Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1208.40 down $2.20 (comex closing time)
Silver: $16.35 down 16 cents (comex closing time)
In the access market 5:15 pm
The gold comex today had a poor delivery day, registering 0 notices served for nil oz. Silver comex registered 0 notices for nil oz.
Three months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 247.23 tonnes for a loss of 56 tonnes over that period.
In silver, the open interest rose by 1022 contracts even though yesterday’s silver price fell by 9 cents. The total silver OI continues to remains relatively high with today’s reading at 153,901 contracts. However the bankers are still loathe to supply much of the non backed silver paper.The January silver OI contract reads 15 contracts.
In gold we had a small decrease in OI with the fall in price of gold yesterday to the tune of $8.70. The total comex gold OI rests tonight at 392,885 for a loss of 1,136 contracts. The January gold contract reads 124 contracts.
TRADING OF GOLD AND SILVER TODAY
you have more important things to read instead of how gold/silver traded today.
Today, no change in tonnage at the GLD/ tonnes of gold/Inventory 704.83 tonnes
In silver, no change in silver inventory/
SLV’s inventory rests tonight at 328.457 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:
All rates moved in the positive direction with the exception of the 1 year GOFO. Now the one month GOFO rate left backwardation and it is now in contango
Sometime in January the LBMA will officially stop providing the GOFO rates.
Jan 8 2015
+.025% +0425% +.06% +.09 .15%
Jan 7 2014:
-.005% +.02% +.035 % +.09% +.1525%
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 fell today by 1,022 contracts from 394,021 down to 392,885 with gold down by $8.70 yesterday (at the comex close). We are now onto the January contract month. The non active January contract month saw it’s OI fall by 9 contracts down to 124. We had 6 contracts served yesterday. Thus we lost 3 contracts or 300 oz will not stand. Obviously this was cash settled with a fiat bonus. The next big delivery month is February and here the OI fell by 3,435 contracts to 216,438 contracts. The estimated volume today was poor at 58,892. The confirmed volume yesterday was also poor at 130,637 contracts, even though the high frequency traders gave some help with respect to volume. Today we had 0 notices filed for nil oz .
And now for the wild silver comex results. Silver OI rose by 1022 contracts from 152,879 up to 153,901 despite the fact that silver was down by 9 cents yesterday. The front January contract month saw its OI lower to 15 contracts for a loss of 76 contracts. We had 76 notices filed yesterday, so we neither gained nor lost any silver contracts standing for silver in the January contract month. The next big contract month is March and here the OI rose by 430 contracts up to 103,678. The estimated volume today was simply awful at 12,034. The confirmed volume yesterday was fair at 37,951. We had 0 notices filed for nil oz today. it sure looks like the bankers have scared away all investors wishing to play the comex. Leverage has completely disintegrated.
January initial standings
|Withdrawals from Dealers Inventory in oz||nil oz|
|Withdrawals from Customer Inventory in oz||64.30 oz (Manfra) 2 kilobars|
|Deposits to the Dealer Inventory in oz||nil oz|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||0 contracts(nil oz)|
|No of oz to be served (notices)||124 contracts (12,400 oz)|
|Total monthly oz gold served (contracts) so far this month||8 contracts(800 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 1 customer withdrawal (another farce)
i) out of Manfra: 64.3 oz (2 kilobars)
total customer withdrawal: 64.3 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 (8) x 100 oz or 800 oz to which we add the difference between the January OI (124) minus the number of notices served upon today (0) x 100 oz =13,200 the amount of gold oz standing for the January contract month. (.4100 tonnes of gold)
Thus the initial standings:
8 (notices filed for the month x 100 oz) +OI for January (124) – 0(no. of notices served upon today) =13,200 oz (.41 tonnes)
we lost 300 oz to cash settlements.
Total dealer inventory: 770,487.09 oz or 23.96 tonnes
Total gold inventory (dealer and customer) = 7.948 million oz. (247.23) tonnes)
Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 56 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 8 2015:
January silver: initial standings
|Withdrawals from Dealers Inventory||nil oz|
|Withdrawals from Customer Inventory||1,206,599.487 (Delaware,HSBC,Scotia) oz|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil|
|No of oz served (contracts)||0 contracts (380,000 oz)|
|No of oz to be served (notices)||15 contracts (455,000 oz)|
|Total monthly oz silver served (contracts)||104 contracts (520,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month|
|Total accumulative withdrawal of silver from the Customer inventory this month||2,922,045.2 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit: nil oz
we had 0 dealer withdrawal:
total dealer withdrawal: nil oz
We had 0 customer deposits:
total customer deposit nil oz
We had 3 customer withdrawals:
i) Out of Delaware: 6,154.807 oz
ii) Out of HSBC: 600,193.900 oz (one decimal???)
iii) Out of Scotia: 600,250.78 oz
total customer withdrawal: 1.206,599.487 oz
we had 0 adjustments
Total dealer inventory: 65.037 million oz
Total of all silver inventory (dealer and customer) 174.322 million oz.
The total number of notices filed today is represented by 0 contracts for nil 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 (104) x 5,000 oz to which we add the difference between the OI for the front month of January (15) – the Number of notices served upon today (0) 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:
104 contracts x 5000 oz= 520,000 oz +OI standing so far in January (15)- no. of notices served upon today(0) x 5,000 oz = 595,000 oz
we neither gained nor lost silver ounces standing for the 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 7.2015: we lost another exact 2.99 tonnes of gold inventory at the GLD/Inventory at 704.83 tonnes
Jan 6.2014: we lost 2.99 tonnes of gold inventory at the GLD//inventory 707.82 tonnes
Jan 5/2015 we gained 1.49 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!
Today, Jan 8/2015 / no change in gold inventory at the GLD /Inventory rests tonight at 704.83 tonnes
inventory: 704.83 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 : 704.83 tonnes.
And now for silver (SLV):
Jan 8.2015: no change in silver inventory/inventory at 328.457 million oz.
Jan 7.2015: we had another loss of 958,000 oz of silver from the SLV/Inventory 328.457 million oz
jAN 6.2015: we had a small loss of 149,000 oz/inventory 329.415 million oz
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
Jan 8/2015 / no change in silver inventory at the SLV to
registers: 328.457 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 9.1% percent to NAV in usa funds and Negative 8.7 % to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.7%
Percentage of fund in silver:37.8.%
( Jan 8/2015)
2. Sprott silver fund (PSLV): Premium to NAV rises to + 1.11%!!!!! NAV (Jan 8/2015)
3. Sprott gold fund (PHYS): premium to NAV falls to negative -0.52% to NAV(Jan 8/2015)
Note: Sprott silver trust back into positive territory at +1.11%.
Sprott physical gold trust is back in negative territory at -0.52%
Central fund of Canada’s is still in jail.
And now for your most important physical stories on gold and silver today:
Early gold trading from Europe early Thursday morning:
(courtesy Mark O’Byrne)
Savage Murder In Paris Shows Freedom, Western Societies and Economies Vulnerable
The savage attacks on the satirical magazine, Charlie Hebdo, in Paris leaving 12 dead yesterday shows how vulnerable western societies and economies are to the twin threats of terrorism and war.
The attacks pose threats to our already under attack freedoms – freedom of the press, freedom of privacy, freedom of religion, freedom of conscience, freedom of speech, expression and thought.
It poses risks to the open societies that have been regained in recent years – in terms of freedom of movement of goods, services and people in the EU and internationally. This in itself poses real risks to already fragile economies in France, the EU and internationally.
The concern is that this may be the opening salvo in a new wave of conflict between NATO states and supra-national and radicalised Islamic groups across the Middle East.
Eyewitnesses say and photos and videos show the hooded attackers brandishing AK-47’s operated with the clinical coolness of professional assassins or battled hardened military men. Although they have not been captured at this point French authorities have identified them as French men, possibly of Algerian extraction and they are being linked to Al Queda in Yemen.
As the attack began, it is alleged that they shouted to bystanders, “Tell the media that this is al-Qaeda in the Yemen.” Other reports say that they said this to a female employee as she left the building with her child, as they entered the building.
For the five million Muslims living in France, over 7.7% of the population, and for Muslims across Europe it promises to be an uncomfortable few months as a wave of distrust, hatred and anger sweeps through the wider society and intelligence agencies, the far right and governments seek to exploit the attack for their own purposes.
The attacks have brought more attention than could possibly have been expected on the book “Submission” by Michel Houellebecq which was featured on the cover of yesterday’s Charlie Hebdo magazine and the apparent motivation for the violence.
The book is reminiscent of the horrible 1930’s anti-Semitic propaganda or the alarmist Cold War slogans such as “The Russians are coming.” It fear mongers and portrays a France in 2022 which has become an Islamic theocracy when a fringe Islamic party seizes control of the state through the democratic process in similar fashion to the Nazi party in 1933.
It is silly and will never happen but worse, it is prejudiced, Islamophobic and anti-Muslim and designed to create fear of Muslims – the majority of whom are normal, peace loving human beings.
It is particularly tragic that France should have been targeted by terrorists given that they voted in favour of Palestine taking a seat at the International Criminal Court only in December.
France has been an ambiguous NATO member in recent years. They are in the process of finishing the production of two battleships which were ordered by Russia before the Ukraine crisis began.
There is a risk of refraining to the simplistic and dangerous narrative of the fabled “Clash of Civilisations” that arms companies, militarists and terrorists globally are intent on provoking.
We must break the vicious loop – militarists use terrorism to justify war and terrorists use war to justify terrorism. We are slow learners that violence does not work and only breeds more violence.
Some would use terrorism to close borders, others to promote war and a further erosion of our civil liberties and civil rights. Instead, we should seek to address the root causes of terrorism which is poverty and injustice.
Nearly four years of war in Syria has created a staggering humanitarian crisis, with a huge one-third of the country’s original 23 million inhabitants displaced and more than three million of those registered as refugees in other countries.
“It is like the seven plagues of the Bible falling on these poor people,” Jan Egeland, the secretary general of the Norwegian Refugee Council, said yesterday.
Perpetual war in the Middle East and North Africa will lead to even more suffering in the region. Potential war with Russia does not bear thinking about.
The consequences of war are innocent victims, poverty and injustice. This is a breeding ground for the terrorists of today and tomorrow.
Unless as a race we change direction and there are always alternatives – the prospect for greater instability in the form of terrorism and war in the near future is very high.
Get Breaking Gold News and Updates Here
Today’s AM fix was USD 1,206.50, EUR 1,025.06 and GBP 800.97 per ounce.
Yesterday’s AM fix was USD 1,213.75, EUR 1,023.83 and GBP 802.37 per ounce.
Spot gold fell $6.60 or 0.54% to $1,212.30 per ounce yesterday and silver rose $0.01 or 0.06% to $16.54 per ounce.
Further weakness in the euro today has lifted gold priced in the single currency by 0.2 percent to over 1,025 euros an ounce. Gold in euros is has risen risen 4.4% this year after the 11% gain in 2014 as gold seeks to price in the twin risks of Grexit and or Draghi’s money printing ‘bazooka’.
Euro-denominated gold has consolidated after breaking above EUR 1,000/oz for the first time since last March on Monday, to reach a 15-1/2 month high at EUR 1,029.81/oz yesterday.
Gold in pounds has been an even stronger performer since the start of the year and has risen from GBP 760 to over GBP 800 per ounce today or 5.2%, compared to a 1.9% rise in dollar terms.
Gold has fallen two days in a row as global equities rebounded and as traders took profits after gains in recent days.
Tomorrow’s closely watched U.S. non farm payrolls report, a key barometer of the U.S. economy, is estimated to show an increase of 240,000 and the unemployment rate dropping to 5.7 percent.
World stocks rose as signs of sluggish global economies increase speculation that central banks will support stimulus efforts.
Silver slipped by 0.7 percent at $16.35 an ounce, while platinum was up 0.1 percent at $1,215.10 an ounce and palladium was down 0.3 percent at $785.72 an ounce
A very important discussion with John Embry and Eric King.
John states correctly that the strength in the USA dollar is not due to strength in the uSA economy but the unwinding of the various carry trades:
1. the huge 9 trillion dollar carry trade in which huge amounts of “carry” oil attaches onto the trade.
2. the yen carry trade whereby many are getting out of the short yen and assets purchased with it.
a must read….
(courtesy John Embry/Eric King/Kingworldnews/GATA)
Only fall of euro and yen make dollar look strong, Embry says
12:50p ET Wednesday, January 7, 2015
Dear Friend of GATA and Gold:
The U.S. dollar looks strong lately only because the euro and yen have been declining sharply, Sprott Asset Management’s John Embry tells King World News today.
“The U.S. economy is nowhere near as strong as the government’s falsified macro-numbers and the extremely bogus jobs numbers would suggest,” Embry says. “In fact, numerous macro-numbers and anecdotal evidence suggest that the United States may be lapsing into recession, despite the massive doses of liquidity that have been injected into the system.”
An excerpt from the interview is posted at the KWN blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
For our history buffs out there: we now have documentation as to why the Bank of England abandoned the gold standard in 1931. Simple reason enough: they ran out of gold metal/ and did not have enough metal to cover losses.
How the Bank of England abandoned the gold standard: The metal simply ran out
The metal ran out again in March 1968 and forced the closing of the London Gold Pool. Someday the metal will run out one more time.
* * *
By James Titcomb
The Telegraph, London
Wednesday, January 7, 2015
The circumstances leading up to the Bank of England’s abandonment of the gold standard in 1931 have been detailed by letters between the bank and the government from the period, which were released today.
Amid the Great Depression, during which many countries around the world sufferered economic turmoil, investors in Paris and New York lost confidence in the pound.
At the time, sterling was pegged to bullion. This meant that the pound was worth a fixed amount compared to other currencies and gold itself. In order to ensure that sterling retained its value, the Bank of England was obligated to exchange gold for pounds at the specified rate.
However, as political turmoil engulfed the UK, the country’s first national government — a coalition between Labour and the Conservatives — presided over a budget crisis that triggered a run on the pound.
Minutes from the bank’s court in 1931, published today, detailed how foreign exchange reserves were being drained to such an extent that the gold standard had to be abandoned. …
… For the remainder of the report:
A terrific history on Turkey being an important gold centre throughout the ages.
(courtesy Koos Jansen)
One the most interesting gold markets around, but least talked about, is the Turkish gold market. The Turkish people have a strong tradition that goes back thousands of years to save in physical gold and it’s estimated 5,000 tonnes of gold are owned privately. Additionally, the Turkish central bank (CBRT) has implemented a model in 2011 that allows commercial banks to use physical gold for reserve requirements.
In contrast to what the above chart may suggest the CBRT bought zero grams of gold in the past years on the open market. All gold added to their balance sheet since 2011 is gold from commercial banks that are allowed to use gold for reserve requirements (RR) by the CBRT. The footnote on the World Gold Council’s sheet on global official gold holdings states:
Gold has been added to Turkey’s balance sheet as a result of a policy accepting gold in its reserve requirements from commercial banks.
I started researching the Turkish gold market about a year ago. Though I haven’t figured this market out in detail, I decided to go ahead and publish what I learned thus far, as this is an important story; the Turks have monetized gold through a model that soon might be implemented in other countries.
On the 11th India International Gold Convention, September 12 – 14, 2014, many keynote speakers expanded on the possibilities of monetizing India’s 20,000 tonnes private gold hoard. Soon after the World Gold Council and the Federation of Indian Chambers of Commerce and Industry (FICCI) released a report titled Why India Needs A Gold Policy, proposing India to develop its gold industry; launch a new gold exchange and monetize gold.
In this post we’ll skim the surface on the Turkish gold model, in a future post we can add more texture.
Next to articles available on the internet about this subject, I used the following sources for my analysis:
- The CBRT, that wrote me three official letters in response to my inquiries.
- Two employees from two different Turkish commercial banks. Both insisted not to disclose the name of their banks.
- An employee from the Dutch central bank (DNB), who explained me the structure between commercial banks and their central bank in general and how the Turkish model fits in. (I’m not a schooled banker.)
Brief History Of The Turkish Gold Market
Worth noting is that the first coins of precious metals are believed to have been minted in Lydia, in what is now part of modern day Turkey, around 650 BC. The Kingdom of Lydia was a province of the Achaemenid Persian Empire.
When the Romans entered the Lydian capital Sardis in 133 BC, the region became part of the Eastern Roman Empire, which was also referred to as the Byzantine Empire. Through the 5th century the Western Roman Empire fragmented and collapsed, the Byzantine Empire survived and became one of the most flourishing and resilient economies in the world. The empire’s capital Constantinople, modern day Istanbul, was a trading hub in a network that at various times extended across nearly all of Eurasia and North Africa. Located at the western end of the Silk Road it connected the Orient with Europe.
Coins were the basic form of money though credit did exist, according to archival documents that describe the Byzantine banking system. The Empire’s monetary system functioned for more than a thousand years, from 312 to 1453, because of its relative flexibility. The Byzantine economy was among the most advanced in the region (Europe, North Africa, Middle East).
Since the creation of the Byzantine monetary system by Constantine in 312, its pivot had been the golden Solidus (the Latin word for solid). This coin was a highly priced and stable means of storing and transferring value.
Constantinople fell in 1453 when it was invaded by the Ottoman Empire; in which the financial and political interests of the state dominated the economy. The Byzantine era came to an end, though gold and silver remained a common store of value among the population in the region.
Mustafa Kemal Atatürk was the first President who came in power (1923) of what now officially is called The Republic Of Turkey, founded in the aftermath of World War I. After World War II a period followed of state guided industrialization based on import substituting protectionism. In 1980 Turkey started to liberalize its economy. With regard to gold the most significant developments were:
- 1983, the ban on gold jewelry exports was lifted.
- 1993, the Turkish central bank’s monopoly on the import of gold was lifted.
- 1995, the Istanbul Gold Exchange was established – currently named Borsa Istanbul.
- 2002, the Istanbul Gold Refinery was launched.
- 2011, the Turkish central bank allowed commercial banks to hold gold for reserve requirements.
Additionally, the Turkish State Mint, the world’s largest producers of gold coins in the past years, still plays an important role in producing 22-karat Republic coins.
In September 2011 the CBRT announced 10 % of Turkish Lira RR of commercial banks could be fulfilled in US dollars or euros and an additional 10 % in physical gold. The percentages were timely increased; gold was increased to 20% in March 2012, then to 25% in June and finally 30% in August. This press release from the CBRT is the earliest I could find on the subject:
No: 2011 – 35
12 September 2011
PRESS RELEASE ON REQUIRED RESERVES, REDISCOUNT CREDIT IMPLEMENTATIONS AND FOREIGN EXCHANGE SELLING AUCTIONS
The Monetary Policy Committee (the Committee) at the interim meeting on August 4, has laid out the ground for a timely, controlled and effective provision of liquidity to the market in case of a possible financial turmoil that may be triggered by global developments and decided the implementation of a comprehensive package of measures gradually according to conditions.
Since the last two meetings, the data announced for the advanced economies and the recent developments have led to increased concerns regarding sovereign debt problems in some European countries and the global growth outlook. In this context, not only in order to meet the Turkish lira liquidity needs of the banking system in a more permanent way and lower cost, but also support and use Central Bank’s foreign exchange reserves timely, controlled and effectively, the implementation of the following additional measures has been decided.
2) With the same Communiqué, gold deposit accounts, showing a rapid increase in recent periods, have also been included in the coverage of the reserve requirements.
On the other hand, as a new flexibility provided to the banking system, the facility of maintaining reserves requirement as “standard gold” at the accounts of Central Bank against the total amount of reserve requirement maintained for the precious metal deposit accounts and up to 10 percent of reserves requirement for foreign currency liabilities excluding precious metal deposit accounts, has been provided.
From the CBRT bulletin June 23, 2012:
To strengthen the build-up of the CBRT’s gold reserves and to provide the banking system with more flexibility in liquidity management, the CBRT enabled the facility that allows banks to hold a part of their reserve requirements for Turkish lira deposits in gold as well as FX, and for FX deposits in gold.
To understand who benefits from this scheme, we must first examine how a (Turkish) commercial bank balance sheet looks like. Below is a simplified example:
Most CB’s around the world, not all, require a fixed percentage of bank deposits to be held in reserve at the CB. In some countries this is 1 % of total deposits (ECB), in others it’s 20.5 % (China), in Turkey it’s 8.5 %. The reserve ratio, is calculated as:
CB / S + D
The capital ratio is calculated as:
E / total
A bank holding reserves in excess of the required amount is said to hold excess reserves. The interest rate banks receive from their CB on excess reserves can be different from the rate on RR.
When in October 2011 Turkish banks could fulfill RR in gold, this freed Turkish Lira (TL) liquidity. The amount of TL needed to meet RR prior to October could now be replaced by gold and subsequently be used to be create new TL loans.
Turkish banks attract gold deposits by offering an interest on gold time deposits. On average a one-year deposit yields 0.8 % paid in physical gold. Example, if a customer of Garanti Bank is willing to lend 10,000 ounces for one year to the bank (bank deposits are technically a loan to a bank), he or she will receive 10,080 ounces when the loan comes due; gold profit for the customer.
During the loan Garanti can use the gold to meet RR at the CBRT. The TL that are freed by this can be used to make investment that yield higher than 0.8 %. The difference in yield is profit for the bank. I think it’s likely Garanti will hedge itself against gold price fluctuations to pay the interest.
In addition Turkish banks are allowed to use their own gold assets to fulfill RR, and FX gold deposits. Some snippets from an email the CBRT wrote me:
…As it can be seen, banks with even “zero” amount of gold deposits opened by customers, can fulfill some part of their Turkish lira required reserve obligation by depositing gold to the Central Bank, of course if they possess gold in their assets. And of course this amount of gold will show up in Central Bank balance sheet under two items: as “liability” to the bank which brought this gold, and as “assets” of the Central Bank because the Central Bank now “owns” this amount of gold for a specific period (until the end of the RR maintenance period). This is how Central Bank official gold holdings increase.
Options do not exist only for Turkish lira required reserves. There is also an option for the maintenance of the “foreign currency [FX] required reserves”.
In the chart we can clearly see how much gold is added to the CBRT balance sheet over the years without the CB having bought a single gram – this is what the CBRT wrote me.
Once gold is deposited at a commercial bank there is a risk of losing it. The rule of thumb is “no risk, no return”. If Turks deposit gold at a bank they receive an attractive interest instead of having to pay a storage fee. But what happens to their gold if the bank becomes insolvent? It can vanish. Technically they lend it to the bank, partially the interest on a loan is to compensate for the risk of default. The pitfall is that most gold depositors are unaware of the risks. Banks have little incentive to disclose risks when a customer walks in to make a deposit. Have you ever been told by a bank there is a risk of losing your deposit?
People own physical gold to hedge against inflation or financial meltdowns; as happened on a global scale in 2008 and more recently in Cyprus early 2013 – in Cyprus the bail-in template was first introduced. The last thing you want is your gold in a bank when they decide not to open on any given Monday.
I’m not against the Turkish model because in a free market every participant in the economy should be allowed to lend any currency to his or her discretion. My concern is, however, that the majority of depositors are not aware of the risks ofbanking.
E-mail Koos Jansen on: email@example.com
India not planning further curbs on gold imports, trade secretary says
Tanya Ashreena and Meenakshi Sharma
Wednesday, January 7, 2015
India is not planning to impose any further curbs on gold imports as the current account deficit is under control, Trade Secretary Rajeev Kher said on Wednesday.
The South Asian country has imported 7 tonnes of gold so far in January, while 39 tonnes of gold was imported in December, Kher said after a meeting with industry representatives. India’s gold imports in November were 151.58 tonnes, according to the government data. …
… For the remainder of the report:
And now for the important paper stories for today:
Early Thursday morning trading from Europe/Asia
1. Stocks strong on major Asian bourses with the Evans speech that raising rates is a catastrophe / the yen falls to 119.86
1b Chinese yuan vs USA dollar/ yuan weakens to 6.2149
2 Nikkei up 282 points or 1.67%
3. Europe stocks in the green /Euro crashes/ USA dollar index up to 92.49/
3b WOW!!! Japan 10 year yield at .29% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.86/
3c Nikkei now above 17,000
3e The USA/Yen rate just below the 120 barrier this morning/
3fOil: WTI 48.89 Brent: 51.43 /all eyes are focusing on oil prices. This should cause major defaults.
3g/ Gold down/yen down;
3h/ Japan is to buy the equivalent of 108 billion usa dollars worth of bonds per MONTH or $1.3 trillion
Japan’s GDP equals 5 trillion usa/thus bond purchases of 26% of GDP
3i Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt (see Von Greyerz)
3j Oil rises this morning for both WTI and Brent
3k China to stimulate its economy by 1 trillion dollars worth of infrastructure
3l Germany’s Merkel states that she is OK with a GREXIT/immediately the euro crashes./Syriza gaining in strengtph/Greek 3 yr bond yield over 15.5%
3m Gold at $1206. dollars/ Silver: $16.38
3n USA vs Russian rouble: ( Russian rouble up 2 roubles per dollar in value) 61.25!!!!!!
3 0 oil rises into the 48 dollar handle for WTI and 51 handle for Brent
3p volatility high/commodity de-risking!/Europe heading into outright deflation including Germany/Germany has low unemployment/Italy very high unemployment (high jobless rate)/Germany bad factory order numbers/
3Q France is still reeling after another shooting in the south of Paris.
Do not know if the two shootings are related
4. USA 10 yr treasury bond at 1.99% early this morning. Thirty year rate well below 3% (2.56%!!!!)/yield curve flattens/foreshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid
(courtesy zero hedge)/your early morning trading from Asia and Europe)
Market Wrap: Evans’ “Catastrophe” Comment Blasts Overnight Futures Into Overdrive, 10-Year Rises To 2%
After subdued trading in the overnight session until a little after 8pm Eastern, algos went into overdrive just around the time the Fed’s 2015 voting member and uberdove Charlie Evans told reporters that “raising rates would be a catastrophe”, hinting that the first rate hike would likely be – as usual – pushed back from market expectations of a mid-2015 liftoff cycle into 2016 or beyond (but don’t blame the US, it is the “international situation‘s” fault), in the process punking the latest generation of Eurodollar traders yet again. Whatever the thinking, S&P futures soared on the comments and were higher by just under 20 points at last check even as Crude has failed to pick up and the 10Y is barely changed at 2.00%.
European equities (Eurostoxx50 +1.6%) trade in positive territory after overnight gains in Asia (Nikkei +1.7%) following post-FOMC Minutes remarks from Fed’s Evans in which the market perceived as dovish. However, since the open equities have slowly drifted lower as markets remain on the back foot given the ongoing man hunt and continued troubles in France.
In stock related news, UK retailer Tesco (+6.4%) maintained its profit guidance after four consecutive profit warnings and Marks & Spencer (-3%) trading update missed expectations. Firmer equities have in turn weighed on Bunds and T-notes (-10 ticks), where both French and Spanish supply was smoothly absorbed into the market. The GE/GR 10yr spread (-11bp) is seen tighter after two polls further indicated the SYRIZA’s lead narrowed ahead of the 25th January snap election and reports that Germany are open to Greek debt talks after election, according to lawmakers, citing possible easing of Greek repayment terms. However, they are not open to a Greek debt write-off.
Heading into the US entrance the USD (+0.41%) trades near session highs as EUR/USD hit 9 year lows on the break below 1.1800. Reported hedge fund selling of EUR/GBP also weighed on the pair. Elsewhere, GBP/USD traded at its lowest levels since July 2013 after tripping stops through 1.5050 as the USD weighed on the pair.
In the energy complex, Brent and WTI have traded sideways and have held onto gains. Brent trading above $51, holding rebound after price drop yday under $50 to lowest for front-mo. since 2009. WTI gains, narrows discount to Brent to $2.16, tightest spread since Oct. Brent futures “recovered from its 1st test below the $50 level since April 2009 to settle at $51.15/b, up $0.05 from the prior close,” says Citi Futures energy futures specialist Tim Evans. “The recovery suggests that the mkt has fallen enough to reflect its weak fundamental prospects, at least for now.” Citibank analyst Fitzpatrick sees WTI bottoming nr ~$45.50. Feb. Brent +20c at $51.35, range $50.71-$51.91; yesterday fell to $49.66 intraday. February WTI +26c at $48.91, fell to $46.83 yesterday lowest since April 21, 2009.
Meanwhile, NatGas futures slid to a two year low overnight as US temperatures appear to be turning milder. Separately, Precious metals slide with Silver underperforming (-1%) alongside the USD strength. Copper saw marginal gains overnight and is on course for its first increase for 2015 amid an increased appetite for riskier assets, while China’s iron futures declined as investors declined on continued underlying weak demand.
HSBC says they are raising their average gold price forecast for 2015 to USD 1,234.00 from USD 1,175.00, leaves 2016 unchanged at USD 1,275 and say raising 2015 gold forecast based on the possibility that further USD strength could trigger safe haven demand for bullion.
In Summary: European shares rise close to intraday highs with the retail and health care sectors outperforming and tech, real estate underperforming. German factory orders fall more than expected in November, which in turn pushed the plunging EURUSD to fresh multi-year lows just above 1.176. The French and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is weaker against the dollar. Irish 10yr bond yields rise; Japanese yields decline. Commodities gain, with natural gas, silver underperforming and zinc outperforming. U.S. jobless claims, consumer credit, Challenger job cuts due later.
Looking over today’s calendar we kick off this morning in Europe with November factory orders data for Germany. This is followed up later with various prints for the Euro-area including PPI, retail sales and various confidence indicators. As well as this we also have the BoE decision this morning. This afternoon in the US, we have more employment data with the Challenger job cuts reading for December as well as the initial claims numbers. November consumer credit rounds off the releases.
- S&P 500 futures up 0.7% to 2034.4
- Stoxx 600 up 1.6% to 338.7
- US 10Yr yield up 3bps to 2%
- German 10Yr yield up 1bps to 0.49%
- MSCI Asia Pacific up 1.2% to 136.4
- Gold spot down 0.5% to $1205.7/oz
- 19 out of 19 Stoxx 600 sectors rise; retail, health care outperform, tech, real estate underperform
- 91.3% of Stoxx 600 members gain, 8% decline, Eurostoxx 50 +1.8%, FTSE
100 +1.3%, CAC 40 +2%, DAX +1.4%, IBEX +1.7%, FTSEMIB +1.8%, SMI +1.8%
- Asian stocks rise with the Nikkei outperforming and the Shanghai Composite underperforming. MSCI Asia Pacific up 1.2% to 136.4, Nikkei 225 up 1.7%, Hang Seng up 0.7%, Kospi up 1.1%
- Euro down 0.57% to $1.1771
- Dollar Index up 0.56% to 92.4
- Italian 10Yr yield up 1bps to 1.92%
- Spanish 10Yr yield up 2bps to 1.71%
- French 10Yr yield up 1bps to 0.8%
- S&P GSCI Index up 0.4% to 398.2
- Brent Futures up 0.5% to $51.4/bbl, WTI Futures up 0.6% to $48.9/bbl
Bulletin Headline Summary:
- European equities remain higher, although have slightly pulled off best levels, helped by dovish comments from Fed’s Evan’s
- Looking ahead sees the BoE rate decision (1200GMT/0600CST) with analysts expecting rates to be left unchanged as well as US initial jobless claims (1330GMT/0730CST)
- Treasuries decline, 10Y rises above 2.00% amid gains in stocks, stabilization in crude oil, nearly $32b investment-grade deals over last two days; Dec. nonfarm payrolls due tomorrow, est. +240k, unemployment rate to 5.7% from 5.8%.
- China isn’t planning to expand fiscal spending to stimulate growth, according to the economic planning agency, as President Xi Jinping said the country is able to maintain a “medium to high growth” rate
- Kaisa Group Holdings Ltd., the Chinese developer that defaulted on a loan last week after its chairman departed, can’t say if it plans to meet a coupon payment today as a local news website said lenders took steps to preserve assets
- German factory orders slid 2.4% in Nov., first decline in three months, after a revised increase of 2.9% in October, data from the Economy Ministry in Berlin showed
- German 10Y yields, already at the lowest on record, may drop to near zero, according to Royal Bank of Scotland Group
- Paris was in a state of turmoil as a shooting south of the city today claimed the life of a policewoman and police continued to seek two of the perpetrators of yesterday’s massacre at satirical magazine Charlie Hebdo
- The youngest suspect in the deadly attack on Charlie Hebdo has surrendered, according to the Paris prosecutor’s office, as the police named two assailants still at large
- Cherif Kouachi, one of the suspects, was arrested by French police a decade ago for his role in a jihadist recruitment cell
- Greek Prime Minister Antonis Samaras’s effort to overtake opposition Syriza party’s lead before elections in less than three weeks is running out of steam, polls show
- The majority of money gathered by Bill Gross’s new fund at Janus Capital Group Inc. came from the same Morgan Stanley brokerage where his personal financial adviser works, according to the WSJ
- Sovereign yields mostly higher. Asian stocks mostly higher; Shanghai -2.3%; European stocks, U.S. equity-index futures gain. Brent crude, WTI higher; copper gains, gold lower
As is customary, DB’s Jim Reid concludes the overnight summary
After marking the start of 2015 with 3-consecutive days of losses, markets rebounded yesterday with equities rallying across the board. As well as the release of the FOMC minutes, there was plenty for the market to focus on with softer European inflation data lifting hopes of ECB QE and stronger US employment perhaps the highlights. The S&P 500 closed +1.16%, snapping 5 sessions of consecutive losses whilst the Dow recovered +1.23%. Energy stocks (+0.34%) and US HY energy names (-10bps) rallied following a rebound in WTI (+1.50%) although that masks what was another volatile day for oil markets which we’ll touch upon later. Credit markets also firmed with CDX IG finishing around 1.5bps tighter. With a better tone in the market US Treasuries weakened, the benchmark 10y yield failed to hold a brief move back above 2% but still finished the day 2.8bps higher at 1.968% – bouncing off the recent lows in yield. One theme which continues however is the stronger Dollar. The DXY index strengthened +0.43% yesterday and supported in part by what was a strong ADP employment report. The +241k reading came in ahead of +225k consensus and improved from the upwardly revised +227k in November. The print was also the strongest since June and comes before the ever-important payrolls numbers tomorrow. Elsewhere, a narrowing of the trade deficit (-$39bn from -$43.4bn) was the other notable release. Our US colleagues noted that the print benefited from an 11.9% decline in petroleum imports and highlights the fact that falling energy prices will provide a meaningful tailwind for consumer spending.
In terms of the FOMC minutes yesterday, the release was largely seen as a non-event with nothing of great surprise in the details. The minutes confirmed that we are unlikely to see ‘lift-off’ before April this year, specifically noting that ‘most participants thought the reference to patience indicated that the committee was unlikely to begin the normalization process for at least the next couple of meetings’. With regards to inflation, the Fed made reference to concern that some members noted the risk of inflation running below the 2% target, however the minutes also mentioned that ‘it was noted that the committee might begin normalization at a time when core inflation was near current levels, although in that circumstance participants would want to be reasonably confident that inflation will move back towards 2% over time’ – signaling that the drop in inflation itself will not necessarily stop the Fed from moving. Perhaps of more interest was discussion over the difference between pricing for market-based measures of expected Fed Funds rate and the Fed’s SEP projections. The minutes noted that one possibility could be that market-based measures could be assigning greater weight to less favorable outcomes for the US economy relative to the Fed itself, and therefore suggest the Feds Funds rate would remain low for some time. In terms of the overall minutes however, there was little for the market to react to.
Coming back to oil markets yesterday, both WTI and Brent (+0.10%) closed firmer at $48.65/bbl and $51.15/bbl respectively, recovering somewhat from 4-days of consecutive losses – although both traded as much as 2-3% lower intraday before recovering post the EIA inventories report. The recovery appeared to be as a result of data showing crude inventories decreasing by 3.1m barrels in the week ending January 2nd (relative to the previous week) – although we note inventories still remain at the high end of the seasonal range. The data appeared to make for mixed reading however with the WSJ noting that US stockpiles of crude, along with refined oil and other types of petroleum rose nearly 1% to 1.149bn barrels over the week. The earlier news from Saudi could be a more interesting story longer-term. Crown Prince Salman (stepping in for the ill King) yesterday seemed to emphasise more demand side causes for the slide in oil rather than the previously emphasised supply side explanations that they have generally been holding responsible. This could matter as it may eventually give the Saudis and other GCC states an excuse to change tact on production sooner than the next OPEC meeting in June on the basis that if the facts have changed so might their policies. This is perhaps 2+2=5 but with Oil continuing its slide one has to watch OPEC’s reaction carefully as they could create the basis for a snap back if they decide to alter their stance.
Turning our attention to this side of the pond, risk assets in Europe also had a strong day with the Stoxx 600 closing +0.48% and Crossover rallying 16bps. The better tone was supported by a soft Euro-area inflation print, lending support to the hopes of imminent ECB QE with inflation now running well below target. The headline reading of -0.2%yoy for December came in a touch below consensus (-0.1%yoy) but was significantly down from November’s +0.3% print. The negative reading also marked the first sub-zero print since 2009. Core inflation was, however, more encouraging with the +0.8% ahead of the +0.7% consensus – emphasizing the disinflationary effects of energy prices. 5y5y breakeven levels initially dropped to a low of 1.504%, around 6bps lower, although it closed nearly 2bps up at the end of play (1.585%). Rounding off yesterday’s data, unemployment for the Euro-area remained unchanged at 11.5% although the reading declined modestly in Germany (6.5% from 6.6%). Retail sales in the latter also improved during November rising 1%mom (vs. +0.2% expected).
Elsewhere, Greek equity markets were open again yesterday although the ASE (-1.46%) extended its recent lows. Greek bonds fared little better. 3y (+160bps) and 10y yields (+94bps) climbed to 15.65% and 10.69% respectively – the latter breaking through 10% for the first time since mid-2013. The moves come following the latest opinion polls (GPO) which showed SYRIZA maintaining its 3% lead over its nearest rivals the New Democracy party Our resident expert George Saravelos noted that the figures showed something of a collapse in support for smaller parties and that due to polling technicalities in Greece, this means a greater number of seats to the first party thus potentially favoring a SYRIZA outright win. Staying on Greece, a report from French newspaper Le Monde noted European Economic Affairs Commissioner Moscovici favoring keeping Greece in the Euro-zone, stating that ‘it’s important for monetary union’. In the same report however, when questioned over any potential negotiation of a new schedule for Greek debt with SYRIZA, Moscovici commented that ‘this question is not on the agenda any more than that of a Grexit’. Additionally, a Reuters report yesterday cited German newspaper Bild as saying that Germany has started running scenarios for the Greek elections at the end of the month in case of a SYRIZA victory. The article suggests that Germany is making contingency plans for a possible ‘Grexit’.
Quickly refreshing our screens this morning, bourses in Asia are following the lead from the US and generally trading stronger. The Nikkei (+1.76%), Hang-Seng (+0.48%) and Kospi (+1.11%) are all firmer. Chinese equities are the notable underperformer however with both the Shanghai Composite (-1.67%) and CSI 300 (-1.80%) lower – although it appears the weaker sentiment is more profit taking than anything else. Just on China, in response to the Bloomberg article regarding the reported $1tn stimulus package our DB China colleagues noted this morning that they do expect aggressive policy easing to happen in 2015, and see March as a more likely start date given their view that activity data over the first two months of this year will likely surprise to the downside.
France is in turmoil/another explosion near a mosque and another policewoman shot and killed.
(update on yesterday’s shooting in France/courtesy zero hedge)
France Update: Explosion Near Mosque, Policeman Shot In Paris, Countrywide Manhunt For Suspects
Following yesterday’s shocking murder of 12 people at the Charlie Hebdo headquarters, there has been much confusion and many rapidly moving parts in the hours that followed as authorities try to catch the two remaining killers, the 32 and 34-year old Kouachi brothers, after earlier the youngest of three French suspects turned himself in to police after, as BFM TV reported, he saw his in social media. The arrest was confirmed by an official at the Paris prosecutor’s office said. Several people linked to two other suspected attackers were also in custody, the news agency AFP reported. The manhunt for the two remaining suspects goes on.
Indicative of the confusion and false information is the following report from NBC Nightly News which turned out to be fake:
How did the rumor spread to the very top of the food chain? From NBC: “Earlier Wednesday, two senior U.S. counterterrorism officials told NBC News that one of the suspects in the attack had been killed and that two others were in custody. However, the officials later said the information that was the basis of that account could not be confirmed.”
What we do know about the two remaining suspects as the countrywide manhunt deepens is that they were said to have robbed a service station in the north of France. According to BBC, they stole food and petrol, firing shots as they struck at the roadside stop near Villers-Cotterets in the Aisne region, French media report.
According to the manager of the service station that was robbed on the RN2 road in Aisne at about 10:30 (09:30 GMT), the attackers fit the description of the two men, and were heavily armed with Kalashnikovs and rocket-propelled grenade launchers.
Earlier in the day, a policewoman was killed in a shootout in southern Paris on Thursday, triggering searches in the area as the manhunt widened, Reuters reports.
Police sources could not immediately confirm a link with the killings at Charlie Hebdo. Montrouge mayor Pierre Brossollette said the policewoman and a colleague went to the site to deal with a traffic accident. A car stopped and a man got out and shot at them before fleeing.
Witnesses said the shooter fled in a Renault Clio car. Police sources said he had been wearing a bullet-proof vest and had a handgun and assault rifle. However, one police officer at the scene told Reuters the man did not appear to fit the bill of the Charlie Hebdo shooters.
Live French television showed around a dozen police dressed in protective wear and helmets massed outside a building near the scene of the shoot-out. A second person was seriously injured in the attack in the suburb of Montrouge, after which the gunman fled.
Finally, a backlash in France may be forming when asReuters also reported, an explosion rocked a kebab shop next to a mosque in Villefrance-sur-Saone in eastern France early on Thursday morning, a police source told Reuters.
“The window was blow out by an explosion in the night. The kebab shop was adjacent to a mosque,”the source said, adding it appeared to be a criminal act. French media reports said there were no wounded.
While we follow the latest updates and ongoing developments in the most deadly militant attack on French soil in decades, we remind readers of what we observed was the common theme in the most popular Zero Hedge articles of 2014: “civil unrest.” In that regard one can note that 2015 is so far nothing but a very bad, and unfortunately deadly, continuation of last year.
Huge increase in corporate bankruptcies, coupled with an increase in the number of citizens on welfare (and a huge increase of seniors on welfare. The reason for the increase: increase in the cost of living.
Abenomics is one complete failure.
(courtesy zero hedge)
Krugman’s Japanese Legacy: Record Households On Welfare, Corporate Bankruptcies Soar, Majority Of Households Worse Off
A little over two years into Abenomics, and two months after learning that one of Abe’s economic advisors is none other than Paul Krugman, here is the progress report for what little is left of Japan’s economy:
1. The number of households in Japan on welfare hit a record high in October, renewing the record for a 6th straight month. From NHK: Officials at the Welfare Ministry say households receiving welfare benefits climbed by nearly 3,300 from the previous month to about 1.61 million.
That’s the highest number since the government began compiling records in 1951.
Households on welfare with people aged 65 or older rose by nearly 2,500 to about 761,000. That accounted for 47 percent of the total.
2. 51.1% of Japanese households said they’re worse off compared with year earlier, the most since December 2011, according to Bank of Japan quarterly survey released today in Tokyo.
Why? 71.1% of those who said their livelihoods have deteriorated cited rising prices as a reason. Thanks Abe, and thanks Abe for crushing the economic conditions diffusion index which dropped to -32.9, the lowest since Dec. 2012. Precisely when Abe took power.
3. Corporate bankruptcies linked to weak yen rose to a record 345 in 2014 from 130 a year earlier,according to a Teikoku Databank report. Weak yen-linked bankruptcies in Dec. totaled 44, the most on monthly basis since survey started in Jan. 2013.
* * *
In short, one has to be go full-Krugman at this point to conclude that what a Krugman-advised Japan has achieved is anything but utter, abysmal failure, and is on its way to a complete currency devaluation, hyperinflation, economic (and demographic) collapse, and the inevitable outcome: a failed Keynesian state. The good news: what few (irradiated) Japanese are left alive, will have an all time high Nikkei to enjoy, however they will be limited to how many shares they can sell based on the inventory of available wheelbarrows to cart their stock sale proceeds from point A to point B.
The big Chinese real estate developer, Kaisa will no doubt default o its 5 billion dollars worth of bonds today. The owe approximately 26 million dollars in interest payments. This is going to hurt and it may bring down others. I guess all of you will now believe us when we say that China is dramatically slowing down.
(courtesy zero hedge)
Chinese Developer Kaisa On Verge Of $5Bn Default; Who’s Next?
“You never know where the skeletons in the closet are or what company will be next,” warns one Chinese credit analyst and as the CNY30 billion indebted Chinese developer Kaisa Group (that we initially discussed here) admits it can’t say if it plans to meet a bond deadline today as a local news website said lenders took steps to preserve assets. The builder of residential communities and shopping centers must pay about $26 million in interest on its 10.25 percent 2020 debentures today (which appears unlikely) and its bonds have crashed to below 30c. The big question, as Bloomberg notes, is who’s next?
Kaisa’s capital structure (over CNY30 billion in debt) not so different from every other massively levered Chinese developer…
As Bloomberg reports, we are at the deadline for Kaisa…
Kaisa Group Holdings Ltd., the Chinese developer that defaulted on a loan last week after its chairman departed, can’t say if it plans to meet a bond deadline today as a local news website said lenders took steps to preserve assets.
The builder of residential communities and shopping centers must pay about $26 million in interest on its 10.25 percent 2020 debentures today, according to the prospectus. The developer can’t answer the question of whether it plans to meet the payment, Lin Yikang, in the company’s media and public relations management department, wrote in an e-mailed reply.
The notes fell to a record closing low of 29.9 cents on the dollar yesterday and were at 32.1 cents as of 4:08 p.m. in Hong Kong, according to prices compiled by Bloomberg.
* * *
China’s junk dollar notes have lost 3.9 percent in 2015, the worst start to a year ever in Bank of America Merrill Lynch indexes, after Kaisa Chairman Kwok Ying Shing resigned days after two other executives left their positions. Developers that rely on personal relations in securing land from the government are among the most at risk from President Xi Jinping’s local-government financing shakeup and anti-graft drive.
“You never know where the skeletons in the closet are or what company will be next,” said Charles Macgregor, head of Asia high-yield research at Lucror Analytics Pte, the Singapore-based independent credit researcher focused on high-yield markets.“There’s always been a bit of a corporate-governance premium on Chinese developers and that will increase because of the latest challenges.”
Failure to pay today’s coupon, could mark the first default by a Chinese developer in the offshore bond market. Last March, Shanghai Chaori Solar Energy Science & Technology Co. became the first entity to default in the Chinese onshore note market.
“This year, aside from the usual worries about refinancing risk, we face the challenge of assessing the impact of a government clampdown on corruption and dealing with idiosyncratic risks,” said Raymond Chia, Singapore-based head of Asia credit research at Schroder Investment Management Ltd. The firm had $447.7 billion under management as of Sept. 30.
“We are not constructive” on Chinese property bonds, said Michael Ganske, London-based head of emerging markets at Rogge Global Partners Plc. His firm manages $55 billion bonds globally. “It’s just an overheated sector and probably one of the main weaknesses in the Chinese economy.”
* * *
This seems to sum it all up nicely… (away from the exuberant equity markets)…
“Everyone is rethinking risk right now and so are we,” said Singapore-based Brayan Lai, the head of research and money manager at One Asia Investment Partners. The credit hedge fund has about $200 million of assets. “There are uncertainties about Chinese companies” amid concerns over Greece and U.S. debt markets, he said.
* * *
Just take a look at Italy’s unemployment: rising to 13.4% (a record high)
A Tale Of Two Record Unemployments: Italy vs Germany
For the first time ever, Italy’s unemployment rate is more than twice that of its European Union (one region, one monetary policy) neighbor Germany. As Germany’s jobless rate fell for the 3rd month in a row to 6.5% (the lowest level in records going back more than two decades), Italian unemployment unexpectedly rose to a record high at 13.4% (well above the euro-region rate of 11.5%). Of course, while these two nations ‘economic’ state diverges by the most on record, bond yields are at record lows in both – leaving us (and everyone else) questioning, just what it is that ECB QE will do to help Europe’s economies?
A Tale of Two Records…
and then there’s this…
So just what is ECB QE going to do for Italy?
Just look at what these doorknobs are now planning, since nothing is working: (also discussed today in Bill Holter’s commentary)
(courtesy zero hedge)
“The ECB Has Lost Control” – Spiegel Asks If “Helicopter Money” Comes Next?
Just 2 short months ago we warned of the rising voice among the cognoscenti tilting their windmills towards the concept of “helicopter money,” as Deutsche bank noted,“perhaps there’s an increasing weariness that more QE globally whilst inevitable, is a blunt growth tool and that stopping it will be extremely difficult (let alone reversing it) without a positive growth shock.” Committing what Commerzbank calls “the ultimate sin” is now reaching the mainstream as Germany’s Der Spiegel notes it is becoming increasingly clear that Draghi and his fellow central bank leaders have exhausted all traditional means for combatting deflation; and many economists are demanding that the European Central Bank hand out money to consumers to stimulate the economy.
I had a few meetings yesterday and one of the biggest surprises I had was that for the first time in a long time people were talking about helicopter money and debt cancellation being the end game.This was a major theme of our 2013 long-term study but one that we’ve struggled to get much traction with over the last year.Perhaps there’s an increasing weariness that more QE globally whilst inevitable, is a blunt growth tool and that stopping it will be extremely difficult (let alone reversing it) without a positive growth shock.
Maybe Japan’s move this week in delaying the further sales tax increase and the economy’s adverse reaction to the first increase reminds the market how difficult it might be to actually pay the bills with real money. As we said earlier this week it could be that the last few days marks the first steps towards monetization. Anyway, this is not something for today or tomorrow but the fact that different clients brought it up independently of each other makes me think that’s its starting to get into people’s thoughts.
* * *
It seems perhaps tomorrow is… today… As Der Spiegel explains…
Fears that the euro zone is heading for deflation refuse to abate. Now, many economists are demanding that the European Central Bank hand out money to consumers to stimulate the economy. But would it work?
It sounds at first like a crazy thought experiment: One morning, every resident of the euro zone comes home to find a check in their mailbox worth over €500 euros ($597) and possibly as much as €3,000. A gift, just like that, sent by the European Central Bank (ECB) in Frankfurt.
The scenario is less absurd than it may sound. Indeed, many serious academics and financial experts are demanding exactly that. They want ECB chief Mario Draghi to fire up the printing presses and hand out money directly to the people.
The logic behind the idea is that recipients of the money will head to the shops, helping to turn around a paralyzed economy in the common currency area. In response, companies would have to increase production and hire more workers, leading to both economic growth and a needed increase in prices because of the surge in demand.
ECB Has Lost Control
Currently, the inflation rate is barely above zero and fears of a horror deflation scenario of the kind seen during the Great Depression in the United States are haunting the euro zone. The ECB, whose main task is euro stability, has lost control.
In this desperate situation, an increasing number of economists and finance professionals are promoting the concept of “helicopter money,” tantamount to dispersing cash across the country by way of helicopter. The idea, which even Nobel Prize-winning economist Milton Friedman once found attractive, has triggered ferocious debates between central bank officials in Europe and academics. For backers, there’s more to this than just a new instrument. They are questioning cast-iron doctrines of monetary policy.
One thing, after all, is becoming increasingly clear: Draghi and his fellow central bank leaders have exhausted all traditional means for combatting deflation.
The failure of these efforts can be easily explained. Thus far, central banks have primarily provided funding to financial institutions. The ECB provided banks with loans at low interest rates or purchased risky securities from them in the hope that they would in turn issue more loans to companies and consumers. The problem is that many households and firms are so far in debt already that they are eschewing any new credit, meaning the money isn’t ultimately making its way to the real economy as hoped.
In response to this development, Sylvain Broyer, the chief European economist for French investment bank Natixis, says, “It would make much more sense to take the money the ECB wants to deploy in the fight against deflation and distribute it directly to the people.”Draghi has calculated expenditures of a trillion euros for his emergency program, funds that would be sufficient to provide each euro zone citizen with a gift of around €3,000.
‘It Has To Be Massive’
Daniel Stelter, founder of the Berlin-based think tank Beyond the Obvious and a former corporate consultant at Boston Consulting, has even called for giving €5,000 to €10,000 to each citizen. “It has to be massive if it is going to have any effect,” he says. Stelter freely admits that such figures are estimates. After all, not a single central bank has ever tried such a daring experiment.
Many academics have based their calculations on experiences in the United States, where the government has in the past provided cash gifts to taxpayers in the form of rebates in order to shore up the economy.
Oxford economist John Muellbauer, for one, looks back to 2001. After the Dot.com crash, the US gave all taxpayers a $300 rebate. On the basis of the experience at the time, Muellbauer calculates that €500 per capita would be sufficient to spur the euro zone. “It (the helicopter money) would even be much cheaper for the ECB than the current programs,” the academic says.
And yet European central bankers and conservative economists still shudder when asked about the concept.“It would be the ultimate sin,” warns Jörg Krämer, the chief economist at Commerzbank, Germany’s second largest private bank. “If the central bank gives away money one time, there’s no way it will remain an isolated case. Politicians will demand even more the next time around.”
Muellbauer counters such fears by noting that central banks have a clear target: inflation of close to 2 percent. Once that target is achieved, the money handouts would cease. But the problem is that monetary policy often cannot be adjusted to that degree of precision. Many experts say that inflation is like a bottle of ketchup: when you whack on the bottom, nothing happens at first — but then it all comes out in a gush.
The fundamental factor which determines the value of money is the trust of those who spend it — the belief that a €10 or €20 bill will be enough to buy lunch for the foreseeable future and that a medium-sized car won’t cost €100,000 five years from now. Should this trust evaporate, the entire monetary system begins to crumble.
It is an experience Germany became familiar with in the 1920s. The trigger for hyperinflation at the time was, of course, the fact that the German Reich paid for its wartime expenses by printing money. But the situation got out of control when the state’s creditors along with its citizens lost faith in the mark. Investors refused to make more money available to the state and doctors began demanding barter in exchange for services rendered. Prices exploded, to the point that a loaf of bread ultimately cost 140 billion marks.
“Once people have experienced money raining down from the heavens, it will create vast uncertainties about future inflation,” warns Commerzbank economist Krämer. “How often might it happen and how quickly will prices climb? What kind of shape must the euro be in if the ECB has resorted to giving out money?”
And even if people head to the shops with the money they have been given, it is still far from certain that companies would ramp up production. “It is possible that people would merely be competing for the same supply of goods. Prices would climb, but there would be no lasting stimulus for the economy,” warns economist Thomas Mayer, formerly the chief economist for Deutsche Bank. The phenomenon is known among economists as stagflation.
Willem Buiter, the well-respected chief economist of the US financial giant Citigroup, has thus modified the idea of helicopter money. His version calls for policymakers and central bankers to act in concert. The state would improve economic competitiveness by way of reforms in addition to investing money in infrastructure projects or handing it out to taxpayers in order to trigger consumption. The central bank would finance the move via the purchase of sovereign bonds.
Buiter is unconcerned about EU regulations preventing the ECB from the kind of direct state financing such a plan would entail. He considers Article 123 of the Lisbon Treaty, which addresses the issue, to be a “disaster” anyway. He also doesn’t believe the plan would endanger the ECB’s independence. “Independence does not mean that you don’t answer the phone when the minister of finance is calling,” he says. “Independence means the right to say no.” Cooperation and coordination of monetary and fiscal policy is thus “perfectly consistent.”
Japanese Prime Minister Shinzo Abe apparently saw things similarly when he entered office at the end of 2012. His country had been suffering under deflation and economic stagnation for decades. In response, Abe announced structural reforms along with a gigantic investment program — and pushed the central bank to finance it. Since then, the Bank of Japan has spent trillions, but the country nonetheless finds itself stuck in recession once again today.
The odd thing is that the Japanese example provides evidence to both supporters and detractors of the helicopter money plan. Does it reveal the absurdity of central bankers seeking to combat structural problems with money? Or is it merely proof that mass liquidity only works if politicians lay the necessary groundwork?
Nobody knows for sure because the Abe administration failed to pass a majority of the promised reforms.Monetary policy alone, however, “is not getting you out of the secular stagnation,” as even helicopter fan Buiter admits. It is a sentence that could have come from his most adamant detractors.
* * *
So is the “Ultimate Sin” about to be unleashed…? As we concluded previously, this was always in the playbook – Indeed it is, as we warned last September in “Bernanke’s Helicopter Is Warming Up” and yet everyone will be shocked, shocked, when the playbook that was clearly revealed by Ben Bernanke himself in 2002 is finally implemented:
… A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money
– Ben Bernanke, Deflation: Making Sure “It” Doesn’t Happen Here, November 21, 2002
For those hoping that the recent brief dip in Brent crude below $50 – most notably Venezuela’s intrepid socialist leader Nicolas Maduro whose numbered days get shorter with every day Brent closes red, and countless bondholders of junk- debt capitalized shale companies – would mean that Saudi Arabia’s vendetta against OPEC would finally be put on hiatus, we have bad news: the vendetta just wen nuclear because as Reuters reports, there is “no chance of OPEC output cut.”
As Reuters further adds, Saudi Arabia and its Gulf OPEC allies are showing no sign of considering cutting output to boost oil prices, despite Brent’s dip below $50 a barrel this week, where it is surely headed once again in the coming days. More:
Those misgivings have grown with a slide in oil prices to below half their level in June, hurting the economies of OPEC’s smaller producers. Benchmark Brent dipped to $49.66 on Wednesday, its lowest since April 2009, before rising to $51 on Thursday.
OPEC has forecast an increasing surplus in 2015, citing rising supplies outside the group and lacklustre growth in global demand. But the Gulf members, who account for more than half of OPEC output, are not wavering, arguing lower prices will slow competing supplies, spur economic growth and revive demand.
One delegate from a Gulf OPEC member said there was “no chance” of a rethink while another referred to the view that non-OPEC producers were to blame for the glut. “Naimi made it clear: OPEC will not cut alone,” the second delegate said.
So as the rest of the non-OPEC crude exporting world blames OPEC, and specifically Saudi Arabia, OPEC, and specifically its oil minister Ali al-Naimi, has said: OPEC will not cut alone, or in other words, as long as shale companies are out there pumping, kept alive thanks to the Fed’s ZIRP policy forcing investors to keep them well capitalized even though bankruptcy may be breathing down everyone’s neck in short order, expect the Saudis to keep pumping at the same feverish pace.
OPEC ministers and delegates have blamed non-OPEC producers such as Russia, Mexico and Kazakhstan, as well as U.S. shale and tight oil production, for the oversupply in the market.
U.S. oil production has surged from around 5 million barrels per day to reach a near 30-year record of more than 9 million bpd over the past six years, propelled by the sudden emergence of shale oil output from North Dakota to Texas.
Ironically, it may well end up as a showdown between the Fed and Saudi Arabia, the former doing everything in its power to keep otherwise insolvent companies well-capitalized, and on the other Saudi Arabia doing everything in its power to keep the cash flow drain as high as possible for High Yield debt-funded shale companies, and daring either the Fed, or rather junk bond investors who are scrambling for any source of yield, to back out.
Considering Charlie Evans’ comments from last night, it will be a long wait on both sides.
How does Reuters know all this? “The OPEC delegates – government officials representing their countries who attend OPEC’s meetings – spoke to Reuters after oil’s brief fall below $50 on condition of anonymity as they are not authorised to speak publicly on the issue.”
The question is which OPEC, considering the cartel is now officially split in two, with high-cost producers forming one camp, and very vocally opposed to their low-cost cartel-member peers. As a reminder, Venezuela, Algeria and Iran need oil above $100 to balance their budgets, according to estimates from the IMF and other analysts, higher than the Gulf members who can tolerate lower oil revenues for years.
Officially, OPEC agreed at its November meeting on keeping its output target of 30 million barrels per day (bpd) – a point the U.A.E oil minister reinforced on Wednesday although African members, as well as Iran and Venezuela, had wanted a reduction.
Iran and Algeria have both since called on OPEC to cut output in the face of the slide in oil prices. A delegate from Libya, one of OPEC’s four African OPEC members, agreed.
“Something should be done by OPEC countries to reinstate its role to stabilize the market, ensuring a fair price for both producers and consumers,” Samir Kamal, Libya’s OPEC governor, told Reuters on Thursday, emphasising he was not speaking on behalf of the Libyan government.
“Or there is no need for it any more, especially if only one country is dictating its strategy while hurting other members.”
Bingo. And since OPEC no longer technically exists with the lowest-cost producers calling the shots, the pain will continue until Brent drops to the lowest marginal production price, somewhere in the mid-$20s, just as previously forecast. At that point not even the most desperate yield-chasers will be willing to continue keeping otherwise insolvent shale companies, solvent. Expect that to take place some time in mid- to late-2015, although considering the epic pace of collapse in the front contract, it may well take place in the next month or two.
The ECB goes on the offensive against Greece with respect to them leaving the EU. They must be terrified!!
(courtesy zero hedge)
Greek Default Risk Soars As “Independent” ECB Dictates Greek Policy… Or Else
Despite stressing time and again that the ECB cannot dictate policy within individual nation states in Europe, Reuters reports Draghi’s henchmen are playing ‘bad cop’ to Germany’s ‘good cop’ for now as they threaten the withdrawal of Greek financial system funding if reforms are not carried out post election. Greek stocks are falling once again (led by the banks) and default risk has soared, with 5Y CDS +250bps at 1555bps.
Greek banks’ access to European Central Bank funding beyond February will depend on Athens successfully completing a final bailout review and reaching a deal on a follow-up plan with its EU/IMF lenders, the ECB said on Thursday.
The statement was the clearest warning yet that Athens cannot expect to rely on ECB funding if it reneges on its obligations under the 240 billion euro bailout program, the prospect of which has grown as Greece prepares for snap polls.
Opinion polls show leftist party Syriza poised to win the Jan. 25 election. The party has promised to cancel the austerity terms of the bailout and demand a renegotiation of debt.
Hammered by the country’s prolonged economic crisis, Greek banks have reduced their exposure to ECB funding in recent months but still depend on the central bank for liquidity.
The ECB has helped out Greek banks by exempting them from requirements on the collateral it accepts for access to funding.
“The continuation of the waiver is based on the technical extension of the European Financial Stability Facility program until the end of February 2015 and the existence of an International Monetary Fund program,” an ECB spokesperson said in a statement.
“It is also based on the assumption of a successful conclusion of the current review and an agreement on a follow-up arrangement between the Greek authorities and the European Commission, in liaison with the ECB, and the IMF.”
Looks like Spain’s big bank Santander has a problem. They need to raise 8.9 billion dollars and it is not to purchase the big Italian banks.
Their investments abroad must be smoldering!!
(courtesy zero hedge)
Europe’s Largest Bank Stock Suspended, Admits Need For $8.9 Billion Capital Raise
All is clearly not well below the surface. Europe’s largest bank (by market value) has admitted in a regulatory filing that it needs to raise capital. As WSJ reports, Banco Santander SA said it would raise up to €7.5 billion ($8.88 billion) in a capital hike, a bid to address long-running concerns among investors and analysts that its financial cushion was weaker than peers. European banking stocks are up over 2% today as Italian banks surge
limit up (BMPS +13%) on speculation that they will be purchased by Santander (who ‘pumpers’ believe are raising this capital to go on a spending spree) and ‘old’ Draghi headlines.
Santander, the largest bank in the eurozone by market value, said in a regulatory filing on Thursday that it would raise the capital through an accelerated book build.
The Spanish stock market regulator suspended trading in the bank’s shares ahead of the announcement.
Santander said in its most recent quarterly earnings presentation that its capital ratio under the latest regulatory requirements, known as “fully-loaded” Basel III criteria, would be around 8.5% to 8.6% of risk-weighted assets, below its European peers and a source of concern for some analysts and investors.
The move is the latest by Ana Botín, who took over as the bank’s executive chairman in September after the death of her father, longtime chairman Emilio Botín.
* * *
Santander closed EU6.85 before regulators suspended it…
- *SANTANDER SHARE SALE PRICE GUIDANCE EU6.18 TO EU6.50: TERMS
- *SANTANDER SHARE SALE PRICING DATE JAN. 9; TRADE DATE JAN. 12
* * *
- *SANTANDER SEES STRUCTURAL GROWTH OPPORTUNITY: BOTIN
And that means speculation… and Italian banks take off…
Admittedly Draghi “Old” headlines about sovereign QE hit around the same time. More fun-durr-mentals.
And the Santander crushed the specs dreams…
- *SANTANDER HAS NO PLANS FOR ACQUISITIONS, BOTIN SAYS
- *SANTANDER SEES `HUGE OPPORTUNITY INTERNALLY,’ BOTIN SAYS
It looks like these guys are desperate as they have great difficulty in explaining what they need to do. Have fun with this;
ECB’s Coeure Exposes Europe’s Confusion Over Greece, QE, Oil & Deflation
And these are the ‘smartest people in the room that the world is entrusting to save the status quo. In one brief interview, ECB’s Coeure explained how lower oil prices are great for the EU economy (but that low oil prices hurt deflation and thus QE should be used to stoke inflation – and thus higher oil prices?) and then said discussions of a Greek exit from the euro are “meaningless,” that “no one is preparing for the exit,” and that “restructuring ECB Greek bond holdings is illegal.” One wonders what he will do when Greece just decides to stop paying…
- *ECB’S COEURE SAYS OIL-PRICE DROP IS GOOD NEWS FOR EURO ECONOMY (awesome!)
- *COEURE SAYS OIL PRICES ALSO A CHALLENGE FOR ECB INFLATION GOAL (wait what?)
- *COEURE SAYS EURO AREA IS NOT IN DEFLATION (oh ok so no need for action then!)
- *COEURE: OIL-PRICE DROP REINFORCES SIGNALS POLICY ACTION NEEDED (wait what?)
- *ECB’S COEURE SAYS `TOO EARLY’ TO CALL ON QUANTATIVE EASING (but you just said?)
- *ECB’S COEURE SAYS GREEK ELECTION WON’T SPEED DECISION ON QE (hhmm)
- *COEURE SAYS GREECE NEEDS THE EURO, EUROPE NEEDS GREECE (not sure the Greeks would agree)
- *ECB’S COEURE: NO-ONE’S WORKING ON A GREEK EXIT AT THE MOMENT (apart from the Germans?)
- *COEURE SAYS GREEK DEBT HELD BY ECB CANNOT BE RESTRUCTURED
- *ECB’S COEURE: ILLEGAL TO RESTRUCTURE ECB GREEK BOND HOLDINGS
So – it may be illegal but what happens when Greece just decides to stop paying?
Your more important currency crosses early Thursday morning:
Eur/USA 1.1763 down .0070
USA/JAPAN YEN 119.86 up .579
GBP/USA 1.5050 down .0054
USA/CAN 1.1813 down .0004
This morning in Europe, the euro continues on its downward spiral, trading now well below the 1.18 level at 1.1763 as Europe reacts to deflation, and announcements of massive stimulation. In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. He now wishes to give gift cards to poor people in order to spend. The yen continues to trade in yoyo fashion. This morning it settled down in Japan by 58 basis points and settling just below the 120 barrier to 119.86 yen to the dollar. The pound also spiraled massively southbound this morning as it now trades well below the 1.51 level at 1.5050.(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 slightly up today trading at 1.1813 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.We also have the second big yen carry trade unwind as the yen refuses to blow past the 120 level. These massive carry trades are causing deflation as the world reacts to a lack of demand. Europe is even considering the “helicopter route” in providing cash to all citizens (around 3,000 Euros per person)
Early Thursday morning USA 10 year bond yield: 1.99% !!! up 3 in basis points from Wednesday night/
USA dollar index early Thursday morning: 92.44 up 55 cents from Wednesday’s close
The NIKKEI: Thursday morning : up 282 points or 1.67%
Trading from Europe and Asia:
1. Europe stocks all in the green.
2/ Asian bourses mostly in the green … Chinese bourses: Hang Sang in the green ,Shanghai in the red, Australia in the green: /Nikkei (Japan) green/India’s Sensex in the green/
Gold early morning trading: $1206
Closing Portuguese 10 year bond yield: 2.59% down 14 in basis points from Wednesday
Closing Japanese 10 year bond yield: .29% !!! down 1 in basis points from Wednesday
Your closing Spanish 10 year government bond, Thursday down 2 in basis points in yield from Wednesday night.
Spanish 10 year bond yield: 1.67% !!!!!!
Your Thursday closing Italian 10 year bond yield: 1.85% down 5 in basis points from Wednesday:
trading 18 basis points higher than Spain:
IMPORTANT CLOSES FOR TODAY
Closing currency crosses for Thursday night/USA dollar index/USA 10 yr bond:
Euro/USA: 1.1787 down .0046
USA/Japan: 119.70 up .427
Great Britain/USA: 1.5085 down .0019
USA/Canada: 1.1835 up .0018
The euro rose a bit in value during the afternoon after being battered again overnight. It was still massively down by closing time , finishing well below the 1.18 level to 1.1787. The yen was up in the afternoon, but it was down by closing to the tune of 43 basis points and closing well below the 120 cross at 119.70 still causing much grief again to our yen carry traders who need a much lower yen. The British pound gained some ground during the afternoon session but it was down again on the day closing at 1.5085. The Canadian dollar was down in the afternoon and was down on the day at 1.1835 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. As such massive derivative losses have occurred, blowing up this powder keg!!
Your closing USA dollar index: 92.35 up 46 cents from Wednesday.
your 10 year USA bond yield , up 6 in basis points on the day: 2.02%!!!!
European and Dow Jones stock index closes:
England FTSE up 150.13 points or 2.34%
Paris CAC up 147.46 or 3.59%
German Dax up 319.43 or 3.36%
Spain’s Ibex up 223.60 or 2.26%
Italian FTSE-MIB up 668.38 or 3.69%
The Dow: up 323.35 or 1.84%
Nasdaq; up 85.72 or 1.84%
OIL: WTI 48.75 !!!!!!!
Closing USA/Russian rouble cross: 60.45 up 2.25 roubles per dollar.
And now for your more important USA economic stories for today:
(Your trading today from the New York):
Some Folks Were Short-Squeezed: “Soothing Statement” By Fed Sends Stocks Green For 2015
You just have to laugh… oil is lower (though bounced at the close) and Greek debt is crashing and the mainstream media proclaims this idiotic ramp (driven by FOMC Minutes and Charlie Evans) as due to stability in crude and Europe… It’s The Fed, Stupid!!
Once again, on the heels of the turbulence, major central banks made soothing statements, suggesting that they might delay normalisation in light of evolving macroeconomic conditions.
Recent events, if anything, have highlighted once more the degree to which markets are relying on central banks: the markets’ buoyancy hinges on central banks’ every word and deed.
Which is so massively ironic that in the following month there were 3 Fed stick-saves!!!
Notice the Fed interventions are coming at smaller and smaller corrections… Bullard -10%, FOMC/Yellen -5.5%, Evans/FOMC Mins -3%
This is the 2nd biggest 2-day short-squeeze in 14 months… 2nd only to the one that occurred on the December FOMC meeting…
Which smashed stocks back into the green for 2015…
1400 point roundtrip in Dow…
Because oil stabilized (umm no!)
Or because Europe stabilized (umm no Greece crashed today)…
And even JPY carry couldnt keep up with equity exuiberance… stalling at 120.00
As rates also won’t play along – still notably lower on the year…
Rates oveerall are down 10-12bps this week
The USDollar rose once again on EUR weakness but oince again USD sold off in the afternoon session…
Gold and silver down small along with copper as even crude saw lower vol…
And this happened in Crude…
Continuing Claims Surge Most Since 2009 Over Last 6 Weeks, Initial Claims Miss
Initial claims dropped 4k on the week but missed expectations, printing 294k (vs 290k exp). This is a level first seen in July 2014 as the trend of improvement has ended for claims (the biggest 3 month rise in over a year). Layoffs were dominated by MI where manufacturing and waste management industries suffered (and Texas saw fewer layoffs but a shortened workweek). Perhaps more worrying, the continuing claims data surged by over 100k to 2.452 million (stunningly on a non-adjusted basis continuing claims surged 407k).
The trend is over…
biggest 3 month rise in over a year
Continuing Claims have biggest 6-week rise since 2009
Texas shortened workweek…
A good bellwether to give us an idea of how the global economy is performing. In a nutshell: not good
Coke To Fire 1800, Caterpillar Laying Off 200
Stocks are up nearly 2% today alone, with the S&P back to green for 2015. Among the reasons for today’s rally: lower overhead courtesy of KO and CAT, which announced that between the two of them, they would fire some 2,000 workers, which is great news for stocks if not for actual employees as there will be even more dry powder for another record quarter of stock buybacks.
First Coke, via the WSJ:
Coca-Cola Co. said Thursday it will eliminate at least 1,600 to 1,800 jobs globally as part of its earlier announced $3 billion cost-cutting drive.
The Atlanta-based beverage giant said it began notifying some of the affected employees Thursday and that the cuts will be carried out over the coming months.
“We have committed that we will ensure fair, equitable and compassionate treatment of our people throughout the process,’’ it added in a written statement.
Coke said it is still completing changes in some of its businesses, but that ”at this time’’ it has identified 1,600 to 1,800 affected positions. That raises the possibility of additional job cuts at a later date.
Peoria-based Caterpillar said Wednesday it is laying off 200 workers at its Decatur and East Peoria facilities beginning Jan. 19.
“Products built in these locations are used in the mining industry, which continues to witness weak market conditions,” the company said in a statement.
The company has already laid off hundreds of workers at factories where mining equipment is produced. Caterpillar has said a decline in commodity prices has led mining companies to halt expansions and the building of new mines, leading to reduced demand for equipment.
“While some cost reduction measures have already been implemented, including temporary shutdowns and reductions in the flexible workforce, more permanent measures must be taken in the near term,” the statement read
As a visual reminder, here’s Caterpillar:
And its growth strategy:
And with companies continuing to layoff workers – because if you are firing you aren’t hiring – it means the BLS’ January seasonal adjustments to goalseek the NFP number above 200K for the 12th month in a row will be a sight to behold.
The consumer is 70% of GDP. If his credit card is maxed out, it will be difficult to see GDP growth;
(courtesy zero hedge)
Credit Card Debt Tumbles Most In 1 Year As US Households Resume Deleveraging
Once upon a time the health of the US consumer was gauged by one simple thing: how much credit card debt did US households take on in any given month. Which makes sense: American consumers would not go out and spend on credit unless they felt strongly about their future job, income and overall wealth prospects. In simple terms, rising credit card debt was synonymous with confidence and prosperity. In recent years, however, this metric has quietly fallen out of favor with the punditry, for one simple reason: that reason is shown on the chart below, which very likely also shows where the S&P would trade if it weren’t for $11 trillion in central bank liquidity injections.
Sure enough, moments ago the Fed reported household consumer credit for the month of November and it is there we learned that not only did overall consumer credit miss expectations for the 4th month in a row…
… but that in November revolving credit, aka credit cards, not only declined for the first month since August, but it had its biggest collapse since November of 2013, which not only explains why this year’s Thanksgiving spending season was a complete disaster but also shows that contrary to the S&P hitting record highs at roughly this time, the bulk of America is still actively deleveraging.
The only piece of household debt which did grow in November? Student and to a lesser extend, Auto (primarily subprime) loans. But while we know the demand side of the equation, the just as big question is who is providing all this subprime auto and student debt to Americans – debt which will certainly never be repaid.
The answer… instead of telling you, here is a chart courtesy of @Not_Jim_Cramer.
Thursday Humor: To Serve And To Protect… And “To Shoot Minorities”
Career-ending mistake, or the biggest Freudian slip in history?
RETRACTION: This story – as it appeared in print – contained a major error and misquoted Sheriff John Ward. The version here has been corrected. The newspaper apologizes to the sheriff and other law-enforcement officers because of its mistake. – Ben Sheroan, editor.
Source: @KySportsRadio h/t @KrisOverton
10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW
If you do not believe that we are heading directly toward another major financial crisis, you need to read this article. So many of the exact same patterns that preceded the great financial collapse of 2008 are happening again right before our very eyes. History literally appears to be repeating, but most Americans seem absolutely oblivious to what is going on. The mainstream media and our politicians are promising them that everything is going to be okay somehow, and that seems to be good enough for most people. But the signs that another massive financial crisis is on the horizon are everywhere. All you have to do is open up your eyes and look at them.
Bill Gross, considered by many to be the number one authority on government bonds on the entire planet, made headlines all over the world on Tuesday when he released hisJanuary Investment Outlook. I don’t know if we have ever seen Gross be more negative about a new year than he is about 2015. For example, just consider this statement…
“When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.”
And this is how he ended the letter…
And so that is why – at some future date – at some future Ides of March or May or November 2015, asset returns in many categories may turn negative. What to consider in such a strange new world? High-quality assets with stable cash flows. Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically. With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable.
Debt supercycles in the process of reversal are not favorable events for future investment returns. Father Time in 2015 is not the babe with a top hat in our opening cartoon. He is the grumpy old codger looking forward to his almost inevitable “Ides” sometime during the next 12 months. Be cautious and content with low positive returns in 2015. The time for risk taking has passed.
So why are Gross and so many other financial experts being so “negative” right now?
It is because they can see what is happening.
They can see the same patterns that we saw in early 2008 unfolding again right in front of us. I wanted to put these patterns in a single article so that they will be easy to share with people. The following are 10 key events that preceded the last financial crisis that are happening again right now…
#1 A really bad start to the year for the stock market. During the first three trading days of 2015, the S&P 500 was down a total of 2.73 percent. There are only two times in history when it has declined by more than three percent during the first three trading days of a year. Those years were 2000 and 2008, and in both years we witnessed enormous stock market declines.
#2 Very choppy financial market behavior. This is something that I discussedyesterday. In general, calm markets tend to go up. When markets get choppy, they tend to go down. For example, the chart that I have posted below shows how the Dow Jones Industrial Average behaved from the beginning of 2006 to the end of 2008. As you can see, the Dow was very calm as it rose throughout 2006 and most of 2007, but it got very choppy as 2008 played out…
As I also mentioned yesterday, it is important not to get fooled if stocks soar on a particular day. The three largest single day stock market gains in history were right in the middle of the financial crisis of 2008. When you start to see big ups and big downs in the market, that is a sign of big trouble ahead. That is why it is so alarming that global financial markets have begun to become quite choppy in recent weeks.
#3 A substantial decline for 10 year bond yields. When investors get scared, there tends to be a “flight to safety” as investors move their money to safer investments. We saw this happen in 2008, and that is happening again right now.
In fact, according to Bloomberg, global 10 year bond yields have already dropped to low levels that are absolutely unprecedented…
Taken together, the average 10-year bond yield of the U.S., Japan and Germany has dropped below 1 percent for the first time ever, according to Steven Englander, global head of G-10 foreign-exchange strategy at Citigroup Inc.
That’s not good news. The rock-bottom rates, which fall below zero when inflation is taken into account, show “that investors think we are going nowhere for a long time,” Englander wrote in a report yesterday.
#4 The price of oil crashes. As I write this, the price of U.S. oil has dipped below $48 a barrel. But back in June, it was sitting at $106 at one point. As the chart below demonstrates, there is only one other time in history when the price of oil has declined by more than $50 in less than a year…
The only other time there has been an oil price collapse of this magnitude we experienced the greatest financial crisis since the Great Depression shortly thereafter. Are we about to see history repeat? For much more on this, please see my previous article entitled “Guess What Happened The Last Time The Price Of Oil Crashed Like This?”
#5 A dramatic drop in the number of oil and gas rigs in operation. Right now, oil and gas rigs are going out of operation at a frightening pace. During the fourth quarter of 2014, 93 oil and gas rigs were idled, and it is being projected that another200 will shut down this quarter. As this Business Insider article demonstrates, this is also something that happened during the financial crisis of 2008 and it continued well into 2009.
#6 The price of gasoline takes a huge tumble. Millions of Americans are celebrating that the price of gasoline has plummeted in recent weeks. But they were also celebrating when it happened back in 2008 as well. But of course it turned out that there was really nothing to celebrate in 2008. In short order, millions of Americans lost their jobs and their homes. So the chart that I have posted below is definitely not “good news”…
#7 A broad range of industrial commodities begin to decline in price. When industrial commodities go down in price, that is a sign that economic activity is slowing down. And just like in 2008, that is what we are watching unfold on the global stage right now. The following is an excerpt from a recent CNBC article…
From nickel to soybean oil, plywood to sugar, global commodity prices have been on a steady decline as the world’s economy has lost momentum.
For an extended discussion on this, please see my recent article entitled “Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?”
#8 A junk bond crash. Just like in 2008, we are witnessing the beginnings of a junk bond collapse. High yield debt related to the energy industry is on the bleeding edge of this crash, but in recent weeks we have seen investors start to bail out of a broad range of junk bonds. Check out this chart and this chart in addition to the chart that I have posted below…
#9 Global inflation slows down significantly. When economic activity slows down, so does inflation. This is something that we witnessed in 2008, this is also something that is happening once again. In fact, it is being projected that global inflation is about to fall to the lowest level that we have seen since World War II…
Increases in the prices of goods and services in the world’s largest economies are slowing dramatically. Analysts are predicting that inflation will fall below 2pc in all of the countries that make up the G7 group of advanced nations this year – the first time that has happened since before the Second World War.
Indeed, Japan was the only G7 country whose inflation rate was above 2pc last year. And economists believe that was because its government increased sales tax which had the effect of artificially boosting prices.
#10 A crisis in investor confidence. Just prior to the last financial crisis, the confidence that investors had that we would be able to avoid a stock market collapse in the next six months began to decline significantly. And guess what? That is something else that is happening once again…
Investor confidence that the US will avoid a stock-market crash in the next six months has dropped dramatically since last spring.
The Yale School of Management publishes a monthly Crash Confidence Index. The index shows the proportion of investors who believe we will avoid a stock-market crash in the next six months.
Yale points out that “crash confidence reached its all-time low, both for individual and institutional investors, in early 2009, just months after the Lehman crisis, reflecting the turmoil in the credit markets and the strong depression fears generated by that event, and is plausibly related to the very low stock market valuations then.”
Are you starting to get the picture?
And of course I am not the only one warning about these things. As I wrote aboutearlier in the week, there are a whole host of prominent voices that are now warning of imminent financial danger.
Today, I would like to add one more name to the list. He is respected author James Howard Kunstler, and what he predicts is coming in 2015 is absolutely chilling…
Here are my financial forecast particulars for 2015:
- Early in 2015 the ECB proposes a lame QE program and is laughed out of the room. European markets tank.
- Greek elections in January produce a government that stands up to the EU and ECB and causes a fatal slippage of faith in the ability of that project to continue.
- Second half of 2015, the rest of the world gangs up and counter-attacks the US dollar.
- Bond markets in Europe implode in first half and the contagion spreads to the US as fear and distrust rises about viability of US safe haven status.
- Derivatives associated with currencies, interest rates, and junk bonds trigger a bloodbath in credit default swaps (CDS) and the appearance of countless black holes through which debt and “wealth” disappear forever.
- US stock markets continue to bid upward in the first half of 2015, crater in Q3 as faith in paper and pixels erodes. DJA and S & P fall 30 to 40 percent in the initial crash, then further into 2016.
- Gold and silver slide in the first half, then take off as debt and equity markets craters, faith in abstract instruments evaporates, faith in central bank omnipotence dissolves, and citizens all over the world desperately seek safety from currency war.
- Goldman Sachs, Citicorp, Morgan Stanley, Bank of America, DeutscheBank, SocGen, all succumb to insolvency. American government and Federal Reserve officials don’t dare attempt to rescue them again.
- By the end of 2015, central banks everywhere stand in general discredit. In the US, the Federal Reserve’s mandate is publically debated and revised back to its original mission as lender of last resort. It is forbidden to engage in further interventions and a new less-secretive mechanism is drawn up for regulating basic interest rates.
- Oil prices creep back into the $65 – $70 range by May 2015. It is not enough to halt the destruction in the shale, tar sand, and deepwater sectors. As contraction in the failing global economy accelerates, oil sinks back to the $40 range in October…
- …unless mischief in the Middle East (in particular, the Islamic State messing with Saudi Arabia) leads to gross and perhaps fatally permanent disruption in world oil markets — and then all bets are off for both the continuity of advanced economies and for peace between nations.
Personally, I don’t agree with Kunstler on all of the particulars and the timing of certain events, but overall I think that we are going to look back when the year is done and say that he was a lot more right than he was wrong.
We are moving into a time of extreme danger for the global economy. There has never been a time when I have been more concerned about a new year since I began The Economic Collapse Blog back in 2009.
Over the past couple of years, we have been very blessed to be able to enjoy a bubble of relative stability. But this period of stability also fooled many people into thinking that our economic problems had been fixed, when in reality they have only gotten worse.
We consume far more wealth than we produce, our debt levels are at record highs and we are at the tail end of the largest Wall Street financial bubble in all of history.
It is inevitable that we are heading for a tragic conclusion to all of this. It is just a matter of time.
We will see you tomorrow.
bye for now