Dec 31/GLD loses another 1.79 tonnes/SLV remains constant/Gold and silver raided again/ECB will probably not be allowed to undergo QE!!/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:


Gold: $1183.90 down $16.30   (comex closing time)
Silver: $15.56 down 68 cents  (comex closing time)

In the access market 5:15 pm


Gold $1184.00
silver $15.67


It seems that the entire world new that the bankers were going to raid gold and silver.  The bankers lowered the price of gold below 1200 dollars which would give 2014 a losing year for it.  Silver went down in price, in sympathy with gold today. Silver’s closing price on Dec 31/2013 was $19.58.


The gold comex today had a poor delivery day, for the first day notice for the January contract month registering 2 notices served for 200 oz. Silver comex registered 12 notices for 60,000 oz.

Three months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 245.58 tonnes for a loss of 57 tonnes over that period.



In silver, the open interest fell by  440 contracts despite Tuesday’s silver price rise of 47 cents.  Short covering was again the attempted object of the exercise.   The total silver OI still remains relatively high with today’s reading at 149,594 contracts. The big December silver OI contract is now off the board.


In gold we had a huge increase in OI with the rise  in price of gold yesterday to the tune of $18.50. The total comex gold OI rests tonight at 373,982 for a gain of 5083 contracts. The December gold contract is now off the board.




you have more important things to read instead of how gold/silver traded today.



Today, we had another loss of 1.79 tonnes of   gold inventory  from the GLD /Inventory 709.02 tonnes



In silver, a small loss of 574,000 oz of  silver inventory/

SLV’s inventory rests tonight at 329.564 million oz




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

Let’s head immediately to see the major data points for today


First: GOFO rates:


GOFO rates moved slightly in the positive direction for today.  The One and TWO month GOFO remain negative and in backwardation with the THREE month exactly at zero.  The SIX MONTH and 12 MONTH GOFO remain positive and out of backwardation.


Sometime in January the LBMA will officially stop providing the GOFO rates.


Dec 31 2014



1 Month Rate: 2 Month Rate 3 Month Rate 6 month rate 1 yr rate

-.0425%                  -.0225%                     -.000%             +.025%             +.13667%


Dec 30 2014:



-.065%                     -.0475%                  -.0275 %               +.02%               +.135%






Let us now head over to the comex and assess trading over there today.



Here are today’s comex results:



The total gold comex open interest rose today by 5,083 contracts from   368,899 all the way up to 373,982 with gold up by $18.50 yesterday (at the comex close). Today, these guys were fleeced. We are now onto the January contract month.   The non active January contract month fell by 13 contracts down to 389 and that OI or 38900 oz of gold is initially standing for delivery. The next big delivery month is February and here the OI rose to 217,109 contracts for a gain of 371 contracts. The estimated volume today was poor at 27,239. The confirmed volume yesterday was fair at 157,398 even although  they had some help from our high frequency traders. The comex now has no credibility and many investors have vanished from this crooked casino. Today we had 270 notices filed for 27000 oz .



And now for the wild silver comex results. Silver OI fell by 440 contracts from 150,034 down to 149,594 despite the fact that silver was up by 49 cents yesterday. Short covering again by the banks was no doubt in full force yesterday. The big December active contract month is now off the board.  The estimated volume today was simply awful at 9,645. The confirmed volume yesterday was good at 39,481. We had 2 notices filed for 200 oz today.


January initial standings


Dec 31.2014



Withdrawals from Dealers Inventory in oz nil oz
Withdrawals from Customer Inventory in oz 160.75 oz 5 kilobars
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz nil oz
No of oz served (contracts) today 2 contracts(200  oz)
No of oz to be served (notices)
Total monthly oz gold served (contracts) so far this month  2 contracts(200 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month

Total accumulative withdrawal of gold from the Customer inventory this month

 160.75 oz

Today, we had 0 dealer transactions

total dealer withdrawal: nil oz



we had 0 dealer deposit:

total dealer deposit: nil oz



we had 1 customer withdrawals

i) Out of HSBC:  160.75 oz  (5 kilobars)


total customer withdrawal: 160.75 oz





we had 0 customer deposits:



total customer deposits;  nil  oz



We had 0 adjustments



Today, 0 notice was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 2 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.

To calculate the total number of gold ounces standing for the December contract month, we take the total number of notices filed for the month (2) x 100 oz  or 200 oz to which we add the difference between the January OI (389) minus the number of notices served upon today (2) x 100 oz  =38,900   the amount of gold oz standing for the January contract month. (1.209 tonnes of gold)


Thus the initial standings:

2 (notices filed for the month x 100 oz) +OI for January (389) – 2(no. of notices served upon today) =38,900 oz (1.209 tonnes)


Total dealer inventory: 770,987.09 oz or 23.98 tonnes

Total gold inventory (dealer and customer) = 7.895 million oz. (245.58) tonnes)


Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 57 tonnes have been net transferred out. We will be watching this closely!


This initializes the month of January for gold.







And now for silver



Dec 31/2014:



 January silver: initial standings





Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 37,752.014 (Delaware  oz
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 103,549.500 oz(CNT,Delaware)
No of oz served (contracts) 12 contracts  (60,000 oz)
No of oz to be served (notices) 107 contracts (535,000 oz)
Total monthly oz silver served (contracts) 12 contracts (60,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal  of silver from the Customer inventory this month  37,752.014 oz

Today, we had 0 deposits into the dealer account:



total dealer deposit: nil  oz


we had 0 dealer withdrawal:

total dealer withdrawal: nil oz


We had 2 customer deposits:

i) Into CNT:  96,745.100 oz  (one decimal)

ii) Into Delaware: 6804.400 oz (one decimal)

total customer deposit  103,549.500 oz



We had 1 customer withdrawals:

i) Out of Delaware:  37,752.014 oz

total customer withdrawal: 37,752.014 oz



we had 0 adjustments



Total dealer inventory: 64.604 million oz

Total of all silver inventory (dealer and customer) 175.536 million oz.

The total number of notices filed today is represented by 12 contracts for 60,000 oz. To calculate the number of silver ounces that will stand for delivery in December, we take the total number of notices filed for the month (12) x 5,000 oz  to which we add the difference between the OI for the front month of January (119) – the Number of notices served upon today (12) x 5,000 oz  = 595,000 oz the number of ounces standing so far for the January delivery month.

Thus: 12 contracts x 5000 oz= 60,000 oz  +OI standing so far in January  (119)- no. of notices served upon today(12) x 5,000 oz  = 595,000 oz





for those wishing to see the rest of data today see: or







The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.

There is now evidence that the GLD and SLV are paper settling on the comex.

***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:

i) demand from paper gold shareholders

ii) demand from the bankers who then redeem for gold to send this gold onto China

vs no sellers of GLD paper.



And now the Gold inventory at the GLD:


Dec 31.2014: we lost another 1.79 tonnes of gold at the GLD today/Inventory 709.02 tonnes


Dec 30.2014/ we lost 1.49 tonnes of gold at the GLD today/inventory 710.81 tonnes


Dec 29.2014 no change in gold inventory at the GLD/inventory 712.30 tonnes


Dec 26.2013/ a small loss of .6 tonnes of gold.  Inventory tonight at 712.30 tonnes


Dec 24.2014: wow!! somebody robbed the cookie jar/ we had a huge withdrawal of 11.65 tonnes from the GLD inventory/inventory at 712.90 tonnes. England must be bleeding badly!


Dec 23.2014; no change in gold inventory at GLD/724.55 tonnes


Dec 22.2014: no change in gold inventory at the GLD/724.55 tonnes

Dec 19.2014: a huge addition of 2.99 tonnes at the GLD/724.55 tonnes

Dec 18.2014: no change in inventory at the GLD/721.56 tonnes

Dec 17.2014: no change in inventory at the GLD/721.56 tones

Dec 16.2015  we lost 1.80 tonnes in tonnage at the GLD/721.56 tonnes

Dec 15.2014: we lost 2.39 tonnes of gold inventory at the GLD/Inventory at 723.36 tonnes

dec 12.2014: we had no change in gold inventory/GLD inventory 725.75 tonnes

Dec 11.2014: we had another addition of .95 tonnes of gold inventory at the GLD/Inventory 725.75 tonnes

dec 10.2014: we gained another 2.99 tonnes of gold at the GLD. If China cannot get its gold from London, then its only source will be the FRBNY.

Inventory: 724.80 tonnes

Dec 9.2014: we gained 2.69 tonnes of gold/inventory 721.81 tonnes





Today, December 31 / we lost 1.79 tonnes of   gold   inventory at the GLD /Inventory rests tonight at 709.92 tonnes


inventory: 709.02 tonnes.



The registered vaults at the GLD will eventually become a crime scene as real physical gold departs for eastern shores leaving behind paper obligations to the remaining shareholders. There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat (same banks).

GLD : 709.02 tonnes.






And now for silver (SLV):



Dec 31.2014: we had no change in silver inventory at the SLV./Inventory

at 329.563 million oz

Dec 30.2014: we lost another 574,000 oz of silver from the SLV/Inventory at 329.564 million oz/


Dec 29.2014 we had a small loss of 431,000 oz at the SLV to probably pay for fees/inventory 330.138 million oz.


Dec 26/ no change in silver inventory at the SLV/inventory 330.569

million oz.


Dec 24.2014: we had a huge loss of 7.566 million oz/inventory 330.569 million oz


Dec 23.2014: no change in silver inventory/338.135 million oz


Dec 22.2014: today we lost 862,000 oz of silver inventory from the SLV.  this left late Friday night./Inventory 338.135  million oz

Dec 19.2014; No change in silver inventory at the SLV/Inventory 338.997 million oz.

Dec 18.2014: we lost 2.012 million oz of silver from the SLV vaults/inventory 338.997 million oz

Dec 17.2014: no change in silver inventory/SLV 341.009 million oz

Dec 16.2014/ no change in silver inventory/SLV 341.009 million oz

Dec 15.2014: we lost 1.341 million oz of silver at the SLV/Inventory 341.009 million oz

Dec 12.2014 no change in silver inventory at the SLV/Inventory at 342.35 million oz

Dec 11.2014: we lost 2.873 million oz of silver inventory at the SLV/Inventory 342.35 million oz

December 10.2014; no change in inventory/345.223 million oz



December 31/2014 /we had no change in silver inventory at the SLV

registers: 329.564 million oz







And now for our premiums to NAV for the funds I follow:

Note: Sprott silver fund now for the first time into the negative to NAV

Sprott and Central Fund of Canada.
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded at Negative 10.1% percent to NAV in usa funds and Negative 9.9 % to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 62.0%

Percentage of fund in silver:37.5.%

cash .5%



( December 31/2014)



2. Sprott silver fund (PSLV): Premium to NAV rises to + 1.06%!!!!! NAV (Dec 31/2014)

3. Sprott gold fund (PHYS): premium to NAV rises to negative -0.62% to NAV(Dec 31/2014)

Note: Sprott silver trust back  into positive territory at +1.06%.

Sprott physical gold trust is back in negative territory at -0.62%

Central fund of Canada’s is still in jail.







And now for your most important physical stories on gold and silver today:




Early gold trading from Europe early Tuesday  morning:



(courtesy Mark O’Byrne/Goldcore)


Diversify With “Physical Precious Metals Stored Outside The U.S.” – Faber



Dr Marc Faber, respected economic historian and author of the respected monthly newsletter, the ‘Gloom, Boom and Doom Report’, has warned that 2015 is set to be very volatile, urged international diversification and owning “physical precious metals stored outside the U.S.”

In another insightful and witty interview with Bloomberg Television’s In the Loop, with Betty Liu, Erik Schatzker and Brendan Greeley, the ever charming and affable Dr. Marc Faber reaffirmed his long-standing preference for investing in emerging eastern economies, his lack of faith in the dollar and advised Americans to own gold.

Faber fails to recommend a single U.S. stock in 2015 and when asked whether recent events in Greece were a buy or sell signal, Faber began by pointing out that persistent intervention by central banks into markets had made making predictions far more complicated.

Some commodities have soared in the last six months, wheat has doubled, while the price of oil and natural gas had collapsed indicating great volatility. Forecasters surveyed by Bloomberg had been consistently bearish on bonds for years, until this year since treasuries outperformed the S&P in 2014.

Hedge funds generally only generated returns of around 1%. In light of these discrepancies and central-bank induced distortions to the market, Faber emphasises the need for real diversification.

When asked whether he had maintained his “discipline” when oil prices crashed he surprised his interviewers by saying that he actually trades very little to avoid commissions and charges and he indicated that he was so broadly diversified that the oil crash had little impact on his portfolio.

He went on to warn regarding U.S. stocks. “Sentiment about stocks in the U.S. is much too bullish, much too optimistic” and suggested that U.S. ten-year treasury notes yielding 2.2% were the best of a bad lot given the abysmal returns being offered on the bonds of other developed economies.

Dr. Faber was then challenged on his forecasts from 2008 where he referred to the dollar as toilet paper and denounced quantitative easing.

“Now if we stuck with that view”, the interviewer asked, “where would we be today with the S&P 500 trading north of 2000 and ten year yields, as you pointed out at 220?”

Faber responded with a laugh “Yes, the toilet paper status is still ahead of us……for all paper currencies – not just the U.S. dollar.”

He then pointed out how he had advised owning Asian stocks in 2014 and in recent years and how the stock markets of emerging economies have substantially outperformed U.S. stocks in 2014. He cites China’s stock exchange up 45%, India up 25%, Thailand up 14%, Indonesia 18%, Philippines 21% and Pakistan up 40%.

He also draws attention to the fact that just being invested in U.S. stocks was not enough to guarantee decent returns:

“As of early December there was about as many stocks on the New York stock exchange that were down 10% as up 10% and as many stocks down 40% as there were up 40% so we have a huge diverging performance.”

When asked directly which U.S. equities he would own, “what specific companies would you own in the U.S.?” – he declined to give a single recommendation. Instead he signalled that Americans should be getting their wealth out of the U.S. and into gold stored abroad.

He sagely and pointedly added:

“I have to say that sentiment about precious metals is incredibly negative and all these “experts” are predicting the gold price to drop to $700. Well, understand, these are experts that never owned a single ounce of gold in their lives!”

“So they missed the five fold increase since 1999!”

“But they all know that the price of gold will go to $800, they write about it with a lot of authority.”

Dr. Faber is a long time proponent of owning physical gold. He has consistently urged people to act as their own central bank in acquiring bullion coins and bars as financial security and he believes that to store gold in Singapore is the safest way to own gold today.

Our recent investment advice webinar with Dr Faber can be seenhere

The Bloomberg interview with Dr Faber can be watched here

Today’s AM fix was USD 1,199.25, EUR 986.55 and GBP 769.84 per ounce.
Yesterday’s AM fix was USD 1,186.50, EUR 976.54 and GBP 764.50 per ounce.

Spot gold climbed $15.00 or 1.27% to $1,198.80 per ounce yesterday and silver rose $0.50 or 3.17% to $16.27 per ounce.

Gold fell after overnight gains in Asia today as global equities fell as risk-averse sentiment returned to the market, triggering safe-haven gold buying.

Buying on quarter end and year end weakness has proved a profitable trade in recent years and traders and gold buyers looking to increase returns are positioning themselves for possible price increases again in January.

Get Breaking News and Updates On Gold Here




And now for the important paper stories for today:



Early Wednesday morning trading from Europe/Asia



1. Stocks mixed on major Asian bourses / the  yen a slight fall   to 119.49,

1b Chinese yuan vs USA dollar/ yuan  weakens  to 6.2058
2 Nikkei off

3. Europe stocks mixed  /Euro up/ USA dollar index down to 89.96/

3b Japan 10 year yield at .33% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.49

3c Nikkei still above 17,000

3e The USA/Yen rate well below the 120 barrier
3fOil: WTI 53.06 Brent: 56.13 /all eyes are focusing on oil prices. This should cause major defaults.

3g/ Gold down/yen down;

3h/ Japan is to buy the equivalent of 108 billion usa dollars worth of bonds per MONTH or $1.3 trillion

Japan’s GDP equals 5 trillion usa/thus bond purchases of 26% of GDP

3i Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt (see Von Greyerz)

3j Oil falls this morning for both WTI and Brent with the fall on Rouble/

3k  Poor Chinese PMI numbers/China in contraction (see below)


3l  Dutch central banker states that lower oil prices lowers inflation expectations and as such direct QE needed.  Good luck to them (Greece major problem)

3m Gold at $1197. dollars/ Silver: $16.03

3n USA vs Russian rouble:  ( Russian rouble down 3.0 roubles per dollar in value)  58.45!!!!!!

3 0  Saudi monarch taken to hospital

3p  Markets close early today.

4. USA 10 yr treasury bond at 2.17% early this morning. Thirty year rate well below 3%  (2.75%!!!!)
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid



(courtesy zero hedge)/your early morning trading from Asia and Europe)


Futures Up In Light Volume On Renewed ECB QE Hopes As Crude Slides Again


While the last trading day of 2014 will be important if only to see if Dow 18,000 can be recaptured on what is sure to be the lowest volume in years, don’t expect much help from Brent which continues to slide and was down nearly 3% at $56.20 or WTI which is also flirting with the $53 level, down almost 2% overnight both set to cap the worst year for the commodity since 2008. Not much should be expected from Treasuries either, set to return over 6% in 2014 – the best performance since 2011 – crushing the latest hoard of bond shorts all of which got the Treasury move in 2014 epically wrong, which will close early at 2 pm. Which means that the HFT algos will once again be driven off the illiquid USDJPY correlation, where low volume will mean 5-10 pip moves today should be the norm, as well as European stocks, whose Stoxx Europe 600 Index rose 0.3% earlier on the latest round of jawboning by an ECB member, this time Dutchman Peter Praet, who said in an interview with German newspaperBoersen-Zeitung that lower oil prices increasingly risk de-anchoring inflation expectations, indicating that quantitative easing is becoming more likely.

In other words, the great crude crash, while completely ignored by the Fed may just be the scapegoat that launches European QE despite Germany once again opposing QE, when Merkel’s chief economic advisor Christoph Schmidt said he sees no need for ECB to buy sovereign bonds at this moment.

For now, however, the algos have latched on to the hope of ECB coming once again to the rescue even if the sudden political seachange in Greece has made outright QE increasingly more improbable, and with Draghi once again bringing up not only the bitter topic of a “complete monetary union” but also a “capital markets union“, it appears that Europe is once again stuck in that place where it found itself in 2011 and 2012 where in order for the ECB to continue printing money, peripheral nations need to prepare to hand over more sovereignty to the northern states. Considering the latest bout of nationalism and pro-independence moves across Europe, this could hardly have come at a worse time.

Keep an eye on the 11:30 am Eastern ramp today to see if math PhDs again forgot to adjust their intraday ramp clocks because unlike the regular US day session, trading on the London Stock Exchange will end at 12:30 p.m. local time, and NYSE Euronext’s European cash markets will close 35 minutes later. The Madrid bourse will stop trading at 2 p.m. local time. Exchanges in Germany, Switzerland, Italy and the Nordic countries are closed. This doesn’t mean, however that the pre-programmed US market algo ramp which takes place both before the normal European and US closes, won’t take place just as scheduled.

Mainland Chinese stocks topped off the year in style, surging 2.2% to 3234.68, soaring 53% despite the final December Manufacturing PMI  – printing at 49.6, the first contraction since April – showing China’s economy is slowing down to a pace not seen in recent history. Or rather, soaring due to the the economic slow down, which like in the West is taken as a sign of more central bank easing on deck. Meanwhile, as the WSJ notes, in Hong Kong, the Hang Seng Index rose 0.4%, to 23605.04,gaining only 1.3% for the year, significantly underperforming its mainland counterpart. Chinese firms listed offshore have been more susceptible to concerns about slowing economic growth, and the Hang Seng Index is driven less by retail investors than by institutional investors. Buying by local Chinese retail investors has provided a major boost to volumes and gains in Shanghai this year. For a good explanation of the unprecedented stock bubble mania that has gripped China read Seeking to Ride on China’s Stock Market Highs.

Finally, before we move on, it is worth noting that Saudi Arabia’s stock market, tumbled earlier today after news that Saudi’s aged and frail King Abdullah was admitted to hospital for medical checks. We will have more to say about this shortly.

In summary:

  • Treasuries gain on the last trading day of 2014, led by 7Y and 10Y ; volumes expected to be light as futures trading closes at 1pm ET, cash at 2pm ET.
  • A China factory gauge sank to a seven-month low in December, with HSBC/Markit’s PMI falling to 49.6 from 50 in Nov. and preliminary reading of 49.5
  • ECB’s Peter Praet warned in an interview with German newspaper Boersen-Zeitung that lower oil prices increasingly risk de-anchoring inflation expectations, indicating that QE is becoming more likely
  • Christoph Schmidt, head of Merkel’s council of independent economic advisers, says in Die Welt interview that he sees no need for ECB to buy sovereigns after bank already committed to other asset purchases and cheap refinancing operations
  • Merkel stepped up her criticism of anti-Islamist demonstrations across Germany, saying refugees have the same aspirations as the citizens of her former communist East German homeland
  • Greek polling data suggest neither Prime Minister Samaras’s New Democracy nor the main opposition Syriza party will win an outright majority in next month’s election, meaning coalition negotiations or even a repeat vote will be needed
  • The number of Americans dying from influenza and pneumonia has hit epidemic levels this winter as the nation faces the second-highest influenza rates since swine flu swept the country in 2009
  • Treasuries are on track to return about 6% in 2014, best performance, since 2011, led by double-digit gains for 10Y and 30Y sectors, according to BofAML indexes; 10Y yields began the year at 2.989%, 30Y at 3.922%
  • Curve flattening drove UST performance this year: while Fed policy evolution pushed 2Y and 3Y yields to highest levels since 2011, long yields declined as weak European economy and plunging oil price during 2H reduced inflation expectations globally, pushing core eurozone 10Y yields to record lows
  • Sovereign yields mostly higher. Asian and European stocks mixed, U.S. equity-index futures gain. Brent crude, gold and copper fall

Economic Data

  • 8:30am: Initial Jobless Claims, Dec. 27, est. 290k (prior 280k)
    • Continuing Claims, Dec. 20, est. 2.368k (prior 2.403k)
  • 9:45am: Chicago Purchasing Manager, Dec., est. 60 (prior 60.8)
  • 9:45am: Bloomberg Consumer Comfort, Dec. 28
  • 10:00am: Pending Home Sales m/m, Nov., est. 0.5% (prior -1.1%)
    • Pending Home Sales y/y, Nov., est. 3.6% (prior 2.2%)




Chinese manufacturing PMI confirms that China is now in contraction:


(courtesy zero hedge)




China Manufacturing PMI Confirms Contraction, Employment Drops For 14th Month In A Row



With Steel output down 3.4% YoY (worst in over 2 years) and Cement output down 4% YoY (worst in 7 years) it should not be entirely surprising that the Final December HSBC Manufacturing PMI for China slumped to a contraction-implied 49.6 (a small blip up from the 49.5 preliminary print) and down from 50.0 in the previous month. This is the first contraction since April 2014 after the credit-impulse of Q2 comes back to bit in the hangover. New orders fell for the first time since April but the employment sub-index contracted again for the 14th months in a row. Market reaction is modest for now, China stocks lower and USDJPY fading.

Lowest Manufacturing PMI in 8 months:

Some of the more disturbing findings in the report:

The weaker PMI reading was partly a result of a renewed fall in new business volumes placed at Chinese manufacturers in December. Though only slight, it was the first reduction in new orders since April. Data suggested that the decline was largely  driven by softer domestic demand

  • As a result of lower overall new business, manufacturers cut production for the second successive month in December.
  • Manufacturing employment in China declined again in December, thereby extending the current sequence of job shedding to 14 months.
  • Lower production requirements led to the first reduction in buying activity since April, albeit only slight.
  • Average input costs faced by Chinese goods producers fell for the fifth month in a row during December. Moreover, the rate of reduction accelerated to the sharpest since March.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“The HSBC China Manufacturing PMI fell to 49.6 in the final reading for December, down from 50.0 in November. As seen in the flash reading earlier, domestic demand led the slowdown as new orders contracted for the first time since April 2014. Price contraction deepened. Today’s data confirmed the further slowdown in the manufacturing sector towards year end. We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing in the coming months.”

Translated: Help!! Don’t leave us alone with this economy (and our massive levered speculative longs)!!…



Chart: Bloomberg





One out of three listed UK oil and gas drillers face bankruptcy because of the low price:


(courtesy Critchlow/UKTelegraph_

Third of listed UK oil and gas drillers face bankruptcy

Britain’s oil and gas industry is running out of cash as low prices and high levels of debt threaten the sector, warns Company Watch


North Sea Oil Rig

Experts warn rigs could be soon shutting down in the North Sea Photo: Alamy

A third of Britain’s listed oil and gas companies are in danger of running out of working capital and even going bankrupt amid a slump in the value of crude, according to new research.

Financial risk management group Company Watch believes that 70pc of the UK’s publicly listed oil exploration and production companies are now unprofitable, racking up significant losses in the region of £1.8bn.

Such is the extent of the financial pressure now bearing down on highly leveraged drillers in the UK that Company Watch estimates that a third of the 126 quoted oil and gas companies on AIM and the London Stock Exchange are generating no revenues.

The findings are the latest warning to hit the oil and gas industry since a slump in the price of crude accelerated in November when the Organisation of Petroleum Exporting Countries (Opec) decided to keep its output levels unchanged. The decision has caused carnage in oil markets with a barrel of Brent crude falling 45pc since June to around $60 per barrel.

The low cost of crude has added to the financial pressure on many UK listed drillers which are operating in offshore areas such as the North Sea where oil is more expensive to produce and discover.

Ewan Mitchell, head of analytics at Company Watch, said: “Many of the smaller quoted oil and gas companies were set up specifically to take advantage of historically high and rising commodity prices. The recent large falls in the price of oil and gas could leave the weaker companies in difficulties, especially the ones that need to raise funds to keep exploring.”

Losses are expected to much deeper among privately-owned oil and gas explorers, which traditionally have more debt. Company Watch has warned that almost 90pc in the UK are loss making with accounts that show a £12bn accumulated black hole in their finances.

Mr Mitchell said: “Investors in this sector need to focus primarily on the strength and structure of the balance sheet. A critical question is whether the balance sheet is sufficiently robust to keep the company in business until revenues are expected to flow and, crucially are they likely to be able to rely on existing funding lines while they wait?

“Our fear is sustained low oil and gas prices will put an intolerable financial burden on the weaker companies, jeopardising many livelihoods.”

The findings of the Company Watch research are the latest downbeat analysis to hit the industry, which is preparing itself for oil prices to fall below current levels of $60 per barrel. Sir Ian Wood, founder of the oil and gas services giant Wood Group, warned earlier this month that theNorth Sea oil industry could lose 15,000 jobs in Scotland alone and that production could fall by 10pc as drillers cutback.

According to energy consultancy firm Wood Mackenzie, around £55bn of oil and gas projects in the North Sea and Europe could be shelved should prices fall below their current levels.

Ratings agency Standard & Poor’s recently flagged its concern of some of Europe’s biggest oil and gas groups such as Royal Dutch Shell, BP and BG Group. Its primary worry is debt levels which it says have jumped from a combined $162.9bn (£105bn) for the five largest European companies in the sector at the end of 2008 to an estimated $240bn in 2014.


Crude early in the session went below $53.00 dollars only to recover.
(courtesy zero hedge)

Crude Carnage Resumes: WTI $52 Handle – New Cycle Lows, Here’s Why

Just 3 short days ago, energy stocks were surging and oil was – according to the mainstream media – “stabilizing.” Today, we plumb new cycle lows, with WTI back below $53 as every rally is to be sold for now… While no one can resist the temptation to call the bottom in oil, therecoupling of oil-dependent energy stocks from oil appears to the no-brainer trade of January…


Not Zee Stabilitee…

As to what is pressuring crude – apart from over-supply in a dwindling demand world – 3 possibilities today:

1) News about the Saudi king’s hospitalization(though it is unclear – apart from volatility – why this is bad for oil prices);


2) Zee Europeans have said lower oil prices bring ECB QE closer (not transitory like Janet said) and so there is a market pressure to force oil prices lower to force Mario’s hand; and


3) The US appears to opening the door – albeit gently – to more exports (thus foiling OPEC’s strategy of forcing US Shale to cut production as the export route enables their supply – albeit at lower prices – to get to market)

Here is Citi on the “US Condensates” news… Alert: US Government Makes Blanket Clarification; Could Result in up to 1-m b/d of Processed Condensate Exports by end 2015

In a not-so well-hidden set of FAQs (Frequently Asked Questions) the Commerce Department went a long-way to make public what had previously been private decisions clarifying what constitutes processed condensate, enabling producers to convert field condensate (not generally permissible for free export) into processed condensate, which is generally freely exportable as petroleum product.

While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end 2015. In late June there was wide publicity surrounding clarifications granted to two companies, Pioneer Natural Resources and Enterprise Products Partners, to the effect that lease condensate processed through a stabilization unit and elementary distillation tower is re-constituted and freely exportable. Now Commerce, through FAQ’s issued today, has made public specific criteria that allow condensate to be exported, ending the risk that companies would have to take if they self-certified that their exports constituted products rather than crude oil. Regulatory clarity should bring more exports.

The US shale revolution has been based on light and ultra-light crude oil, with total production of 40+ API crude oil currently some 3.81-m b/d. Of this around 640-k b/d is lighter than 50 degrees API. Eagle Ford production alone is at least 340-k b/d of crude lighter than 50 degrees API but production growth has been largely in crude gravity between 40 and 50 degrees, which is currently 42% of Eagle Ford Production, or at least 430-k b/d.

Citi estimates that currently there is about 200-k b/d of export capacity (including dedicated tanks and docking space), but this could be expanded to 500-k b/d by mid-year and 1-m b/d by the end of 2015.


The timing of the new FAQs is exquisite. US producers are under the gun to reduce capital expenditures given lower prices. One critical factor impacting production economics, especially in the Eagle Ford, is the exportability of ultralight crude oil. Now an export route provides a new lease on life that can further weaken crude oil markets and throw a monkey wrench into recent Saudi plans to cripple US production.

Another FAQ clarifies what makes it possible to re-export Canadian crude oil, making clear that minimal co-mingling with US crude is acceptable. Beyond this, blending Canadian crude or Mexican Mayan with processed condensate spells competition for Middle East producersand Russia in European and other markets. It is almost certainly the case that today’s clarification was not meant to be a change in policy, but others in the market may well come to a different conclusion.

*  *  *

But we suspect the Yellen magic can’t fix earnings downgrades?


Charts: Bloomberg



As we warned you yesterday, due to the Greek situation, the ECB may be totally unable to launch QE.  Greek default risks soars!!
(courtesy zero hedge)

As Greek Default Risk Soars To 66%, Morgan Stanley Warns ECB May Be Unable To Launch QE

While the Santa-rallying markets have been suspiciously sanguine in the aftermath of the failed Greek presidential election on Monday and the ad hoc vote scheduled for late January which could – if left unchecked – lead to an unraveling of the Greek bailout and the expulsion of Greece from the Eurozone, events are now in motion that would end with the unwind of the world’s biggest and most artificial currency and political union. In fact, the bond market is already starting to sniff out what the next, and well-known, source of contagion may be, when earlier today the probability of a Greek default jumped and, now suggest a 66% probability of default.


That said, the melodrama involving the mutual assured destruction of Greece and/or the Eurozone is nothing new, even as the debate has been raging for years who actually has the upper hand: Greece, which knows it has unlimited leverage because a Grexit would likely lead to a violent selloff in peripheral bonds, a loss of credibility of the ECB and ultimately, disollution of the Eurozone, or Europe, which is the source of all the Greek funding.

This came to a head earlier today when one of Merkel’s closest advisors explicitly told Greece it can no longer blackmail Europe. In  an interview with Rheinische Post newspaper published on Wednesday, Michael Fuchs who is a senior member of German Chancellor Angela Merkel’s party, said Greek politicians could not now “blackmail” their partners in the currency bloc. Yes, he used thatword. From Reuters:

“If Alexis Tsipras of the Greek left party Syriza thinks he can cut back the reform efforts and austerity measures, then the troika will have to cut back the credits for Greece,” he said.


The times where we had to rescue Greece are over. There is no potential for political blackmail anymore. Greece is no longer of systemic importance for the euro.”


The remarks are the clearest warning yet to Greek voters from a senior German politician that Athens might lose support if it flouts the terms of its 240 billion euro EU/IMF bailout after early elections next year.

We shall see who has all the leverage in just under a month when Greece votes, and when the leading contender and most likely next Greek prime minister, the anti-bailout Tsipras, calls Europe’s bluff.

However, even if Greece does remain in the Eurozone, a secondary threat has emerged to the perfectly complacent and priced-to-perfection-markets, something which we first discussed in “Draghi’s QE Plan In Jeopardy After IMF Suspends Aid For Greece Until New Government Is In Place.” Last night it was Morgan Stanley’s turn to dare suggest that the markets, which have now priced in ECB QE in the first quarter with absolute certainly, may well be wrong:

The Greek political turmoil is likely to complicate matters for the ECB’s preparation of a sovereign QE programme. The prospect of the ECB potentially incurring severe losses is likely to intensify the debate within the Governing Council, where sovereign QE remains controversial. It could also make the start of a buying programme already on January 22 even more ambitious. In addition, the spectre of default could create new limitations on any sovereign QE design.

And should the ECB indeed be forced to postpone, or even cancel QE, and the fate of the world’s capital markets rely entirely on the shaky and unstable QE originating from Japan, where the BOJ is monetizing all gross JGB issuance and pushing the Nikkei higher and the Yen lower, in the process crushing the bulk of the Japanese economy, then watch as perfectly-priced markets realize perfection never exists, not even under central-planning. Or rather, especially under central planning.

So what else did Morgan Stanley say, because what it did say will soon be aped by all ther strategists?

Here is the full note.

* * *

Implications for the ECB and Its Preparation for Sovereign QE, by Elga Bartsch

Even though my colleagues, Daniele Antonucci and Paolo Batori, do not expect the ECB and the National Central Banks (NCBs) to be subject to haircuts in the event of a Syriza-led debt restructuring, this is unlikely to be clear-cut for some time to come. As a result, the Greek political turmoil complicates matters for the ECB and its preparation of a sovereign QE programme.

In my view, a sovereign default in the eurozone and the prospect of the ECB potentially incurring severe financial losses is likely to intensify the debate on the Governing Council, where purchases of government bonds remain highly controversial. This could make a detailed announcement and the start of a buying programme already at the January 22 meeting look even more ambitious than it seemed. The spectre of default does not only make the issue of sovereign QE less certain again than the market believes, it also could create new limitations in its implementation.

One of the decisions that the Governing Council will need to take is whether to include the two programme countries (Greece and Cyprus), the only ones that are not investment grade at the moment, in its sovereign QE. In our view, it is unlikely that the ECB will deviate from the conditions imposed in the context of the ABSPP and CBPP3, i.e. the countries need to have under a troika programme (and the programme needs to be broadly on track). This would mean though that for some eurozone countries, sovereign QE would become conditional – just as OMT was.

If governments across the eurozone and the financial constructs they are backing with off-balance sheet guarantees are being haircut and the resulting losses start to show up in national budgets, the political opposition to sovereign QE might increase materially. In fact, elected politicians in creditor countries might have a preference for the ECB taking a hit as well given that the Bank has considerable risk provisioning that could absorb these losses which national budgets don’t have. This debate could also materially influence how a sovereign QE programme by the ECB is structured, notably on whether the risks associated with such a programme should be shared by all NCBs.

Even ahead of the latest developments in Greece, the Bundesbank was already pushing for there not being risk-sharing in a sovereign QE programme.This position is unlikely to only relate to Greece though, I think. It is much more likely to relate to the concerns voiced by the German Constitutional Court regarding the implicit fiscal transfers between countries in the event of purchases of government bonds. In the view of Court, this could amount to establishing a fiscal transfer mechanism that is outside the ECB’s mandate. Once the European Court of Justice (ECJ) has given its view on OMT in early 2015, the German Court can start to work on its own verdict regarding the legality of OMT and SMP purchases under the German Constitution.

Another issue the German Court has taken issue with in the context of OMT is the fact that the ECB has indicated that it regards itself as being pari passu with private investors. Faced the prospect of a sovereign default in the eurozone where it suddenly becomes very relevant where an individual creditors sits in the waterfall of liability management, the pari passu question might need to be revisited again by the Governing Council. Whether current market enthusiasm for sovereign QE would simply ride out a renewed debate on the pari passu question remains to be seen.

Venezuela starting to have full blow hyperinflation:
(courtesy Reuters)

UPDATE 1-Venezuela confirms recession, inflation hits 63.6 percent in Nov

(Adds central bank statement, comment by opposition leader, data)

By Andrew Cawthorne and Diego Ore

Dec 30 (Reuters) – Venezuela entered a recession in 2014, with the economy shrinking in the first three quarters, the Central Bank said on Tuesday, blaming political opponents for the dismal figures.

In a statement, the bank said GDP contracted 4.8 percent in the first quarter, versus the same period of last year, then it fell a further 4.9 percent in the second quarter and shrank 2.3 percent in the third quarter.

The statement added that 12-month inflation, which is the highest in the Americas, reached 63.6 percent in November.

The central bank statement, confirming an economic contraction widely forecast by analysts, came just before President Nicolas Maduro was about to start a news conference in which he was expected to announce economic changes.

Venezuela’s socialist government blames political opponents, who protested in the streets for four months earlier this year, for damaging the South American OPEC nation’s economy. The protests resulted in violence that killed 43 people.

“These actions against public order blocked the correct distribution of basic goods to the population, as well as the normal development of production of goods and services,” the bank statement said.

“This resulted in an inflationary spike and a fall in economic activity.”

Opponents say Venezuela’s economic crisis is a consequence of 15 years of socialist policies, begun by Maduro’s predecessor Hugo Chavez, who ruled from 1999 to 2013 before his death from cancer.

“With one day of the year left, they publish the September, October and November figures. The highest in the world. Economic efficiency Nicolas! Wonderful,” scoffed opposition leader Henrique Capriles via Twitter.

Venezuela had not published inflation data since August.

Inflation in September was up 4.8 percent, October 5.0 percent and November 4.7 percent, compared with the same months of 2013, the bank said in its statement, which can be viewed at ( here )

The bank said Venezuela’s balance of payments posted a surplus of $6.8 billion by the end of the third quarter, with a current account surplus of $899 million, and the capital account showing a deficit of $568 million. (Reporting by Andrew Cawthorne and Diego Ore; editing by Eyanir Chinea, Peter Murphy and Matthew Lewis)


Your more important currency crosses early Wednesday morning:



Eur/USA 1.2148 down .0013

USA/JAPAN YEN 119.49  up .026

GBP/USA 1.5587 up .0022

USA/CAN 1.1584 down .0021

This morning in Europe, the euro is marginally down , trading now just below the 1.22 level at 1.2148 as Europe reacts to deflation and announcements of massive stimulation . In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31.  He now wishes to give gift cards to poor people in order to spend. The yen continues to trade in yoyo fashion.  This morning it settled down in Japan by 3 basis points and settling well below the 120 barrier to 119.49 yen to the dollar and causing much grief to our yen carry traders.  The pound is up this morning as it now trades just below the 1.56 level at 1.5584.(very worried about the health of Barclays Bank and the FX/precious metals criminal investigation/Dec  12 a new separate criminal investigation on gold,silver oil manipulation). The Canadian dollar is up today trading at 1.1584 to the dollar.


Early Wednesday morning USA 10 year bond yield: 2.17% !!! down 1  in basis points from Monday night/


USA dollar index early Wednesday morning: 89.96 down 3 cents from Tuesday’s close



The NIKKEI: Wednesday morning : off

Trading from Europe and Asia:
1. Europe stocks mixed

2/ Asian bourses mixed … Chinese bourses: Hang Sang in the green ,Shanghai in the green,  Australia in the red: /Nikkei (Japan) off/India’s Sensex in the green/

Gold early morning trading: $1197





Closing Portuguese 10 year bond yield: 2.69% up 1 in basis points from Tuesday


Closing Japanese 10 year bond yield: .33% !!! par in basis points from Tuesday


Your closing Spanish 10 year government bond, Wednesday , up 6 in basis points in yield from Tuesday night.

Spanish 10 year bond yield: 1.67% !!!!!!
Your Wednesday closing Italian 10 year bond yield: 1.91% up 3 in basis points from Tuesday:

trading 24 basis points higher than Spain:





Closing currency crosses for Wednesday night/USA dollar index/USA 10 yr bond:



Euro/USA: 1.2098  down .0062

USA/Japan: 119.85 up .380

Great Britain/USA: 1.5580 up .0015

USA/Canada: 1.1618 up .0013

The euro fell a bit  in value during the afternoon , and it was down by closing time , finishing  just below the 1.21 level to 1.2098. The yen was down in the afternoon, and it was well down by closing  to the tune of 38 basis points and closing just below the 120 cross at 119.85. The British pound gained considerable ground during the afternoon session and it was still up on the day closing at 1.5580. The Canadian dollar was down in the afternoon and was down on the day at 1.1618 to the dollar.

Currency wars at their finest today.



Your closing USA dollar index: 90.29 up 30 cents from Tuesday.


your 10 year USA bond yield , par in basis points on the day: 2.17%!!!!





European and Dow Jones stock index closes:



England FTSE  up 19.09 points or 0.29%

Paris CAC up 27.21 or 0.64%

German Dax  off

Spain’s Ibex  up .3 or 0.00%

Italian FTSE-MIB off


The Dow: down 55.16 or 0.31%

Nasdaq; down 29.47 or 0.61%


OIL: WTI 53.55 !!!!!!!

Brent: 57.50!!!!



Closing USA/Russian rouble cross: 60.7  falters by over 5 roubles per dollar during the day.








And the boys just figured this out now?



(courtesy Joshua Rosner/Graham Fisher)





Is The CDS Market Manipulated?

From Joshua Rosner of Graham Fisher

Credit Event, Or Not? Is Another Market Being Manipulated? (pdf)

As investors and market participants become increasingly aware of the regulatory failures that allowed for manipulation of LIBOR, FOREX, municipal bond bidding and certain commodities markets, regulatory sources are increasingly expressing concern that they have paid too little attention to potential manipulations of an arguably larger, more systemically important and less regulated market – the CDS market as self-governed, through ‘regulatory license’, by the International Swaps and Derivatives Association (ISDA).

It appears regulators are now turning their attention toward the CDS market, its problematic self-regulatory structure, the myriad of conflicts of interest, the potential avenues for manipulation by large dealers and the opaque and potentially self-serving manner in which determinations of “credit events” are privately decided by ISDA’s Determinations Committees (DCs). A growing volume of news stories, the publication of several new academic papers, the reversal of Dodd-Frank’s “Push-Out” rule which would have forced banks to move their derivatives out of the depository, and the DCs’ handling of several recent questions have only served to increase regulatory concerns and cause some to point out numerous similarities between the various manipulation scandals, the possibility of manipulations in the CDS market and the implications to the global economy.

Source: Dan Awrey

Since 2000, and the insertion of language into the 2000 Commodity Futures Modernization Act which exempted CDS from regulation by the Commodity Futures Trading Commission, the U.S. derivative market has been largely self-regulated. After the global financial crisis, the President’s Working Group on Financial Markets (PWG) recognized that the opaque world of derivatives needed substantial changes. However, the President’s Working Group left implementation of needed changes and oversight to the industry. In effect, the same sell-side driven derivatives market that led the world to crisis was told ‘Sinner, heal thyself’.

Today, as a result of the rapid growth of the OTC Derivatives market, including CDS, the systemic risks posed by this market and the obvious conflicts of interests inherent in its current oversight, regulators are finally casting a close eye on the actions and decisions of this self-regulatory regime.

In each global region, determinations regarding credit events are made by 15 of the largest users of credit default swaps. Ten voting members are sell-side firms, and five are buy-side firms. The voting members are the institutions rather than the individuals voting on their behalf. These users of CDS, who vote to determine when a credit event has occurred and therefore whether there will be a payout on the swaps, appear likely to have positions in nearly every issue they are tasked to decide – and their decisions are binding on all market participants and issuers. The determinations of these DCs, which are less regulated than rating agencies and expressly shielded from certain types of legal liability, have become more powerful and of more importance those of the ratings firms. The DCs’ disclosure language highlights the problems inherent in the current process:

The procedures of the Determinations Committees are set forth in the DC Rules. A Determinations Committee in accordance with the DC Rules may amend the DC Rules. None of ISDA, the institutions serving on the Determinations Committees or any external reviewers owes any duty to you in such capacity, and you may be prevented from pursuing claims with respect to actions taken by such persons under the DC Rules. Institutions serving on a Determinations Committee may base their votes on information that is not available to you, and have no duty to research, investigate, supplement or verify the accuracy of information on which a determination is based. In addition, a Determinations Committee is not obligated to follow previous determinations or to apply principles of interpretation such as those that might guide a court in interpreting contractual provisions. Therefore, a Determinations Committee could reach a different determination on a similar set of facts. If we or an affiliate serve on a Determinations Committee, we may have an inherent conflict of interest in the outcome of any determinations. In such capacity, we or our affiliate may vote and take other actions without regard to your interests under a Credit Transaction.

Yet, more troubling, the Determinations Committees’ Rules appear to actively court trading ahead and/or manipulation. These rules do not offer any meaningful guidance regarding Determinations Committees’ members’ conflicts of interests; ability to vote on issues in which they have a financial interest; recusal from voting; or sharing of information regarding discussions and determinations of DCs with others (including traders) within their own firms. Even those rules that exist appear meaningless given that ISDA doesn’t appear to monitor compliance and, given that it is a trade association, is unlikely to sanction its own members even if there were a mechanism to do so. As a result, it is not impossible to believe that in cases in which a vote is delayed for another meeting, or in cases in which a second vote occurs, a DC member may use any delay to reposition their book in anticipation of a final determination.

The ISDA Determinations Committees wields unprecedented, largely unbridled and unchecked power to declare corporations and sovereigns in, or not in, default, and they are therefore are in a position to define the contractual solvency of their member firms.

Recently, it has been proven that without governmental oversight, there are many opportunities for ISDA member banks and the voting members of the DCs to secretly manipulate markets for their own benefit. As example, recent lawsuits have been filed based on CFTC referrals to the Department of Justice. The CFTC has claimed that criminal behavior has been found which demonstrates ISDA member banks manipulated “ISDAFIX”, a benchmark used to set rates on trillions of dollars of derivatives. If proven, the scale of these manipulations may be far larger than LIBOR, FOREX or the municipal bid-rigging manipulations.

As witnessed through the lens of AIG’s failure, in which the majority of CDS that AIG insured were used by banks and investment banks for regulatory relief, CDS have become a means for banks to engineer a reduction of their risk-weighted assets and raise their capital ratios.

The potential use of CDS to artificially manipulate corporate solvency, the imbalances in the amounts of CDS outstanding relative to referenced debt and ongoing allegations that ISDA’s Determinations Committee is deeply conflicted and “operates as a quasi-Star Chamber or cartel”, are finally being scrutinized.

As one source recently suggested, “It would be a surprise if determinations of default, made by a committee of interested parties, don’t lead to findings of manipulation similar to those found in LIBOR and FOREX”.

The Problems of Determinations Committees

As highlighted by John Biggins, “direct public regulation of OTCD trading between sophisticated counterparties in the US was substantially abolished at the turn of the 21st century”. While Dodd-Frank in the U.S. and regulations overseas have sought to rein in certain activities, move trading to centralized exchanges and move certain exposures out of banks, there has been little done to create direct government oversight of the processes of determining defaults, clearing positions, overseeing auctions or settling trades. The bulk of these activities remain in the hands of private players – some with inherently conflicting roles – such as ISDA.

When, in the wake of the global financial crisis, the industry saw that it was going to come under increased scrutiny and pressure, ISDA took a lead in lobbying and in the creation of new standards of self-regulation. Included in these was the creation of the Determinations Committees. Before the DC member selection process was finalized, investors were told that the DCs would be “balanced between dealers and investors” and that “It only works if people believe in it”. Yet in fewer than five years since the creation of the Committees, it has become clear that they are neither balanced nor worth meaningful belief.

While ISDA has routinely sought to defend itself from criticism, the realities of the DCs is that even a routine review of their actions undermines their credibility as market gatekeepers.

Claims Versus History

ISDA, in defense of the DCs, claims that clear risks of individual firms voting based on their own books are ameliorated by the process in which 80% of the 15 members are needed to come to a decision. These claims appear dubious given that there is no duty, for the Committees, to disclose a transcript of the meetings or an accounting of their reasoning. Doubts are only heightened by the almost inevitable, seemingly impossible, cartel-like unanimity of the Committee’s determination votes. As example, for at least the last three years, every single one of the dozens of the Determinations Committee for the America’s has been unanimous. As one observer pointed out:

“Doesn’t it potentially create a dynamic where no one wants to be seen to be dissenting? Does this stifle genuine debate and put pressure on those who may have a different opinion? Wouldn’t true transparency mean that DC members disclosed the financial interests of their firm and their votes?”

The fact that Pimco’s Chief Investment Officer criticized the determination that Greece had not triggered its CDS, even though Pimco was part of the unanimous vote making that determination, is profoundly troubling to say the least. The discrepancy appears to suggest that the official votes of DC members do not necessarily reflect the actual views of those members and that the voting process has thus been perverted. The fact that the DC has no obligation to “research, investigate, supplement or verify the accuracy of information on which a determination is based” and members “may have an inherent conflict of interest in the outcome of any determinations” only adds credence to suggestions that the “CDS market is being manipulated and gerrymandered by the all-powerful investment banks”.

Questions about the CDS and reference debt held by Committee members are almost certain to be the subject of regulatory and legislative inquiry given the importance of Committee votes, to investors and issuers – including sovereign governments. While the public rarely has the ability to know where a specific conflict exists on the books of a Committee member, there have been circumstances in which the conflicts appear clear. Last summer, the DC met to decide whether Argentina’s failure to pay holders of exchange bonds was a triggering credit event. Given the decade-long dispute between Elliott Management – who is a voting member of the Determinations Committee – and Argentina, one has to wonder why, with obvious conflicts, Elliott didn’t recuse itself , or was it not forced to recuse itself, from the vote. One also has to wonder why ISDA doesn’t appear to have any policies governing either public disclosures of conflicts or requirements for recusal where a conflict may color a member’s vote.

Perhaps ISDA will state, in its defense, that in circumstances in which members’ views – or financial interests – make it difficult to come to the required decision by 80% of the Committee members, the determinations are subject to an external panel to review and make the determination. To be sure, external review is a good and healthy process, to the extent that it is conducted properly. In fact, one could easily argue that truly independent and non-conflicted reviewers should vet all credit event determinations in the first instance, and that the DC itself is unnecessary, serving largely as a superfluous vehicle for potential market manipulation. However, external review does not appear to happen nearly often enough. Instead, it seems reasonable to suspect that the infrequency with which external reviews occur is the result of a more frequent outcome in which most or all of the committee members (likely frequently the ten bank members) vote in unanimity and then sway at least two or more of the remaining committee members (likely frequently the investors), after which the remaining committee members fall in line.

Even the process by which issues are submitted to external review appears biased in favor of the ten banks. These banks often vote largely as a block, and due to a bizarre and potentially deliberate quirk in the determination process, a 10-member majority cannot be overturned by anything short of a completely unanimous rebuke by the entire external review panel. On the positive side, unlike Committee determinations, External Reviews are required to provide the DC with a summary of the reasoning for their decisions and that reasoning is required to be disclosed publicly. Also, although the external review process does require the reviewer to make a judgment as to whether it has any conflicts of interest regarding the issue at hand, it is unclear whether such disclosures and/or recusals have ever occurred.Moreover, given that the reviewer is supposed to consider, as conflicts, only issues “with respect to either the Reviewable Question or the related DC Questions which may be deliberated by the Convened DC”, the rules do not appear to prohibit reviewers from having conflicts relating to financial remuneration historically received by them from members of the Committee. It seems obvious, given that the external reviewers are proposed by Committee Members, that these types of conflicts are commonplace. In fact, even a cursory Internet search for pool members turned up external reviewers who clearly receive income from Committee Member firms.

These questions seem particularly timely given the DC’s meeting on December 24th to determine whether Caesars’ failure to pay all of the interest and principal owed on December 15, 2014 triggered a failure to pay credit event. Section 4.01 of the relevant 2nd lien indenture states that “[a]n installment of principal of or interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds as of 12:00 p.m. Eastern time money sufficient to pay all principal and interest then due …”. Thus, in the event all principal and interest then due is not paid, which was certainly the case on December 15th, neither principal nor interest is considered paid. This clearly triggers a failure to pay credit event under the relevant ISDA documents. Yet the DC’s December 24th meeting concluded with a public announcement that the Committee had postponed a vote until December 29th, and the December 29th meeting concluded with another deferral, this time to January 5th.

Where the language in an indenture is completely straightforward, as appears to be the case in Caesars, it is unclear what the reasons for these consecutive postponements may be. One has to wonder whether the DC is deliberating based on the facts or merely seeking to act in the pecuniary interests of the majority of its members. If the former, then why has the committee not yet announced the obvious – that there has been a failure to pay?

Regulatory investigations and legislative inquiries would certainly be timely given the importance of reducing systemic risks, supporting the functioning of fair and transparent markets (in which asymmetries of available information are reduced), and increasing the certainty of rights among issuers, dealers and all investors.

Full pdf report with references and disclosures attached


And now for your more important USA economic stories for today:



Your trading today from the New York:





Jobless claims rise by 17,000 as the USA economy falters:


(courtesy zero hedge)


Initial Jobless Claims Rise 17k, End 2014 At Same Level As In July


It appears the glorious trend of decling initial jobless claims has run its course. For the last 5 months, initial claims have oscillated around the crucial-to-the-narrative 300k level – breaking the constant downtrend of the last 4-5 years. Today’s 298k print, up 17k from last week, is the same level seen in the 3rd week of July.



This is the highest 6mo. rise in initial claims since the middle of the Polar Vortex.


Charts: Bloomberg




The big Chicago manufacturing PMI misses again:


(courtesy zero hedge)




Chicago PMI MIsses, Drops To 5-Month Lows

Only 1 of MNI’s Chicago Business Barometer components rose in December as the headline index tumbled from October’s multi-year highs at 66.2 to today’s December print of 58.3 – lowest in 5 months and missing expectations for the 2nd month in a row. While new orders, prices paid, and production all fell, employment (the sole improvment) rose.



Breakdown via MNI

  • Prices Paid fell compared to last month
  • New Orders fell compared to last month
  • Employment rose compared to last month
  • Inventory fell compared to last month
  • Supplier Deliveries fell compared to last month
  • Production fell compared to last month
  • Order Backlogs fell compared to last month

*  *  *

So lower prices, less orders, less production… let’s hire more people?




Existing home sales revised lower/Midwest slumps for 6 months in a row:
(courtesy zero hedge)

Existing Home Sales Revised Lower (Again), Midwest Slumps For 6th Month In A Row


While existing home sales rose 0.8% (beating the 0.5% expectation) MoM in November, once again previous data was revised lower. On an unadjusted basis however, YoY home sales rose at only 1.7% – missing expectations of 2.6% growth. The Midwest region saw existing home sales drop again – for the 6th month in a row, down over 5% in that period.



As NAR’s Larry Yun explains…

“The consistent economic growth and steady hiring we’ve seen in the second half of this year is giving buyers enough assurance to consider purchasing a home before year’s end,” NAR chief economist Lawrence Yun said in a statement. 


“With rents now rising at a seven-year high, historically low rates and moderating price growth are likely to entice more buyers.”

Which is all very odd given yesterday’s conference board consumer confidence saw “plans to purchase a home” dropped once again…

Charts: Bloomberg



I wish everyone a very Happy New Year.

Please be safe and come home in one piece.

We will see you on Friday Jan 2.2015.

bye for now




  1. Lorna Hanfer · · Reply

    Happy New Year Harvey, I appreciate your work and enjoy my daily read. Thankyou and cheers.

    Lorna Hanfer


  2. Happy New Year Harvey.

    Peace and Love.


  3. Happy New Year Harvey
    Hey, what happens when GLD inventory drops another 10 tons? Is that the GLD 600 handle or just one of those days?


  4. Happy New Year to all. Hoping there is even a slim chance that it might prove profitable.


  5. john mcmullan · · Reply

    thanks Harvey for all of your hard work.HAPPY NEW YEAR.


  6. Yea Like so many before you i bought the hype thinking like you knew your stuff.And I have seen so many ,maybe 3 out of ten actually do.



  7. boobla sisky · · Reply

    Destiny gives good head.


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