Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1203.90 up $12.90 (comex closing time)
Silver: $16.18 up 45 cents (comex closing time)
In the access market 5:15 pm
Today, markets plummeted throughout the globe as oil finished the day below the 50 dollar barrier. Merkel today stated that the Euro area can survive a GREXIT and that was the catalyst for the fall.
The gold comex today had a poor delivery day, registering 0 notices served for nil 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 rose by 50 contracts as Friday’s silver price rose by 7 cents. It is obvious that somebody is taking on the banks. The total silver OI still remains relatively high with today’s reading at 151,265 contracts. The January silver OI contract reads 103 contracts.
In gold we had an increase in OI with the rise in price of gold on Friday to the tune of $2.10. The total comex gold OI rests tonight at 375,184 for a gain of 3,538 contracts. The January gold contract reads 353 contracts
TRADING OF GOLD AND SILVER TODAY
you have more important things to read instead of how gold/silver traded today.
Today, we added 1.79 tonnes of gold/Inventory 710.81 tonnes
In silver,no change in 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:
Today the majority of the rates moved towards the negative needle (with the exception of the 1 year GOFO). The first three GOFO rates moved more negative and are in backwardation. The 6 month GOFO is slightly in the positive but no doubt that this rate will become shortly into backwardation.
Sometime in January the LBMA will officially stop providing the GOFO rates.
Jan 5 2015
-.05% -025% –.0133% +.015 .1375%
Dec 31 2014:
-.042% -.0225% -.00 % +.025% +.13667%
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 3,538 contracts from 371,646 all the way up to 375,184 with gold up by $2.10 on Friday (at the comex close). We are now onto the January contract month. The non active January contract month remained constant at 353. We had 0 contracts served up on Friday. Thus we neither lost nor gained any additional ounces standing for the January contract month. The next big delivery month is February and here the OI rose by 2,017 contracts to 216,586 contracts. The estimated volume today was poor at 79,981. The confirmed volume on Friday was also poor at 128,989 contracts, 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 0 notices filed for nil oz .
And now for the wild silver comex results. Silver OI rose by 50 contracts from 151,215 up to 151,265 as silver was up by 7 cents on Friday. The front January contract month saw its OI fall by 1 contract down to 103. We had 12 notices filed on Friday, so we gained 11 contracts or 55,000 additional oz will stand.The next big contract month is March and here the OI fell by 231 contracts down to 102,952. The estimated volume today was simply awful at 21,287. The confirmed volume on Friday was fair at 36,360. We had 12 notices filed for 60,000 oz today.
January initial standings
|Withdrawals from Dealers Inventory in oz||nil oz|
|Withdrawals from Customer Inventory in oz||nil oz|
|Deposits to the Dealer Inventory in oz||nil oz|
|Deposits to the Customer Inventory, in oz||nil oz|
|No of oz served (contracts) today||0 contracts(nil oz)|
|No of oz to be served (notices)||353 contracts (35,300 oz)|
|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
Today, we had 0 dealer transactions
total dealer withdrawal: nil oz
we had 0 dealer deposit:
total dealer deposit: nil oz
we had 0 customer withdrawals
total customer withdrawal: nil 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 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the total number of gold ounces standing for the 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 (353) minus the number of notices served upon today (0) x 100 oz =35,500 the amount of gold oz standing for the January contract month. (1.104 tonnes of gold)
Thus the initial standings:
2 (notices filed for the month x 100 oz) +OI for January (353) – 0(no. of notices served upon today) =35,500 oz (1.104 tonnes)
we neither gained nor lost any gold ounces standing for the January contract month.
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
Jan 5 2015:
January silver: initial standings
|Withdrawals from Dealers Inventory||nil oz|
|Withdrawals from Customer Inventory||488,620.100 (Brinks, CNT,Scotia) oz|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||501,472.06 oz (Brinks,Scotia)|
|No of oz served (contracts)||12 contracts (60,000 oz)|
|No of oz to be served (notices)||91 contracts (455,000 oz)|
|Total monthly oz silver served (contracts)||28 contracts (140,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month|
|Total accumulative withdrawal of silver from the Customer inventory this month||536,034.1 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 Brinks: 299,808.810 ox
ii) Into Scotia; 201,663.25 oz
total customer deposit 501,472.06 oz oz
We had 3 customer withdrawals:
i) Out of Brinks: 211,423.510 oz
ii) Out of CNT: 144,396.85 oz
iii) Out of Scotia; 132,799.740 oz
total customer withdrawal: 488,629.100 oz
we had 2 adjustments
i)Out of CNT: 43,768.600 oz was adjusted out of the customer and this landed into the dealer account at CNT
ii) Out of Delaware: 14,220.800 oz was adjusted out of the customer and this landed into the dealer account at Delaware.
Total dealer inventory: 64.662 million oz
Total of all silver inventory (dealer and customer) 175.538 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 (28) x 5,000 oz to which we add the difference between the OI for the front month of January (103) – 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.
Initial standings for silver for the January contract month:
28 contracts x 5000 oz= 140,000 oz +OI standing so far in January (103)- no. of notices served upon today(12) x 5,000 oz = 595,000 oz
we gained 11 contracts or an additional 55,000 ounces of silver will stand for delivery in this January contract month.
for those wishing to see the rest of data today see:
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:
Jan 5/2015 we added 1.79 tonnes of gold inventory into the GLD/Inventory tonight: 710.81 tonnes
Jan 2 2015: inventory remained constant/inventory 709.02 tonnes
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
Today, Jan 5/2015 / we added 1.79 tonnes in gold inventory at the GLD /Inventory rests tonight at 710.81 tonnes
inventory: 710.81 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 : 710.81 tonnes.
And now for silver (SLV):
Jan 5 no change in silver inventory/Inventory at 329.564 million oz
jan 2.2015: no change in silver inventory/ Inventory 329.564 million oz
Dec 31.2014: we had no change in silver inventory at the SLV./Inventory
at 329.564 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
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
Jan 5/2015 /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 8.6% percent to NAV in usa funds and Negative 6.6 % to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.1%
Percentage of fund in silver:37.4.%
( Jan 5/2015)
2. Sprott silver fund (PSLV): Premium to NAV falls to + 1.05%!!!!! NAV (Jan 5/2015)
3. Sprott gold fund (PHYS): premium to NAV rises to negative -0.31% to NAV(Jan 5/2015)
Note: Sprott silver trust back into positive territory at +1.05%.
Sprott physical gold trust is back in negative territory at -0.31%
Central fund of Canada’s is still in jail.
Tonight we received the COT report.
Let us first see the gold COT
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, December 30, 2014|
Our large specs;
Those large specs that have been long in gold added 1917 contracts to their long side
Those large specs that have been short in gold covered 3010 contracts from their short side.
Those commercials that have been long in gold pitched a huge 8978 contracts from their long side
Those commercials that have been short in gold covered a tiny 1069 contracts from their short side
Our small specs;
Those small specs that have been long in gold added 3380 contracts to their long side
Those small specs that have been short in gold added 398 contracts to their short side.
And now for our silver COT:
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||155||139|
|Tuesday, December 30, 2014||© SilverSeek.com|
Our large specs:
Those large specs that have been long in silver added 2069 contracts to their long side
Those large specs that have been short in silver covered 1640 contracts from their short side
Those commercials that have been long in silver pitched 1832 contracts from their long side
Those commercials that have been short in silver added a large 3072 contracts to their short side.
Our small specs:
Those small specs that have been long in silver added 1765 contracts to their long side
Those small specs that have been short in silver covered 1754 contracts from their short side.
Conclusions on both: do not read anything into them.
And now for your most important physical stories on gold and silver today:
Early gold trading from Europe early Monday morning:
(courtesy Mark O’Byrne/Goldcore)
gold trading early this morning. A good look at the UK housing sector:
Prepare for Property Prices to Fall in U.S. and Globally
At the start of the New Year, there are increasing signs that the recovery seen in property prices in many cities in western countries – namely Dublin, London and other UK cities and New York and other U.S. cities is beginning to peter out.
Many cities have seen speculative frenzies return in recent months which led to price surges which would appear to be unsustainable – especially given the uncertain and poor geopolitical and economic backdrop.
This has been the case in the UK and Ireland, the U.S. and indeed in Canada, Australia, New Zealand and a few other markets.
The question at the start of 2015, is whether we are likely to see continued price gains or falls. There are all the hallmarks of an echo bubble akin to the one that burst so painfully in the ‘noughties’.
In the UK, the respected Centre for Economic and Business Research (CEBR) has predicted a decline in British property prices this year. Prices rose 8.8%, on average, in 2014 with prices in London ballooning another whopping 20%.
The CEBR, one of Britain’s leading forecasters, expects overall declines of around 0.6% with the London property bubble to burst and prices likely to fall around 8%.
With this forecast they are breaking ranks with banks, estate agents and the UK Treasury’s “independent” forecasting unit, the Office For Budget Responsibility (OBR). The OBR is touting another rise of 7.4% this year.
We would regard the CEBR’s outlook as the more credible. As covered here previously, London prices are unlikely to be sustained into the near future as Russian, Chinese and Arab money is no longer gushing into the London property market. Also, average homes in average areas are now beyond the reach of working husbands and wives on average and even good incomes.
The average house price in London is £514,000. The median UK income is £22,044 and the median London salary is £35,438. Thus, the average house price is 14.5 times, the average salary.
Overall, new rules over mortgage lending and a glut of sellers have stalled the rise of London and UK house prices.
Other evidence also points to price falls. Zoopla, the respected property website has said one third of all UK properties on sale today have seen their asking price lowered at least once since coming on to the market.
Another longer-term factor which should begin to weigh in on the side of declining prices is potential rises in interest rates globally.
In the UK, the current, unsustainably low level of near 0 percent is likely to come under pressure soon. Bank of England governor, Mark Carney, indicated early last year that he expected rates to rise to 3 percent within three years.
In Ireland, house prices fell 1 percent in the final three months of 2014, according to the latest reports. This is the first time since mid 2013 that the average house price fell compared with the previous quarter. Prices fell nationally and in the capital Dublin, where prices fell by 0.7 per cent, the first drop there since mid 2012.
However, prices remain substantially higher than a year previously as a result of another surge in prices in the first nine months of the year. Prices also remains multiples of levels seen in the early 2000s.
Annual inflation in the capital has eased from a high of a very large 25pc in September to 20pc in December.
As in the UK, sentiment appears to be shifting and potential house buyers may have lowered their expectations of the amount they can borrow in light of a proposed Central Bank of Ireland measure to prudently place limits on mortgage lending.
Concerns about the impact of the geopolitical crisis with Russia on the European economy and the return of the Eurozone debt crisis may also be impacting sentiment.
In the U.S., the Case-Shiller home price index, released on December 30 showed U.S. single family home price appreciation slowed less than forecast in October and there are signs that certain markets are topping out.
What many fail to realise is that the “normal” very low interest rates of the last fifteen years are actually and absurd historic anomaly. Prior to the dot-com collapse interest rates in the West averaged and were regarded as normal at around 6 percent to 7 percent.
A sixfold rise in rates from 0.5% to a meagre 3% would devastate home buyers in many countries internationally.
Since the dot-com crash the West has adhered to the Greenspan model of ultra-low rates to stoke consumption and asset speculation through cheap credit. Savers and pensioners have been punished in order to protect the interests of debtors including over leveraged banks.
Zero percent interest rates or ZIRP for an extended period have discouraged saving and encouraged reckless lending, borrowing and speculation. Previously, rates were determined primarily in the bond markets and not by central bank diktat.
This has contributed to the very precarious financial and monetary situation we find ourselves in today.
The ability of central banks to determine rates cannot last indefinitely. Rate rises are on the cards in the U.S. and globally. This may not occur in the short term as there is the potential for renewed QE in the U.S., but it will happen in the medium and long term.
Should the U.S. be forced to renew QE, it has the potential to create a dramatic loss of faith in the dollar as reserve currency and could result in capital flight. This in turn may force the U.S. and other western countries to raise rates despite the very negative impact that would inflict on property and stock markets.
Sentiment is a powerful thing in all markets including property markets. Sentiment in property markets tends to change more slowly than in more liquid, traded markets but when it does, it is as powerful a driver of prices.
Easy money has inflated property prices throughout the world. House prices are losing touch with reality again. Sentiment appears to be changing.
Beware of the property froth and prepare for the economic pain when prices begin to fall.
Click here for Review of 2014 – Gold Second Best Currency, +13% in EUR, +6% GBP
Today’s AM fix was USD 1,192.00, EUR 998.91 and GBP 779.90 per ounce.
Friday’s AM fix was USD 1,184.25, EUR 983.35 and GBP 766.41 per ounce.
Spot gold rose $4.90 or 0.41% to $1,187.50 per ounce Friday and silver climbed $0.10 or 0.64% to $15.79 per ounce.
Gold and silver both fell in the short and illiquid trading of last week – down 0.65% and 1.50% respectively.
In Singapore, gold rose overnight on concerns about the euro and the eurozone. The euro plummeted to a 9 year low today as worries deepen in the eurozone with political uncertainty in Greece on the upcoming elections.
This saw gold surge to over EUR 1,004 per ounce – the first time since September 2013 according to Reuters.
However, as is frequently the case in recent years, there was little follow through in European markets where prices were capped at the important EUR 1,000 per ounce level.
German publication, Der Spiegel said that German Chancellor Angela Merkel is ready to accept a Greek exit or ‘Grexit’ should anti-austerity Syriza party win.
Investors await Mario Draghi to ‘do whatever it takes’ and unleash quantitative easing in the form of sovereign bond purchases soon.
Shanghai Gold Exchange (SGE) premiums were trading at $4-$5 over the spot gold price showing Chinese demand remains robust.
Gold’s poor performance is hurting gold coin sales and the U.S. Mint reported that sales from 2014 have seen their largest annual drop in eight years.
American Eagle gold coin purchases were 524,500 ounces in 2014, down 39% from 856,500 ounces in 2013. In December, sales plummeted nearly 70% from the same time last year.
Store of value bullion buyers are switching to silver eagles as they view silver as better value than gold at these levels. This is reflected in the record sales of silver eagles seen in 2014.
Silver increased as much as 2.3% to $16.1065 an ounce in London. Platinum rose 0.5% to $1,208 an ounce. Palladium also gained 0.4% to $798.25 an ounce recovering from a five day losing streak its longest since July.
Get Breaking Gold News and Updates Here
John Embry talks with Chris Waltzek on gold and on the economy:
Sprott’s John Embry interviewed on gold by GoldSeek Radio
9:03p ET Saturday, January 3, 2015
Dear Friend of GATA and Gold:
Interviewed by Chris Waltzek of GoldSeek Radio, Sprott Asset Management Chief Investment Office John Embry says that the professed U.S. economic recovery is only “brilliant propaganda,” that gold lately has been superb insurance against currency collapse in Russia and Argentina, that Russia is under foreign attack economically even though its government’s finances are far sounder than those of the U.S. government, and that the fall in the oil price has serious negative consequences. Embry also discusses the surprising popularity of the new Sprott Gold Miners Exchange-Traded Fund (SGDM).
The interview with Embry begins at the 45-minute mark here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Dimitri Speck gives his interpretation on the German gold repatriation.
I defer from him. I believe that much of German gold has been hypothecated and rehypothecated over and over again. This is why it is taking many years to repatriate
(courtesy Lars Schall/Dimitri Speck)
Gold researcher Dimitri Speck interviewed by Lars Schall about price suppression
4:17p ET Sunday, January 4, 2015
Dear Friend of GATA and Gold:
Gold market researcher Dimitri Speck, a GATA consultant, has been interviewed by financial journalist Lars Schall about the German Bundesbank’s efforts to repatriate Germany’s gold from the United States. They also discuss the Western central bank gold price suppression scheme. The interview is six minutes long and can be viewed at Matterhorn Asset Management’s Gold Switzerland Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
This settlement by JPMorgan is not the criminal complaint. The settlement is a civil complaint against 12 banks. JPMorgan as usual settles first. However, the biggy will be the criminal complaint!!
Morgan settles FX price-rigging suit; terms yet to be disclosed
By Jonathan Stempel
Monday, January 5, 2015
NEW YORK — JPMorgan Chase & Co has become the first bank to settle an antitrust lawsuit in which investors accused 12 major banks of rigging prices in the $5 trillion-a-day foreign exchange market.
The settlement with the largest U.S. bank was disclosed today in a letter from lawyers for JPMorgan and the plaintiffs and filed in U.S. District Court in Manhattan.
Terms were not disclosed. A settlement agreement is expected to be filed with the court by the end of January. …
… For the remainder of the report:
Good luck to the Prime Minister if he is going to convince citizens not to buy physical gold:
(courtesy Bron Suchecki/GATA)
Bron Suchecki: India is getting serious about anti-gold policy
12:20p ET Monday, January 5, 2015
Dear Friend of GATA and Gold:
The Perth Mint’s Bron Suchecki today takes note of the Indian government’s intensifying efforts to discourage the people’s purchase of the monetary metal. But, Suchecki notes, Indian gold demand likely depends mainly on the government’s own conduct. His commentary is headlined “India Gets Serious About Anti-Gold Policy” and it’s posted at his blog, Gold Chat, here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
a very important discussion with Pippa Malmgren and Eric King of Kingworldnews on the huge derivatives in the USA that no doubt has been blowing up. Also tonight, you must view the Rob Kirby interview with Greg Hunter on the same topic as below;
Derivatives blowup will maim govt. bond owners and ordinary people, Malmgren says
2:25p ET Monday, January 5, 2015
Dear Friend of GATA and Gold:
Former White House official Philippa Malmgren tells King World News today that government bond owners and ordinary people will take big losses in a derivatives blowup that will be too big for governments to control.
Malmgren says: “Governments deliver less services to their citizens and tax them harder, and their standard of living declines. The insidious process of high inflation is another way governments are working to get out of their debt problems without it registering to ordinary people that there has been a transfer of wealth. They are essentially taxing the public to pay for the excesses of the financial system. In that sense the process has already started — it’s just that it hasn’t registered with people yet.”
Malmgren’s interview is excerpted at the KWN blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
A must read…Bill Holter/Miles Frankin)
The Manhattan Project
Hopefully everyone is refreshed and ready to start the new year after spending the holidays with friends and family! During the holidays, I had a chance to shut down a bit and just observe what’s going on. For me, this is a good thing because normally I view things from a big picture perspective rather than up close. Most people see the trees and miss the big picture of the forest, my flaw is missing the trees sometimes.
And now for the important paper stories for today:
Early Monday morning trading from Europe/Asia
1. Stocks mixed on major Asian bourses / the yen a tiny rise to 120.17,
1b Chinese yuan vs USA dollar/ yuan weakens to 6.2209
2 Nikkei down 42 points or .24%
3. Europe stocks massively down /Euro crashes/ USA dollar index up to 91.73/
3b Japan 10 year yield at .33% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.17
3c Nikkei still above 17,000
3e The USA/Yen rate well above the 120 barrier this morning/breaks the 120 plane in the afternoon.
3fOil: WTI 51.10 Brent: 54.61 /all eyes are focusing on oil prices. This should cause major defaults.
3g/ Gold up/yen up;
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
3k Draghi again jawbones the euro lower/ states it is clear that they will start QE and increase ECB’s balance sheet sizeEuro crashes/
3l Germany’s Merkel states that she is OK with a GREXIT/immediately the euro crashes.
3m Gold at $1188. dollars/ Silver: $15.91
3n USA vs Russian rouble: ( Russian rouble down 1/4 rouble per dollar in value) 58.99!!!!!!
3 0 oil crashes into the 51 dollar handle for WTI and 54 handle for Brent
3p volatility high/commodity de-risking!/Europe heading into outright deflation including Germany
4. USA 10 yr treasury bond at 2.10% early this morning. Thirty year rate well below 3% (2.68%!!!!)/yield curve flattens/forshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid
(courtesy zero hedge)/your early morning trading from Asia and Europe)
Euro, Crude Crash Resumes; US Stock Futures Slump On Grexit Fears; China Soars
The new year is not even a week old and already the volatility fireworks are off, as well as the continued commodity derisking. But while for now US stocks continue to be an island oasis in a turbulent global sea where GDP forecasts decline every single day, the same can not be said about either the Euro, which after crashing overnight to a 9 year low, and rebounding briefly, has continued to decline and is now once again flirting with a key support level, this time 1.19, last reached during the May 2010 first Greek bailout. The catalyst, as usual, Greece which may or may not be leaving the Eurozone shortly, as well as ongoing bets on ECB QE following this morning’s regional German inflation data which declined once more and now hints at outright deflation in Europe’s strongest nation.
In any event, below 1.19 the freefall begins in earnest. As for Draghi’s outright monetization of debt, even the FT now reports that “Economists sceptical ECB bond-buying would revive eurozone.”
Speaking of freefall, things continue from bad to worse for Brent and WTI, which are both down 2% to fresh 5 years lows at last check, and Brent just hit $55 for the first time since May 2009. That this it taking place despite news that hours ago Saudi security personnel killed an alleged Jihadist gunman who blew himself up after being encircled near border post, shows just how substantial the downside momentum has become.
Meanwhile as the “developed” world is obsessing with Greece and Europe, where it “suddenly” realizes nothing has been fixed at all, China continues its relentless surge higher now that all chronic gamblers have left from Macau and rented out the UBS SHCOMP trading desk in Stamford, and as a result the Shanghai Composite Index surged once more, rising a whopping 3.6% to 3,350 in afternoon trading, led by industrials: the highest level since 2009. That this happens as copper falls for a third consecutive day, heading for its lowest closing price in more than 4 yrs, with NY copper down more than 1% to $2.7885 suggests that what a year ago was Chinese Bitcoin mania is now clearly raging in the stock market.
In Summary: European shares fall close to intraday lows with the oil & gas and basic resources sectors underperforming and health care, travel & leisure outperforming. Euro trades close to 9-year low against the dollar, crude oil falls to lowest since 2009. German govt spokesman says Germany wants to keep euro area together with Greece. The Italian and Spanish markets are the worst-performing larger bourses, the Swiss the best. German 10yr bond yields rise; Spanish yields increase. Commodities decline, with Brent crude, WTI crude underperforming and natural gas outperforming. U.S. ISM New York, vehicle sales, RBC consumer outlook due later.
- S&P 500 futures down 0.2% to 2041.9
- Stoxx 600 down 0.3% to 340.2
- US 10Yr yield up 2bps to 2.13%
- German 10Yr yield up 2bps to 0.52%
- MSCI Asia Pacific down 0.8% to 136.9
- Gold spot up 0.1% to $1190.5/oz
- Euro down 0.71% to $1.1917
- Dollar Index up 0.59% to 91.62
- Italian 10Yr yield up 5bps to 1.79%
- Spanish 10Yr yield up 6bps to 1.56%
- French 10Yr yield up 2bps to 0.8%
- S&P GSCI Index down 0.6% to 412.3
- Brent Futures down 1.8% to $55.4/bbl, WTI Futures down 1.7% to $51.8/bbl
- LME 3m Copper down 1.1% to $6183.3/MT
- LME 3m Nickel down 0% to $14827/MT
- Wheat futures up 1.3% to 588.8 USd/bu
Fixed Income/ Equity market summary
Over the weekend European press paid attention to Draghi’s remarks in the Handelsblatt on Friday that the ECB was preparing “to alter the size, speed and composition of our measures at the beginning of 2015”. Dovish overtones were also seen from ECB’s Praet who acknowledged there is now an increased risk that the euro area could see “negative inflation during a substantial part of 2015”. Also dampening sentiment, according to unidentified sources German Chancellor Merkel’s administration sees a potential Greek exit from the Euro Area as manageable and the situation would be almost unavoidable if a Syrizan government failed to service Greece’s debt. Latest opinion polls suggest the Syriza party led the ruling conservatives by 3.1ppts, a slight narrowing from a 3.4 point lead in a previous poll last month. The GE/GR 10y bond spread is wider by 19.2bps and the Greek 10yr bond yield at 9.21%.
Both stories helped Bunds open near Friday’s highs and equities near Friday’s lows. However in thin liquidity as European traders slowly return to trade Bunds (-27 ticks) edged lower throughout the morning retracing the previous session’s gains on no new fundamental news, even given the backdrop of a fall in German state CPI’s. Equities have seen quite a large range on low volumes but trade lower across the board with the Eurostoxx50 -0.8%.
During the Asian session EUR/USD took out USD 1bln of stops through 1.2000 taking it to a low of 1.1864 (lowest since March 2006) as expectations of further stimulus in the Eurozone continues to grow from recent ECB Draghi comments. This in turn has benefited the USD (+0.17%) which is now at its highest level since 2005, on safe haven flows, EUR weakness and monetary policy divergence, which is weighing on the major pairs. Of note, sources report that USD/JPY currently trades in close proximity to a large option expiry of USD 1.9bln at 120.50 which rolls off at the NYC cut.
Precious metals have seen their earlier upside gains capped as the strong USD (+0.17%) has weigh on precious and base metals. The strong USD has also kept WTI (-0.88) in negative territory now trading near 5 and a half year lows. However, Nat Gas (+3.6%) continues to reside in positive territory after bad weather in the Midwest and East coast of the US.
Bulletin headline summary from Bloomberg and RanSquawk
- USD, the reserve currency of choice, continues to trend higher now at its best levels since 2005
- Grexit fears continue to linger as German sources suggest a Greek exit would be manageable and unavoidable under a Syrizan Govt.
- Treasuries fall, led by 2Y and 3Y notes, to begin the first full week of 2015; minutes of Fed’s Dec. meeting and EU inflation data due Wednesday, with nonfarm payrolls scheduled for Friday.
- Greece’s political parties embarked on a flash campaign for elections in less than three weeks that Prime Minister Samaras said will determine the fate of the country’s membership in the euro currency area
- Germany’s Merkel and FinMin Schaeuble consider a Greek exit from the euro area to be manageable because of progress made since height of sovereign debt crisis in 2012, Der Spiegel reports in e-mailed summary an article, citing unidentified people close to govt
- Merkel’s government continues to support Greece as part of stabilizing euro area, government spokesman Steffen Seibert says in Berlin; Germany hasn’t changed its policy on Greece in the euro area, Seibert says
- Euro zone consumer prices probably fell 0.1% in Dec., according to the median estimate in a Bloomberg survey; the data, due Jan. 7, may tip scales in favor of sovereign QE when Draghi leads a ECB meeting later this month
- Oil fell for a third day, extending its drop from the lowest close since 2009, as record supplies from Iraq and Russia bolstered speculation that a global glut that drove crude into a bear market will persist
- The world’s biggest economies will need to refinance about $6.96t of bills, notes and bonds this year, 6.3% less than last year, as austerity measures help shrink budget deficits
- Nearly $1.4t IG priced last year, $305b high yield. BofAML Corporate Master Index OAS at 145, opened 2014 at 127; year range 151/106. High Yield Master II OAS at 508, opened 2014 at 400; year range 571/335
- Sovereign yields mostly higher. Asian and European stocks mostly lower; Shanghai +3.6%. U.S. equity-index futures decline. Brent crude, WTI and copper fall; gold gains
- Looking ahead the calendar is light with Fed’s Williams and German CPI due at 1300GMT
The big article of the day. Germany states that a Greek exit is “manageable”.
The Greek Syriza leader demands huge writeoffs of debt to manageable levels. This would break the ECB and further will not allow direct ECB QE due to lack of establishment rules especially when one member, Greece, will exit.
a must read..
(courtesy zero hedge))
The Gloves Come Off: Germany Says Grexit “Manageable” As Tsipras Demands Greek Debt Writeoff
With just three weeks until the Greek snap elections on January 25 in which Tsipras’ Syriza is virtually assured of victory (unless somehow G-Pap’s “new and improved” political party manages to steal enough votes to prevent this, although one wonders what his political campaign will be: “vote for us because this time we know how to avoid a sovereign bankruptcy”), Germany takes yet another opportunity to remind the Greeks that it won’t be blackmailed (spoiler: it will) into another year of funding the insolvent Greek state which in turn will pretend to engage in another year of “reforms” (spoiler: it won’t). Recall it was on New Year’s Eve when Merkel’s chief advisor Michael Fuchs explicitly used the “blackmail” word saying:
“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.”
Today, concerned that Tsipras’ ascent to power will mean precisely that, namely more “blackmail” by Greece of Germany and the Eurozone, as a Grexit opens the way for a collapse of the monetary union and a return to the Deutsche Mark which would cost Germany far more than continuing the annual charade of keeping Greece in the Euro, Spiegel is out with another piece saying “Bundesregierung hält Ausscheiden Griechenlands aus dem Euro für verkraftbar“, or loosely translated, the Federal Government considers Greece’s exit from the euro manageable.
In the article Spiegel says, per Bloomberg, that German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble, contrary to the German government’s previous stance, consider a Greek exit from the euro area to be manageable because of progress made since height of sovereign debt crisis in 2012, Der Spiegel reports in e-mailed summary of article, citing unidentified people close to govt.
Risk of contagion is limited because Portugal and Ireland have addressed their fiscal issues and ESM is ready as rescue mechanism while security of large banks to be maintained through banking union.
European lawmakers don’t know how a country could leave the euro while remaining in the EU and would have to task legal experts with clarifying issue.
German govt considers Greek exit from euro area to be almost inevitable if opposition leader Alexis Tsipras leads the country’s next govt, ditches austerity measures and stops servicing Greece’s debts.
Worse, a Grexit now would mean all hopes of ECB QE would be put on indefinite hiatus until the legal framework of not only funding sovereign deficits but also monetizing bonds from an imploding Eurozone is justified. It also means that peripheral bonds, which have priced in well over 100% of a European QE, would go bidless overnight, leading to market crashes across the continent, then to bank runs first across the periphery then the core, and ultimately lead to a full-blown European depression.
Reality aside, why is Spiegel going with this now? Simple: moments ago Tsipras made some headlines of his own, making it very clear just what will happen if and when his party wins the election in 3 weeks.
- TSIPRAS SAYS SYRIZA WANTS WRITEDOWN ON NOMINAL VALUE OF GREEK DEBT
- TSIPRAS SAYS TRUE MENACE FOR EUROPE IS MERKEL’S POLICY
- TSIPRAS SAYS GREEK DEBT IS NOT SUSTAINABLE, NEEDS RESTRUCTURING
And in detail, from Bloomberg:
Syriza’s win in forthcoming Greek snap elections will pave way for progressive policy change in Europe against German Chancellor Merkel’s austerity, party leader Alexis Tsipras says according to e-mailed transcript of speech in Athens today, with Podemos in Spain, Sinn Fein in Ireland to follow. Syriza will guarantee bank deposits. [ZH: curious, just how would Syriza do that?]. “Syriza will put an end to social tragedy, nightmare of austerity.”
- Syriza not seeking nor planning to break with European partners, but to put end to economic and social absurdity of memoranda and austerity.
- Syriza seeks within framework of EU and European institutions to achieve realistic deal on servicing debt, developing real economy
- Syriza will conduct sincere, resolute negotiation on debt
As for the punchline, on one hand we have this:
- Germany had most of nominal value of debt written off in 1953, same should be done for Greece in 2015
… and on the other:
- Syriza wants quantitative easing by direct purchase of govt bonds by ECB
Alas Syriza does not get that one is incompatible with the other, and in fact a Greek debt write off means no more ECB QE as the ECB’s balance sheet – a proud holder of tens of billions of insolvent Greek debt still marked to par – would become impaired, and thus crush any political capital Draghi may have left with the Germans and the Bundesbank.
That said, the consensus can certainly forget the ECB announcing public QE at its next monetary policy meeting on January 22, which will be followed just 3 days later by the Greek national elections. In fact, things in the coming weeks and months may get very ugly, fast depending on how things in Greece play out.
So after 3 years of kicking the can and pretending it is fixed, suddenly everything that is broken in the Eurozone threatens to float right back to the surface, leading to another showdown when photos such as this one become a daily occurrence.
The only question is whether this time anyone will believe the rhetorical “whatever it takes” threats uttered by the one central bank which for the past 4 years has proven it is utterly incapable of acting, instead chosing to talk each and every day, a strategy that has worked brilliantly, until now.
Now, the war of words inside Greece escalate between Samaras, the current Prime Minister and Tsipras the leader of the Syriza party heat up.
Samaras Warns of Euro Exit Risk as Greek Campaign Starts
Greece’s political parties embarked on a flash campaign for elections in less than three weeks that Prime Minister Antonis Samaras said will determine the fate of the country’s membership in the euro currency area.
Samaras used a Jan. 2 speech to warn that victory for the main opposition Syriza party would cause default and Greece’s exit from the 19-member euro region, while Syriza leader Alexis Tsipras said his party would end German-led austerity. Der Spiegel magazine reported Chancellor Angela Merkel is ready to accept a Greek exit, a development Berlin sees as inevitable and manageable if Syriza wins, as polls suggest.
The high-stakes run-up to the Jan. 25 vote returns Greece to the center of European policy makers’ attention as they strive to fend off a return of the debt crisis that wracked the region from late 2009, forcing international financial support for five EU countries. While Greek 10-year bond yields rose to about 9 percent last week from a post-crisis low of 5.57 percent in September, the relative improvement in yields from Italy to Ireland suggests that the contagion has been contained.
“Many European officials believe a Greek exit would be manageable, and in contrast to 2010-2011, we wouldn’t see the same cascading effect on countries like Spain or Ireland,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by telephone.
Tsipras, in a speech on Jan. 3, vowed to restructure his nation’s debt and end what he called the “unreasonable and catastrophic” austerity policies.
Greece will “write down on most of the nominal value of debt, so that it becomes sustainable,” Tsipras said, according to the e-mailed transcript of a speech in Athens. “That’s what was done for Germany in 1953, it should be done for Greece in 2015.”
Erixon said it’s realistic to see greater flexibility in Germany and other euro members regarding Greece as they now have more leeway given that the crisis has cooled.
“The great unknown is Tsipras because he’d be elected on a radical platform and if he can’t deliver his government won’t last long,” Erixon said.
A report by Carsten Nickel and Wolfango Piccoli of Teneo Intelligence found Germany is likely to adopt “a more flexible manner” in dealing with the new Greek government.
“Keeping all options on the table is a trademark of Merkel’s approach to policy-making,” the report found.
Norbert Barthle, the senior budget lawmaker in Merkel’s Christian Democratic alliance, said the euro bloc is in a different situation than in 2010 because it now has a firewall.
“It’s in our own interest to keep Greece in the euro area,” Barthle said by phone. “But if Mr. Tsipras wins and keeps his promises — ditching the troika and breaking rescue promises — then I see problems. The state will go bankrupt.”
Merkel’s administration sees a potential Greek exit from the euro area as manageable, Der Spiegel reported, citing unidentified government officials in Berlin.
Merkel and Finance Minister Wolfgang Schaeuble both view the shared-currency area as capable of withstanding Greece’s departure, a scenario that would become almost unavoidable if a new government led by Tsipras were to renege on spending cuts and fail to service the country’s debt, according to the Hamburg-based magazine.
German Finance Ministry spokesman Martin Jaeger said by phone that he wouldn’t comment on “speculative scenarios.” The ministry referred to a Dec. 29 statement by Schaeuble, who said there was no alternative to Greek efforts to overhaul the economy, which are “bearing fruit.”
While Germany will continue to support the Mediterranean country, “if Greece chooses a different path, it will become difficult,” Schaeuble said in the statement. The new government must stand by agreements made by its predecessors, he said.
Accepting Greece’s exit from the euro area would mark a reversal of Merkel’s position throughout the currency bloc’s debt crisis, which erupted in Greece in 2009.
A Greek exit would mean “very high risk” for the stability of the currency union, the Welt am Sonntag cited Peter Bofinger, an independent economic adviser to Merkel, as saying in an interview yesterday. “Even if the situation cannot be compared with the other euro members, a genie would be let out of the bottle that would be hard to control.”
The threat of contagion has since diminished, Spiegel cited the government officials as saying. They pointed to the recovery in Ireland and Portugal, two euro nations that sought bailout assistance, as well as the strength of the currency area’s backstop fund and the establishment of a bloc-wide banking union, the magazine reported.
Greece is holding early elections after Samaras, whose New Democracy party has led a government since mid-2012, failed to get parliamentary backing for a new head of state. Polls show New Democracy and Pasok, Greece’s two main parties over the past four decades, trailing Tsipras’s anti-austerity Syriza alliance.
Samaras, 63, said Greece would be driven into default and out of the European single currency by the policies of Syriza, which has vowed to increase wages, expand the number of government jobs and persuade the euro area to write off some Greek debt.
“What Syriza says would lead to bankruptcy,” he said Jan. 3 in a speech in the central city of Larissa. “What they say can’t be done and would drive the country into a huge adventure.”
A wild card in the election is former Greek Prime Minister George Papandreou who on Jan. 3 announced the formation of a political party called the Democratic Socialists. Papandreou, a former leader of the Pasok party founded by his father Andreas, was prime minister from Oct. 2009 to Nov. 2011.
No polls have been conducted since Papandreou set up his new political movement. Syriza’s lead narrowed slightly with the party getting 30.4 percent versus 27.3 percent for governing New Democracy, according to a Rass voting intentions survey published yesterday in Eleftheros Typos newspaper.
While the poll took place before Papandreou founded his party, 6.1 percent of those surveyed said they could vote for a Papandreou party.
Greece’s European partners have lent the country money withinterest rates that are lower than the ones they are paying themselves, Samaras said.
Greece currently pays an average of 2.4 percent interest on its sovereign debt, less than the 2.7 percent average rate Germany pays for its bonds, Frankfurter Allgemeine Zeitung reported Jan. 3, citing reports by the European Union, the European Central Bank and the International Monetary Fund.
Greek rates are lower because of “very favorable” international donor credits, the newspaper said.
Greek bank-deposit withdrawals accelerated last month after Samaras opened the way for the snap elections.
Net outflows in December totaled about 3 billion euros ($3.6 billion), according to four bankers who asked not to be named because the data are preliminary. Deposits in November fell by 222 million euros from the previous month to 164.3 billion euros, the Bank of Greece said Dec. 30 in Athens.
To contact the reporter on this story: Leon Mangasarian in Berlin email@example.com
Believe it or not, the USA is not involved in the following:
(courtesy zero hedge)
Did The United Arab Emirates Just Declare War On Greece?
Just over 4 months ago, the US was furious as the “mysterious” bloc launching bombing raids on Libya was identified as consisting of Saudi Arabia, UAE, and Egypt. This weekend saw another “mysterious” bombing raid, but as AP reports, this time it was not on Libya directly but on a Greek-owned tanker ship at the eastern Libyan port of Darna (killing 2 sailors). The Greeks have strongly condemned this “unprovoked and cowardly” act and are taking all necessary steps to identify and punish the perpetrators.
That party, or rather, parties has been revealed as Egypt and the United Arab Emirates, which as the NYT reports, “have secretly teamed up to launch airstrikes against Islamist-allied militias battling for control of Tripoli, Libya, four senior American officials said, in a major escalation between the supporters and opponents of political Islam.”
But what is surprising is not the intervention: after all, hardly a day passes now when there isn’t some small to medium political invasion taking place somewhere, in a world in which newsflow no longer affects anything. It is that both countries decided to roundly ignore advising the one country which previously had made it quite clear it has explicit national interests in Libya: the United States.
The United States, the officials said, was caught by surprise: Egypt and the Emirates, both close allies and military partners, acted without informing Washington or seeking its consent, leaving the Obama administration on the sidelines.
It gets worse: Egyptian officials explicitly denied the operation to American diplomats, the officials said. It is almost as if the theme of ignoring and/or mocking US superpower status exhibited most recently by both China and Russia, is gradually spreading to even the more “banana” republics around the world.
And now another “mysterious” bombing, as AP reports…
An unidentified warplane has bombed a Greek-owned tanker ship at the eastern Libyan port of Darna, killing two crew members and injuring two more, Greek authorities said Monday.
The Liberian-flagged Araevo was chartered by Libya’s state-run National Oil Corporation, Greece’s Foreign Ministry said.
Darna is a base for Islamic extremists who have pledged allegiance to the Islamic State group. Widespread militia violence has plunged Libya into chaos less than four years after a NATO-backed uprising toppled and killed longtime dictator Moammar Gadhafi.
The victims were identified as a Greek and a Romanian national. Araevo’s crew of 26 consisted of 21 Filipinos, three Greeks and two Romanians.
Greece’s Merchant Marine Ministry said the vessel had 12,600 metric tons of fuel on board. Damage is still being assessed.
* * *
Greece is not happy…
Greece condemns “unprovoked and cowardly” air strike on Greek-owned tanker Araevo as it was at anchor 2 miles from Derna in eastern Libya, Foreign Ministry says in e-mailed statement.
Vessel was chartered by Libya’s National Oil Corp, had worked for several years without any problems on Mersa El Brega to Derna route
Attack killed one Greek, one Romanian sailor
Greek govt to take all necessary steps with Libyan authorities, despite unsettled situation, to identify, punish perpetrators, pay compensation to victims’ families
Greek Govt in contact with UN special representative in Libya Bernardino Leon and EU foreign policy chief Federica Mogherini
* * *
So who did it this time?
One can’t help but wonder, if the Saudi/UAE bloc is doing everything in its power to eliminate all competition: from Russia to Venezuela to US shale; why not anyone transacting with a bunch of Libyan terrorists?
Late Sunday night: The Euro goes bidless and oil falls to the 52 handle.
(courtesy zero hedge)
Bidless Euro Crashes To Level Not Seen Since March 2006
Having closed the Friday session less than 1 pip above the hugely important 1.2000 level below which there laymany stops, following this weekend’s news onslaught which seemed like a deja vu of the newsflow from the fall of 2011, where the main catalyst was the Reuters reportthat Germany is preparing to let Greece go once and for all (with the subsequent attempts at retraction barely noticed), or maybe just because someone wanted to price in a little more of the more than fully priced in by now ECB QE – which very well may not happen – the moment the EURUSD opened for trading it took out not only the critical 1.2000 stops, but within milliseconds the Euro found itself bidless and crashed to a low of 1.1864, promptly taking out the lows set in May 2010 when the first Greek bailout took place, and tumbled to a level not seen since March of 2006!
Following the initial collapse the Euro did stage a modest comeback, but even the dead cat bounce appears to be fading and at this rate Mario Draghi will have no choice but to reprise his July 2012 “whatever it takes” melodrama or else any bank, pension fund or institution that is still long the EUR may not make it past tomorrow’s margin calls.
Paradoxically, in the newer-normal, EUR weakness which implicitly means USD strenght, the plunge in the Euro means another spike in the USDJPY to which all the E-mini algos are correlating, so in the off chance that the EUR collapses to parity, sending the Yen crashing to Albert Edwards’ 135 level, may be just what the market needed to finally hit Goldman’s 2015 year end target of 2200 a year or so early.
Lack of demand is causing German inflation to tumble to the lowest level since Oct 2009. To the Germans, they are not worried. Our ECB bankers are worried as they cannot reinflate the global finances:
(courtesy zero hedge)
German Inflation Tumbles To Lowest Since October 2009
With regional CPIs cliff-diving in December relative to November, it is not entirely surprising that broadConsumer Price Inflation for Germany as a whole just printed at a mere +0.2% YoY (missing expectations of +0.3%) – the lowest since October 2009 and was unchanged MoM. The initial reaction in DAX was a modest rise as if the EU’s strongest core economy is nearing outright deflation, markets will price-in even more likelihood to the ECB’s sovereign QE any minute now. Of course, in the eyes of the Fed this is all transitory and energy-driven but stocks hope that Draghi ignores that.
Regional CPIs for Germnay dropped a big hint…
as broad CPI drops to its lowest rate since oct 2009…
Chart: Bloomb erg
Sunday night: Russia startles by proposing to Europe that they should join the Euroasia free trade zone by bypass altogether the USA!!
(courtesy zero hedge)
Russia’s “Startling” Proposal To Europe: Dump The US, Join The Eurasian Economic Union
Slowly but surely Europe is figuring out that as a result of the western economic and financial blockade of Russian, it is Europe itself that is suffering the most. And while Germany was first to acknowledge this late in 2014 when its economy swooned and is now on the verge of a recession, now others are catching on. Case in point: the former head of the European Commission, and Italy’s former Prime Minister, Romano Prodi who told Messaggero newspaper that the “weaker Russian economy is extremely unprofitable for Italy.”
Lowered prices in the international energy markets have positive aspects for the Italian consumers, who pay less for the fuel, but the effect will be only short-term. In the long-term however the weaker economic situation in countries producing energy resources, caused by lower oil and gas prices, mostly in Russia, is extremely unprofitable for Italy, he said.
“The lowering of the oil and gas prices in combination with the sanctions, pushed by the Ukrainian crisis, will drop the Russian GPD by five percent per annum, and thus it will cause cutting of the Italian export by about 50%,” Prodi said.
“Setting aside the uselessness or imminence of the sanctions, one should highlight a clear skew: regardless of the rouble rate against dollar, which is lower by almost a half, the American export to Russia is growing, while the export from Europe is shrinking.”
In other words, just as slowly, the world is starting to grasp the bottom line: it is not the financial exposure to Russia, or the threat of financial contagion should Russia suffer a major recession or worse: it is something far simpler that will lead to the biggest harm for Europe’s countries. The lack of trade. Because while central banks can monetize everything, leading to an unprecedented asset bubble which if only for the time being boosts investor and consumer confidence, they can’t print trade – that all important driver of growth in a globalized world long before central banks were set to monetize over $1 trillion in bonds each and every year to mask the fact that the world is deep in a global depression.
Which is why we read the following report written in yesterday’s Deutsche Wirtschafts Nachrichten with great interest because it goes right to the bottom line. In it Russia has a not so modest proposal to Europe: dump trade with the US, whose call for Russian “costs” has cost you another year of declining economic growth, and instead join the Eurasian Economic Union! From the source:
Russia has presented a startling proposal to overcome the tensions with the EU:The EU should renounce the free trade agreement with the United States TTIP and enter into a partnership with the newly established Eurasian Economic Union instead. A free trade zone with the neighbors would make more sense than a deal with the US.
It surely would, but then how will Europe feign outrage when the NSA is found to have spied yet again on its “closest trading partners?” Some more on Russia’s proposal from EUobserver:
Vladimir Chizhov told EUobserver: “Our idea is to start official contacts between the EU and the EAEU as soon as possible. [German] chancellor Angela Merkel talked about this not long ago. The EU sanctions [on Russia] are not a hindrance”.
“I think that common sense advises us to explore the possibility of establishing a common economic space in the Eurasian region, including the focus countries of the Eastern Partnership [an EU policy on closer ties with Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine]”.
“We might think of a free trade zone encompassing all of the interested parties in Eurasia”.
He described the new Russia-led bloc as a better partner for the EU than the US, with a dig at health standards in the US food industry.
“Do you believe it is wise to spend so much political energy on a free trade zone with the USA while you have more natural partners at your side, closer to home? We don’t even chlorinate our chickens”, the ambassador said.
The treaty establishing the Eurasian Union entered into life on Thursday (1 January).
It includes Armenia, Belarus, Kazakhstan, and Russia, with Kyrgyzstan to join in May.
Modelled on the EU, it has a Moscow-based executive body, the Eurasian Economic Commission, and a political body, the Supreme Eurasian Economic Council, where member states’ leaders take decisions by unanimity.
It has free movement of workers and a single market for construction, retail, and tourism. Over the next 10 years, it aims to create a court in Minsk, a financial regulator in Astana and, possibly, to open Eurasian Economic Commission offices in Astana, Bishkek, Minsk, and Yerevan.
It also aims to launch free movement of capital, goods, and services, and to extend its single market to 40 other sectors, with pharmaceuticals next in line in 2016.
And as a reminder: The Eurasian Economic Union, a trade bloc of former Soviet states, expanded to four nations Friday when Armenia formally joined, a day after the union between Russia, Belarus and Kazakhstan began.
So the ball is in your court, Europe: will it be a triple-dip (and soon thereafter quadruple: see Japan) recession as your Goldman-controlled central bank plunders ever more of what little is left of middle-class wealth with promises that this year – for real – is when it all turns around, or will Europe acknowledge it has had enough and shifts its strategic, and trade, focus from west (speaking of the TTIP, Germany’s agriculture minister just said “We can’t protect every sausage” referring to the TTIP) to east?
Considering just whose interests are represented by the unelected bureaucrats in Brussels, we won’t be holding our breath.
We are going to witness more this these types of vanishing funds in the days to come:
(courtesy zero hedge)
29-Year-Old Russian Hedge Fund CEO “Just Disappeared” With $20 Million
Blackfield Capital CJSC was one of Moscow’s hottest hedge funds, hosting glitzy parties and embarking on ambitious plans to expand to the U.S. The firm’s founder in 2013 even rented a Manhattan apartment for a record-setting price, and bought a $300,000 sports car; but now,as WSJ reports, 29-year-old Kim Karapetyan “just disappeared” leaving the staff of 50 stunned and making off with some $20 million in investor cash…
It was quite a ride!!!
The firm’s employees didn’t know anything was amiss until mid-October, when three men charged into Blackfield’s offices in an upscale complex along the Moscow River in central Moscow, said people who were there.
The men, who didn’t identify themselves, said they were looking for Blackfield’s 29-year-old founder, Kim Karapetyan, according to the people who were there.
But Mr. Karapetyan wasn’t in the office that day or the next, when senior executives explained to the staff of about 50 that there was no longer any money to pay their salaries, said one former senior executive and ex-employees. The executives disclosed that all the money in the company accounts—some $20 million, including investor cash—was also missing, they said. It couldn’t be determined whether investors were from Russia or other countries.
“Our CEO just…disappeared,” said Sergey Grebenkin, one of the firm’s software developers, in an interview.
The first signs of trouble came in the spring of 2014 soon after the conflict in Ukraine escalated, leading to a raft of international sanctions against Russian businesses and individuals.
Not long after that, Blackfield’s U.S. entity ended its lease and laid off all its staff. The employees were told the shutdown came primarily because of a lack of financing related to “the economic slowdown in Russia,” according to a former employee, who heard from staffers in Moscow that several big investors had withdrawn funds.
Then in October, Mr. Karapetyan stopped showing up at the firm’s Moscow offices, as did brothers Henry and Haik Mkhitaryan, according to former employees. Henry Mkhitaryan was Blackfield’s chief operating officer and Haik was a senior employee. The Mkhitaryan brothers didn’t respond to a request for comment.
Efforts to reach Mr. Karapetyan by phone, email and through associates and friends weren’t successful. Other senior executives didn’t respond to requests for comment.
Almost every trace of Mr. Karapetyan vanished from the Internet. His LinkedIn and Facebook accounts were deleted. Gmail bounced back emails to an account he had used only days before, saying it no longer existed. His cellphone number was disconnected.
For Blackfield’s Moscow employees, the events of October came with no warning… “I left at 5 p.m. without money or a job,” Mr. Krivopustov said. “We haven’t heard anything since.”
* * *
“Garret Filler, former general counsel and chief compliance officer of U.S.-based Blackfield Capital LLC, declined to comment.”
* * *
Want to know more and get your money back? Ask the General Counsel Garret Filler directly – who quietly hides the fact that he worked for Blackfield on his LinkenIn page…
As WTI collapses into the 49 dollar handle, USA rigs continue to plunge.
Thus we know that the collapse in oil price is due to a lack of demand!!
(courtesy zero hedge)
US Rig Count Continues To Plunge To 10-Month Lows
Just as T.Boone Pickens warned, watching the US Rig Count is key to comprehending the looming crisis in oil. The last 4 weeks alone have seen a drop of over 100 rigs – the 2nd fastest slide since 2001 in percentage terms. This is the worst December to January since 2008/9. As Pickens noted, “demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months”
Note that prices diverged lower as rig counts kept going before rolling over and then crashing…
As I mentioned above, the following is must view interview with derivatives expert Rob Kirby talking to Eric King.
He believes as do I that oil derivatives are exploding causing much havoc to our underwriting banks:
(courtesy Greg Hunter/Rob Kirby/USAWatchdog)_
Oil Derivatives Explode in Early 2015-Rob Kirby
By Greg Hunter’s USAWatchdog.com (Early Sunday Release)
Gold and derivatives expert Rob Kirby thinks crashing oil prices are going to lead to a 2008 style financial meltdown. This is not a maybe–a market explosion is going to happen in 2015. Kirby contends, “Oh yes, without a doubt, it will. It must because the income crude oil sales generate are used to pay the interest on the debt. . . . If you have a mortgage payment of $5,000 at the end of the month and you only have $2,500, you have defaulted. That is the position they are in right now. We just need to wait for some coupon dates to come and go because these guys won’t have the money. They don’t have the income.”
Kirby also thinks what is happening with oil prices being cut in half in a matter of months is no accident. Kirby explains, “I look at what is transpiring in the crude oil market as yet another engineered or financial trickery on the part of the financial elites. . . . What this breakdown in the crude oil price is going to spawn another financial crisis. It will be tied to the junk debt that has been issued to finance the shale oil plays in North America. It is reported to be in the area of half a trillion dollars worth of junk debt that is held largely on the books of large financial institutions in the western world. When these bonds start to fail, they will jeopardize the future of these financial institutions. I do believe that will be the signal for the Fed to come riding to the rescue with QE4. I also think QE4 is likely going to be accompanied by bank bail-ins because we all know all western world countries have adopted bail-in legislation in their most recent budgets. The financial elites are engineering the excuse for their next round of money printing . . . and they will be confiscating money out of savings accounts and pension accounts. That’s what I think is coming in the very near future.”
On the economy getting better and the upward revision to GDP of 5%, Kirby says, “The official data is inconsistent with what you can empirically observe going on in the economy. The economy isn’t doing well, and in addition to the economy not doing well, the U.S. government, for all intent and purposes, is insolvent. Why bonds would be rallying against a backdrop of an issuer that is insolvent is beyond anybody’s fundamental understanding, but fundamentals don’t count anymore in our markets. . . . We don’t have markets anymore; we just have interventions. . . . This financial engineering is all a hallmark of communism or central planning. Central planning has a track record of failing.”
On central banks, Kirby says you need to look beyond the Federal Reserve. Kirby says, “When you are looking at the extension of the U.S. dollar as the world’s reserve currency . . . you need to look at the Fed, the Bank of Japan and the European Central Bank. One or the other has been printing since 2008. The Fed can say we are not printing for 6 or 8 months, but really, what they have done is pass the baton to the Bank of Japan who has been printing like hounds. They are printing fiendishly. All they have done is picked up where the Fed left off. . . . As sure as God made little green apples, we are going to see in the very near future a made-in-America financial crisis regarding this shale oil junk debt. They are going to use that as an excuse for yet more money printing from the Fed. This is the path we are on, and it will continue to be the path we are on until the whole bloody mess collapses.”
Join Greg Hunter as he goes One-on-One with Rob Kirby of KirbyAnalytics.com.
(There is much more in the video interview.)
(There is much more in the video interview.)
Venezuela not only has run out of shampoo but also soap.
Maduro heads to China to save his nation:
(courtesy zero hedge)
“Now There’s Not Even Soap” Maduro Heads To China To ‘Save’ Socialist Utopia Venezuela
Social media is awash with striking images of #EmptyShelvesInVenezuela (#AnaquelesVaciosEnVenezuela) as the evaporation of basic human staples such as toilet paper has now been hyperinflated to total chaos at warehouses and supermarkets. As President Maduro decries the loss of $100 oil “stability”, vowing to return oil prices to their rightful places (and heads to China for help), lines reach for miles for milk and soap… and the people defy governmental bans on photographing empty market shelves… “We couldn’t find shampoo, so we washed our hair with soap. Now there’s not even soap.”
* * *
The line for soap…
And the shelves are bare…
Venezuelan President Nicolas Maduro begins a trip to China and OPEC member countries in search of financial support as his country reels from falling oil prices and a tattered economy.
- *MADURO SAYS TO WORK ON ECONOMIC, FINANCIAL MATTERS W/ CHINA
- *MADURO SAYS WILL VISIT VARIOUS OPEC COUNTRIES ON TRIP
- *MADURO SAYS PLANS ON DEVELOPING OIL PRICE STRATEGY ON TRIP
- *VENEZUELA TO RESTORE `NATURAL’ PRICE FOR OIL, MADURO SAYS
- *OIL MARKET MECHANISMS AT $100/BARREL WERE STABLE: MADURO
As AFP reports,
Venezuelan President Nicolas Maduro begins a trip to China and OPEC member countries late Sunday in search of financial support as his country reels from falling oil prices and a tattered economy.
The South American oil giant confirmed Tuesday that it has entered recession, while annual inflation topped 63 percent, exacerbating the outlook for an economy already hit by global crashing oil prices and import shortages.
“It’s a very important tour… to tackle new projects to address the circumstances affecting our country, including the depletion of revenues due to plummeting oil prices,” Maduro said in a radio and television address from the Miraflores presidential palace.
Maduro said he would discuss economic, financial, energy, technological, educational and development projects with Chinese President Xi Jinping.
Maduro had been expected to announce exchange measures to address these issues. Instead, the president announced the creation of a strategic reserve, appointed a new board for the entity that manages currency exchange controls and created new agencies to control the distribution of commodities.
President Maduro has an increasing problem…
- 22% self-identify as pro-govt vs. 42% when former president Hugo Chavez died March 2013
But as long as he can keep the military paid (off), things will be under his control.
For those wishing to see pictures of empty shelves etc
see zero hedge
Your more important currency crosses early Monday morning:
Eur/USA 1.1899 down .0097
USA/JAPAN YEN 120.17 down .247
GBP/USA 1.5212 down .0102
USA/CAN 1.1790 up .0018
This morning in Europe, the euro spiraled massively down , trading now just below the 1.19 level at 1.1899 as Europe reacts to deflation, announcements of massive stimulation and crumbling bourses . 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 up in Japan by 25 basis points and settling just above the 120 barrier to 120.17 yen to the dollar. The pound also spiraled massively southbound this morning as it now trades well below the 1.53 level at 1.5212.(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 well down today trading at 1.1790 to the dollar. It seems that the global dollar trade is being unwound. The total dollar global short is 9 trillion Usa, and as such we now witness a sea of red blood on the streets as derivatives blow up.
Early Monday morning USA 10 year bond yield: 2.11% !!! down 1 in basis points from Friday night/
USA dollar index early Monday morning: 91.73 up 65 cents from Friday’s close
The NIKKEI: Monday morning : down 42 points or .27%
Trading from Europe and Asia:
1. Europe stocks all deeply in the red.
2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang in the red ,Shanghai in the green, Australia in the green: /Nikkei (Japan) red/India’s Sensex in the red/
Gold early morning trading: $1189
Closing Portuguese 10 year bond yield: 2.53% up 11 in basis points from Friday
Closing Japanese 10 year bond yield: .33% !!! par in basis points from Friday
Your closing Spanish 10 year government bond, Monday up 11 in basis points in yield from Friday night.
Spanish 10 year bond yield: 1.61% !!!!!!
Your Monday closing Italian 10 year bond yield: 1.84% up 10 in basis points from Friday:
trading 23 basis points higher than Spain:
IMPORTANT CLOSES FOR TODAY
Closing currency crosses for Monday night/USA dollar index/USA 10 yr bond:
Euro/USA: 1.1939 down .0057
USA/Japan: 119.60 down .817
Great Britain/USA: 1.5254 down .600
USA/Canada: 1.1760 down .0013
The euro rose in value during the afternoon after being battered overnight. However, it was down by closing time , finishing just below the 1.20 level to 1.1939. The yen was up in the afternoon, and it was well up by closing to the tune of 82 basis points and closing well below the 120 cross at 119.60 causing much grief again to our yen carry traders. The British pound gained some ground back during the afternoon session but it was still down badly on the day closing at 1.5254. The Canadian dollar was up in the afternoon and was up on the day at 1.1760 to the dollar.
As explained above, the short dollar carry trade is being unwound and this is causing massive derivative losses. This is being coupled with those unwinding their yen carry trades
Your closing USA dollar index: 91.38 up 30 cents from Friday.
your 10 year USA bond yield , down 8 in basis points on the day: 2.o4%!!!!
European and Dow Jones stock index closes:
England FTSE down 130.64 points or 2.00%
Paris CAC down 140.93 or 3.31%
German Dax down 291.57 or 2.99%
Spain’s Ibex down 351.50 or 3.45%
Italian FTSE-MIB down 941.82 or 4.92%
The Dow: down 331.34 or 1.86%
Nasdaq; down 74.24 or 1.57%
OIL: WTI 49.78 !!!!!!!
Closing USA/Russian rouble cross: 60.49 down 1 and 3/4 roubles per dollar during the day.
And now for your more important USA economic stories for today:
Your trading today from the New York:
Stocks Suffer Worst Santa Claus “Rally” Since 1999 As Crude Plunges Below $50
Well that really did escalate quickly…
The market’s internals triggered another Hindenburg Omen (each of the prior clusters worked and were saved by Fed speak)…
This was the worst Santa Claus Rally (Sell-off) since 1999…
But still up from pre-FOMC…
Europe started the day ugly with German CPI and Grexit fears mounting (trumping any hope/hype from Draghi for now)…
Leaving US equities down hard on the day… (as a late day ramp failed totally!)
The Dow closed below its 50-day moving average (first time since the day before FOMC)…
With Energy worst on the day…
As it catches down to oil prices and credit spreads…
As a realization that maybe oil prices are on to something ripples thru markets… perhaps stocks can’t handle this truth
Treasury yields were crushed lower… with 10Y nearing 2.00% again (and 30Y under 2.60%) – with 10Y and 30Y now below FOMC levels…
With stocks catching down…
Stocks caught down to credit’s lack of exuberance…
The US Dollar rose modestly despite signficant JPY strength though it did fade throughout the US session…
Despite modest USDollar strength, gold and silver also rose on the day… (Gold above $1200 and Silver over $16 again)
Is this why Citibank wrote the latest legislation that in case of a derivative default, the taxpayer must pay?
(courtesy zero hedge)
Is Citi The Next AIG: 70 Trillion Reasons Why Citigroup And Congress Scrambled To Pass The Swaps “Push-Out” Rule
Earlier today, when we were conducting a routine check with the Office of the Currency Comptroller’s on the total notional amount of derivatives held at the Big 4 banks in the context of the “JPMorgan break up” story, we found something stunning: using the latest, just released Q3 OCC data, JPMorgan is no longer America’s undisputed derivatives king. Well, it still is at the HoldCo level, where it is number one in terms of notional derivatives with $65.5 trillion, but when one steps a level lower, namely the FDIC-insured commercial bank (the National Association or N.A.) level, something quite disturbing emerges. This:
As the chart above, which references Table 1 in the Q3 OCC report, shows Citigroup, or rather its FDIC-insuredCitibank National Association entity, just surpassed JPM and is now the biggest single holder of total derivatives in the US. Furthermore, as the charts below show, while every other bank was derisking its balance sheet, Citi not only increased its total derivative holdings by $1 trillion in Q2, but by a whopping, and perhaps even record, $9 trillion in the just concluded third quarter to $70.2 trillion!
Here is Citi in context:
What is the reason for the surge in total derivative exposure? was it futures, options, forward or CDS?Neither. The answer: OTC traded swaps…
… which soared by $5 trillion in Q2 and over $8 trillion – or a massive 20% in just one quarter – in Q3 to awhopping $49 trillion, $16 trillion more than the OTC swaps held by JPMorgan or Goldman Sachs, and more than double the swaps held by Bank of America!
And that’s not all: perhaps what is most bizarre is thatCitigroup is the one bank whose HoldCo holds lessderivatives, or $64.8 trillion, than its FDIC-insured N.A. OpCo which has $70.3 trillion in derivative notional exposure. For those wondering: this was not the case in the second quarter when the HoldCo ($61.8 trillion) held more derivatives than Citi’s FDIC-insured bank ($61.1 trillion).
Then we started thinking:
Citigroup… swaps… Citigroup… swaps…
and a lightbulb click, because we remembered that it was none other than Citigroup that crafted the legislation on the swaps push-out provision which passed Congress without nary a peep from either side of the aisle, and which put taxpayers on the hook for FDIC-insured derivative exposure – and in Citi’s own case a soaring $70 trillion as of September 30, 2014:
We also revealed that, not surprisingly, the main backer of the bill is notorious Wall Street puppet Jim Himes (D-Conn.) the man BusinessWeek branded “Wall Street’s Favorite Democrat” who also happens to be aformer Goldman Sachs employee.
And yet, despite all these critical recollections, many questions remains, such as:
- Why does Citi’s FDIC-insured bank suddenly have more derivative notional exposure than its HoldCo: something which is generally without precedent?
- Why, when every other Big 4 bank is derisking its balance sheet and reducing its derivative exposure in light of far more stringent capital requirements, is Citigroup adding to its derivative notional and swap exposure at an unprecedented, feverish pace, which saw the bank boost its OTC Swaps holdings by 20% in just one quarter?
- When Congress was voting for the swaps push-out legislation, the Q3 OCC data was not yet publicly available. Was anyone in Congress aware that some $9 trillion had been added to the tally of taxpayer insured derivatives held at Citibank NA as of September 30.
- What is Citigroups and Citibank’s total derivative and total swap exposure as of December 31, and has it continue to soar at a rate of roughly $10 trillion per quarter?
And perhaps most impotantly: what is the underlying trade that requires Citigroup to keep adding to its swap exposure at a time when increasing volatility is forcing all other banks to unwind swaps in order to minimize VaR and be in compliance with Fed capitalization requirements?
And then another lightbulb went over our heads: the last entity to do this was, drumroll, JPMorgan, in early 2013, just before its London whale trade imploded and when the bank’s attempt to corner the IG9 market failed miserably but not before JPM’s CIO trading desk doubled down, then doubled down again and doubled down some more taking their total derivative exposure to several hundred billion… before it all came crashing down.
Now, we are not saying Citigroup is in the same boat as JPM’s infamous CIO which led to congressional hearings and what not – especially since $250 billion was manageable; $50 trillion will not be – but we do wonder: just what is going on behind the massivaly margined scenes if Citi is following every page in the London Whale book and on top of everything it also had to lobby and petition Congress to change the law just so whatever it is that Citigroup is doing, it could continue to do, and what’s more: with explicit taxpayer-funded backing.
Which leads us to the final question:
- Is Citigroup about to become the “New Normal” AIG?
Something is up!!
(courtesy zero hedge)
Goldman’s Modest Proposal: It May Be Time To Break Up JPMorgan
Back in 2008, Goldman got rid of not one but two main competitors when first Bear and then Lehman quietly went into that good night when a Goldman-controlled Fed refused to bail these banks out, in the process unleashing the biggest taxpayer-funded, and still ongoing, wealth transfer to bank executives in history. 7 years later, banks have proven surprisingly resilient to the massive commodity deflationary impulse even as the global growth is slowing to a pace not seen since the events in 2008, which is why Goldman decided it is time to take matters into its own hands with what may be the most “modest proposal” of the day, if not year: it may be time for JPM to break itself up voluntarily… a process Goldman (and its bonus-receiving employees, not to mention shareholders) would endorse wholeheartedly as it would remove its biggest and most connected competitor in the US financial landscape today.
The Fed’s recent G-SIB proposal raises JPM’s capital requirement to 11.5%, 100-200bp higher than money center peers, reigniting the debate about whether a breakup could unlock shareholder value given that size is now a regulatory negative. A breakup could create value by reducing or removing JPM’s 20%-plus discount to pure play peers and increasing capital returns and ROEs, as each standalone business would face a lower G-SIB surcharge. While a breakup thus looks accretive, we would weigh this against the execution risk associated with a breakup of this magnitude, likely reductions in JPM’s estimated net income synergies of $6-7bn and the consideration that each standalone business would likely still be subject to CCAR (although perhaps not asset management), which remains the binding capital constraint for most banks. And despite its higher G-SIB requirement, JPM’s current ROTCE potential remains higher than that of most peers, which face similarly high capital requirements as JPM after factoring in CCAR.
A victim of its own success? Standalone strength enables breakup
JPM is somewhat unique among the money center banks, as nearly all of its business lines are top quartile performers. This is a double-edged sword as it suggests synergies from JPM’s business model do exist but also implies enough strength to operate as standalone companies. Our analysis suggests that a breakup – into two or four parts – could unlock value in most scenarios, although the range of outcomes we assessed is wide, at 5-25% potential upside. Upside is sensitive to the magnitude of the multiple rerating, the speed and size of potential capital returns from each standalone business, and reductions in estimated synergies.
We view a JPM breakup as a “put option” if regulation gets tougher
Capital requirements could move higher again if the Fed adds G-SIB surcharges into CCAR, something it is considering. If this were to unfold, we believe JPM (and other money centers) would strongly consider strategic alternatives, providing shareholders with a breakup “put option” if capital requirements get tougher. In the meantime, we see valuation support at ~9.5x 2016E EPS and re-iterate our Buy rating.
With JPM now facing materially higher capital requirements than peers on a spot basis (although we would argue its capital requirements are similar to peers once CCAR is factored in), investors are thinking through:
A complete breakup : Under this hypothetical idea, JPM’s four operating segments would become independent companies, enabling a multiple re-rating (as the discount to pure play peers is reduced) and capital efficiencies (and thus a higher ROE) as G-SIB requirements are reduced. Offsetting this would be lost business synergies. We provide this analysis for illustrative purposes and acknowledge that a wide range of potential outcomes exist.
Our view: Our analysis indicates that even accounting for lost synergies, a JPM breakup would be accretive to shareholders in most scenarios. That said, breaking up a company of JPM’s size into four pieces (all of which would still be very large financial intuitions) would carry considerable execution risk. An inability to return excess capital (owing to CCAR limitations) or a lack of multiple re-rating could likewise meaningfully reduce potential upside.
A spin-off, or split down the middle: Under the Fed’s methodology for calculating G-SIB buckets, as a bank shrinks its G-SIB buffer declines. This could incent JPM to spin-off one (or multiple) of its businesses to drop down one or more G-SIB buckets and bring its required capital level in line with peers. We provide this analysis for illustrative purposes and acknowledge that a wide range of potential outcomes exist.
Our view: We estimate “minor surgery” like spinning off the trust business alone would only result in modest capital relief (~50bp) and likely not justify the execution risk. That said, we believe a split of JPM in two (a traditional bank and investment & trust bank) would result in considerable capital synergies while likely keeping half of JPM’s synergies intact. While the benefit of this scenario (vs. a full breakup) is higher retention of synergies and less reliance on capital return, a reduction of the discount to pure play peers would be at greater risk if the company were only being split into two pieces.
The synergies of JPM’s businesses: JPM has disclosed it receives $6bn+ of net income synergies from its business model. Determining how much of these synergies would be eliminated in a breakup (the answer varies according to how the new companies are divided) and how JPM’s business lines would perform as standalone companies are key factors in any breakup analysis. We provide this analysis for illustrative purposes and acknowledge that a wide range of potential outcomes exist.
Our view: While synergies are tough to verify from the outside, our analysis shows that most of JPM’s business lines are top quartile performers, providing some credence to the numbers. That said, strong performance by business lines also provides credibility to the idea that these businesses could function as standalone companies.
* * *
And Goldman’s clearest reco that the time to break up its biggest competitor is nigh:
A breakup into JP Morgan & Chase could be accretive with less risk
Similar to our math around a complete break-up, we run through the hypothetical exercise of splitting JPM into two companies: (1) the trust bank, investment bank and asset management business (which we will call the institutional businesses) and (2) everything else (i.e. the more traditional banking businesses). We use the capital requirements outlined on the page above (i.e. a 300bp G-SIB buffer for the institutional business and a 150bp G-SIB buffer for the retail business) plus 100-150bp (to account for a conservative CCAR cushion). From a valuation perspective, we use MS, BK, STT, BLK, AB, TROW, LM, and IVZ as P/E comparables on the institutional side, and WFC, PNC, USB, STI, HBAN, COF, DFS, BBT, CMA, FITB and ZION on the traditional banking side.
Is Goldman’s hint about to be taken seriously by JPM? If so, expect an update on the status of Jamie Dimon’s throat cancer, currently said to be in remission as the bank prepares to call it a day on its current layout, one which happens to host some $65 trillion in derivatives.
Alternatively, if JPM sees this as a hostile act by the FDIC-backed hedge fund, then the gloves are about to come off between the world’s two most important banks. In short: it’s popcorn time.
My goodness, what a crooked world!!
(courtesy zero hedge)
Even The Regulators Are Rigged: Prominent HFT Critic Stiglitz Blocked From SEC Panel
That markets are rigged, at both the macro level, through central banks, and micro, through HFTs, dark pools and purposeful market fragmentation, should be painfully obvious to everyone by now. But when even the regulators engage in “jury rigging”, or in this case blocking prominent HFT-critic Joseph Stiglitz, a Nobel prize winning economist (a prize which doesn’t count for much on these pages but should – at least on paper – impress such statist cronies as the SEC), has been blocked from a government panel that will advise regulators on issues facing U.S. equity markets, it becomes clear as day that the rigging is not just in the markets: worse, it is openly involves the market’s “regulator” and “enforcer.”
“Financial markets are important and I have been worried about the way they have been working and whether they are serving the American economy,” Stiglitz said. “I was willing to serve. The next thing I knew, I was told you didn’t get it.”
According to Bloomberg, “Stiglitz’s rejection shows the partisan infighting that has bogged down Securities and Exchange Commission Chair Mary Jo White’s plan to set up a panel of experts to advise the agency on topics ranging from rapid-fire stock trading to dark pools.”
Actually what it shows is that the SEC is a puppet of the wealthy and powerful HFT lobby, which has made a mockery of markets ever since the passage of Reg NMS, and which has been given free reign to manipulate anything and everything however it wishes: manipulation which, as described here first 6 years ago and most recently, by Michael Lewis, is now obvious to all investors and explains why the general public has decided to fully boycott the capital markets knowing quite well that it, and nobody else, would be the sucker when the Fed pulls the rug from underneath both carbon-based traders and vacuum tubes.
Stiglitz himself understands this, and as he said in a phone interview, “I think they may not have felt comfortable with somebody who was not in one way or another owned by the industry.”
Not surprisingly, even the rigging of US capital markets is split according to political lines:
Republican Commissioner Daniel Gallagher opposed Stiglitz’s nomination in recent weeks as White sought to complete the list of participants, according to two people who asked to not be identified because the deliberations were private. Democratic Commissioner Luis Aguilar had pushed for Stiglitz, who has said high-frequency trading isn’t good for financial markets and should be curbed, possibly through a tax.
White said Jan. 3 that she will announce the members of the advisory market-structure committee in the coming days — six months after she first proposed the idea together with a blueprint for renewed market oversight. Each of the five commissioners — two Democrats, two Republicans and White, an independent — was allowed to nominate one person to the panel. The commission then had to come to agreement on the final list, which is expected to have more than 15 members.
Gallagher declined to comment on the panel, as did Gina Talamona, a spokeswoman for White.
But that’s not as bizarre as it gets: apparently none other than former Fed vice chairman, Roger Ferguson also wanted to be on a panel advising on, of all things, efficient equity markets.
Stiglitz, 71, wasn’t the only nominee that sparked wrangling. Earlier in the process, SEC Commissioner Michael Piwowar, a Republican, opposed the involvement of TIAA-CREF Chief Executive Officer Roger Ferguson, according to two other people familiar with the matter. Ferguson, whose firm manages hundreds of billions of dollars in retirement savings, is a former Federal Reserve vice chairman. He is married to former SEC Commissioner Annette Nazareth, who now advises some of Wall Street’s biggest banks on regulatory issues.
Piwowar wouldn’t discuss specific nominees but said that he opposed “a former Federal Reserve governor” who was included in an early list of candidates prepared by the SEC’s staff. Mike Tetuan, a spokesman for TIAA-CREF, said Ferguson declined to comment.
“My concern was about the institution of the Federal Reserve and not any particular individual,” said Piwowar, who has complained about the Fed’s role regulating companies overseen by the SEC. “I didn’t want to give them more undue influence in areas in which they have no particular knowledge or expertise.”
That said the panel won’t be staffed entirely by current and former employees of the biggest HFT firms: present will be Brad Katsuyama who singlehandedly cost BATS CEO William O’Brien his job after the latter lied on CNBC about his business model.
The panel is expected to include representatives of Wall Street brokerage firms and academic researchers. IEX Corp. Chief Executive Officer Brad Katsuyama and former Senator Ted Kaufman of Delaware are expected to be named to the panel, two people with knowledge of the matter said.
Back in April, in a speech at the 2014 Financial Markets Conference hosted by the Atlanta Fed, Stiglitz said what Zero Hedge first posited 5 years earlier, namely that high-frequency trading makes markets less efficient while driving other investors to cloak their orders by placing them away from exchanges using dark pools, leading to less transparency, leading to premeditated market manipulation. Stiglitz’ speech “Tapping the Brakes: Are Less Active Markets Safer and Better for the Economy?” can be found here.
Normally, we would be disgusted by this latest example of corruption, cronyism, and the realization that rigged markets can never become unrigged as long as the fallible and easily bribable human elements is present. At this point, however, there is little sense: with the macro manipulators, the world’s central banks themselves, increasingly boxed in and with zero options left, what happens next not even the algos can prevent.
We will see you on Tuesday Jan 6.2015.
Expect huge volatility as markets will go all over the place
bye for now