essentially threaten to expose the euro as dissoluble on the way to gaining leverage in debt negotiations with Brussels and the IMF.
In other words, it seemed at times as though Greece was betting that the notion of the EMU as an unbreakable bond between member countries would ultimately prove to be so important, that the troika would bend over backwards to avoid Grexit.
Of course it didn’t quite work out that way and the Greek people had their referendum “no” vote sold down the river by Tsipras.
When it comes to Greece, Brussels and the IMF achieved what they set out to accomplish as soon as Syriza came to power in January: namely, they were successful in subverting the democratic process by using the purse string to turn Tsipras into a pandering technocrat and to gut Syriza of its more “radical” members like Panagiotis Lafazanis.
The troika had hoped that Greece’s horrific experience during negotiations and the subsequent outcome which saw a beleaguered Tsipras reduced to a shadow of his former revolutionary self would be enough to deter leftists in other periphery countries from attempting to go down the Syriza route by shunning austerity and pushing for debt relief. As we put it a few months ago, the real question is whether or not the ATM lines, empty shelves, and gas station queues in Greece have had their intended psychological effect on Spanish (and Portuguese) voters.In other words, the question is whether the troika has succeeded in undercutting the democratic process outside of Greece by indirectly strong-arming the electorate.
Well, sorry Brussels, but it looks like Athens may have opened Pandora’s Box. On the heels of inconclusive elections held earlier this month, Portugal’s Socialist leader Antonio Costa is ready to align with the Communists and with Left Bloc to form a government in defiance of the Right-wing coalition.Here’s The Telegraph with more:
Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF ‘Troika’.
Against all assumptions, he has suspended his party’s historic feud with Portugal’s Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament
The country’s president has the constitutional power to reappoint the old guard – and may in fact do so over coming days – but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh.
“The majority of the Portuguese people did not vote for the incumbent coalition. They want a change,” said Miriam Costa from Lisbon University.
Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.
Mr Costa’s hard-Left allies both favour a return to the escudo. Each concluded that Greece’s tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency.
The Communist leader, Jeronimo de Sousa, has called for a “dissolution of monetary union” for the good of everybody before it does any more damage to the productive base of the European economy.
His party is demanding a 50pc write-off of Portugal’s public debt and a 75pc cut in interest payments, and aims to tear up the EU’s Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the “commanding heights of the economy”.
Catarina Martins, the Left Bloc’s chief, is more nuanced but says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the European Central Bank close down its banks,” she said.
And more from FT:
The appointment of a government led by the Socialist Party (PS) would represent a marked shift from the centre-right government that steered Portugal through a punishing bailout in collaboration with international lenders, to a leftwing alliance determined to roll back austerity.
“Europe is watching and is very concerned,” said Mujtaba Rahman, head of European analysis at the risk consultancy Eurasia Group. “Having just stabilised Greece and heavily distracted by migrants, the last thing Europe needs is a renewed crisis in the south.”
Mr Passos Coelho’s Forward Portugal alliance (PAF) won 38.6 per cent, the largest share of the vote, in the October 4 election, but lost its outright majority in parliament. This means a minority centre-right government could be brought down by the combined votes of left-of-centre parties.
No government on the left or right could hope to survive without support from the PS, which won 32.3 per cent, leaving Mr Passos Coelho nine seats short of an overall majority in the 230-seat parliament.
But talks, encouraged by the president, between Mr Costa and Mr Passos Coelho on PS support for a minority centre-right government have collapsed.
In other words, this is the absolute worst case scenario for Berlin and Brussels and indeed this is precisely what the troika was trying to deter by adopting a hardline approach during the fraught negotiations with Greece.
Who could have seen this coming, you ask? Well, here’s what we said in July:
In this way, while the outcome of the Greek situation is currently unknown, it has also become moot, because at this very moment, politicians from leftist movements in the periphery are drafting memos demanding that the IMF evaluate their own debt sustainability. Or rather unsustainability.
And here’s our assessment from way back in May:
Perhaps it’s time for Greeks to ask themselves if this is the kind of “European” partner they want to bind their fate to: a partner that will do everything in its power to subvert a democratically elected government, even if, or rather especially if, it means a wholesale “bail-in” for Greek depositors, who may lose as much as 70 cents on every euro.
After Greece is done soul searching, the people of Spain, Italy, Portugal and Ireland should ask the same question, because if we have a Grexit in two weeks, then these countries are next and indeed, Portugal’s Socialist Party is pledging to implement a “reverse policy” as it relates to austerity and relations with the Troika.
So the takeaway from the above is that allowing the Left coalition to form a government risks throwing the entire EMU back into crisis mode, but attempting to restore the political status quo by decree means setting everyone up for a prolonged period of indeterminacy.
Obviously that’s a lose-lose for Silva, but as of Thursday evening, a decision has been made. In what is bad news for anyone who hoped Portugal wouldn’t end up mired in an intractable political stalemate, President Anibal Cavaco Silva has appointed Pedro Passos Coelho to serve another term as PM.
That’s bound to make the situation worse given everything noted above about the relationship between Costa and Coelho. As Communist leader Jerónimo de Sousa said earlier this week, appointing Coelho as prime minister would be “a manifest waste of time”.
So here again, just like in Brazil and Turkey, we’re set to see political turmoil take center stage, and the EU will be forced to stand by and hope that Portugal remains “in the fold” so to speak when it comes to austerity and the outward appearance of fiscal rectitude.
Oh, and if you’re looking for someone who apparently didnot think it was possible that the Left might end up banning together to make a serious political power play in Portugal, see below…
“Proxy” War No More: Qatar Threatens Military Intervention In Syria Alongside “Saudi, Turkish Brothers”
Earlier this week, Saudi foreign minister Adel al-Jubeirhad the following message for Tehran:
“We wish that Iran would change its policies and stop meddling in the affairs of other countries in the region, in Lebanon, Syria, Iraq and Yemen. We will make sure that we confront Iran’s actions and shall use all our political, economic and military powers to defend our territory and people.”
In short, Riyadh and its allies in Doha and the UAE are uneasy about the fact that the P5+1 nuclear deal is set to effectively remove Iran from the pariah state list just as Tehran is expanding its regional influence via itsShiite militias in Iraq, the ground operation in Syria, and through the Houthis in Yemen.
Thanks to the fact that Tehran has more of an arm’s length relationship with the Houthis than it does with Hezbollah and its proxy armies in Iraq, the Saudis have been able to effectively counter anti-Hadi forces in Yemen without risking a direct conflict with Iran, but make no mistake, Sana’a is not the prize here. Yemen is a side show. The real fight is for the political future of Syria and for control of Iraq once the US finally packs up and leaves for good. Iran is winning on both of those fronts.
Over the last several weeks, we and others have suggested that one should not simply expect Washington, Riyadh, Ankara, and Doha to go gently into that good night in Syria after years of providing support for the various Sunni extremist groups fighting to destabilize the regime. There’s just too much at stake.
As noted on Tuesday, Assad’s ouster would have removed a key Iranian ally and cut off Tehran from Hezbollah. Not only would that outcome pave the way for deals like the Qatar-Turkey natural gas line, it would also cement Sunni control over the region on the way to dissuading Tehran at a time when the lifting of crippling economic sanctions is set to allow the Iranians to shed the pariah state label and return to the international stage not only in terms of energy exports, but in terms of diplomacy as well. Just about the last thing Riyadh wants to see ahead of Iran’s resurgence, is a powergrab on the doorstep of the Arabian peninsula.
Thanks to Washington’s schizophrenic foreign policy, there’s no effective way to counter Iran in Iraq but as Mustafa Alani, the Dubai-based director of National Security and Terrorism Studies at the Gulf Research Center told Bloomberg earlier this week, “The regional powers can give the Russians limited time to see if their intervention can lead to a political settlement — if not, there is going to be a proxy war.”
That’s not entirely accurate. There’s already a proxy war and the dangerous thing about it is that thanks to the fact that Iran is now overtly orchestrating the ground operation, one side of the “SAA vs. rebels” proxy label has been removed. Now it’s “Iran-Russia vs. rebels” which means we’re just one degree of separation away from a direct confrontation between NATO’s regional allies in Riyadh and Doha and the Russia-Iran “nexus.” Here’s Bloomberg with more on the Saudi’s predicament:
Powerful Saudi clerics are calling for a response to the Russian move, even though the kingdom is already bogged down in another war in Yemen. Analysts say the Saudi government will probably speed up the flow of cash and weapons to its allies in the opposition fighting to topple President Bashar al-Assad, who’s also supported by Saudi Arabia’s main rival, Iran.
While the Saudis may seek to direct their aid to “moderate forces” in Syria, “the definition of this word is subject to much debate,” said Theodore Karasik, a Dubai-based political analyst. Sending arms “is dangerous in the medium term because of how easily weapons can fall into the wrong hands,” he said.
And let’s not kid ourselves, there are no “wrong hands” as far as Riyadh and Doha are concerned. Sure, they’d rather not have ISIS running around inside their borders blowing up mosques but then again, those bombings simply provide more political cover for justifying an air campaign in Syria. Back to Bloomberg:
Extremist groups already hold sway over large parts of the country. The Saudis joined U.S.-led operations against Islamic State last year, and since then jihadist attacks in the kingdom have increased, many of them targeting minority Shiite Muslims in the oil-rich eastern province. Meanwhile, Assad accuses the Saudis and other Gulf states of arming rebel groups with ties to al-Qaeda.
Some Saudi thinkers advocate direct military engagement in Syria, just as the kingdom has done in Yemen. Nawaf Obaid, a visiting fellow at Harvard University’s Belfer Center for Science and International Affairs, is one of them.
“The Saudis are going to be forced to lead a coalition of nations in an air campaign against the remnants of Syrian forces, Hezbollah and Iranian fighters to facilitate the collapse of the Assad regime and assist the entry of rebel forces into Damascus,” Obaid wrote in an opinion piece published by CNN on Oct. 4.
And while some still see that outcome as far fetched not only because the Saudis are stretched thin thanks to falling crude prices and the war in Yemen, but because it would be an extraordinarily dangerous escalation, it looks as though Qatar is leaning in a similar direction. Here’s Sputnik:
Qatar who has been a major sponsor of jihadist groups fighting in Syria for years, now is actively considering a direct military intervention in the country, according to its officials.
Throughout Syria’s bloody civil war, the government of Qatar has been an active supporter of anti-government militants, providing arms and financial backing to so called “rebels.” Many of these, like the al-Nusra Front, were directly linked to al-Qaeda. That strategy has, of course, done little to put a dent in terrorist organizations in the region.
But as Russia enters its fourth week of anti-terror airstrikes, Qatar has indicated that it may launch a military campaign of its own.
“Anything that protects the Syrian people and Syria from partition, we will not spare any effort to carry it out with our Saudi and Turkish brothers, no matter what this is,” Qatar’s Foreign Minister Khalid al-Attiyah told CNN on Wednesday, when asked if he supported Saudi Arabia’s position of not ruling out a military option.
“If a military intervention will protect the Syrian people from the brutality of the regime, we will do it,” he added, according to Qatar’s state news agency QNA.
Syrian Deputy Foreign Minister Faisal Mekdad was fast to warn the Middle Eastern monarchy that such a move would be a disastrous mistake with serious consequences.
“If Qatar carries out its threat to militarily intervene in Syria, then we will consider this a direct aggression,” he said, according to al-Mayadeen television. “Our response will be very harsh.”
Let’s just be clear. If Saudi Arabia and Qatar start bombing Iranian forces from the airspace near Russia’s base at Latakia, this will spiral out of control.
Iran simply wouldn’t stand for it and if you think for a second that Moscow is going to let Saudi Arabia fly around in Western Syria and bomb the Iranians, you’ll be in for a big surprise. Of course the first time a Russian jet shoots down a Saudi warplane over Syria, Washington will have no choice but to go to war.
Finally, we’d be remiss if we didn’t point out the absurdity in what’s being suggested here. Qatar and Saudi Arabia are essentially saying that they may be willing to go to war with Russia and Iran on behalf of al-Qaeda if it means facilitating Assad’s ouster. The Western world’s conception of “good guys”/ “bad guys” has officially been turned on its head.
And meanwhile:
Russian President Vladimir Putin’s public approval rating has reached a record 89.9 percent since he ordered his military to begin air strikes in support of Syrian leader Bashar al-Assad, according to a state-run polling center.
end
Big meeting tomorrow between Lavrov and Kerry. Assad plans new elections.
(courtesy zero hedge)
Russia, Assad Plan New Elections In Syria As US, Saudis Meet Lavrov In Vienna
If there were ever a time to be a fly on the wall, it will be tomorrow in Vienna, where top diplomats from the US, Turkey, Saudi Arabia, and Russia will meet face-to-face to discuss the war in Syria.
The summit comes as both Saudi Arabia and Qatar havestepped up the rhetoric in terms of what they’re prepared to do militarily to facilitate Assad’s ouster and also comes on the heels of Assad’s “surprise” meeting with Putin in Moscow.
As we’ve said several times since the bombing runs from Latakia began, this is now out of Washington’s hands for all intents and purposes. The Kremlin will allow for some degree of “dialogue” with The White House, but that’s about as far as it goes. To the victor go the spoils and the US had its chance. The various Western-backed rebel groups couldn’t finish the job in time and now, either Washington, Riyadh, Ankara, and Doha engage directly with Russian and Iranian troops, or the battle is lost for the rebels. Amusingly, it appears that Kerry has now resigned himself to the reality of the situation. Here’sWSJ:
The U.S. and Russia will meet for their first face-to-face talks on Syria since Russian warplanes began flying combat missions there at cross purposes with an American-led campaign.
U.S. Secretary of State John Kerry will meet his Russian counterpart as well as top diplomats from Saudi Arabia and Turkey on Friday in Vienna as the Obama administration grasps for a way to salvage its Middle East agenda.
Mr. Kerry will voice U.S. concern about Russia’s airstrikes against the Assad regime’s foes and what Washington sees as a need to move toward a political transition in Syria that would remove Mr. Assad from power.
However, U.S. expectations have been tempered by Russia’s military campaign.
“The secretary is a pragmatist, here,” said John Kirby, the State Department spokesman. “He recognizes that not everybody shares that view.”
It would be difficult to overstate the significance of this shift. The US appears to have all but abandoned the “Assad must go” line in favor of an approach wherein Kerry will simply voice his opinion about the political transition and Lavrov will say something akin to “sorry, no can do.”
This likely reflects the fact that Washington is cornered. As we’ve said, the US needs to strike some manner of conciliatory tone here or else risk telegraphing America’s support for Sunni extremists to the public.
The last thing the administration needs is for Americans to begin questioning why the US is supporting the very same Sunni extremist groups that Washington has for years held up as the biggest threat to humanity since the Reich. And so, it looks like Kerry may be willing to walk back the anti-Assad line.
Saudi Arabia, on the other hand, isn’t ready to throw in the towel. As Reuters notes, Riyadh is still clinging to the utterly absurd idea that in order to defeat ISIS, Assad must be removed. That’s amusing for any number of reasons, not the least of which are i) if Saudi Arabia and Qatar were interested in eradicating ISIS, they might have considered not supporting them in the first place, and ii) the only person actually fighting ISIS is Assad (via Russia and Iran of course).
Meanwhile, Putin and Assad have already decided how this is going to go. As Bloomberg reports, Assad will likely call for new elections, “decide” to run, then win in a landslide. Here’s more:
Russia is pushing for early presidential elections in Syria that may give President Bashar al-Assad a fresh mandate, hardening opposition to demands for his ouster from the U.S. and its allies.
Assad would decide himself to run or not, a senior official in Moscow said, asking not to be identified because the matter is confidential. The wartime conditions that much of Syria is suffering under shouldn’t be an obstacle to conducting a poll, the official said.
The U.S., the European Union and the Gulf Cooperation Council all refused to recognize the previous election, last June, when Assad won another seven years in power with 89 percent of the vote. Assad has lost control of most of the country during a civil war that’s left more than a quarter million dead and triggered Europe’s worst migrant crisis since World War II, but the areas he still holds contain a majority of the population.
“There’s no alternative” at the moment to Assad’s government when it comes to “countering Islamic State and other terrorist groups and safeguarding Syrian statehood,” Ilyas Umakhanov, deputy speaker of Russia’s upper house of parliament, where he oversees international affairs, said by phone from Moscow on Thursday.
Assad, 50, will probably call early elections both for parliament and for president, which he would run in and win, a person close to the government in Damascus said. Putin has repeatedly said that Syria’s future must be decided by its own people and that Assad is prepared to share power by inviting some of his opponents into government.
An early presidential poll could be used to “dress this up as part of the political resolution,” said Elena Suponina, a senior Middle East analyst at the Institute of Strategic Studies, which advises the Kremlin. “Assad is sure of himself,” she said by phone. “It’s clear that he has many supporters.”
Make no mistake, these “elections” will be farcical. We’ve always said that the West has a vested interest in demonizing the regime in Damascus, but at the same time, we’ve also noted that Bashar al-Assad is hardly the most benevolent leader in the history of statecraft. He is not someone most citizens will want to vote against now that Russia and Iran have put the SAA (or what’s left of it) on the path to victory. Between the likelihood that the regime will be restored, and the fact that any civilians left in Syria would far prefer Assad than the bloody anarchy that reigns across the country currently, there’s little doubt the President will prevail. That, in turn, will alow Russia to effectively close the book. That is, Moscow will be able to say “see, we held an election and Assad won. He is the legitimate leader and any further attempts to destabilize his legitimate government will be egregious examples of illegitimate meddling in the affairs of a sovereign country.”
Once again, things are moving along quickly and the ground has shifted too fast for Washington, Riyadh, Doha, and Ankara to keep up. Derailing the Russia-Iran freight train will now entail direct military intervention or nothing. We anxiously await the soundbites from tomorrow’s summit in Vienna.
end
Putin Just Warned Global War Is Increasingly More Likely: Here’s Why
Vladimir Putin is basking in Russia’s triumphant return to the world stage.
What began with a land grab in Crimea and escalated with support for the separatists at Donetsk, culminated in Moscow’s dramatic entry into Syria’s protracted civil war.
To be sure, the deplorable (not to mention comically absurd) strategy adopted by the US and its regional allies in Syria set Putin up for success. The situation was highly exploitable by anyone that’s strategically minded and thanks to the convoluted set of alliances Washington has built with groups that later turned out to be extremists, Moscow gets to achieve its regional ambitions while simultaneously fighting terrorism. Meanwhile, Washington, Riyadh, Ankara, and Doha are left to look on helplessly as their Sunni extremist proxy armies are devastated by the Russian air force. The Kremlin knows there’s little chance that the West and its allies will step in to directly support the rebels – the optics around that would quickly turn into a PR nightmare.
All of this has provided the perfect backdrop for Putin to begin what’s amounted to a lecture tour on how to conduct foreign policy.
Soundbites have ranged from very serious commentaryon why the West should not employ extremists to bring about regime change to comical jabs at the US and its allies who the Russian President last week accused of having “oatmeal brains” when it comes to Mid-East policy.
Speaking today at the International Valdai Discussion Club’s 12th annual meeting in Sochi, Putin delivered a sweeping critique of military strategy and foreign policy touching on everything from the erroneous labeling of some extremists as “moderates” to the futility of nuclear war.
“Why play with words dividing terrorists into moderate and not moderate. What’s the difference?,” Putin asked, adding that “success in fighting terrorists cannot be reached if using some of them as a battering ram to overthrow disliked regimes [because] it’s just an illusion that they can be dealt with [later], removed from power and somehow negotiated with.”
“I’d like to stress once again that [Russia’s operation in Syria] is completely legitimate, and its only aim is to aid in establishing peace,” Putin said of Moscow’s Mid-East strategy. And while he’s probably telling the truth there, it’s only by default. That is, peace in Syria likely means the restoration of Assad (it’s difficult to imagine how else the country can be stabilized in the short-term), and because that aligns with Russia’s interests, The Kremlin is seeking to promote peace – it’s more a tautology than it is a comment on Putin’s desire for goodwill towards men.
And then there’s Iran and its nascent nuclear program. Putin accused the US of illegitimately seeking to play nuclear police officer, a point on which he is unquestionably correct: The “hypothetical nuclear threat from Iran is a myth. The US was just trying to destroy the strategical balance, [and] not to just dominate, but be able to dictate its will to everyone – not only geopolitical opponents, but also allies.”
Speaking of nukes, Putin also warned that some nuclear powers seem to believe that there’s a way to take the “mutually” out of “mutually assured destruction.”
That is, Putin warned against the dangers of thinking it’s possible to “win” a nuclear war. Commenting on US anti-missile shields in Europe and on the idea of MAD, Putin said the following:
“We had the right to expect that work on development of US missile defense system would stop. But nothing like it happened, and it continues. This is a very dangerous scenario, harmful for all, including the United States itself. The deterrent of nuclear weapons has started to lose its value, and some have even got the illusion that a real victory of one of the sides can be achieved in a global conflict, without irreversible consequences for the winner itself – if there is a winner at all.”
In short, Putin is suggesting that the world may have gone crazy. The implication is that the US believes it not only has the capacity to win a war against the nations Washington habitually places on its various lists of “bad guys” (i.e. Russia, Iran, and China), but that Washington believes America can win without incurring consequences that are commensurate with the damage the US inflicts on its enemies. That, Putin believes, is a dangerous miscalculation and one that could end up endangering US citizens.
So once again, this is Putin setting the narrative and jumping at every opportunity to portray Russia as a nation that’s not content to “lead from behind” (as so many have recently accused the US of doing). And once again, his assessment seems remarkably sober in a world that does indeed seem to have lost its collective mind.
Full speech (translated) below.
end
GLOBAL AFFAIRS
Caterpillar Shares Tumble After Company Misses Across The Board, Revenues Plunge 19%, Guidance Cut
It never fails: a month ago, after showing CAT’s abysmal global retail sales, just three days later the company announced a historic business restructuring in which in addition to slashing its guidance, and confirming the China slowdown is now a recession if only in the manufacturing sector so far, it also announced it would fire 10,000, sending its stock crashing.
Then, yesterday, ahead of today’s earnings we again showed that when it comes to global demand for CAT products, there is simply no demand, and this particular dead cat refuses to bounce, with 34 consecutive months of declining revenues as well as 11 consecutive months of doubler digit sales declines.
We hoped this data would soften the blow from today’s CAT Q3 earnings which were clearly going to be ugly, and surely worse than consensus estimates.
Moments ago we got said earnings and as expected, they were indeed far worse than expected, with CAT reporting adjusted EPS of $0.75 ($0.62 GAAP), below consensus estimate of $0.77, while revenue of $11.0 billion also missed expectations of $11.33.This takes place even as CAT repurchased $1.5 billion in stock in Q3, or about 75% of the total $2.0 billion in buybacks it conducted in all of 2015 (compared to $8 billion in the past three years).
And the punchline: the company cut its 2015 EPS outlook from $5.00 to $4.60, even as it still keeps its full year revenue guidance at $48 billion adding that 2016 sales/rev is about 5% lower than 2015. It now sees 2016 revenues down 5% from 2015.
Some more highlights:
- Q3 Revenue: $10.962 billion, down 19% Y/Y
- Q3 Operating profit: $713 million, down nearly 50%
- Q3 GAAP EPS: $0.62, down 72%
- Q3 cash from operations: $4.9 billion, down over 20% Y/Y
- Cash: $6 billion, down from $7.3 billion at the start of the year
From the report:
“The environment remains extremely challenging for most of the key industries we serve, with sales and revenues down 19 percent from the third quarter last year. Improving how we operate is our focus amidst the continued weakness in mining and oil and gas. We’re tackling costs, and our year-to-date decremental profit pull through has been better than our target. We’re also focusing on our global market position, and it continues to improve even in challenging end markets. Our product quality is in great shape, and our safety record is among the best of any industrial company today,” said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.
“Our strong balance sheet is important in these difficult times. Our ME&T debt-to-capital ratio is near the middle of our target range at 37.4 percent; we have about $6 billion of cash, and our captive finance company is healthy and strong. We’ve repurchased close to $2 billion of stock in 2015 and more than $8 billion over the past three years. In addition, the dividend, which is a priority for our use of cash, has increased 83 percent since 2009,” added Oberhelman.
It is unclear just why companies are boasting about their buyback activity, although it does bring the recent announcement of 10,000 layoffs in perspective: “The additional restructuring actions announced recently are substantial, but necessary to manage through this downturn and keep the company strong for the long term. The actions are expected to lower operating costs by about $1.5 billion annually once fully implemented, with about $750 million of that expected in 2016.”
And then the outlook, first for 2015:
The 2015 outlook for sales and revenues is about $48 billion, and that is unchanged from the outlook that was included with the September 24 announcement of new restructuring actions.
The outlook for profit per share is about $3.70, or $4.60 excluding restructuring costs. The expectation for 2015 restructuring costs has increased significantly, from about $250 million to about $800 million, and is a result of the additional restructuring actions. The previous outlook for profit per share was provided in late July along with second-quarter 2015 financial results. At that time, the outlook for profit per share was $4.70, or $5.00 excluding restructuring costs and was based on sales and revenues of about $49 billion.
And then 2016:
We expect world economic growth to be up slightly next year, from 2.4 percent in 2015 to 2.8 percent in 2016. We expect the improvement to be led by the United States and Europe, partially offset by slower growth in China and Russia and continued recession in Brazil. As a result, we expect prices for key commodities in 2016 to be close to current levels. While we expect a small improvement in world economic growth, we do not expect it will be enough to improve the key industries we serve. We do not expect construction or commodity-related industries like oil and gas and mining to improve.
2016 sales and revenues are expected to be about 5 percent below 2015.
* * *
We expect Construction Industries’ sales to be flat to down 5 percent with some improvement in developed countries offset by declining sales in developing countries. Energy & Transportation’s sales are expected to be down 5 to 10 percent as a result of continuing weakness in oil and gas coupled with a weaker order backlog than in 2015. Mining is expected to be down again, resulting in a decline in Resource Industries’ sales of about 10 percent.
The preliminary outlook reflects weak economic growth in the United States and Europe with U.S. construction activity impacted by low infrastructure investment and continued headwinds from oil and gas. It also reflects a slowing China, Brazil in recession and continuing weakness in commodity prices.
“Managing through cyclicality has been critical to Caterpillar’s success for the past 90 years; it’s nothing new for us or our customers. When world growth improves, the key industries we serve – construction, mining, energy and rail – will be needed to support that growth. We’re confident in the long-term success of the industries we’re in, and together with our customers, we’ll weather today’s challenging market conditions,” Oberhelman said.
“We can’t control the business cycle, but we continue to drive improvements in our business. We’re implementing Lean to drive improvements through our businesses and executing our Across the Table initiative with dealers to improve our market position, service performance and value to customers. We’re also investing in emerging technologies and data analytics tools to continue our role as an innovation leader for our customers. As we look ahead to what will likely be our fourth consecutive down year for sales, which has never happened in our 90-year history, we are restructuring to lower our cost structure. It’s painful and will affect thousands of people, but is essential for the long-term health of the company and should position us for better results when conditions improve,” added Oberhelman.
Couldn’t have said it better ourselves. As for the stock, which recently soared on short covering and the latest round of corporate buybacks, it is down over 3% as of this moment and going lower.
CEO Of Europe’s Largest Zinc Producer Hints At Default: Bonds Hit Record Lows, Stock Plunges Most Ever
It had been a while since we had any major news involving the ongoing devastation in the global mining sector courtesy of China, where as we previously reported more than half of the local commodity companies can’t cover their interest expense and are thus caught in a deflationary race to the bottom even as the government has no choice but to bail them all out.
Indeed, complacency seemed ready to set back in, with Glencore stock recently rising as high as its recent equity offering price of 125p. And then today we noticed that not only is Glencore’s CDS back above 700 bps, the widest it has been in three weeks, but that another mining company has fallen into the market’s crosshairs, this time Belgium-based (with Zurich HQ) Nyrstar NV, Europe’s largest refined-zinc producer,whose stock crashed the most since its initial public offering in 2007, while it bonds tumbled to a yield of 19%, suggesting a default may be imminent.
The official version is that this plunge happened after the company said “its mining business is being challenged by the rout in metals.”
According to Bloomberg, “Investment in the company’s Port Pirie smelting operations in Australia will cost A$563 million ($405 million), about 10 percent more than previously forecast, it said in a statement Thursday. Nyrstar shares slumped as much as 27 percent, the most since at least October 2007, to the lowest in six years.”
“Clearly, the business has underperformed for some time,” Nyrstar CEO Bill Scotting said, referring to mining. “At these zinc prices we are not cash generating so we have to look at that portfolio. If zinc prices don’t recover we will potentially have to idle more mines.”
However, none of this is news, or should be news.
What was news was the CEO’s admission in Belgium’s Tijd that the company “can’t guarantee the full repayment of the company’s notes due in May 2016. In other words, a default, by any other name.
So while other commodity traders such as Glencore and Trafigura are desperate to preserve the image that they have no liquidity problems, Nyrstar is the first to hint the D-word.
The reaction in the company’s publicly traded bonds was swift and brutal: “Nyrstar’s 350 million euros of bonds due September 2019 erased gains made in October and dropped 19 cents on the euro to 71.6 cents, the lowest on record. The bonds now yield 19.1 percent, according to data compiled by Bloomberg. The company is evaluating debt and equity market alternatives to address a 415 million-euro bond maturity in May 2016, it said. The bond dropped 13.5 cents with a yield of 35.6 percent.”
Putting that in context, a company which still has a $500MM market cap, has bonds yields nearly 20%. All this is coming to a commodity miner and/or trader near you, and perhaps this one first. From September 3, 2015:
Trafigura subsidiary Urion Holdings Ltd. increased its interest in Nyrstar to 68 million shares, or 20.02 percent of the voting rights, as of Aug. 28 from 52 million shares or 15.3 percent, according to a regulatory filing.
Commodity trader Trafigura Beheer BV said it has no immediate plans to bid for control of Nyrstar NV after raising its stake in the world’s largest producer of refined zinc to more than 20 percent.
“This is a continuation of our investment into Nyrstar,” Andrew Gowers, a Geneva-based spokesman for Trafigura, said by phone on Thursday. “It is a financial investment.”
Judging by the 30%+ loss since then, it was also a rather terrible financial investment, and perhaps a reason to wonder about the financial acument of companies such as Trafigura which are throwing money around as if oil is still back at $100, not to mention another reason to look at all the cross-asset holdings among a commodity mining/trading sector which – unless commodity prices rebound dramatically in the coming months – is insolvent across the board.
end
El Nino is back and it will spread mayhem across the globe:
(courtesy zero hedge)
“All Kinds Of Mayhem Will Let Loose” As Strongest El Nino In Decades Looms
September was officially the warmest ever recorded around the globe (the 7th time this year a month has set a record) as El nino is back in a big way.As Bloomberg reports, its effects are just beginning in much of the world — for the most part, it hasn’t really reached North America — and yet it’s already shaping up potentially as one of the three strongest El Nino patterns since record-keeping began in 1950. Expect “major disruptions, widespread droughts and floods,” warned a senior scientist at the National Center for Atmospheric Research, adding that without preparation, “all kinds of mayhem will let loose.”
September was the warmest ever recorded around the globe, the seventh time this year a month has set a record for average global temperature
The National Oceanic and Atmospheric Administration said last month’s global temperature was 60.62 degrees, beating a record set just last year.
In all, seven months this year have set monthly records for global heat, including July, which was the hottest month ever recorded. Only January and April did not set records for global warmth.
It also has been the warmest first nine months of any year ever recorded, dating back to 1880.
NOAA climate scientist Jessica Blunden said it would take an extended cold stretch the rest of the year for 2015 not to pass 2014 as the hottest on record.
With a strong El Niño cycle in place over the Pacific, that appears highly unlikely, as Bloomberg details, the strongest El Nino in decades is going to mess with everything…
It has choked Singapore with smoke, triggered Pacific typhoons and left Vietnamese coffee growers staring nervously at dwindling reservoirs. In Africa, cocoa farmers are blaming it for bad harvests, and in the Americas, it has Argentines bracing for lower milk production and Californians believing that rain is finally, mercifully on the way.
Its effects are just beginning in much of the world — for the most part, it hasn’t really reached North America — and yet it’s alreadyshaping up potentially as one of the three strongest El Nino patterns since record-keeping began in 1950. It will dominate weather’s many twists and turns through the end of this year and well into next. And it’s causing gyrations in everything from the price of Colombian coffee to the fate of cold-water fish.
Expect “major disruptions, widespread droughts and floods,” Kevin Trenberth, distinguished senior scientist at the National Center for Atmospheric Research in Boulder, Colorado. In principle, with advance warning, El Nino can be managed and prepared for,“but without that knowledge, all kinds of mayhem will let loose.”
In the simplest terms, an El Nino pattern is a warming of the equatorial Pacific caused by a weakening of the trade winds that normally push sun-warmed waters to the west. This triggers a reaction from the atmosphere above.
Its name traces back hundreds of years to the coast of Peru, where fishermen noticed the Pacific Ocean sometimes warmed in late December, around Christmas, and coincided with changes in fish populations. They named it El Nino after the infant Jesus Christ. Today meteorologists call it the El Nino Southern Oscillation.
The last time there was an El Nino of similar magnitude to the current one, the record-setting event of 1997-1998, floods, fires, droughts and other calamities killed at least 30,000 people and caused $100 billion in damage, Trenberth estimates. Another powerful El Nino, in 1918-19, sank India into a brutal drought and probably contributed to the global flu pandemic, according to a study by the Climate Program Office of the National Oceanic and Atmospheric Administration.
* * *
While the effect on the U.S. may not reach a crescendo until February, much of the rest of the world is already feeling the impact, Trenberth said.
“It probably sits at No. 2 in terms of how strong this event is, but we won’t be able to rank it until it peaks out and ends,”said Mike Halpert, deputy director of the Climate Prediction Center in College Park, Maryland.
For Australia, El Nino can often mean drought.
“In broadest terms, though, we have had 26 past El Nino events since 1900, of which 17 resulted in widespread drought, so we in Australia have to manage for drought in any El Nino event,” Watkins said.
But there is some good news for California…
As the atmosphere changes, storm tracks in the U.S., for instance, are pushed down from the north, so the region from California to Florida could get more rain.This is reflected in the latest three-month outlook from the Climate Prediction Center, which sees high odds that heavy rain will sweep from California into the mid-Atlantic states through January. Texas and Florida have the greatest chance for downpours.
While this isn’t likely to end California’s four-year drought, it would improve conditions. Eliminating the dryness completely will be difficult because the state is so far behind on its normal rainfall.
However…
“If the wettest year were to occur, we still wouldn’t erase the deficit we have seen in the last four years,” said Alan Haynes, service coordination hydrologist at the California Nevada River Forecast Center in Sacramento.
“The general thing about these things is, if you are prepared, it doesn’t have to be a negative,” Trenberth said. Here’s hoping!!
end
Euro/USA 1.12511 down .0099
USA/JAPAN YEN 119.88 up .036
GBP/USA 1.5447 up .0028
USA/CAN 1.3126 down .0008
Early this Thursday morning in Europe, the Euro fell badly by 99 basis point,(on news of more QE) trading now well below the 1.13 level falling to 1.12511; 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, Glencore, and the Ukraine,along with rising peripheral bond yields, and the successful ramping of the USA/yen cross above the 120 yen/dollar mark. Last night the Chinese yuan fell in value (onshore). The USA/CNY rate at closing last night: 6.3485 up .0000 (yuan flat)
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a slight southbound trajectory as settled down again in Japan by 4 basis points and trading now just below the all important 120 level to 119.88 yen to the dollar.
The pound was up this morning by 28 basis points as it now trades well above the 1.54 level at 1.5447.
The Canadian dollar is now trading up 8 basis points to 1.3126 to the dollar.
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).(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 Thursday morning: closed up 347.13 or 1.91%
Trading from Europe and Asia:
1. Europe stocks mixed
2/ Asian bourses mixed … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)red/India’s Sensex in the red/
Gold very early morning trading: $1165.80
silver:$15.77
Early Thursday morning USA 10 year bond yield: 2.04% !!! up 2 in basis points from Wednesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.86 down 1 in basis points.
USA dollar index early Thursday morning: 95.51 cents up 46 cents from Wednesday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Thursday morning
The Fun-Durr-Mental Driver Of Today’s Buying-Panic In Stocks
Spot the difference…
Crude and bonds ain’t buying it…
Charts: Bloomberg
end
Oil retreated to the 44 dollar handle totally oblivious to the ramp in equities:
(courtesy zero hedge)
WTI Crude Plunges Back Towards $44 Handle, Stocks Don’t Care At All
After running stops above $46 this morning, WTI Crude has tumbled back to test yestrerday’s $44 handle lows… must be all that “growth” that Draghi promised…
Stops tagged… and dump…
Stocks don’t care though…
USA/Chinese Yuan: 6.3575 up .0090 (Chinese yuan down)
New York equity performances for today:
Draghi Dreams Extend US Stock-Buying-Frenzy To Best Since 2011
Watching talking heads try to “blame” that today’s ridiculousness was due to good earnings (and marginally due to Draghi) made us think of just one thing…
Summing today up in words…
And Pictures…Since the terrible US jobs data, the S&P 500 has risen over 9%, this is the largest such rally since October 2011 (when The Fed last bailed out Europe with unlimited FX swap lines)…
Almost without a pause…
* * *
Today’s moves are best illustrated with futures – all beginning with Draghi’s promises, ramping above 200DMA, then stalling as 10Y touched 2.00%, then bounced off VWAP to retest the highs…
Note Small Caps (Russell 2000) dropped all the way back to unchanged before bouncing…
Which leaves Small Caps red for the week still (and Trannies leading)…
Dow Futures ripped an impressive 350 points off the 17073 lows… (S&P Futs closed above its 200DMA for first time since 8/19)
Some huge moves in stocks today (the following from the S&P 500 alone)…
Un-Whole Foods…
Valeant was ugly again…
And ABBV and GILD diverged
Stock totally decoupled from Bonds…
And Stocks totally decoupled from crude…
And all that mattered was what USDJPY did…
FX Markets were a major story today (with US Dollar soaring) as EUR plunged…
EURUSD plunged back below its 200-day moving-average…
But The USDollar lost notable growund against Asian/EM FX…
Treasury yields chopped around but ended lower (despite T-Bills getting dumped more)…
Credit markets kept pace with stocks amid the largest fund inflows in history this month…
Commodities were mixed today with gold flat, copper and silver higher (despite USD strength), and crude tumbling before a NYMEX close ramp into the green
Crude’s insane day, banging super-$46 and sub-$45 stops before ramping idiotically into the NYMEX close…
Charts: Bloomberg
end
Initial reaction to Draghi’s moar QE!!! and then bang, the S and P tumbles:
(courtesy zero hedge)
Decoupling Deja Vu All Over Again
What happens next?
Algos insta-reacted to Draghi… As we noted earlier, “Futures Firm On Hope Draghi Will Give Green Light To BTFD” – well he did.
QE-Moar trade… or just another manic market day.
But we’ve seen this idiocy before…
Charts: bloomberg
Initial Jobless Claims Hover At 42 Year Lows – So Who Is Lying?
Having hit new 42-year lows last week, initial jobless claims once again beat expectations but rose very modestly from a revised 256k to 259k this week. This continues to diverge drastically from Challenger job cuts data, from weakening payrolls data, and from collapsing ISM survey employment indicators… so who is lying?
Although payroll employment growth has slowed in recent months, initial claims for unemployment insurance benefits remain very low. The four-week moving average of initial claims has trended lower again this year—despite meaningful layoffs in energy-producing states—and is currently at the lowest level since early 2000 (Exhibit 1).Does this mean that the current rate of nonfarm payroll growth understates the strength of the labor market?
Not necessarily. As we have noted in prior research, the structural relationship between jobless claims and employment growth changes over the business cycle. Unemployment insurance claims are an observable proxy for one type of labor market flow: the number of persons laid-off each month. However, employment growth is a function of other flows as well—specifically, the number of persons hired, the number who quit voluntarily, and those who separate from employment for other reasons. These other types of labor market flows—other components of Fed Chair Yellen’s labor market “dashboard”—can affect the relationship between layoffs and employment growth over time.
Moreover, initial jobless claims are an imperfect measure of layoffs because the propensity to file a claim—often called the “filing rate” or the “take up rate”—also changes over time. During the financial crisis, for example, the benefit take up rate increased significantly. Exhibit 2 shows the level of jobless claims alongside the measure of total layoffs from the Job Openings and Labor Turnover Survey (JOLTS) (claims here are expressed as a monthly rate by multiplying the average weekly rate by the number of weeks per months). Before 2007, approximately 70-80% of layoffs resulted in an unemployment insurance benefit filing. During the recession, claims increased more rapidly than reported layoffs, implying an increase in the claims filing rate. In the years since, claims have fallen much faster than layoffs, implying a decline in the benefit take up rate.
Charts: Bloomberg
end
The Chicago Fed’s national activity index (manufacturing for the entire USA) stagnates at almost two year lows indicating recession is in full bloom in the uSA
(courtesy Chicago Fed National Mfg Activity index/zero hedge)
Chicago Fed National Activity Stagnates At 20-Month Lows
With a very modest rise from -0.39 to -0.37, The Chicago Fed National Activity Index is holding at its lowest since January 2014‘s weather-blamed collapse. September’s negative print is the 7th (of 9) this year, the worst grouping since 2012. For the first time since June, the 3-month average (which most watch) has dropped negative again. This merely confirms the six-out-of-six regional fed surveys that shout recession.
Recovery?
Charts: Bloomberg
Obama Unveils Roadmap To ‘Bailout’ Puerto Rico: “New” Bankruptcy Rules & Federal Fiscal Oversight
America is not Greece, but judging from the Obama administration’s just-unveiled plans to bailout Puerto Rico’s disastrous debt situation, the American territory may have to sacrifice a little more sovereignty to get some relief. Obama is pressing for Congress to give Puerto Rico (PR) sweeping powers to reduce its $73 billion debt burden through a form of bankruptcy protection not now available to American territoriesand will also ask lawmakers to establish an independent body to monitor the island’s fiscal affairs (a la Troika). While the proposals likely face an uphill battle in Congress, as NYTimes reports, both Democrats and Republicans are under pressure to respond because Puerto Ricans are flooding the US, particularly in central Florida, and are becoming an increasingly important voting block in the 2016 presidential race.
Puerto Rico is teetering under debt amassed from years of borrowing as the economy failed to grow and residents left for the U.S. mainland. Governor Alejandro Garcia Padilla is seeking to persuade investors to accept less than they’re owed, saying tax increases and spending cuts alone won’t be sufficient to eliminate the government’s budget shortfalls.
Creditors say that the island’s government has been seeking to portray the fiscal situation in Puerto Rico as beyond repair, hoping to force the administration and Congress to act. As The NY Times reports, on Wednesday, Puerto Rico took the unusual step of announcing that talks over restructuring about $750 milllion of the island’s debt had broken off, a move that some creditors saw as posturing to Washington for help.
It appears to have worked… (as Bloomberg details)
President Barack Obama is pressing for Congress to give Puerto Rico sweeping powers to reduce its $73 billion debt burden through bankruptcy, escalating administration involvement as the Caribbean island’s access to cash dries up.
Puerto Rico would be provided with a form of bankruptcy protection not now available to American territories.Administration officials also called for lawmakers on Wednesday to increase health-care funding for Puerto Rico, extend tax credits to the poor and put independent oversight in place to monitor the government’s budget.
The details of the proposals are sparse as yet, but as The NY Times adds, there is some willingness, particularly among top Senate Republicans, to work out a compromise on the bankruptcy issue, according to a person briefed on the matter.
But the Republican leadership would bewilling to grant Puerto Rico access to the bankruptcy courts only on a limited basis, and only with strings attached like the imposition of a federal “control board” to oversee the island’s finances.
Control boards have been used in cases of severe municipal distress to take the power to spend public money out of the hands of elected officials. They do not generally have the powers that bankruptcy judges do to abrogate contracts, such as labor contracts and promises to repay debt.
But any such move faces political headwinds…
These changes “are going to be extremely hard to get through both the U.S. Congress and the Puerto Rican legislature,” said Matt Fabian, a partner at Concord, Massachusetts-based Municipal Market Analytics. “This is a Congress that gets almost nothing done. So to expect them to get something controversial done at the request of the administration right before an election is difficult.
Though, there is a chance…
Both Democrats and Republicans are under pressure to respond to the Puerto Rico crisis. Largely because of the island’s economic problems, Puerto Ricans are flooding the United States, particuarly in central Florida, and are becoming an increasingly important voting block in the 2016 presidential race.
According to Bloomberg, Treasury Secretary Jacob J. Lew, National Economic Council Director Jeff Zients, and Health and Human Services Secretary Sylvia Mathews Burwell said the steps are needed to revive Puerto Rico’s economy.
“The decade-long recession has taken its toll on Puerto Rico’s finances, its economy, and its people,” officials said in the statement. “To reward work and break this vicious cycle, Congress should enact proven, bipartisan tools for stimulating growth and rewarding work to people living in Puerto Rico.”
The situation in Puerto Rico “risks turning into a humanitarian crisis as early as this winter,” one senior administration official said, speaking on condition of anonymity because the person was not authorized to speak publicly.
But, it is not just politicians that will be hard pressed to pass the bailout…
The proposal is likely to meet resistance from many investors in the municipal bond market according to Brandon Barford, a partner at Beacon Policy Advisors LLC in Washington and a former Senate Banking Committee staffer.
“Including ‘super Chapter 9,’ significant new social spending, and demands for respecting Puerto Rican public sector pensions when mainland pension funds would register losses from restructuring are all a bridge too far,” Barford said.
Finally, there is the unintended consequences…
Federal law allows for cities, counties, special districts and the like to seek bankruptcy protection if their states agree, but the states themselves are excluded. There are concerns that if Puerto Rico gains access to bankruptcy, fiscally troubled states like Illinois might try to follow suit.
* * *
So the bottom line is that Puerto Rico is Greece… laws will be changed to enable the proligate spending of the past to be bruched under the carpet, and Federal oversight of fiscal affairs (i.e. all government in a nation whose finances are so dire) will be handled by an ‘independent’ body (just like Troika) and that will enable Puerto Rico to borrow more (likely from the US taxpayer via some subsidized router) to fund what officials call “growth initiatives.”
Because:
“The situation in Puerto Rico is urgent,” one administration official said. “Without economic growth there is no path out.”
So the same as the rest of the world then?!
* * *
But for now, we celebrate, President Obama will save the day…
The Morning After: Valeant Default Risk Soars After Called Next “Tyco”, Sellside “Analysts” Humiliated
Yesterday’s latest Valeant implosion confirmed something we have warned about all along: sellside analysts are not only completely clueless and utterly useless, they are a threat to your money: instead of at least striving to know everything there is to know about the company under coverage, or at least reading all the available negative literature about VRX (the Citron reports was nothing new: it was based entirely on this report by the Southern Investigative Reporting Foundation which had been public information since the 19th of October, and should have given both the sellside community and the company enough advance notice to prepare its response) all they know how to do is chase momentum, and let price determine both their “recommendations” and their price targets.
Case in point, as we showed before, ahead of yesterday’s implosion, there were 19 Buy ratings, 6 Holds and just one Sell, with an average stock price target of $250.
Oops.
Well, as always happens after shocking events like yesterday which “nobody could have possibly predicted”, watching the Penguin gallery reel in its humiliation is absolutely worth the price of admission.
Sure enough, there has been a veritable paradop of utterly worthless analyst reports, some defending their wrong calls on the company which until recently was the darling of the hedge fund world, others flipping and admitting they were wrong, while even others are simply dropping the matter entirely (such as Susquehanna’s Andrew Finklestein) who have decided to drop coverage altogether when things get messy.
Here, courtesy of Bloomberg, is a snapshot of the major banks’ reactions “the morning after.”
NOMURA (Shibani Malhotra)
- “Our own diligence suggests” report is not accurate
- VRX has stated it books specialty pharmacy rev. only when they have been dispensed
- View current weakness as buying opportunity
- Rates buy, PT $290
SUSQUEHANNA (Andrew Finkelstein)
- Suspending coverage due to scrutiny, not crediting any specific allegation
- “Expect significant volatility will continue challenging this framework”
- “Door is now wide open to questions about any number of business practices”
BARCLAYS (Douglas Tsao)
- Market overreacted to report
- VRX response addressed concerns about rev.
- Important to note not all VRX volume through specialty pharmacies goes through Philidor
- Rates overweight, PT $300
DEUTSCHE BANK (Gregg Gilbert)
- Cautious due to uncertainties with U.S. drug pricing, VRX’s specialty pharmacy distribution model, related government inquiries
- Expect new investors will want detailed understanding of co.
- Important to see how co. deals with “period of adversity after a long period of significant success”
- Rates hold, PT $204
BANK OF AMERICA (Sumant Kulkarni)
- Will continue to monitor; no change to model
- VRX will remain volatile, require clearer articulation from mgmt about risk
- Continue to like VRX’s diverse business mix
- Rates buy, PT $290
JPMORGAN (Chris Schott)
- “Effectively see no impact from these headlines to other companies in our coverage”
- Understand that VRX books rev. after shipment to end customer
- Accounting method limits VRX’s ability to “stuff the channel,” ship excess inventory
- Rates overweight, cuts PT to $265
MORGAN STANLEY (David Risinger)
- If allegations wrong, depressed shrs are buying opportunity
- VRX response did not address claims about questionable Philidor relationships with other pharmacies
- Broader concerns about specialty pharmacy “overblown”
- Rates equal weight, PT $200
UBS (Marc Goodman)
- VRX clarification should help investor confidence
- Expect shrs to recoup lost ground
- Surprised by reaction, VRX addressed most issues in recent conf. call
- Rates buy, PT $285
Here are some of the more amusing report covers saved here for posterity’s sake:
First, DB with the best summary of Valeant’s day to day existence:
Just as good, here is BTIG with the “head in the sand” routine:
And while the above is meant to put a smile on the faces of all those longs who may otherwise be suicidal after the company’s stock price has been cut in two in about a week, the sad reality for the company is that things are not only in crisis mode, but are likely going far, far worse. Case in point, the former CEO of Medtronic Bill George who said he’s been saying for three years that Valeant business model makes “no sense” during a CNBC interview.
“I see it more as a house of cards. I’m afraid it’s going the Tyco direction” adding that it “may take 12 years for VRX to transform business model to focus on R&D, saying “There’s a lot of smoke there.”
As of this moment, the bond market is agreeing with George: the spread on Valeant bonds, courtesy of Markit, is approaching a record 700 bps…
…and with Valeant CDS now trading 650, it means Valeant is now facing a nearly 50% probability of default in the coming 5 years.
We hope investors in Bill Ackman’s Pershing Square can sleep well at night knowing that his biggest investment has a coin toss’ chance of going broke in the near future.
Valeant Crashes Back Below $100 As Quebec Regulator Begins Investigation
Just when you thought it was safe to BTFD, Valeant is re-crashing. After bouncing back yesterday afternoon, reportedly thanks to Ackman “buying millions more shares,” news this morning that Quebec’s regulator is watching the Valeant situation “very seriously” and said in a statement that the “allegations are worrisome” and is checking to see if Valeant didn’t run afoul of regulations, has prompted more bloodbathery in the stock, now down over 16%…
- *QUEBEC REGULATOR AMF COMMENTS ON VALEANT IN E-MAILED STATEMENT
- *QUEBEC’S AMF SAYS IT’S WATCHING VALEANT SITUATION VERY CLOSELY
- *VALEANT ALLEGATIONS ARE ‘WORRISOME’: QUEBEC REGULATOR AMF
- *AMF CHECKING TO SEE IF VALEANT DIDN’T RUN AFOUL OF REGULATIONS
Charts: bloomberg
end
And now we have a second pharmaceutical company in trouble;
serious liver problems with two of its drugs!!
(courtesy zero hedge)
AbbVie Stock Plunges After FDA Warns Of “Serious Liver Injury Risk” From Company’s Hep C Treatments
It has been a horrible quarter for biotechs, and for AbbVie it just got worse.
Moments ago specialty pharma drug company AbbVie which had a market cap of over $80 billion plunged over 10% after the FDA unexpectedly issued a warning of “serious liver injury risk with hepatitis C treatments Viekira Pak and Technivie.”
Specifically the FDA, which approved Technivie for use in combination with ribavirin for the treatment of hepatitis C virus (HCV) genotype 4 infections in patients without scarring and poor liver function (cirrhosis), said that “hepatitis C treatments Viekira Pak and Technivie can cause serious liver injury mostly in patients with underlying advanced liver disease. As a result, we are requiring the manufacturer to add new information about this safety risk to the drug labels.
It adds that “patients taking these medicines should contact their health care professional immediately if they develop fatigue, weakness, loss of appetite, nausea and vomiting, yellow eyes or skin, or light-colored stools, as these may be signs of liver injury. Patients should not stop taking these medicines without first talking to their health care professionals. Stopping treatment early could result in drug resistance to other hepatitis C medicines. Health care professionals should closely monitor for signs and symptoms of worsening liver disease, such as ascites, hepatic encephalopathy, variceal hemorrhage, and/or increases in direct bilirubin in the blood.
The immediate result is that ABBV shares are tumbling...
… while those of its biggest Hep C competitor Gilead Sciences, are spiking by 6%.
And just like that, the day of another happy camper in hedge fund hotel stocks, Glenview – which is long 17.9 million shares of ABBV – was ruined.
end
US Treasury Postpones Next Week’s 2-Year Treasury Auction Due To Debt-Ceiling Roadblock
Two days ago we observed that while stocks remain convinced that the upcoming debt ceiling fiasco will go away on its own, the bond market is far less sanguine, as shown by the historic colapse in bids for the latest 4-week Bill auction.
Overnight Goldman released another note, in which it also warned that the “clock is ticking” even if it spun it as optimistically as possible:
- With less than two weeks to go before the Treasury’s projected deadline to raise the debt limit, the outlook for dealing with the issue has finally begun to get a little clearer. The House looks likely to act early next week, with a Senate vote following late next week or over the weekend. If Congress holds to this timetable, it suggests a debt limit increase will be signed into law by the November 3 deadline, though probably with little time to spare.
- So far, financial markets appear mostly unfazed by the uncertainty. That said, over the last couple of days some signs of modest unease with the situation in Washington have appeared. Most notably, the yields on Treasury bills that mature around the debt limit deadline have risen, even while yields on securities maturing later in the year have not.
- Overall, our sense is that while there is a good deal of uncertainty regarding the outlook for the debt limit, the issue is likely to pose less of a perceived risk than the prior debates in 2011 and 2013. So while there are some signs of nervousness in the market related to the debt limit, it seems unlikely that the issue will be quite as disruptive as it was in previous years.
However, moments ago the US Treasury promptly removed any latent optimism that this latest debt ceiling crisis will somehow be magically fixed on its own after it announced that it would postpone the two-year note auction previously scheduled for Tuesday, as the impasse over the debt limit constrains the nation’s borrowing.
“Due to debt ceiling constraints, there is a risk that Treasury would not be able to settle the two-year note” on Nov. 2, the Treasury said Thursday in an e-mailed statement as reported by Bloomberg.
Curiously, the five-year note auction, scheduled to take place on Oct. 28, and the seven-year note auction, scheduled to take place on Oct. 29, will proceed as planned, at least for now. Both sales will settle on Nov. 2, the department said.
U.S. Treasury Secretary Jacob J. Lew on Wednesday reiterated that the government on Nov. 3 will exhaust the tools it’s using to stay under the cap. He urged Congress to act now to increase the U.S. debt limit, calling it irresponsible for lawmakers to use political brinkmanship that could jeopardize the government’s record of honoring its obligations.
Finally, recall that the House is expected as early as Friday to vote on a conservative debt-limit proposal even though chances are slim that the plan can pass the Senate. Speaker John Boehner (R-Ohio) told the GOP Conference on Wednesday that he is expecting a vote on the Republican Study Committee (RSC) planthat would raise the debt limit to $19.6 trillion from $18.1 trillion and would run through March 2017.
Which, incidnetally is precisely how this latest theater will end: with the US getting its Treasury limit boosted to just shy of $20 trillion, buying the US government enough time until early 2017 when the farce repeats again.
Americans’ Outlook For The US Economy Plunges Near 2013 ‘Government Shutdown’ Lows
Since February, Americans have become less and less confident about the economic future of the country. As Bloomberg reports, National Economy Expectations tumbled to 42.0 – just above Sept 2014 lows and almost as weak as during the 2013 government shutdown. 2015’s weakening streak is the worst consistent drop since 2011 (which unleashed moar QE) as Americans’ spending attitudes tumble the most since May.
Thirty-nine percent of respondents said the U.S. economy was getting worse, up from 36 percent in September. Some 23 percent said it was improving, the smallest share in 13 months.
The report stands in contrast to the University of Michigan’s preliminary consumer sentiment index, which advanced to 92.1 in October from 87.2 a month earlier.
The decrease is seeping into Americans’ attitudes about spending. The buying-climate index, which measures if consumers think it is a good time to purchase goods and services, fell by 2.3 points to 37.2, the largest weekly decline since May.
Charts: Bloomberg
US Leading Economic Indicators Tumbles Most In 30 Months
Missing expectations for the 3rd month in a row, US Lesading Economic Indicators (LEI) dropped 0.2% MoM. There has not been a bigger monthly drop since March 2013. Ironmically, initial jobless claims (which we have recently explained is now useless) was the largest positive contributor (after the yield curve steepness) but stock prices, average workweek, and building permits weighed heaviest.
Charts: Bloomberg
end
Existing Home Sales Surge In September (Thanks To Massive Seasonal Adjustment)
September Existing Home Sales fell 6.5% from August, but you will not see that in the headlines as after adjustments for seasonals, existing home sales actually rose in September by 4.7%, bouncing back from a 5.0% revised lower drop in August (and beating expectatations of a mere 1.5% rise). 2015 has seen unprecedented volatility in the NAR’s reported data, but a they note, “Unfortunately, first–time buyers are still failing to generate any meaningful traction this year.”
Something has changed in 2015 – look at the relative volatility of the swings in existing home sales…
And highlighted here for September…
As NAR notes,
“Despite persistent inventory shortages, the housing market has made great strides this year, backed by an increasing share of pent–up sellers realizing the increased equity they’ve gained from rising home prices and using it towards trading up or moving into a smaller home,” says Yun. “Unfortunately, first–time buyers are still failing to generate any meaningful traction this year.”
Which is no surprise, given home prices are accelerating again…
By region…
September existing–home sales in the Northeast jumped 8.6 percent to an annual rate of 760,000, and are 11.8 percent above a year ago. The median price in the Northeast was $256,500, which is 4.0 percent above September 2014.
In the Midwest, existing–home sales climbed 2.3 percent to an annual rate of 1.31 million in September, and are 12.0 percent above September 2014. The median price in the Midwest was $174,400, up 5.4 percent from a year ago.
Existing–home sales in the South rose 3.8 percent to an annual rate of 2.21 million in September, and are 5.7 percent above September 2014. The median price in the South was $191,500, up 6.2 percent from a year ago.
Existing–home sales in the West increased 6.7 percent to an annual rate of 1.27 million in September, and are 9.5 percent above a year ago. The median price in the West was $318,100, which is 8.0 percent above September 2014.
Charts: Bloomberg
end
We now have the new debt ceiling proposal: 19.6 trillion usa to last until March 2017.
(courtesy zero hedge0
Presenting America’s New Debt Ceiling: $19,600,000,000,000
Even as the bond market has been rather concerned about another possible debt ceiling showdown as we showed before, and which earlier today prompted the Treasury to announce the purposefully dramatic step of postponing the auction of 2 Year Notes next week, the reality is that one way or another, with an equity-driven wake up call for the GOP or without, the debt ceiling will be raised.
The only question is how much.
As a reminder, the reason why the total US debt held by the public hasn’t budged from $18.1 trillion since March 16, 2015 is because that is when the last debt ceiling limit was hit. In the seven month since, the US Treasury has been cruising along on emergency cash measures, even as the total debt – if only for reporting purposes – has not budged (in reality it has grown by about half a trillion).
It will budge very soon, because no matter what the outcome of the upcoming week of debt ceiling negotiations, one thing is certain: the US has to be able to borrow more in order to survive.
And as The Hill reported, when one gets beyond the traditional posturing, the outcome will be the following:
The House is expected as early as Friday to vote on a conservative debt-limit proposal even though chances are slim that the plan can pass the Senate.
Speaker John Boehner (R-Ohio) told the GOP conference on Wednesday that he is expecting a vote on the Republican Study Committee (RSC) plan that would raise the debt limit to $19.6 trillion from $18.1 trillion and would run through March 2017.
Who will be the Republican to submit the unpopular measure? Most likely the outgoing speaker John Boehner, who will seal his tenure with this final act: “With only two weeks to go, the pressure is on the House to pass a measure that raises the nation’s $18 trillion debt ceiling amid a search for the next Speaker.”
Yes, the republicans will pretend to demand concessions, such as a balanced budet and other “sound money” conditions…
The proposal would require a House vote on a balanced-budget amendment by Dec. 31, would implement a short-term freeze on federal regulations through July 1, 2017, and would compel the House to remain in session without a break if spending bills aren’t done by Sept. 1.
… but they won’t get them because the corporations pulling the strings of every D.C. politicians are the biggest beneficiaries from US debt-funded largesse, especially if one throws in the occasional contained or not so contained war.
This means another victory for the Demorats who have required a “clean” debt raise. This is precisely what they will get, and why it will have to take place under John Boehner as Paul Ryan would surely tarnish his reputation with the Freedom Caucus if his first act is one seen as submission to the left.
Which means that the only certain outcome from the melodramatic debt ceiling fight over the next several days, is the following: the US is about to have a brand spanking new debt ceiling, one that should last it until March of 2017: $19,600,000,000,000.
If the chart below looks increasingly exponential, that is not a coincidence.
harveyorganblog.com 
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