Deposit bail-in risks are slowly being realised in Ireland, after it emerged overnight that FBD, one of Ireland’s largest insurance companies, have been moving cash out of Irish bank deposits and into bonds.

Revelations regarding deposit bail-in risks came in the wake of warnings of a new property crash centred on the housing market in Ireland. The former deputy governor of the Central Bank warned in an op-ed in a leading international financial publication, Project Syndicate, that Ireland is at risk of another housing market crash.

Bail-In Regimes – Key Considerations (GoldCore Research)

Insurer FBD has moved over €150 million out of the Irish banking system and into corporate and sovereign bonds over the past year. The move was prompted by low returns offered by bank deposits and the risks that deposit bail-in rules could see deposits confiscated.

FBD chief executive Fiona Muldoon told the Irish Independent that the “extremely low returns offered on term deposits by banks, coupled with fears that new bail-in rules introduced this year by the European Union could expose bank bondholders and depositors to bailing out a failed lender, meant it has shifted investments away from banks.”

The new deposit bail-in mechanism is designed to protect banks and is touted as a way to prevent taxpayers being liable for bailing out collapsed lenders. It is believed that it leaves bank bondholders and deposit customers with more than €100,000 on deposit at risk of footing the bill.

There is a belief that bail-ins only relate to “the wealthy” and “rich” depositors as they will be imposed on those with deposits greater than national deposit guarantees. These deposit “guarantees” are generally the ‘big round’, arbitrary number of say €100,000, $250,000 and £75,000. These are not particularly large amounts and could amount to the entire life savings of a pensioner, a family or indeed it could be the entire capital of a small to medium size business enterprise.

An example of this is the UK where the deposit guarantee was arbitrarily, suddenly and with little fanfare quietly reduced from £100,000 to £75,000 just last year in July 2015.

Thus, it is important to note that the arbitrary round number in the various government deposit guarantees can be, and probably will be, reduced to a lower number – say the new round number of €50,000, £50,000 and $50,000 –  depending on the severity of the next banking crash.

In the event of bail-ins, governments and banks are likely to seek to impose deeper haircuts on creditors including depositors in order to bail-out and protect the failing banking system.

Download Bail-in Guide

FBD’s deposits with Irish banks were reduced from €451 million to €305 million in recent months. FBD made a €3.1m loss in the first half of the year.

As reported by the Irish Independent:

“As they mature, and as the bank bail-in rules come into play, it’s no longer the case that for corporate investors depositing at a bank is risk free,” she added.
“To be honest, the return is abysmal now. We’ve gone back to a more typical investment portfolio for an insurance company.”

“You have to be paid for the risk you take,” she added. “You might entertain the bail-in risk if you were being properly paid. But if you’ve a bank trying to charge you for leaving your money with them, you’re not inclined to take any risk at all.”

The recent bank stress tests showed that Irish banks are the most vulnerable in the EU in the event of another financial crisis.

Meanwhile, the risk of another property crash centred on the housing market has been warned of by a respected economist. Stefan Gerlach, who left the Central Bank of Ireland earlier this year to become Chief Economist at BSI Bank in Zurich, asked:

“Having endured the collapse of its housing market less than a decade ago, Ireland has lately been experiencing a blistering recovery in prices, which already have risen in Dublin by some 50% from the trough in 2010, is Ireland setting itself up for another devastating crash?”

Among the concerns he expresses in an article titled ‘The Return of Ireland’s Housing Bubble’ for the global finance think-tank Project Syndicate is that the Central Bank here is coming under undue pressure from the construction industry and politicians to relax the loan to value and loan to income ratios on mortgage lending it introduced last year.

He warns that while housing bubbles are easy to spot, there are a number of conflicts of interest that make it hard to take action as the market gets out of control as reported by Newstalk:

“The obvious question is why nobody stepped in before it was too late. The answer is simple: while the bubbles are inflating, many people benefit. With the construction sector thriving, unemployment falling, and banks lending freely, people are happy – and politicians like it that way.”

“Many in Ireland might find that conclusion overly pessimistic. Maybe they are simply hoping that, this time, the luck of the Irish will hold. Perhaps it will, and this time really is different. But there isn’t much evidence of that,” he concludes.

The ‘Bail-in regime’ is one of the greatest financial risks to investors, savers and indeed companies internationally today. Yet it remains the most poorly covered financial risk and is largely ignored by financial advisers, brokers and not surprisingly governments and banks.

The growing financial risk in all western countries has not been properly analysed. In a world already beset with huge deflationary pressures and still insolvent banks, the bail-in regime and confiscating deposits, especially from job creating companies, would be extremely deflationary and would likely contribute to severe recessions.

This is something we warned of when we first conducted our extensive research on the developing global bail-in regimes after the Cyprus bail-ins in 2013. Diversification of deposits remains vital and one important way to protect against a bail-in is owning physical gold. Taking delivery of gold coins and bars and owning bullion in allocated and segregated storage in the safest vaults in the world is a prudent way to protect against the deposit bail-in regime.

Gold and Silver Bullion – News and Commentary

Gold Rises as Fed Rate Hike Bets Recede, Dollar Near June Low (Bloomberg)

Gold steady as U.S. data lowers rate hike prospects (Reuters)

Latest gold, forex rates in UAE (Emirates247)

Bail-in deposit fears spur insurance company move to bonds (Independent)

Ireland warned of new property crash  (Independent)

Goldman is squaring up against JPM and HSBC to decide the future of gold trading (Business Insider)

European Close Sparks $5 Billion Selling-Panic In Gold Futures (Zerohedge)

RBC adds $200 to its gold price forecast (Mining.com)

Silver Kangaroo Sales Head For New Records  (Numismatic News)

Coming Global Silver Production Collapse & Skyrocketing Price (SRS Rocco Report)

Gold Prices (LBMA AM)

15Aug: USD 1,339.20, GBP 1,037.21 & EUR 1,198.85 per ounce
12Aug: USD 1,336.70, GBP 1,032.60 & EUR 1,199.02 per ounce
11Aug: USD 1,344.55, GBP 1,037.05 & EUR 1,206.06 per ounce
10Aug: USD 1,351.85, GBP 1,035.11 & EUR 1,209.23 per ounce
09Aug: USD 1,332.90, GBP 1,025.80 & EUR 1,201.74 per ounce
08Aug: USD 1,330.00, GBP 1,019.84 & EUR 1,198.86 per ounce
05Aug: USD 1,362.60, GBP 1,036.39 & EUR 1,222.53 per ounce

Silver Prices (LBMA)

15Aug: USD 19.90, GBP 15.40 & EUR 17.81 per ounce
12Aug: USD 19.87, GBP 15.33 & EUR 17.81 per ounce
11Aug: USD 20.21, GBP 15.56 & EUR 18.13 per ounce
10Aug: USD 20.34, GBP 15.55 & EUR 18.19 per ounce
09Aug: USD 19.70, GBP 15.18 & EUR 17.77 per ounce
08Aug: USD 19.66, GBP 15.04 & EUR 17.74 per ounce
05Aug: USD 20.22, GBP 15.36 & EUR 18.14 per ounce

Recent Market Updates

– Money “Madness” Negative Interest Rates Sees Gold Buying Surge
– Gold Investment Demand Reaches Record In First Half 2016 On “Perfect Storm”
– Peak Gold – Did Gold Production Peak in 2015?
– Financial Times: “Victory For Gold Bulls Is Only Just Beginning”
– Irish Banks Most Vulnerable In Stress Tests – Banking Contagion In EU Cometh
– Gold In Sterling 2.2% Higher After Bank Of England Cuts To 0.25% and Expands QE
– Silver Kangaroo Coins – Sales Surge To Over 10 Million
– Trump, Clinton, “Ugliest” Election Coming – Gold’s “Summer Doldrums” Prior To Resumption of Bull Market
– Marc Faber: Invest 25% Of Investment Portfolios In Gold Bullion
– “Could Not Invent A More Bullish Story For Gold Bullion”
– Gold In Bull Market – “Every Reason For It To Continue” – Frisby In Money
– Is Gold Set To Hit $1,500 Per Ounce?
– Why Italy’s bank crisis could be a ‘ticking time bomb’

European shares advanced, with gains in automakers 
helping Germany’s benchmark DAX Index turn positive for the year for
the first time. Stocks rose around the world, led by emerging-markets, as oil climbed further after its best week since April and traders pushed back bets on higher U.S. interest rates. S&P futures advance and Asian stocks little changed as rising oil prices bolstered investor sentiment. That said, volumes are even more lethargic than usual as peak vacation season hits, and the volume for the Stoxx 600 is 70% below average with much of Europe on official holiday due to Assumption day.

While Developed Markets have been sleepy, the MSCI Emerging Markets Index climbed to the highest level in more than a year, with Chinese equities rallying the most since May on speculation of more property takeovers. The MSCI emerging markets gauge rose 0.4% at 10:24 a.m. in London, gaining for an eighth day to the highest since July 2015. The ruble strengthened as oil extended gains on speculation that producers will revive talks to stabilize prices. European shares rose modestly, pushing Germany’s DAX into the green YTD for the year for the first time. Helping EMs, the Bloomberg Dollar Spot Index declined for a second day.

Continued expectations of easy monetary policies, meant that global equities are trading near a one-year high as evidence of uneven growth in the world’s biggest economies fuels optimism that central banks will come to the rescue by way of additional stimulus and looser monetary policy. The probability that the Federal Reserve will increase interest rates this year eased to 42% in the futures market on Friday following the release of the disappointing U.S. retail sales figures, from 49% a day earlier.

“Interest rates will stay low and the dollar should be quite stable,” said Hertta Alava, the head of emerging markets at FIM Asset Management Ltd. in Helsinki. “That is supportive for emerging-market currencies. The oil price recovery is supportive for sentiment too.”

Oil prices rebounded in early trading, forcing more shorts to cover after comments by the Russian Energy Minister Novak who stated that Russia are consulting with Saudi Arabia, other countries to achieve oil market stability. However, the initial euphoria has fizzled and oil was largely unchanged at last check.

Among other notable overnight movers, in addition to the ongoing strength in EMs indices, now up for an 8th consecutive day, China’s Shanghai Composite jumped 2.4% as a measure of real estate companies had its steepest two-day rally in almost a year after stake purchases by China Evergrande Group fueled optimism of more mergers.  The Stoxx Europe 600 Index added 0.1%, with volume 70 percent lower than the 30-day average for the time of day.

The DAX Index rose as much as 0.8%. Volkswagen added 1.4 percent, helping automakers to a rebound from Friday’s decline to post the best performance of the 19 industry groups on the Stoxx 600. Statoil ASA was among the best-performing oil stocks as crude extended its advance above $44 a barrel. Glencore Plc dragged raw material producers lower. Hennes & Mauritz AB advanced 1.9 percent after reporting a better-than-expected 10 percent increase in July sales.

S&P 500 Index futures advanced 0.2%, after U.S. equities slipped from their highs on Friday following disappointing retail sales and consumer confidence data. Later today, the latest NY Fed “Empire Manufacturing” report is expected to rise modestly by 2, after last month’s 0.55 print.

Market Snapshot

• S&P 500 futures up 0.2% to 2184
• Stoxx 600 up 0.2% to 347
• FTSE 100 up 0.2% to 6929
• DAX up 0.3% to 10742
• German 10Yr yieldunchanged at -0.11%
• Italian 10Yr yield down less than 1bp to 1.04%
• Spanish 10Yr yield down less than 1bp to 0.92%
• S&P GSCI Index up 0.3% to 354.3
• MSCI Asia Pacific down less than 0.1% to 140
• Nikkei 225 down 0.3% to 16870
• Hang Seng up 0.7% to 22933
• Shanghai Composite up 2.4% to 3125
• S&P/ASX 200 up 0.2% to 5540
• US 10-yr yield down 1bp to 1.5%
• Dollar Index down 0.08% to 95.65
• WTI Crude futures up 1.3% to $45.08
• Brent Futures up 1.1% to $47.51
• Gold spot up 0.4% to $1,342
• Silver spot up 0.8% to $19.87

Top Global Headline News

• Here comes the Brexit-era British economy in hard numbers; inflation, retail sales, jobs may show how vote impacted U.K.
  • Londoners cut house prices to lure buyers in slowing market
  • British millennials are ‘collateral damage’ as pension gap grows; younger workers will have to save more or work for longer
  • Hedge funds make record bearish pound bets on Brexit pessimism
• Loonie breaks from oil as bears shift focus to economic woes
• Yuan tumbles most in six weeks as data reignite economy concerns
• Honeywell to Buy JDA Software for $3 Billion, WSJ Says; The transaction could be announced as soon as Monday
• Entertainment One Gains as KKR Weighs Bid to Top ITV’s Proposal; KKR emerged as a potential bidder for the film and television distributor, which rejected a proposal by broadcaster ITV Plc last week.
• Noble Group’s Liquidity Crunch to Be ‘Temporary,’ Fitch Says: The demphasis on scale to remain until NAES sale, agency says. So-called liquidity ratio seen rising back above level of 1
• AngloGold Says Dividends May Return Next Year as Cash Flow Rises: Bullion miner’s board will debate new dividend policy. First-half cash flow tripled to $108 million on higher prices
• Treasuries Fall Behind Company Debt as Pimco Pursues Credit: Corporate bond spread over Treasuries is smallest in a year. Pimco’s Kiesel sees significant opportunity in corporate debt
• World’s Biggest Shipping Firm Warns Against U.S. Protectionism: Maersk, a Danish conglomerate that owns the world’s largest container shipping company, is voicing concern as a potential shift in U.S. policy threatens to reduce global trade.

* * *

Looking at regional markets, we start in Asia, where sentiment was lifted by the upside in WTI and Brent crude futures with the latter making a break above USD 47.00/bbl, following comments by Russia that it may join Saudi Arabia is limiting production, although the bounce promptly faded shortly after. The Nikkei 225 (-0.3%) was the notable laggard in the wake of the first look at the soft Japanese Q2 GDP figures. ASX 200 (+0.2%) had been weighed on by banking heavyweight NAB following their earnings, however losses were later pared amid the rise in oil prices. Shanghai Comp (+2.4%) and Hang Seng (+0.2%) traded higher amid reports that the Shenzhen-HK stock link could be announced as soon as next week. JGB’s continued to extend on losses despite the soft Japanese GDP readings, with some attributing the weakness to Fridays comments where Japan Post announced that they have reduced their JGB holdings again and may invest around half of their JGB redemptions in foreign bonds.

Top Asian News:

• The Tokyo Whale’s Unstoppable Rise to Shareholder No. 1 in Japan: BOJ set to become top owner of 55 cos. in the Nikkei 225
• Japan Economy Grew Less Than Expected as Business Spending Fell: 2Q GDP rises annualized 0.2% vs est. +0.7%
• Singapore Home Sales at Highest in a Year as Prices Drop: Developers sold 1,091 units last month versus 536 in June
• Wanda Commercial Investors Said to Pass $4.4 Billion Buyout: Decision paves way for Hong Kong’s biggest privatization deal
• WeChat Coming Soon at 35,000 Feet as China Eases Phone Rules: Standards by early 2017 may allow mobile phone use on planes

In a very quiet morning European equities have traded higher, with volumes very thin due to Assumption day. In major indices, the DAX (+0.3%) has moved into positive territory for the year for the first time, with healthcare and energy names outperforming throughout Europe, while materials remain the laggard. In fixed income market, today sees no major supply and amid the light newsflow Bunds have been trading flat throughout the morning, while today saw 10 year Gilt yields continue their decline to reach 0.50% for the first time, a total fall of 88bps since the Brexit vote just under 2 months ago. Also of note, today we shall be looking out for the BoE’s 3-7year Gilt purchase, which could garner particular focus given that last week saw the BoE fail to purchase the full allotment.

Top European News:

• William Hill Rejects Increased Offer From Suitors 888, Rank: Bidders improve stock element of proposal for U.K. bookmaker. William Hill shares decline as much as 1.7% in London
• VW Gets German Regulator’s Approval to Fix 460,000 Diesel Autos: Approval includes models of Volkswagen Polo, Seat Ibiza.

In FX, the dollar weakened against most of its major peers amid receding chances of a Fed rate increase this year. The greenback fell 0.4 percent against the yen. China’s yuan dropped 0.12 percent to 6.6408 against the dollar, according to prices from the China Foreign Exchange Trade System. China’s broadest measure of new credit grew the least in two years in July, a report showed on Friday, after data indicated industrial production and investments also weakened. Sterling reached a one-month low Monday before reports on inflation, retail sales and unemployment benefit claims for July, which will provide more detail on how the economy is faring after the June 23 Brexit referendum. Hedge funds were the most bearish on the pound on record in the week ended Aug. 9, after the Bank of England cut interest rates and boosted its stimulus plan the previous week. The pound fell to as low as $1.2901 on Monday, the weakest level since July 11. Russia’s ruble led gains among the world’s 32 major currencies, climbing 0.7 percent versus the dollar. The Mexican peso advanced 0.6 percent, and South Africa’s rand 0.4 percent. Thailand’s baht climbed 0.6 percent after a report showed the economy grew a more-than-estimated 3.5 percent in the second quarter.

In commodities, both WTI and Brent crude futures enter the North American crossover in positive territory, albeit off best levels. Initial upside for prices emanated from comments by the Russian Energy Minister Novak who stated that Russia are consulting with Saudi Arabia, other countries to achieve oil market stability. With newsflow otherwise relatively light, prices have also been tracking some of the fluctuations seen in the USD-index as participants await any further commentary from OPEC/non-OPEC producers on what to expect next month. Elsewhere, precious metals markets have seen a particularly subdued session overnight with silver remaining below USD 20/oz. Gold rose for the first time in three days as the dollar traded near its lowest level since June, boosting demand for a haven. Bullion for immediate delivery rose 0.3 percent to $1,339.97 an ounce. In base metals, copper prices in London printed a one-month low as demand concerns continue to hamper prices with price action otherwise relatively contained.

It is a quiet session in US economic data, with just the NY Fed Empire manufacturing survey (+2.00 expected; +0.55 previous) and NAHB housing market index (60 expected; 59 previous) for August to watch.

* * *

Bulletin Headline Summary from Bloomberg and RanSquawk

• European equities enter the North American crossover in positive territory alongside modest upside in energy prices
• FX markets continue to remain rangebound with newsflow once again light and Europe celebrating Assumption Day Holiday
• Looking ahead, the main highlight on the calendar is the NY Empire State Manufacturing Index at 1330BST
• Treasuries mostly steady in overnight trading, global equities rally to near one-year highs while WTI crude near $45/barrel amid Saudi stabilization rhetoric.
• Global markets may be muted due to Assumption Day
• Japan’s economy grew less than forecast in the three months through June 30 as business spending contracted for a second-straight quarter and exporters struggled with the resurgent yen
• In a sign of how worried it is about Japan’s economy, the International Monetary Fund is urging the country to resurrect a radical strategy once employed by former U.S. presidents Nixon, Ford and Carter — only in reverse
• The European Union is considering adding to protections for banks’ riskiest debt securities by requiring that lenders pay coupons on such bonds before stock dividends and staff bonuses
• Speculators are the most bearish on the pound since records began as they await data that will give the clearest picture yet of the effects of Britain’s decision to leave the European Union
• Taliban militants captured a key district about 100 miles north of Afghanistan’s capital, which itself was hit by a bombing on Monday, a blow to the government in Kabul that’s coming under further pressure from a renewed surge in fighting

DB’s Jim Reid completes the overnight recap

British, this week will be where we get our first major glimpse of hard post-Brexit data following a raft of weak sentiment surveys released so far. First up is July inflation (CPI and PPI) tomorrow and although it might be too early to see too much of an impact of a 12% trade weighted decline in sterling since the referendum it’ll be interesting if we get a few clues as to higher inflation ahead. I suppose the Euro and Yen have had big bouts of depreciation in the last couple of years without lasting impacts on inflation but the UK imports more relatively. It’s also interesting that gilts have been one of the best performing assets since the referendum (50 years up over 30% and well over 50% YTD) even as inflation forecasts have risen. That’s financial repression for you. Over the rest of the week the UK highlights are July unemployment (Wednesday), retail sales (Thursday) and the public finance data (Friday). The latter being interesting as we edge closer to the Autumn statement where looser fiscal policy is expected.

Staying with data, disappointments in the US on Friday halted the recent rally in equity markets. Over in Europe the STOXX (-0.13%) and DAX (-0.27%) slipped from their post-Brexit highs while the FTSE (+0.02%) was largely flat. US markets also saw the S&P 500 (-0.08%) dip from all-time highs in the face of broadly weak data (discussed later). On the whole the week did see the European markets gain with the STOXX up +1.38% while the S&P see-sawed to essentially end the week flat.

European credit saw iTraxx Main largely unchanged on the day and the week as a whole, while Crossover tightened by -3bps on the day and by nearly -9bps on the week. US CDX indices were fairly static on the day and pretty much flat on the week.

Soft data appeared to impact rates markets the most as German 10Y and US 10Y yields dropped by -2bps and -5bps respectively on the day, falling by -4bps and -8bps on the week after the post payrolls spike the Friday before. UK yields continued to drop to fresh new lows, with 10Y yields dropping by -2bps on the day and -15bps on the week. UK 30Y yields however rose by +2bps from their all time lows, bringing their cumulative drop to about -25bps on the week.
Asian stocks are mostly higher this morning with the Nikkei (-0.3%) an exception after Japan GDP came in below expectations (+0.2% vs +0.7% annualised QoQ). Chinese stocks climbed to a seven-month high (up 2-3% across the board) with activity high as property developers saw M&A hopes and reports that the delayed exchange link with Hong Kong will be announced shortly. There is also talk that weak new credit numbers late on Friday, which rounded off a soft monthly data dump from earlier in the day, increases the likelihood of more stimulus before YE. Oil is up +0.75% overnight after climbing +6.4% last week as hope that a production freeze might be possible next month at a side meeting at the international energy summit in Algeria.

Digging into the data on Friday now. The US saw a busy session of broadly weak data reinforcing the tepid growth story. July retail sales numbers disappointed (0.0% mom vs. +0.4% expected), although June’s numbers were revised higher (+0.8% mom vs. +0.6% before revisions). Auto sales helped support the headline number as ex-auto sales contracted by -0.3% mom (vs. +0.1% expected). This slowdown in consumer spending is certainly concerning given that it was the primary driver of US growth in the past quarter. Producer inflation also unexpectedly fell into deflationary territory in July (-0.4% mom vs. +0.1% expected; +0.5% previous) with the biggest drop in the index since last September. US business inventories for June also clocked in marginally above expectations (+0.2% mom vs. +0.1% expected; +0.2% previous) as the inventory to sales ratio remains elevated. The UMichigan consumer sentiment indicator for August picked up but less than forecast (90.4 vs. 91.5 expected; 90.0 previous) as the current economic conditions index declined to a five month low of 106.1 (vs. 109.5 expected; 109 previous). Inflation expectations for the next year also declined to 2.5% (vs. 2.7% previous).

Earlier in Europe we saw some preliminary Q2 GDP numbers, with Germany slowing but still beating expectations (+0.4% QoQ vs. +0.2% expected; +0.7% previous) while Italy unexpectedly stagnated (0.0% QoQ vs. +0.2% expected; +0.3% previous). Eurozone growth was in line with expectations (+0.3% QoQ vs. +0.3% expected; +0.3% previous). The final July CPI numbers for Germany (+0.4% mom vs. +0.4% expected) and Spain (-1.3% mom vs. -1.3% expected) held no surprises. Eurozone industrial production surprised on the upside in June (+0.6% mom vs. +0.5% expected) after growth rebounded back into positive territory (-1.2% previous).

Taking a look now at the week ahead. It’s a quiet start today with nothing notable out of Europe and just the NY Fed Empire manufacturing survey (+2.00 expected; +0.55 previous) and NAHB housing market index (60 expected; 59 previous) for August to watch in the US. Tuesday will see nothing significant out of Asia, but Europe is busier with the aforementioned UK inflation data dump for July and the German ZEW survey report for August due. Over in the US we will see housing starts, industrial production and CPI data for July. Wednesday brings us labour data for the UK in the form of jobless claims, earnings and unemployment numbers. There’s no data out of the US but the Fed will release the minutes for the July FOMC meeting. Thursday kicks off in Asia with trade data out of Japan. Over in Europe we will see July retail sales data out of the UK and July CPI numbers for the Eurozone. The US will see more jobless claims numbers for the second week of August, as well as the Philadelphia Fed Business Outlook for August. It’s a quiet end to the week, as Friday opens in Japan with the June print for the All Industry Activity Index due. Over in Europe we will see the July PPI print for Germany while there is no data due in the US.

ASIA MARKETS

i)Late  SUNDAY night/MONDAY morning: Shanghai closed UP 74.53 POINTS OR 2.44%/ /Hang Sang closed UP 165.60 points or 0.73%. The Nikkei closed DOWN 50.36 POINTS OR 0.30% Australia’s all ordinaires  CLOSED UP 0.16% Chinese yuan (ONSHORE) closed DOWN at 6.6498/Oil rose to 44.69 dollars per barrel for WTI and 47.52 for Brent. Stocks in Europe:  in the GREEN . Offshore yuan trades  6.64831 yuan to the dollar vs 6.6498 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS HUGELY AS  MORE USA DOLLARS ATTEMPTS TO LEAVE CHINA’S SHORES  

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

The Yen remains basically unchanged with the report of a big 2nd quarter GDP miss from Japan.  Business spending reports a huge drop and worse of all: exports slide

Another indicator as to global growth as this once big engine for goods supplying the rest of the world is faltering;

(courtesy zero hedge)

Japan Q2 GDP Misses, Unchanged From First Quarter, As Business Spending, Exports Slide

After a flurry of disappointing GDP reports from the US and Europe, not to mention last week’s uniformly poor Chinese economic data, Japan was the latest country to report that nominal economic growth in the second quarter rose a disappointing 0.2% annualized, missing expectations of a 0.7% increase, and down from the revised 2.0%  GDP growth in Q1, while on a sequential basis GDP was flat with the first quarter.

While private consumption rose 0.2% q/q; in line with estimate, there was pronounced weakness in business spending which fell 0.4% q/q; well below the consensus estimate of +0.2%, while net exports dipped -0.3% from last month’s 0.1%, confirming yet again the global economic growth remains in the doldrums, and that the BOJ is in desperate need of putting more pressure on the Japanese Yen, something it has failed to do so far this year despite unleashing NIRP and doubling the pace of its ETF purchases.

Annualized GDP barely grew, rising just 0.2%, and missed expectations.

On a sequential basis, GDP was unchanged, after fluctuating between contraction and growth for 4 consecutive quarters.

As Betty Rui Wang, an economist at Standard Chartered Bank in Hong Kong observes, corporate investment has declined for two consecutive quarters, the first time since the sales-tax hike in 2014, said “GDP signals, especially for the business sector, that there is big downside risk” She also noted that the report doesn’t fully reflect the U.K.’s June 23 Brexit vote.

“The strong yen’s continued since the beginning of the year and I think a wait-and-see posture may have spread when it comes to business investment,” said Masaki Kuwahara, an economist at Nomura Securities in Tokyo.

“The number confirmed that there are still risks in the global economy,” said Kuwahara. “China’s economy is a major risk for Japan.”

It was unclear if, like China, Japan would also blame the weather for the sudden economic weakness.

More troubling is that despite the surge in the BOJ’s balance sheet to unprecedented levels, Japan’s business investment has been basically unchanged for the past three years.

Perhaps the reason for the miss is that the BOJ simply did not buy more ETFs, although it remains unclear just how the central bank becoming a top shareholder in some 55 names over the next year, among which a video game maker, a clothing retailer, and a chemical company will either push inflation to 2% or somehow force the moribund Japanese economy to rebound.

The market’s reaction has so far been negilgible, with the Yen mostly unchanged, while the Nikkei was fractionally higher on a number that in the past would have ignited a dramatic surge in stocks on hopes of more stimulus.

end

This is what a failed state looks like:  the Bank of Japan by next year will be the top shareholder of 55 companies:

(courtesy zero hedge)

The Bank of Japan Will Be The Top Shareholder Of 55 Companies By The End Of 2017

In the aftermath of the BOJ’s announcement that it would almost double its ETF purchases to ¥6 trillion, or $58 billion, up from the current ¥3.3 trillion, we put this number in context. Over the next year, BoJ is scheduled to purchase ¥6t ($58b) in ETFs, and $116b over the next two years.  By June of 2018, BoJ is likely to hold ¥20.5t ($200b) in ETFs.

Three ways to put BoJ’s purchases in perspective:

• The US market cap is 5x Japan’s, so this new stimulus can be viewed as equivalent of the Fed purchasing $580b in ETFs over the next two years, and the Fed holding $1t in ETFs.  Of course, this is just a hypothetical exercise as the Fed is prohibited from purchasing equities.  But the new stimulus illustrates that BoJ is concerned with the severity of bearishness in Japan’s equity market, and that such drastic purchases are necessary to reverse the bearishness.
• In Oct 2014, Government Pension Investment Fund announced a new asset allocation of its ¥127t assets. Among other changes, its domestic equity allocation increased from 17% to 25%, or an increase of +¥10t.  So BoJ’s ETF purchases over the next two years and GPIF’s equity purchases may be in the same ballpark.
• So far this year, foreign investors have sold almost ¥5t in net of Japanese equities.  That’s smaller than BoJ’s annual purchase rate of ¥6t.

While dramatic, some additional facts courtesy of Bloomberg should convey just how truly unprecedented the move truly is: with the BOJ already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings.

Just as insane, the central bank owned about 60% of Japan’s domestic ETFs at the end of June. This is up from just over half as of a few months ago suggesting that the BOJ is gobbling up equities at an unprecedented pace.

At this point the usual debate begins: is central bank intervention good (of course, the bulls say) or bad (everyone else grudgingly admits). While bulls have cheered the tailwind from BOJ purchases, opponents say the central bank is artificially inflating equity valuations and undercutting efforts to make public companies more efficient. Traders worry that the monetary authority’s outsized presence will make some shares harder to buy and sell, a phenomenon that led to convulsions in Japan’s government bond market this year.

“Only in Japan does the central bank show its face in the stock market this much,” said Masahiro Ichikawa, a Tokyo-based senior strategist at Sumitomo Mitsui Asset Management Co., which oversees about 12 trillion yen ($118 billion). “Investors are asking whether this is really right.”

Investors may ask, but the BOJ doesn’t care, as it has now become the single, most dominant force in the equity market, and would rather traders thanked it, and be on their way, than worry about the “long-term.” As for the BOJ “showing its face in the stock market this much”, both the SNB and the ECB are now just as actively involved in the equity market, as reported previously.

As Bloomberg adds, while the BOJ doesn’t buy individual shares directly, it’s the ultimate owner of stakes purchased through ETFs. Estimates of the central bank’s underlying holdings can be gleaned from the BOJ’s public records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. Forecasts of the BOJ’s future shareholder rankings assume that other major investors keep their positions stable and that policy makers maintain the historical composition of their purchases.

Meanwhile, Kuroda’s insane buying spree means that the central bank’s influence on Japanese stocks already rivals that of the biggest traders, locally called “whales”. It’s the No. 1 shareholder in piano maker Yamaha Corp., Bloomberg estimates show, after its ownership stake via ETFs climbed to about 5.9 percent.

The BOJ is set to become the top holder of about five other Nikkei 225 companies by year-end, after boosting its annual ETF buying target to 6 trillion yen last month. By 2017, the central bank will rank No. 1 in about a quarter of the index’s members, including Olympus Corp., the world’s biggest maker of endoscopes; Fanuc Corp., the largest producer of industrial robots; and Advantest Corp., one of the top manufacturers of semiconductor-testing devices.

The list below shows the top BOJ holdings as of this moment.

The Japanese central bank finds nothing out of the ordinary with becoming the top holder of dozens of stocks, and instead falls back to its cliche of an explanation:

A central bank spokesman, who asked not to be named citing BOJ policy, said the ETF purchases will help officials reach their 2 percent inflation target as soon as possible. Consumer prices fell 0.4 percent in June from a year earlier, the fourth straight month of declines.

It may get even more insane: Kuroda has argued that ETF purchases will help spur economic activity and inflation by boosting risk appetite in Japan. After the BOJ’s last meeting on July 29, he said the central bank has room to increase buying if needed.

As noted above, the bulls love it. For Takashi Aoki, a fund manager at Mizuho Asset Management, the ETF program’s downsides aren’t substantial enough to justify removing it from the BOJ’s toolkit. “The goal is to get Japanese companies making money again, and to reach 2 percent inflation,” said Aoki, whose firm oversees about $50 billion. “The scope of the BOJ’s buying is what’s needed to reach that target. It’s effective.”

Actually, if Takashi has seen a chart of Japan’s core CPI, he will note that monetizing stocks has been anything but effective, but who actually bothers with facts these days.

The good news is that, at least for now, the liquidity of the stock market has not collapsed (unlike what has happened in the JGB market where the BOJ is virtually running out of willing sellers). So far, there’s little evidence that the BOJ’s purchases are disrupting the smooth functioning of Japan’s stock market, according to Keiichi Ito, the chief quantitative analyst at SMBC Nikko Securities Inc. But that could change as the buying increases, Ito said, particularly for stocks with low free float, or shares available for trading.

Take the example of Fast Retailing, whose free float is about 25% of shares outstanding. The BOJ owns about half the company’s free float now, a proportion that will rise to 63 percent by year-end, according to Nomura Holdings Inc., Japan’s biggest brokerage. BOJ purchases could soak up the remaining free float at companies including Comsys Holdings Corp. and Tokyo Electron Ltd. over the next year, according to analysts at Goldman Sachs Group Inc. “It’s going to become hard to trade,” Ito said. “Stocks that have a low free-float ratio will become very volatile.”

However, just because liquidity is here today, does not mean it will be there tomorrow. “If the BOJ does not sell stocks, then liquidity will disappear,” Murakami said. “As liquidity falls, the number of shares you can buy starts to decline — the same thing that’s happening in the JGB market.”

While some raise the question of governance, or just how will the BOJ intervene as a top shareholder in determining the future of so many public companies…

While there’s no sign that the central bank will use its stock holdings to influence how Japan’s public companies are managed, some investors worry that BOJ purchases could give a free ride to poorly-run firms and crowd out shareholders who would otherwise push for better corporate governance. The BOJ isn’t explicitly subject to Japan’s stewardship code for institutional investors, designed to encourage stockholders to push companies for better performance.

… a far more obvious question is ignored: just how will the BOJ ever unwind its unprecedented holdings of not only bonds, which are now roughly 100% of Japan’s GDP, but also of stocks, without crashing both the bond and the stock market. And then we remember, that the BOJ will simply never unwind any of its “emergency” opertions just because nobody actually thought that far, plus the whole point of the exercise is hyperinflation or bust, as the sheer lunacy of Japan’s authorities is exposed for the entire world to see, leading to the terminal collapse of faith in the local currency. With every passing day, we get that much closer to said terminal moment.

end

b) REPORT ON CHINA

China is hoarding cash at the fastest pace since 2008. Basically there is nothing to invest in so they hoard cash:

(courtesy zero hedge)

Panic? China Is Hoarding Cash At The Fastest Pace Since Lehman

The last few months have seen trillions of dollars of fresh credit puked into existence in China to enable goal-seeked growth numbers to creep lower (as opposed to utterly collapse). The problem is… theChinese are hoarding that cash at the fastest pace since Lehman as liquidity concerns flood through the nation.

China’s M2, a broad gauge of money supply including savings deposits, rose at the slowest pace in 15 months and trailed the government’s full-year target of +11% in July. But, as Bloomberg details, by contrast, M1, the total of cash, checks and demand deposits, rose at the quickest pace in six years…

That shows companies “are holding all this cash, but investment returns are low and there are few options for projects,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen.

In fact, no matter what has been done since the Chinese stock market crashed, the Chinese have been hoarding cash…

In fact, the hoarding of cash in China corresponded with the top in 1999/2000, and the top in 2007…

“probably nothing”

end

EUROPEAN AFFAIRS

German bank Rauffeisen has had enough and will now charge customers who deposit over 100,000 euros into their bank:

(courtesy zero hedge)

A German Bank Finally Caves: Will Charge Retail Investors A Negative 0.4% Deposit Rate

On June 5, 2014 when the ECB officially announced that the rate on its deposit facility would go negative, we posted “NIRP Has Arrived: Europe Officially Enters The “Monetary Twilight Zone.” However, while NIRP has already led to a dramatic upheaval across Europe’s economies as a result of a perfectly “unexpected” surge in the savings (as we warned would happen last October, and as the WSJ “discovered” last week) one key aspect of this “zone” was missing for the past two years: banks charging negative rates to ordinary, retail depositors.

However, after a two year wait, this final piece of the NIRP puzzle was revealed when earlier this week, Raiffeisen Gmund am Tegernsee, a German cooperative savings bank in the Bavarian village of Gmund am Tegernsee, with a population 5,767, finally gave in to the ECB’s monetary repression, and announced it’ll start charging retail customers to hold their cash.

Starting September, for savings in excess of €100,000 euros, the community’s Raiffeisen bank will charge a 0.4% rate. That represents the first direct pass through of the current level of the ECB’s negative deposit rate on to retail depositors.

“With our business clients there’s been a negative rate for quite some time, so why should it be any different for private individuals with big balances?,” Josef Paul, a board member of the bank, told Bloomberg by phone on Thursday.

The good news is that “as it looks today, charges on deposits won’t be extended to customers with lower amounts” than 100,000 euros. However, that may (and likely will) change at any moment.

Raiffeisen Gmund am Tegernsee may be a tiny bank that’s only introducing penalties to well-off customers, allegedly fewer than 140 will be affected, but in principle the ECB’s negative deposit rate was meant to encourage spending and investment in the euro area’s sluggish economy, not to tax thrifty Bavarians. A spokesman for the Frankfurt-based central bank declined to comment.

That, however, never happened, confirming once again just how clueless in gauging human behavior, and their “reaction function” (to use a trite central bank cliche) economists truly are.  Recall that as wereported in October of 2015, in the aftermath of NIRP “household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013. As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

It took the economist brain trust at the WSJ about a year to also figure it out:

Policy makers in Europe and Japan have turned to negative rates for the same reason—to stimulate their lackluster economies. Yet the results have left some economists scratching their heads. Instead of opening their wallets, many consumers and businesses are squirreling away more money... Recent economic data show consumers are saving more in Germany and Japan, and in Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995, the year the Organization for Economic Cooperation and Development started collecting data on those countries. Companies in Europe, the Middle East, Africa and Japan also are holding on to more cash.

To the WSJ’s great surprise, central bankers have failed… again:

[T]here is a growing suspicion that part of problem may be negative rates themselves. Some economists and bankers contend that negative rates communicate fear over the growth outlook and the central bank’s ability to manage it.

NIRP “working” precisely in the opposite way of what was intended? Unpossible.

“People only borrow and spend more when they are confident about the future,” says Andrew Sheets, chief cross-asset strategist at Morgan Stanley. “But by going negative, into uncharted territory, the policy actually undermines confidence.” You mean to say that central banks buying $200 billion in global bonds a month is sending a signla that the world has never been in a greater crisis, and that NIRP tops it off by confirming consumer fears that things are only going from bad to worse? But… but… the S&P is at all time highs.

* * *

Meanwhile, now that a German banks has finally breached the retail depositor NIRP barrier, expect many more banks to follow. As Bloomberg writes, introducing the sub-zero policy in June 2014 with a cut to the deposit rate to minus 0.1 percent, ECB President Mario Draghi said the move was “for the banks, not for the people.” Should banks decide to transmit the reduction to savers then that’s their decision. “It’s not us,” he said.

It turns out the move was “for the people” after all, if only just 140 for now.

And since it is now common knowledge that NIRP is a total failure, the risk for ECB is that negative rates begin filtering through to the real economy while growth and investment is still sluggish, will “bring the downsides of the policy without the upsides” in Bloomberg’s words. Euro-area growth slowed in the second quarter, data released Friday show, leaving it vulnerable to any fallout from the U.K.’s vote to leave the European Union. In that environment, lenders in Europe regularly complain, and the ECB has acknowledged, that negative rates depress their profitability. Some are already charging corporate clients with large deposits. The Bundesbank estimated last year that the low-rate environment would cut the pretax profit of German banks by 25 percent by 2019.

Even more ironic is that just two weeks ago, some of the “smartest” economists at the ECB predicted that what has just happened would never take place: in a July 28 speech, ECB board member Benoit Coeure said retail customers were staying with their banks because of signs they wouldn’t be charged for their savings any time soon. “Deposits of both households and non-financial corporations have been growing over the past two years, at a similar pace to the period before we entered negative interest-rate territory.” He concluded that “rates on retail deposits seem to have a zero lower bound.”

Oops.

So what happens next? Michael Kemmer, head of the Association of German Banks, said in a statement on Thursday that he doesn’t expect other banks to follow the example of Gmund am Tegernsee’s Raiffeisen. “It’s up to each bank whether and how to charge for deposits,” he said. “The competition between banks and saving banks in Germany is much too strong.”

Since depositors have no other option, we are confident that Mr. Kemmer will be dead wrong and in just a few weeks we will be reporting on the next, and next, and next European bank to charge its retail depositors negative rates.

The implications: the European savings rate will soar even higher, crushing Keynesian dreams of aggressive spending and sending the European economy into an even more acute deflationary vortex, bond yields will tumble even lower, and gold will continue its steady move higher as it will have a real – at least in relation to cash – rate of return.

end

 

GREECE

 

Greece is heading for a wealth tax!..as authorities ask Greece to delare all assets!

(courtesy zero hedge)

Wealth Tax Looms As Greeks Forced To Declare All ‘Assets’ To Tax Authority

In Greece’s ongoing collapse into utter farce, The Greek finance ministry confirmed some more details of the long-planned registration of all kinds of private wealth that will go into effect in February 2017.As KeepTalkingGreece reports, more than 8,500,000 tax payers registered in Greece will be called to declare all moveable and immovable assets, their total “wealth”, and even cash they possess even if it is below 100 euro. Furthermore, the taxpayers will have to register changes in their assets when they occur and not annually.

Tax authorities will upload on their website pre-filled data like real estate, declared income, income from rents, loans, vehicles etc – practically the pre-filled data will refer to data given by taxpayers in their income declaration.

And under the new scheme, Greeks are mandated to have registered everything they own, with taxpayers having to add moveable and immovable possessions such as paintings, antiques, jewelry, even historical weapon, etc but also the cash they have in their wallets or under the mattress.

“Taxpayers must declare all the cash they have in their hands, even one euro!” an official from the Finance Ministry told newspaper To Vima on conditions of anonymity.

The Greek finance ministry apparently does not know yet what value the taxpayers will have to declare if they possess a necklace and a ring, a painting made by the cousin and a sculpture made by the sister in the ceramics course. The Ministry has also no idea, who will estimate the value and how.

Within a month, the taxpayer will have to submit a modification statement, if there are any changes in his possessions status.

“This will affect any case of property transfer or acquisition, but not of income, which is being declared each year, and are directly updated by the tax authorities. To Vima stresses.

KeppTalkingGreece sarcastically concludes… that she  understands, she will not have to submit cash possessions modifications every time she goes to the kiosk to buy chewing gums or cigarettes and pays cash from the money in her wallet.

PS No comment for the time being as my current moveable possessions are two bikinis, 2 pairs of flip flops and a beach towel. Swimming is the best medicine against state madness and officials with Robespierre’s attitudes.

*  *  *

The simple question every Greek (and European and American and Japanese) citizen should be asking –why does the government want to know this? …and besides what gives them the right to invade the citizenry’s provacy to such a degree?

The answer is sadly simple. The road the dystopian “wealth tax” endgame has been long-written. Aswe pointed out in 2011, the “muddle through” is dead… and there are only painful ways out…

And now it is time to face the facts. What facts?

The facts which state that between household, corporate and government debt, the developed world has more than $20 trillion in debt over and above the sustainable threshold by the definition of “stable” debt to GDP of 180%.

The facts according to which all attempts to eliminate the excess debt have failed, and for now even the Fed’s relentless pursuit of inflating our way out this insurmountable debt load have been for nothing.

The facts which state that the only way to resolve the massive debt load is through a global coordinated debt restructuring (which would, among other things, push all global banks into bankruptcy) which, when all is said and done, will have to be funded by the world’s financial asset holders: the middle-and upper-class, which, if BCS is right, have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path.

But not before the biggest episode of “transitory” pain, misery and suffering in the history of mankind. Good luck, politicians and holders of financial assets, you will need it because after Denial comes Anger, and only long after does Acceptance finally arrive.

The truth is far, far uglier than anything anyone in a position of power will tell you because acknowledgment would imply the need to come up with solutions that involve more than merely extending the event horizon for a little longer. Alas, even politicians now realize there is only so far that the can can be kicked.

There is one thing we would like to bring to our readers’ attention because we are confident, that one way or another, sooner or later, it will be implemented.

Namely a one-time wealth tax: in other words, instead of stealth inflation, the government will be forced to proceed with over transfer of wealth. According to BCG, the amount of developed world debt between household, corporate and government that needs to be eliminated is just over $21 trillion. Which unfortunately means that there is an equity shortfall that will have to be funded with incremental cash which will have to come from somewhere. That somewhere is tax of the middle and upper classes, which are in possession of $74 trillion in financial assets, which in turn will have to be taxed at a blended rate of 28.7%.

And perhaps Greece is the Western world’s guinea pig for the first effort?

END

 

Pay attention to the following:  Portugal is gaining on Italy with respect to the famous “doom loop”.  The loop is the accumulation of sovereign debt on the books of European banks from which the state guarantees the bonds.  With respect to Italy, not only does it have a huge 360 billion euros of non performing loans, it’s banking system has an elephantine level of these doom bonds on their balance sheet. Tiny Portugal is catching up to Italy:..

 

(courTesy Benn Steil/CFR)

Portugal Gaining On Italy In The European Banking “Doom Loop”

Submitted by Benn Steil and Emma Smith via CFR,

Italian banks have taken a pounding of late from the ECB, the markets, and the media.  They currently hold a whopping €360 billion in nonperforming loans (18 percent of their portfolio), the most in the European Union and double that of the next worst performer—Spain.

The Doom Loop:

As shown in the graphic above, Italy is also the worst performer among major EU nations along another metric of banking-sector fragility – the dreaded “doom loop” of indebted banks and sovereigns.

A doom loop is set in motion when banks load up on debt issued by their government, and the government in turn guarantees, explicitly or implicitly, the debt of the banks.  As banks’ balance sheets weaken with rising bad loans, this impairs the fiscal position of the government backstopping their debt.  And as the government’s fiscal position deteriorates the loss exposure of the banks holding its debt rises.  Thus do weak banks drag down weak sovereigns, which in turn further weighs on the banks—ad infinitum.

The graphic also shows that Portugal’s doom loop metric has soared over the past two years.  Portuguese banks have been gorging on Portuguese sovereign debt, taking it from 7 percent of total assets to 10 percent – the same level as Spain.  If they continuing loading up at this pace, they will reach Italian levels by 2018.

This is worrying because Portugal has a government debt-to-GDP ratio of 129 percent (just below Italy’s 141 percent) and is set to fall short of its deficit target for a third year running.  Spain, with debt to GDP at 101 percent, will fall short for the 9th straight year. And slowing growth means that current budget projections may prove overoptimistic yet again, leading to ratings downgrades.

What does this mean from a practical perspective?  Well, we calculate that a 15 percent fall in the bond prices of their respective sovereigns would erase 35 percent of Italian bank capital, 22 percent of Portuguese bank capital, and 18 percent of Spanish bank capital.

This would fuel already heightened tensions with the EU over new bailout restrictions and revive speculation of a Eurozone break-up.

 

end

The following is a biggy!!

 

The USA justice department finds evidence of criminal wrongdoing in the Volkswagen diesel emissions.  Shocking! and yet they cannot find any criminal activity with respect to Hillary:

 

(courtesy Wall Street Journal and special thanks to Robert H for sending me this alert)

THE WALL STREET JOURNAL News Alert

U.S. Finds Evidence of Criminal Acts in VW Probe
U.S. Justice Department investigators found evidence of criminal wrongdoing in Volkswagen’s diesel-emissions cheating and are negotiating a settlement with the German auto maker expected to result in charges and significant financial penalties, said people familiar with the matter.

Federal prosecutors and Volkswagen lawyers have held preliminary discussions and are working to settle an anticipated criminal case before the end of the year, though the timing may slip, the people said.

Prosecutors haven’t yet decided on specific criminal charges they might bring against Volkswagen, the people said. Volkswagen last year admitted to misleading environmental regulators and consumers by installing illegal emissions-cheating software on nearly 600,000 diesel-powered vehicles in the U.S. Prosecutors have previously charged other car makers with wire fraud and concealing information from government officials for safety transgressions.

 RUSSIAN AND MIDDLE EASTERN AFFAIRS

Turkey

Erdogan is now turning to Russia.  This will be a devastating blow to NATO and will also ressurect the south stream gas pipeline through Turkey.  Another big western problem: the migrants..will Erdogan release them which will create havoc

(courtesy Asian Times/Bhadrakumar/)

Putin, Erdogan have a deal on Syria

BY M.K. BHADRAKUMARonAUGUST 13, 2016in<the_category(< p=””>AT TOP WRITERS, M.K. BHADRAKUMAR, MIDDLE EAST

After Turkish President Recep Erdogan’s meeting with Russian President Vladimir Putin in St Petersburg, Ankara says the next administration in Syria should be inclusive and secular so that everyone can live with their beliefs. This is as close as Turkey has ever come to accept that Assad has a legitimate role to play.It is the ‘morning-after’ that needs to be watched when a crucial summit meeting takes place. And, as details become available, it emerges that the meeting between Russian President Vladimir Putin and Turkish President Recep Erdogan at St. Petersburg on August 9 has been exceptionally productive.

Neither side showed interest in labeling the qualitatively new level of relationship in hackneyed terms, but then, it doesn’t matter whether one calls it ‘alliance’, ‘quasi-alliance’ or ‘entente’. What matters is that a profoundly meaningful relationship is commencing.

Russia and Turkey go back far in history and do not need foreplay. The critical mass developedwithin 48 hours of the conversation in St. Petersburg.

Within a day of Erdogan proposing and Putin accepting the idea of a ‘mechanism’ comprising diplomats, military and intelligence officials of the two sides to discuss the nitty-gritty of Syrian conflict, a composite Turkish delegation took off for Moscow to meet Russian counterparts on August 11.

Evidently, Erdogan traveled to St. Petersburg with an ‘action plan’. In fact, he was accompanied by spy chief Hakan Fidan.

Turkey wants the two sides to take concrete steps. The discussions in Moscow are expected to set the ball rolling.

Again, the Russian decision to convert Hmeymim Air Base as a permanent fully-operational military base in Syria has nothing to do with Erdogan’s visit, but also everything to do with the Turkish-Russian rapprochement.

The Russian Defense Ministry since disclosed the details of the plan for Hmeymim, which includes expanding aircraft apron, improving the air strip, building barracks and a hospital, assigning extra space for large transport aircraft, installation of new radio equipment including air traffic control systems, creating new sites for deployment of Pantsir surface-to-air missile and anti-aircraft artillery weapon systems and so on.

It was in August last year that Russia and Syria signed an agreement allowing Moscow to use Hmeymim for an indefinite period free of charge, but, interestingly, it was on August 9 that an entry in the official data base of Russian Duma showed that Putin has submitted the document for ratification by parliament.

Without doubt, a fully operational base in Hmeymim, which is located virtually on the Turkish border, signifies a major geopolitical decision that factors in the Russian-Turkish rapprochement.

At the talks in St. Petersburg, an exchange took place on Turkey resuming operations in Syrian air space (with a view to attack Islamic State), which were suspended following the shooting down of a Russian jet last November.

Turkish Foreign Minister Mevlut Cavusoglu announced on August 10 that Ankara “will again, in an active manner, with its planes take part in operations.”

“Let’s fight against the terrorist group together, so that we can clear it out as soon as possible,” Cavusoglu urged. He added, “We will discuss all the details (with Russia). We have always called on Russia to carry out anti-Daesh (IS) operations together.”

In an upbeat note, he pointed out: “Many countries are engaged in Syria actively. There could be mistakes. In order to prevent that, we need to put into practice the solidarity and cooperation (mechanism) between us (Turkey and Russia) including sharing of real-time intelligence.”

A new ‘comfort level’ is apparent in Cavusoglu’s words. At the military and intelligence level, Moscow senses that Turkey has begun rolling back its support for Syrian extremist groups.

On its part, Moscow announced on August 10 that humanitarian corridors leading out of Aleppo will remain open daily for a limited 3-hour period. Put differently, the military operations to capture the city will continue in top gear and remain top priority.

Of course, the whole world knows that the battle for Aleppo will determine the course of the war. Importantly, for Turkey, it is in Aleppo that its intentions toward the Syrian regime will be put to test.

The reports from Tehran, citing military sources, highlight that in the heavy fighting in the western and southern parts of Aleppo, where Saudi-backed rebel groups have launched a massive attack to break the siege, Russian jets are relentlessly bombing locations of  Jeish al-Fatah.

Of course, the bottom line is about the peace process and here the million dollar question concerns the role of President Assad in a political transition.

In a nuanced stance, Cavusoglu said in Ankara on August 11 that Turkey and Russia agree that the next Syrian regime should be all-inclusive. “We think the same as Russia on Syria’s future. The next administration in Syria should be inclusive and cover everyone,” he said, adding it “should be a secular one.”

“We always say only a political solution (in Syria) can be permanent, in terms of not hurting civilians, separating moderate opposition from terrorist groups and (ensuring) humanitarian aid… We are on the same page with Russia that Syria should have an administration under which everyone can live with their beliefs,” he said.

This is as close as Turkey has ever come to accept that Assad has a legitimate role to play. Cavusoglu spoke in full knowledge of Erdogan’s one-on-one with Putin.

As the veteran Middle East hand Robert Fisk wrote, “There is a long list of the potential losers in the theater of St. Petersburg. First, Isis (IS) and al-Qaeda/Nusra/Fatah el-Sham, and all the other Islamist outfits now fighting the regime in Syria, who suddenly find that their most reliable arms conduit has teamed up with their most ferocious enemy… Russian air force. Then there’s the Saudi and Qatari billionaires who have been supplying the cash and guns for the Sunni warriors who are trying to overthrow both Damascus and Baghdad, and humble the Shia of Iran, Syria… and Lebanon”.

Having said that, Moscow and Ankara still have to cover some distance to carry the momentum forward, and it is here that the United States comes in as ‘sleeping partner’. The point is, Erdogan has his ‘red lines’, too – Kurdish issue.

If Erdogan radically downsizes Turkey’s support for extremist groups and keeps a balanced, open mind regarding Assad’s participation in the talks, Moscow (and Tehran) will go the extra mile to help him hold the ‘red lines’ on Kurdistan.

On the other hand, Syrian Kurds are also on a leash that is held by Uncle Sam and whether he holds it tight or not will depend on a host of considerations that lie in the womb of time.

All in all, Putin played his cards brilliantly by hosting a successful visit by Erdogan, with emphasis on putting the relationship back on track on an upward trajectory. He showed no interest to burden the delicate rapprochement by injecting airy geopolitics into it.

Instead, Putin trained his thoughts on ‘doables’ and ‘deliverables’ – and in reviving cordial personal ties with Edogan. The ‘body language’ was notable.

Moscow understands that the verve and dynamism of the partnership will ultimately depend on how far Russia meets Erdogan’s critical needs, as he charts out independent foreign policies in the downstream of the existential crisis Turkey went through.

Thus, there is a heavy accent on trade and investment and economic cooperation, which make both sides stakeholders.

In political terms, Putin held a strong hand, given Moscow’s decisive role to tip off Ankara about the impending coup of July 15.

But he point-blank refused to anticipate the complex Turkish-American tango, on whose outcome so much depends how comfortable Turkey’s future habitation is going to be within the western alliance system.

Most certainly, Putin won’t hold grudge against Erdogan if he flaunts the ‘St. Petersburg card’ – in defence of his faith, the throne and the Fatherland – when the US Secretary of State John Kerry visits for the poker game on August 24.

Ambassador MK Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India’s ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001). He writes the “Indian Punchline” blog and has written regularly for Asia Times since 2001.

(Copyright 2016 Asia Times Holdings Limited, a duly registered Hong Kong company. All rights reserved. Please contact us about sales, syndication and republishing.)

 

end

 

Then we learn that Turkey is threatening to reopen the refugee floodgates to Europe. This is a no brainer to Erdogan having crossed the line over to Russia:

(courtesy Michael Krieger/Liberty Blitzkrieg blog)

 

Turkey Threatens To Reopen The Refugee Floodgates To Europe

Submitted by Michael Krieger via Liberty Blitzkrieg blog,

Even if you’ve only been paying a superficial amount of attention to the European refugee crisis, you’ll be aware of the fact that earlier this year the EU and Turkey agreed to a deal on migrants where in exchange for concessions, Turkey would stem the flow of migrants from its shores. The deal went through and refugee levels from Turkey fell dramatically.

Unfortunately, one major problem with the deal is Turkey’s demand for visa-free travel, something many throughout the EU were intensely against from the beginning, and are even more opposed to now following the Turkish government’s authoritarian crackdown on tens of thousands of its own citizens following last month’s failed coup.

So here we are, less than six months since the deal was agreed to and Turkey is now threatening to end it. This could be a geopolitical event of enormous consequence considering there are an estimated 2 million Syrian refugees in Turkey, many of which are itching to take their chances within the EU.

Reuters reports:

Turkey could walk away from its promise to stem the flow of illegal migrants to Europe if the European Union fails to grant Turks visa-free travel to the bloc in October, Foreign Minister Mevlut Cavusoglu told a German newspaper.

 

His comments in Bild’s Monday edition coincide with rising tensions between Ankara and the West that have been exacerbated by the failed coup attempt in Turkey on July 15. Turkey is incensed by what it sees as an insensitive response from Western allies to the failed putsch, in which 240 people were killed.

 

Long wary of Turkey’s ambitions to join the EU, Europe has been alarmed by the crackdown since the coup, fearing President Tayyip Erdogan is using purges to quash dissent. The unease has relations between Turkey and Austria and Sweden. Ankara has summoned diplomats from both countries to protest what it says are false reports about changes to its child abuse laws.

 

Asked whether hundreds of thousands of refugees in Turkey would head to Europe if the EU did not grant Turks visa freedom from October, Cavusoglu told Bild: “I don’t want to talk about the worst case scenario – talks with the EU are continuing but it’s clear that we either apply all treaties at the same time or we put them all aside.”

 

European Commissioner Guenther Oettinger has said he does not see the EU granting Turks visa-free travel this year due to Ankara’s crackdown, which has included the round-up of more than 35,000 over alleged involvement in the coup.

 

Cavusoglu said the migration deal with the EU stipulated that all Turks would get visa freedom in October, adding: “It can’t be that we implement everything that is good for the EU but that Turkey gets nothing in return.”

This is a very perilous situation, particularly considering how irate so many already are about the crisis as it stands. As we learned from the recent post, Pew Research Survey Points to Widespread Angst About How the EU is Handling the Refugee Crisis:

Disapproval was generally greatest in countries with the highest number of asylum seekers in 2015. For example, 94% of Greeks and 88% of Swedes said they disapprove of how the EU has handled the refugee issue. Sweden received the third highest number of asylum applications in 2015. And while Greece was not the final destination for most refugees in 2015, it was their main point of entry, with about 850,000 arrivals in 2015 alone.

Even in countries with a lower number of asylees, disapproval of the EU’s handling of the refugee issue was widespread, including in France (70%), the UK (70%) and the Netherlands (63%). And in Germany, which had the most asylum applications in 2015, fully two-thirds faulted the EU’s approach to the refugee crisis. 

*  *  *

As we noted a month ago, Reuters quoted German Vice Chancellor Sigmar Gabriel as saying while on an official visit to northern Germany.

“Germany and Europe should under no circumstances be blackmailed,” Gabriel added.

The vice chancellor also welcomed the move by Germany’s highest court to block a livestream address by Turkish President Recep Tayyip Erdogan to a rally of Turkish nationals in Germany’s Cologne on Sunday.

Needless to say Germany is playing a dangerous game here as Erdogan knows he has little to lose if he breaches the terms of the March deal, which he can claim was already violated by Europe and thus boost his populist image even more. After all, once Germany is flooded with another million in potential radical jihadists, it will come crawling to Ankara, begging to redo the deal, only this time the terms will be that much higher. Then again, perhaps Germany and the “European democracies” should have though of all this before they agreed to deal with Erdogan who is now well on his way to becoming the undisputed authoritarian leader of the Turkish nation, which continues to undergo historic purges of all of Erdogan’s political opponents.

GLOBAL ISSUES

Dominic Konstam comments that a shock is needed to collapse all markets, and force a real panic to change the financial structure of the globe.  Only one problem:  the panic will surely destroy Konstam’s employer:  Deutsche bank:

(courtesy zero hedge)

A Stunning Admission From Deutsche Bank Why A Shock Is Needed To Collapse The Market, And Force A Real Panic

In what may be some of the best, and most lucid, writing on everyone’s favorite topic, namely “what happens next” in the evolution of the financial system, Deutsche Bank’s Dominic Konstam, takes a look at the current dead-end monetary situation, and concludes that in order for the system to transition from the current state of financial repression, which has made a mockery of all asset values due to central bank intervention, to a semi-credible system driven by fiscal stimulus, there will have to be a crash, one which jolts policymakers out of their stupor that all is well simply because stocks are at all time highs.

And since a legitimate fiscal stimulus is what is needed to re-ignite the economy, US and global GDP will continue declining, even as stocks keep rising to new all time highs, not on fundamentals (which are all pointing in the opposite direction), but due to even more central bank intervention and financial repression, thus a Catch 22, which ultimately – according to DB – ends in the only possible way: with a major crash.

As Konstam puts it, “the status quo could continue for several years yet – if nothing “breaks” in the system” but “without an external economic shock it is hard to see policymakers being prepared to take dramatic, fiscal action to jumpstart the global economy and bounce it out of a financial repression defined by low and falling real yields to one that at least initially is defined by rising nominal yields through higher inflation expectations.”

As for the conclusion, or why a financial shock is long overdue, KOnstam says that “ironically the shock that is needed would require a collapse in risk assets for policymakers to then really panic and attempt dramatic fiscal stimulus. ”

This is critical – and inevitable – as only a shock can lead to an “unwind of the falling yield/rising equity market where all financial assets trade badly.”

In other words the end of financial repression will see price levels fall so that yields once again look attractive, or said otherwise, there will be a demand for Treasuries, even without the perpetual implicit backstop of central bank purchases.

For such a move to be sustainable itself requires the economic fundamentals to shift – inflation needs to be more secure against an underlying backdrop of robust real growth. Most people now understand that this is not a job for monetary policy alone. Yet the current reach for yield simply prolongs the status quo for policy disappointment.

Which brings us full circle: recall that over the past few months virtually every prominent investment bank, from JPMorgan to Goldman Sachs have warned clients that a selloff is coming. Now, Deutsche Bank has taken it to a whole new level, explaining why a financial crash has to happen to purge the system from the toxic aftereffects of 7 years of financial repression, and to kickstart a fiscal stimulus that will not happen unless markets tumble in the first place.

And while Konstam’s line of reasoning is absolutely correct, we doubt just how his employer would look upon a market plunge that wipes out 30%, 40%, or even 50% of global equity values: would Deutsche Bank even survive such a crash? As such we doubt that the strategist’s analysis and forecast, correct as it may be, will be endorsed by his employer, even if by now it is clear to all that only a major crash,i.e. a global reset, can kick start the world out of its zombie-like, centrally-planned existence, into the long overdue phase of whatever it is that comes next.

* * *

Below is Konstam’s full must read analysis:

Stocks must fall for yields to rise – but unlikely to happen anytime soon

It is pretty much understood that we are in full on financial repression mode, as witnessed by super benign core yields lead by lower real yields with more recently the further downward drift in euro peripheral yields, including the UK. The new high in equities is consistent with our view of financial repression that necessarily has yield returns on all assets being incrementally replaced by price returns – stretched relative valuations follow already increasingly stretched absolute valuations. The last round of economic data does little to suggest any change in this dynamic. As we highlighted last week the conundrum for the US is how an overly strong labor market without meaningful wage inflation resolves itself against markedly weak productivity data with a GDP cake that if anything seems to be stagnating.

With the current status quo, it is clear to us that US yields if anything are still too high – we think they are near the upper bound of a range that pivots closer to 1.25 percent with real yields in particular too high. This probably still reflects a reluctance of investors to get meaningfully long the market although much of the short base has been covered and this in turn reflects a still fairly strong consensus on the economics front that the labor market strength can still resolve itself through higher wages and a virtuous circle of rising demand and productivity – a scenario we would not rule out but not our central view.

More importantly however are what prospects there may be to jolt us out of this financial repression and to what extent regardless of proactive policy, is there a natural end to financial repression – at some point does something have to break in the system. On the former the most likely candidate is obviously some form of global fiscal stimulus. Despite optimism around this in early July we have not exactly had the green light on either helicopter money in Japan or Italian bank bailout. It is still too early to call the US election and stimulus prospects here but the general sense is that it is still difficult to sense the urgency when equities make new highs. Policymakers aren’t used to dealing with financial repression and that unfortunately is one of the defining characteristics of stagnation.

We suspect the fall will be defined by markets looking for dramatic policy news that somehow “responds” to super low bond yields and underwrites rising risk asset prices but only to be disappointed precisely because policymakers don’t bide the urgency. The result is that yields can fall still further even with risk assets still trading well – hanging onto their relative valuation rationale.

The failure of a policy response allows for more financial repression. We are anyway already beyond the point of preemptive policy since preemption is supposed to recognize and avoid looming problems beforehand. It is clear that the nature of those problems are already material including squeezed interest margins for banks, insurance solvency issues etc. But to be fair, the lack of a fiscal response itself bears witness to the perceived fiscal stress during the 2008 crisis and the need to insulate taxpayers. Additional fiscal burdens can be thought of as a variant of financial repression where future inflation and negative real rates do the redistribution as opposed to the structure of the fiscal regime. Helicopter money fuses financial repression from the money side with the fiscal response in a potentially dramatic way whereby the would be spenders get to spend a lot more directly at the expense of the ongoing savers. And while it may have its own political hurdles that ultimately are insurmountable, it offers a perfectly reasonable alternative equilibrium option where the goal is to raise the price level as well as improve the real growth outlook by overcoming excess savings. The fusion of fiscal with monetary policy can also be appreciated in the context of the fiscal theory of price where monetary policy can offer infinite paths for money growth and potential nominal growth but fiscal policy effectively selects which path is realized based on an equilibrium condition that the NPV of all future budget deficits needs to sum to zero.

* * *

The status quo could continue for several years yet – if nothing “breaks” in the system. There are ways of course for either avoiding breaks or at least patching them – mitigating the impact of negative rates on banks is now in vogue with subsidized bank loans for on lending. And we may yet see soft forms of bank bailout still being allowed. This is similar to the use of alternative yield curves for discounting insurance liabilities.

The conclusion is that without an external economic shock it is hard to see policymakers being prepared to take dramatic, fiscal action to jumpstart the global economy and bounce it out of a financial repression defined by low and falling real yields to one that at least initially is defined by rising nominal yields through higher inflation expectations. Ironically the shock that is needed would require a collapse in risk assets for policymakers to then really panic and attempt dramatic fiscal stimulus.

The logic would also fit with the same correlation structure for financial assets – an unwind of the falling yield/rising equity market where all financial assets trade badly. In other words the end of financial repression will see price levels fall so that yields once again look attractive. For such a move to be sustainable itself requires the economic fundamentals to shift – inflation needs to be more secure against an underlying backdrop of robust real growth. Most people now understand that this is not a job for monetary policy alone. Yet the current reach for yield simply prolongs the status quo for policy disappointment.

END

8.EMERGING MARKETS

BRAZIL

My goodness! after winning a gold medal swimmer Ryan Lochte and 3 other American robbed at gunpoint as their tax cab was stopped by thieves:

(courtesy zero hedge)

US Olympic Gold Medalist Ryan Lochte Robber At Gunpoint In Rio

Update: Both Reuters and NBC confirm that Lochte was indeed robbed in a taxi hold-up in Rio de Janeiro after leaving a party where he had been celebrating the end of the Olympic swimming program, he told fellow competitor Thiago Pereira. As NBC adds, U.S. Olympic swimmers Ryan Lochte, Gunnar Bentz, Jack Conger and Jimmy Feigen were robbed at gunpoint while in Rio de Janeiro overnight Saturday..

Following conflicting reports — including the IOC denying any incident took place — Lochte himself confirmed with TODAY’s Billy Bush that he and the other swimmers were robbed at gunpoint. “We got pulled over, in the taxi, and these guys came out with a badge, a police badge, no lights, no nothing just a police badge and they pulled us over,” Lochte said. “They pulled out their guns, they told the other swimmers to get down on the ground — they got down on the ground. I refused, I was like we didn’t do anything wrong, so — I’m not getting down on the ground.

“And then the guy pulled out his gun, he cocked it, put it to my forehead and he said, “Get down,” and I put my hands up, I was like ‘whatever.’ He took our money, he took my wallet — he left my cell phone, he left my credentials.”

USOC spokesman Patrick Sandusky later told NBC News in a statement: “According to four members of the U.S. Olympic Swimming Team (Gunnar Bentz, Jack Conger, Jimmy Feigen and Ryan Lochte), they left France House early Sunday morning in a taxi headed for the Olympic Village. Their taxi was stopped by individuals posing as armed police officers who demanded the athletes’ money and other personal belongings. All four athletes are safe and cooperating with authorities.”

Police officials told NBC News they weren’t contacted about the incident but they were available to help the athletes if necessary.

Lochte’s mom had earlier told other news organizations that the robbery happened at a party.

“I think they’re all shaken up. There were a few of them,” Ileana Lochte told USA Today. “No, they were just, they just took their wallets and basically that was it.”

* * *

While many had previously warned that the Brazil olympcs could be a dangerous place for visitors, it now appears they are just as unsafe for Olympic participants. According to Fox Sports’ Ben Way, US swimmer Ryan Lochte, who won gold in the men’s 4x200m swimming event, was held at gunpoint while attending a party in Rio de Janeiro. Lochte had been reportedly attending a party on the invite of Brazilian Thiago Pereira when the incident occurred.

It has been reported that he is now safe at the Team USA swimming base.

After the incident, he called his mother, who has gone to meet him. Team USA Jenn Suhr said, “It definitely would have been terrifying. I’m just glad everyone is safe and alright. When you’re in another country you don’t know of, it’s not the smartest idea to go places you’re unsure of.”

END

OIL ISSUES

Putin spoils the party after he denies an output freeze at OPEC talks:

(courtesy zero hedge)

Oil Slides After Russian Denial Of Output Freeze At OPEC Talks

Did Putin just spoil the party?  

• RUSSIA DOESN’T SEE OIL OUTPUT FREEZE AT OPEC TALKS IN SEPT: IFX

This whole ramp was driven by chatter of Russia and Saudis talking which has now been denied…

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

Euro/USA   1.1173 UP .0024 (STILL  REACTING TO BREXIT/REACTING TO BRITISH CUT IN INTEREST RATE TO .25%

USA/JAPAN YEN 101.08  DOWN 0.058(Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER/KURODA:  HELICOPTER MONEY  ON THE TABLE BUT DISAPPOINTS WITH STIMULUS

GBP/USA 1.2932 UP .0027(CARNEY CUTS BR. INTEREST RATES TO .25%)

USA/CAN 1.2931 DOWN .0010

Early THIS MONDAY morning in Europe, the Euro ROSE by 24 basis points, trading now JUST above the important 1.08 level RISING to 1.1173; Europe is still reacting to Gr Britain BREXIT,deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, and NOW THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE / Last night the Shanghai composite CLOSED UP 74.53 POINTS OR 2.44%    / Hang Sang CLOSED UP 165.60 POINTS OR 0.73%     /AUSTRALIA IS HIGHER BY .16% / EUROPEAN BOURSES ALL  IN THE GREEN

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 ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

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

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

The NIKKEI: this MONDAY morning CLOSED DOWN 50.36 POINTS OR 0.30%  

Trading from Europe and Asia:
1. Europe stocks ALL IN THE GREEN

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 165.60 POINTS OR 0.73%  ,Shanghai CLOSED UP 74.53  POINTS OR 2.44%    / Australia BOURSE IN THE GREEN: /Nikkei (Japan)CLOSED IN THE RED   /INDIA’S SENSEX IN THE GREEN 

Gold very early morning trading: $1340.15

silver:$19.80

Early MONDAY morning USA 10 year bond yield: 1.515% !!! PAR  in basis points from FRIDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield FALLS to 2.2306 DOWN  1/2 in basis points from FRIDAY night. (SPREAD GOES AGAINST THE BANKS)

USA dollar index early MONDAY morning: 95.63 DOWN 9 CENTS from FRIDAY’s close.

This ends early morning numbers MONDAY MORNING

END

And now your closing MONDAY NUMBERS

Portuguese 10 year bond yield:  2.69% DOWN 1 in basis points from FRIDAY  (does not buy the rally)

JAPANESE BOND YIELD: -0.085% UP 2 in   basis points from FRIDAY

SPANISH 10 YR BOND YIELD:0.937% UP 1 IN basis points from FRIDAY (this is totally nuts!!/

ITALIAN 10 YR BOND YIELD: 1.058UP 2 in basis points from FRIDAY (again totally nuts/)

the Italian 10 yr bond yield is trading 11 points HIGHER than Spain.

GERMAN 10 YR BOND YIELD: -0.074% UP  3 IN  BASIS POINTS ON THE DAY

END

IMPORTANT CURRENCY CLOSES FOR MONDAY

Closing currency crosses for MONDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM

Euro/USA 1.1182 UP .0033 (Euro UP 33 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 101.25 UP .1130(Yen DOWN 11 basis points/

Great Britain/USA 1 .2877 DOWN 0.0029 ( Pound DOWN 29 basis points/BREXIT DECISION AFFIRMATIVE/QE TO START AGAIN/UK DOWNGRADED/NEW PRIME MINISTER T. MAY/GR BRITAIN LOWERS INTEREST RATES/

USA/Canada 1.2919-DOWN 0.0022 (Canadian dollar UP 22 basis points AS OIL FELL(WTI AT $45.66). Canada keeps rate at 0.5% and does not cut!

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was UP by 33 basis points to trade at 1.1182

The Yen FELL to 101.25 for a LOSS of 11 basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED 

The POUND was DOWN 29 basis points, trading at 1 .2877 AS PRIME MINISTER THERESA MAY TAKES OFFICE/CARNEY CUTS INTEREST RATE TO ONLY  .25%

The Canadian dollar ROSE by 22 basis points to 1.2919, WITH WTI OIL AT:  $45.68

CANADIAN RATES WERE NOT CUT

The USA/Yuan closed at 6.6362

the 10 yr Japanese bond yield closed at -.085% UP 2  IN BASIS  points in yield/

Your closing 10 yr USA bond yield:UP 4 IN basis points from FRIDAY at 1.559% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.284 UP 4 in basis points on the day /

BANKS NEED THE LONGER BOND HIGHER IN YIELD: INSTEAD THE SPREAD LESSENS.

Your closing USA dollar index, 95.62  DOWN 10 CENTS  ON THE DAY/4 PM 

Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for MONDAY

London:  CLOSED UP 25.17 OR 0.36%
German Dax :CLOSED UP 25.78 OR  0.24%
Paris Cac  CLOSED DOWN 2,33  OR 0.05%
Spain IBEX CLOSED UP 4.20 OR 0.05%
Italian MIB: CLOSED HOLIDAY

The Dow was UP 59.58 points or 0.32%

NASDAQ UP 23.12 points or 0.56%
WTI Oil price; 45.68 at 4:30 pm;

Brent Oil: 48.27

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  64.04 (ROUBLE DOWN  0/100 ROUBLES PER DOLLAR FROM FRIDAY) 

TODAY THE GERMAN YIELD FALLS TO -.074%  FOR THE 10 YR BOND

END

This ends the stock indices, oil price, currency crosses and interest rate closes for today

Closing Price for Oil, 5 pm/and 10 year USA interest rate:

WTI CRUDE OIL PRICE 5 PM:45.68

BRENT: 48.27

USA 10 YR BOND YIELD: 1.559% 

USA DOLLAR INDEX: 95.62 down 10 cents

The British pound at 5 pm: Great Britain Pound/USA: 1.28761 DOWN .0030 or 30 basis pts.

German 10 yr bond yield at 5 pm: -.074%

END

And now your more important USA stories which will influence the price of gold/silver

Trading Today in Graph form;  VERY IMPORTANT FOR YOU TO VIEW ALL THE CHARTS TODAY

Hedgers Active As Stocks Hit Record Highs On Lowest Volume Day Of The Year

What we think about when we see the opening ramp like this morning…

 

Another day, another record high…

 

And another “lowest volume day of the year”..

 

Small Caps and Trannies outperformed on the day thanks to the opening ramp but we note that all indices closed lower from the EU close…

 

Today’s meltup was not enjoyed by the vol-selling machines… it appears the spike was heavily hedged amid dismally low volume…

 

The first VIX up, Stocks up day in 6 weeks…

 

On a daily basis, the S&P is at its most over-extended since April when it slid lower…

 

And on a monthly basis, the S&P has swing across its bollinger bands back near record highs…

 

Treasury yields rose today (with the long-end underperforming)…

 

The USD Index ended the day practically unchanged with Cable weakest and commodity currencies gaining on the heels of crude…

 

Spot the odd one out (all commodities gained on the day but crude was just funny…)

 

WTI Sept 2016 contract traded almost back to $46 today

 

Oil’s gain helped early BUT from the NYMEX close, stocks fell…

Charts: Bloomberg

end

A terrific commentary on the plight of North American Life Insurers has they have to deal with a huge $13.4 trillion of negative interest rates.  The search for yield is causing them to seek higher risk assets and this is an accident waiting to happen: e.g. the huge amount of energy assets that they have invested in only to see the price of oil collapse!

(courtesy zero hedge)

North American Life Insurers “Accidentally” Pile Up Massive Distressed Debt Holdings

Accommodative monetary policy by the Fed has crushed bond income for insurers.  According toBloomberg, 2015 investment income at North American insurers dropped below 2011 levels.

Unsurprisingly, in their stretch for yield, insurers added to energy bond positions in 2015 to offset the funding gap.  Now, the collapse of oil prices has apparently left North American life insurers in a bit of a pickle with distressed debt holdings having doubled in a matter of 6 months as IG energy bonds turned to junk.

North American life insurers have accidentally doubled their distressed-debt holdings in just six months. In the future, they are poised to build on that mound by design.

Companies including Prudential Financial Inc. and MetLife Inc. held $1.32 billion of bonds that were in default, or close to it, at the end of the second quarter, their highest level since the middle of 2011, according to Bloomberg Intelligence data.

They did not intend to buy distressed debt: In many cases they bought investment-grade bonds from energy drillers and retailers that ended up heading south. Insurance companies’ trouble with these bonds underscores how even conservative investors have been hurt by plunging oil prices.

Per a portfolio manager at Prudential, energy bonds appeared cheap back in 2014 due their conservative debt-to-asset ratios.  Well, that’s probably true if you just assume that prevailing market prices for commodities are right and ignore long-term supply/demand fundamentals.

Energy bonds looked fairly safe to many insurers because oil and gas companies had high levels of assets relative to their debt, according to Mike Collins, a portfolio manager at Prudential’s fixed income unit, which oversees $652 billion for external investors. But as oil prices have plunged, so has the value of the assets, and the bonds have proven to be far riskier than they appeared, Collins said. He was speaking generally and not about Prudential in particular.

“I don’t think anybody expected oil to fall as much as it did,” Collins said, referring to the price of a barrel of oil, which plunged from more than $100 in 2014 to less than $26 in February. “That caught a lot of people by surprise, and a lot of companies have gone from looking like they’re in great shape to distressed very quickly.“

But don’t worry about the rising risk of bond portfolios at the insurers.  Regulators are already working on a plan to relax capital requirements to accommodate increasing risk appetites at America’s insurers.  Guess moving down the quality curve is one way to combat a low-interest rate environment.

Even if distressed holdings are largely accidental now, regulators are considering proposals that could ease the amount of capital life insurers can use to fund junk bonds, which makes it more profitable for the companies to increase their investment risk. Life insurance companies are seeking more income as low bond yields globally corrode their investment returns.

Under current rules from the National Association of Insurance Commissioners, which sets standards for the U.S. industry, a bond with a rating four steps below junk needs to be funded with capital equal to at least 10 percent of the bond’s value before taxes. The NAIC is considering a proposal to lower that to around 6 percent.

end.

The all important New York manufacturing index falls into contraction again;

(courtesy zero hedge)

Empire Fed Tumbles Back Into Contraction As Hope Slumps To 6-Month Lows

After 2 brief dead-cat-bounce months of hope, The Empire Fed business survey has tumbled back into contraction (-4.21 missing expectations of +2.0).

The index is now at 3 month lows despite rises in the number of employees, average workweek, shipments, and new orders but ‘hope’ tumbles to its lowest since Feb 2016.

Indexes for the six-month outlook revealed that respondents remained optimistic about future conditions, though to a lesser extent than in July.

The index for future business conditions fell for a second consecutive month, dropping six points to 23.7.Indexes for future new orders and shipments also edged lower. Indexes for future employment and the average workweek were below zero, suggesting that firms expected employment and hours worked to decline in the months ahead. The capital expenditures index fell to 4.1, and the technology spending index retreated to 5.2

Yet again the central banks’ asset-inflation efforts are failing to revive confidence…

end

 

Let us head tonight with this interview of Bill Murphy with Greg Hunter

(courtesy Bill Murphy/Greg Hunter)

Silver is Kryptonite to Gold Cartel Bankers-Bill Murphy

By Greg Hunter On August 14, 2016 In Market Analysis 67 Comments

By Greg Hunter’s USAWatchdog.com (Early Sunday Release)

Chairman of GATA (Gold Anti-Trust Action Committee) Bill Murphy thinks financial markets are way more vulnerable than they appear. Murphy explains, “There are negative interest rates and low interest rates that just keep staying down there, and supposedly things are really good.  Look at our Dow at all-time highs, and yet something is really wrong.  Of course, this fits into the GATA premise on this whole thing.  There’s a lot of quantitative easing (money printing) and propping up of the markets, and it’s on very shaky ground.  The plug could be pulled at any time. . . . With interest rates where they are and debt growing all over the place, the reasons to be in gold are off the charts.”

Murphy says “silver is Kryptonite to central bankers” because there is little supply to use in the cartel’s suppression game.  Murphy says, “You mention the word Kryptonite and the key is what silver is doing.  It is an extraordinary situation right now. . . . It seems to me that, this year, silver is in play . . . . That is this big money talking on the JPMorgan crowd and their game.  They are gradually moving in for what I think is going to be one of the biggest market moves in history, and that is silver going to $50 (per ounce) and then a $100 (per ounce).  Basically, it’s because supply is drying up. . . . Where is all this supply coming from that this JPMorgan crowd has been feeding the market with, and I think they are hitting the wall with it.  I think this big money knows what’s going on, and they are quietly moving in.  That’s the reason silver has been trading like it has.  $18.50 was a key number.  That was the completion of a big base. . . . The next big key is to take out $20.50, but the real number is $21.   If it gets above $21, it’s going to start trading chaotically with volatile action on the upside.  The market move is going to be historic.”

Murphy has long charged there was suppression of gold and silver prices and has been proven 100% correct. He now charges, “The real key for this gold cartel, as we call it, is the suppression of the gold price.  They realized a long time ago they couldn’t have a dichotomy between the silver and gold.  So, they got involved in the silver market (to suppress the price) to make gold look like it should be doing what it is.  The problem is they are running out of physical silver to keep the price down. . . . Eventually, you are going to get a commercial signal failure in silver,  which means these so-called commercials, which is a misnomer because they are not commercials, they’re gold cartel trying to keep the silver price down.  They know when they lose control of silver, and it gets to $21 (per ounce), it will be the end of their gold suppression scheme. . . . It will be a gradual process because the price of silver is going to go bonkers.  It will show what they have been doing all these years.  I think they are finally reaching a tipping point. . . . The death knell to the gold cartel is the lack of supply of silver to keep the price down. . . . I think you are going to see the double top of $50 be taken out and go to at least $100 per ounce and maybe a lot more.  I think it’s going to move up faster than anybody can imagine. . . . Gold is going to move to some big number also. . . .If gold kept pace with inflation, it would be double what it is today.”

Join Greg Hunter as he goes One-on-One with Bill Murphy, Chairman and co-founder of GATA.

(There is much more in the video interview.)

After the Interview:
There is free information and analysis on GATA.org.

Well that is all for today folks

I will see you tomorrow night