Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1216.00 up $7.60 (comex closing time)
Silver: $16.39 up 4 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 624 contracts even though yesterday’s silver price fell by 16 cents. The total silver OI continues to remains relatively high with today’s reading at 154,525 contracts. However the bankers are still loathe to supply much of the non backed silver paper.The January silver OI contract remains at 15 contracts.
In gold we had a small decrease in OI with the fall in price of gold yesterday to the tune of $2.20. The total comex gold OI rests tonight at 391,482 for a loss of 1,403 contracts. The January gold contract remains at 124 contracts.
TRADING OF GOLD AND SILVER TODAY
you have more important things to read instead of how gold/silver traded today.
Today, we had a huge addition in tonnage at the GLD to the tune of 2.99 tonnes/ tonnes of gold/Inventory 707.82 tonnes
In silver, a huge addition of 1.437 million oz silver inventory/
SLV’s inventory rests tonight at 329.894 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 . Now the one month GOFO rate left backwardation and it is now in contango along with the other GOFO rates
Sometime in January the LBMA will officially stop providing the GOFO rates.
Jan 9 2015
+.045% +057% +.072% +.0975 .165%
Jan 8 2014:
+.025% +.0425% +.06 % +.09% +.15%
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 1,403 contracts from 392,885 down to 391,482 with gold down by $2.20 yesterday (at the comex close). We are now onto the January contract month. The non active January contract month saw it’s OI contracts remain at 124 for a loss of 0. We had 0 contracts served yesterday. Thus we neither lost nor gained any gold contracts standing for delivery in this January contract month. The next big delivery month is February and here the OI fell by 13,594 contracts to 202,844 contracts with many moving to April. The estimated volume today was poor at 67,656. The confirmed volume yesterday was also poor at 149,306 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 624 contracts from 153,901 up to 154,525 despite the fact that silver was down by 16 cents yesterday. The front January contract month saw its OI remain at 15 contracts for a loss of 0 contracts. We had 0 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 270 contracts up to 103,948. The estimated volume today was simply awful at 17,688. The confirmed volume yesterday was fair at 30,998. 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||nil|
|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 0 customer withdrawal
total customer withdrawal: nil oz
we had 0 customer deposits:
total customer deposits; nil oz
We had 0 adjustments
Today, 0 notice was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the total number of gold ounces standing for the December contract month, we take the total number of notices filed for the month (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 neither gained nor lost any gold contracts standing for delivery
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 9 2015:
January silver: initial standings
|Withdrawals from Dealers Inventory||nil oz|
|Withdrawals from Customer Inventory||730,754.321 (Delaware,Brinks,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||3,652,799.5 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: 5,974.01 oz
ii) Out of Brinks: 3059.000 oz (exact weight??)
iii) Out of Scotia: 721,720.62 oz
total customer withdrawal: 730,754.321 oz
we had 0 adjustments
Total dealer inventory: 65.037 million oz
Total of all silver inventory (dealer and customer) 173.591 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:
January 9.2015: an addition of 2.99 tonnes of gold/Inventory 707.82 tonnes
Jan 8.2014: no change/inventory 704.83 tonnes
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 9/2015 / an addition of 2.99 tonnes of gold inventory at the GLD /Inventory rests tonight at 707.82 tonnes
inventory: 707.82 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 : 707.82 tonnes.
And now for silver (SLV):
Jan 9.2015: we had a huge addition of 1.437 million oz at the SLV/Inventory 329.894 million oz
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 9/2015 / a huge addition of 1.437 million oz of silver inventory at the SLV
registers: 329.894 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 7.4% percent to NAV in usa funds and Negative 7.4 % to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 62.0%
Percentage of fund in silver:37.5.%
( Jan 9/2015)
2. Sprott silver fund (PSLV): Premium to NAV rises to + 1.12%!!!!! NAV (Jan 9/2015)
3. Sprott gold fund (PHYS): premium to NAV falls to negative -0.61% to NAV(Jan 9/2015)
Note: Sprott silver trust back into positive territory at +1.12%.
Sprott physical gold trust is back in negative territory at -0.61%
Central fund of Canada’s is still in jail.
Today we CME released its COT report.
First let us head over and see the Gold COT
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, January 06, 2015|
Our large specs:
Those large speculators that have been long in gold added another 4808 contracts to their long side
Those large specs that have been short in gold covered 1533 contracts from their short side
Those commercials that have been long in gold added 4609 contracts to their long side.
Those commercials that have been short in gold added a whopping 14,147 contracts to their short side.
Our small specs;
Those small specs that have been long in gold added 382 contracts to their long side
Those small specs that have been short in gold covered 2815 contracts to their short side.
And now for silver:
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||132||127|
|Tuesday, January 06, 2015||© SilverSeek.com|
Our large specs;
Those large specs that have been long in silver added a smallish 785 contracts to their long side
Those large specs that have been short in silver covered 1232 contracts from their short side
Those commercials that have been long in silver added 1843 contracts to their long side
Those commercials that have been short in silver added another 2816 contracts to their short side
Our small specs;
Those small specs that have been long in silver pitched a tiny 254 contracts from their long side
Those small specs that have been short in silver added another 790 contracts to their short side.
And now for your most important physical stories on gold and silver today:
Early gold trading from Europe early Friday morning:
(courtesy Mark O’Byrne)
OUTLOOK 2015 – Uncertainty, Volatility, Possible Reset – DIVERSIFY
2015 is upon us and the turbulence has already begun.
2014 was another year of an uneasy calm interrupted by sudden bouts of abrupt market volatility. We were surprised how risk appetite remained so high despite emerging and a high level of risk especially from the geopolitical sphere. These we covered in our Review of 2014.
This irrationally exuberant, risk appetite may continue in 2015 but we suspect that it is as likely to come to a shuddering halt with renewed volatility on global financial markets.
The sharp falls seen in stock markets in recent days may be a taste of what may transpire in 2015. As may be the tragic events in Paris.
There are many unresolved risks which were present in 2014 and indeed in recent years which did not come to the fore and impact markets. As Greece has shown again in recent days – the Eurozone debt crisis is far from resolved and there remains an underappreciated risk of sovereign crises in other major industrial nations.
Other unresolved risks that are being ignored for now – due to the panacea of cheap money and elevating asset prices – include the Eurozone debt crisis, the appalling fiscal position of Japan, the U.S. and the UK, the risk of an Ebola pandemic, risks posed by terrorism, the events in Syria and the Middle East, Ukraine and geopolitical tensions with Russia.
Gold – Positives and Negatives
As ever, there are positives and negatives for gold. Indeed, one could say there are as many negatives as there are positives – and most do. However, on balance we believe that the positives outweigh the negatives significantly.
- Continuing ultra loose monetary policies
- Currency wars and the risk of bail-ins
- Risk of sovereign and banking debt crises and the risk of systemic contagion
- Increasingly uncertain political and military situation globally and the threat of terrorism and war
- Continuing record demand for gold from China and India
- Continuing robust demand from central banks such as the People’s Bank of China (PBOC) and Central Bank of the Russian Federation
- Sentiment, both in the western media and among the public, remains extremely poor. This is bullish from a contrarian perspective
- Gold in dollar terms is weak technically after a second consecutive year of lower prices
- The massive fall in the oil price, should it continue, will benefit gold miners and lower their cost of production which should lead to a lower cost of gold production
- ETF demand remains weak and liquidations very high – holdings in SPDR Gold Trust, the world’s gold ETF, fell 0.42 percent to 704.83 tonnes on Wednesday, their lowest since late 2008
- Gold bullion demand while robust in Germany, Turkey, the Middle East and Asia remains lackluster in western markets as seen in the fall in demand from the U.S. Mint and other mints
- Sentiment, both in the western media and among the public, remains extremely poor
Ultra Loose Monetary Policies Globally
Ultra loose monetary policies are set to continue for the foreseeable future. Major central banks have all kept interest rates at or close to zero
The narrative that the U.S. is tightening continues to be a false one – one heard for many years now. Any meaningful increase in U.S. interest rates would likely severely impact already stretched and stressed asset markets and plunge the U.S. and the world into a depression.
Since 1694 and the ensuing three centuries’ of Bank of England history, the base rate has never been this low. Interests rates in the western world have never been this low.
A reversion to to the mean average – at around 5% to 6% – would create a collapse in property and stock markets. Even the merest hint of a rate rise has led to sharp market falls in recent months.
ZIRP or zero percent interest rates have arrived and there is now the incredible, previously unheard of scenario of negative interest rates. Already, certain banks in the U.S. and Europe are charging customers interest just to have a deposit account with them.
This turns upon its head the basic tenet of capitalism in terms of a return on capital.
While America’s massive bond buying programme has been discontinued for now, it continues in the UK, has intensified to a very significant degree in Japan and we may see Mario Draghi’s QE ‘bazooka’ in the Eurozone in the New Year.
The battle between Goldman banker Draghi and German monetary conservatives is a titanic one and the outcome will have ramifications not just for the Eurozone but for the world.
Draghi has won many battles regarding pushing interest rates to zero. However, further money printing will likely be ‘verboten’ and a step too far for the Germans. I am not a betting man but if forced to bet, I think that Draghi may win the immediate battle on further money printing but that the Germans will win the war.
Germany has learned the lessons of the past and will not allow their currency to be printed into oblivion.
Since the 2008 crash, the Federal Reserve has created more than $4.3 trillion to prop up banks and the wider economy. While the Fed finished its bond buying programme in 2014, its balance sheet has been destroyed and it is unable to sell the bonds bought for fear of interest rates moving higher again.
The U.S. economic recovery is weak and there is the strong possibility of a recession. The massive levels of debt at all levels of U.S. and indeed western society make any meaningful recovery highly unlikely.
This possibility is also heightened by the recent collapse of the oil price and falls in other key commodities such as copper. Deflation is in the air. A reversion back to debt monetisation programme seems likely.
America, and indeed the world, is now dangerously addicted to cheap money and the attendant debasement of the dollar and all paper currencies. Yellen will continue pushing the drug of cheap money, much of which ends up on Wall Street and in frothy global markets.
Indeed, she may be even more generous in doling out wads of electronic currency than her predecessor Bernanke. Irrationally exuberant, liquidity-driven stock markets and manipulated bond markets are giving false signals.
We may need one last and vicious deflationary spiral, further currency printing and then the Ludwig Von Mises’ “crack up boom”. Irrational exuberance and levitating asset prices are early warning signals of a classic cheap money crack up boom:
“‘This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.’
“But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
“It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.”
Central banks are attempting to inflate their way out of the present crisis rather than the more prudent option which is to avoid a deflationary collapse by downsizing the massively oversized and over leveraged banking and financial system.
This could be done, with grave difficulty admittedly, but could be done nevertheless through a multi month or year process of downsizing, debt write offs and write downs, deleveraging and consolidation.
With the Federal Reserve’s balance sheet having deteriorated significantly, at some stage this will lead the dollar having a sustained period of weakness. A monetary crisis centering on the dollar remains likely. A frightening vista that most cannot bring themselves to consider, let alone comprehend.
Currency debasement will end in financial tears as they have done throughout history. The question is not if, rather when.
Precious metals will only be threatened if currency debasement ends and if there is a sustained period of rising interest rates which lead to positive real interest rates – as happened in the 1970s.
That is not going to happen anytime soon.
Currency and Gold Wars
Currency wars, gold wars, currency devaluations and currency debasement are set to continue globally which remains possibly the most bullish factor for gold.
Currency wars look set to heat up again in 2015. The latest salvo is Japan’s radical, or reckless, decision to further debase its currency through an intensification of already significant monetary easing.
A new “all-out” currency war is possible in 2015 as nations seek to maintain exports and jobs through currency devaluation. China and Japan – as two of the world’s largest exporting countries – may be set to be the most aggressive in this regard.
Japan is devaluing the yen and China will be reluctant to allow that to happen. China is likely to devalue the yuan in order to maintain export competitiveness.
If Draghi is allowed to get his ‘Euro Bazooka’ out – we may see further weakness of the euro – especially versus the dollar. At the same time, the U.S. cannot afford to have the dollar strengthen much more against the euro as it will impact exports to one of its largest trading partners.
The second aspect of currency wars is the continuing accumulation of gold reserves by nations for diversification purposes and in the case of China, in order to position the yuan as an alternative global reserve currency.
Risk of Bail-Ins in 2015 and Beyond
Bail-ins remain one of the least covered and most unappreciated risks for 2015 and in the coming years. As we have documented, most western nations have put or are putting in place the architecture for bail-in regimes.
Preparations have been or are being put in place by the international monetary and financial authorities, including the Federal Reserve, ECB and Bank of England for bail-ins. The EU, UK, the U.S., Canada, Australia and New Zealand all have plans in place for bail-ins in the event of banks and other large financial institutions getting into difficulty.
Now in the event of bank failure, deposits of individuals and companies can be confiscated.
Just last month, credit rating agencies warned that Europe’s banks are vulnerable in 2015 due to weak macroeconomic conditions, unfinished regulatory hurdles and the risk of bail-ins.
Assessing counterparty risk and sovereign risk remains important. Do not have all your savings or company’s capital in a vulnerable bank in a vulnerable sovereign. A diversification into allocated gold outside the banking system remains an important way to hedge the real risk of bail-ins.
Eurozone Debt Crisis Again – Greece, ‘Grexit’ and ‘PIIGS’
In the early days of 2015, the Eurozone debt crisis raised its ugly head again as concerns about the ‘Grexit’ – Greece leaving the monetary union and reverting to the drachma, led to sharp falls in stock markets and indeed the euro.
Concerns over a potential Greek exit or ‘Grexit’ also led to the euro falling against the dollar and particularly gold which surged to close to EUR 1,030 per ounce. Gold in euros is already up 5% in 2015, building upon the 11% gains seen in 2014.
Angela Merkel sought to calm markets and EU citizens by claiming that Germany would be “comfortable” with a Greek exit and that “any fallout would be manageable.” EU citizens in Greece were alarmed by her comments and politicians quickly sought to reassure Greeks that this could not happen and there was nothing to fear. A frequent refrain by politicians prior to economic dislocations.
Germany likely fears the precedent of reopening negotiations between the Troika and Greece, lest other countries upon whom very onerous conditions were placed – such as Ireland – follow their example.
The assertion that the EU could “comfortably” manage the exit of Greece is irresponsible – particularly at this very delicate and uncertain time for the European economy.
Italy’s former Prime Minister, and former head of the European Commission, Romano Prodi warned last week that the “lowering of the oil and gas prices in combination with the sanctions, pushed by the Ukrainian crisis, will drop the Russian GDP by five percent per annum, and thus it will cause cutting of the Italian exports by about 50%.”
Similar dynamics are playing out in Poland and France. Continued antagonisation of Russia may have dire consequences for Europe, especially if Russia chooses to respond more aggressively. France’s Société Générale, alone, is exposed to Russia to the tune of €26 billion.
Were Russia to renege on this and other obligations to European banks it would likely trigger a Lehman style crisis.
Or Russia could cut its supplies of natural gas to Europe upon which German industry, in particular, relies. Thankfully, for now, Russia has reacted diplomatically and conciliatory, even inviting Europe to become a partner in the newly formed Eurasian Economic Union (EEU).
Germany is now dangerously close to deflation as the major states reported from 0% to 0.3% inflation in December, with Saxony at 0.5%, – down from November rates of between 0.5% and 0.8%.
With these and countless other considerations weighing upon the EU, it is not accurate to suggest that a Greek exit and return to the drachma could be comfortably managed.
For one, there is no framework in place for an orderly secession of a member state from the Union. An antagonistic break up would likely cause contagion to many large European banks exposed to Greece.
The ensuing turmoil might also prompt other member states to break away in chaotic fashion – Spain, Portugal and Italy being prime contenders.
Many periphery nations are slowly becoming jaded by the not so single currency and attendant austerity. For almost half the euro’s existence it has been in crisis.
It is likely that the EU will do everything in it’s power to accommodate Syriza should they gain power in Greece. Whether it will be enough to keep Greece on board and the drachma off the printing presses remains to be seen.
Gold will protect from currency devaluations – whether that be in the form of the euro itself being devalued or in the form of reversions to drachmas, escudos, pesetas and punts and subsequent devaluations.
We all know and accept that the “debt can” was kicked down the road. Yet, most remain in denial about the ramifications of this and re emerging risks. At the end of the road there is a sharp cliff.
Global Debt Crisis II – Total Global Debt to GDP Ratio Over 300%
UK, U.S. Japan and China Also Vulnerable
The global debt crisis has abated in recent years but more astute analysts and economists are concerned that it is only a matter of time before the debt crisis returns.
Since the crisis began in 2007, total global debt, public and private, has continued to rise sharply.
The total debt to GDP ratios – household, corporate, financial and sovereign debt – in the Eurozone, Japan, the UK and the U.S. are all at very high levels.
Total global debt, public and private, is estimated to be between 245% and over 300% of total global GDP.
In a comprehensive report on global indebtedness, economists at ING found that debt in developed economies amounted to $157 trillion, or 376% of GDP. Emerging-market debt totaled $66.3 trillion at the end of last year, or 224% of GDP. This report was in May 2013. Debt levels have continue to increase sharply since then.
At the time, the total indebtedness of the world, including all parts of the public and private sectors, was estimated at $223.3 trillion, amounting to 313% of global gross domestic product.
More recent figures come from the Institute of International Finance (IIF), a leading global association of financial institutions in June of this year estimated that global debt, even excluding the financial sector, was equivalent to 245% of total global economic activity or GDP. Obviously, the financial sector is one of the more important categories in terms of debt. That’s up from 214% in September 2008 when the financial crisis was going into its most intense phase.
Most western nations have large banks whose outlook is far from positive and some of which are vulnerable to insolvency and bail-ins.
Many analysts warn that many Wall Street and City of London banks are bigger now than they were prior to the collapse of Lehman Brothers and the shadow banking system is of a greater size now.
$1 Quadrillion “Weapons of Mass Destruction” Derivatives
The worldwide nominal value – also known as the notional or “face” value – of derivatives tripled in the five years leading up to the recession, at which time it was over a whopping $600 trillion, according to the Bank for International Settlements (BIS).
Little has been learned since then and the total value of the derivatives market has actually gotten much bigger.
Although recent BIS data shows only a little growth in the overall value of derivatives, derivatives experts believe that the market has continued to expand rapidly. It is just not apparent in the murky world of the shadow banking system.
While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP. By comparison, the total value of all the stocks trading on the New York Stock Exchange is roughly $15 trillion.
Warren Buffett’s financial weapons of mass destruction are proliferating significantly. The time bomb will go off in 2015 or later and could be the catalyst which leads to a collapse of the current financial and monetary system and the global financial, economic and currency reset.
The global financial system remains far from safe.
Cold War II and New World Order as China and Russia Flex Geopolitical Muscles
Geopolitical tensions in the Middle East and rising tensions between Russia and China and the U.S. are set to continue in 2015 and may escalate.
The new Cold War risks sparking some dangerous proxy hot wars in Ukraine and the Middle East.
A new and potentially more dangerous Cold War is upon us. Respected former Soviet leader Mikhail Gorbachev has warned that the “trust created by hard work and mutual effort” that led to the end of the Cold War has completely “collapsed”.
Instead of a new world order built on peace and stability, he warned this week that Western hubris has led to the renewal of age-old rivalries and heightened global tensions – turning a “blister” into a “festering wound.”
Mr Gorbachev calls for renewed dialogue between Russia and the West, leading to the lifting of economic sanctions. Economic sanctions are badly affecting many European economies – especially the already vulnerable periphery nations.
The international crisis regarding Syria abated after the U.S. backed down from military action after the Russian diplomatic offensive and due to strong political and public resistance internationally. China remained silent in the wings.
However, the Middle East remains a powder keg and the risk of a wider conflict in the region centring on Israel and Iran remains real. The risk of a conflagration involving Sunni versus Shia muslim nations is also increasing.
Although, the tensions with Russia is possibly the greatest geopolitical challenge and risk.
It is worth listening to the words of Gorbachev as he a respected international statesman and not a stooge of Putin and the Kremlin.
This week in an Op-Ed in Project Syndicate, he wrote, “Though I am, by nature, an optimist, I have to admit that it is very difficult not to be pessimistic as 2014 comes to a close.”
“Nonetheless, we must not submit to panic and despair, or allow ourselves to be drawn into a vortex of negative inertia. The bitter experience of the past few months must be transformed into the will to reengage in dialogue and cooperation. This is my appeal to our leaders, and to all of us, for 2015: Let us think, propose, and act together.”
Let us indeed. If Gorbachev’s pleas fall on deaf ears, 2015 will be more volatile than 2014.
Enter The Dragon and the Elephant – China and India Gold Demand Is Paradigm Shift – 2015 Likely To See Chinese Gold Demand At Record Levels Seen in 2013 and 2014
The ongoing paradigm shift that is China’s gradual move to become a dominant player, if not the dominant player, in the global gold market continues. China was the largest buyer of gold in the world again in 2014.
Chinese demand for gold bullion saw some month on month falls in 2014 but full year 2014 again saw very robust demand for physical gold from the 1.3 billion people in China.
China’s gold imports from Hong Kong alone in November 2014 rose to their highest level since February 2014, indicating strong demand in the world’s top bullion buyer ahead of the Lunar New Year which is slighter later this year on February 19th, 2015.
Net gold imports from Hong Kong to the mainland rose to 99.111 tonnes in November from 77.628 tonnes in October.
China does not provide trade data on gold and the Hong Kong figures have served as a proxy for gold flows to the mainland. The Hong Kong data is seen as an increasingly poor proxy as it provides a quite limited picture of total Chinese demand as it does not include direct imports through Shanghai and Beijing which have risen dramatically in recent years.
Chinese gold withdrawals from the Shanghai Gold Exchange (or SGE) are the best indicator of China’s physical gold demand and the best way to establish actual total Chinese physical bullion demand.
Shanghai Gold Exchange (SGE) gold withdrawals were very high throughout 2014 – averaging around 50 tonnes a week to come to some 2,150 tonnes of gold. SGE withdrawals were 57.655 tonnes for the week ending December 26th and 2089 tonnes for the year so far. The last weeks data figure will be released later today.
That means despite a lot of talk of falling Chinese demand – demand in China in 2014 will be only a percent or two below the record levels seen in 2013. It is higher again than the record years for Chinese gold demand that were 2011, 2012 and 2013 (see chart).
To put that 2,150 tonnes of physical gold demand in context, global mining supply will be around 2,900 tonnes this year. This means that the Chinese people alone will buy nearly 75% of total global production.
Most of the gold that enters the Dragon will be hoarded and remain in China for decades to come.
What we in the West need to appreciate is that – in the case of both India and China, where around one third of the people on planet Earth reside – it is masses of individuals, families and local businesses who are driving this demand.
It is the poor, the middle classes and rich and very rich. It is being driven particularly by the burgeoning middle classes and newly who are accumulating gold with their disposable income and net worths. The desire to own gold as savings and financial security is culturally embedded in these ancient cultures amongst every strata of the society.
The experience of people in most Asian countries with fiat paper currencies has not been a good one. Nor has their experience of banks been a good one.
As such, the demand is not speculative and a cyclical, short term blip. Rather, it is a long term, structural shift to higher demand and sustained high levels of demand.
While the trend may dissipate and see peaks and troughs, it is very unlikely to reverse into a trend of mass selling. Nor is it likely to reverse trend anytime soon given the fiscal, monetary and economic challenges facing the Western world and indeed the entire world.
The People’s Bank of China is almost certainly continuing to quietly accumulate gold bullion reserves.
As was the case previously, they will not announce their gold bullion purchases to the market in order to ensure they accumulate sizeable reserves at more competitive prices. They also do not wish to create a run on the dollar – thereby devaluing their sizeable reserves.
The expected announcement from the People’s Bank of China (PBOC) that they have trebled their reserves to over 3,000 tonnes, from 1,054 tonnes, did not materialise in 2014. Having given further thought to the announcement we now question whether the Chinese will make any such announcement in the short term.
More likely is that they will quietly continue to accumulate gold in volume until their gold reserves are the largest in the world and surpass those of the U.S. at over 8,133 tonnes. No announcement is likely until they see a significant monetary, geopolitical and economic advantage in doing so or they have nothing to lose as they realise the inevitable fate of their debased dollar holdings and a potential U.S. default.
Indeed, tactically they may have warned the US Treasury and Fed that any default by the U.S. would lead to them loudly announcing they are selling their dollar holdings and accumulating gold with them and they have the world’s largest gold reserves. This would mortally wound the dollar as global reserve currency and position the yuan as the new global reserve currency.
The ramifications of China’s huge demand for physical gold, both from the Chinese people and the People’s Bank of China is yet to be realised and factored into prices.
2015 Likely To See Indian Gold Demand At Record Levels Seen in 2013 and 2014
2014 also heard much chatter about a significant fall demand in India due to government taxes and import restrictions. However, the death of the Indian gold market was again greatly exaggerated.
Decades, indeed hundreds of years of tradition will not be ended by silly, ineffectual financial repression and bureaucratic government meddling.
Indian demand looks set to be well over 850 tonnes in 2014. This represents a lot of gold and the equivalent of nearly 30% of global mining supply of some 2,900 tonnes.
There is now also huge unrecorded smuggling of gold into India from Bangkok, Dubai and other cities in Asia. The law of unintended consequences took place and the government meddling may have contributed to even higher demand for gold.
Long Term (2015-2020) MSGM Fundamentals
The long term case for having an allocation to precious metals is due to the still positive fundamentals:
- Macroeconomic risk is high as there is a serious risk of recessions in major industrial nations with negative data emanating from the debt laden Eurozone, Japan and China. Even the recoveries in the UK and the U.S. are tentative at best. Issues with banks, a laLehman, or a major terrorist incident or another war could badly impact fragile consumer and investor sentiment.
- Systemic risk remains high as little of the problems in the banking and financial system have been addressed and there is a real risk of another ‘Lehman Brothers’ moment or a new ‘Grexit’ moment and seizing up of the global financial system. The massive risk from the unregulated “shadow banking system” continues to be significantly underappreciated. There are many potential Lehman Brothers out there both in the Eurozone but also in the UK and the U.S.
- Geopolitical risk remains elevated – particularly in the Middle East and with Russia. This is seen in the continuing significant tensions in Lebanon, Syria etc and between Iran and Israel. There is the real risk of conflict and the consequent effect on oil prices and the global economy.Many analysts believe that the deepening economic, political and military tensions between Japan and China could devolve into an actual war.There are also simmering tensions between the U.S. and its western allies, primarily the UK, and Russia and the resurgent and increasingly powerful China.
- Monetary risk is high as the policy response of the Federal Reserve, the ECB, the Bank of England, the BOJ and the majority of central banks to the risks mentioned above continues to be ultra-loose monetary policies, zero interest rate policies (ZIRP), negative interest rate policies (NIRP), the printing and electronic creation of a tsunami of currency and the debasement of paper and electronic currencies.Should the macroeconomic, systemic and geopolitical risks increase even further in the coming months, then the central banks’ response will likely again be more cheap money policies. This will lead to further currency debasement and there is a risk of currency wars deepening.
Gold – Research Shows Is Proven Hedging Instrument and Safe Haven
There is a significant and growing consensus amongst academics, independent researchers and asset allocation experts that gold is a hedging instrument and a safe haven asset. Thus, many financial professionals now believe that gold should form part of investment and savings portfolios for reasons of diversification and financial insurance
Indeed, there is now a large body of academic and independent research showing gold is a safe haven asset and showing gold’s importance in investment and pension portfolios. This allocation is in order to both enhance returns but more importantly reduce overall volatility.
The importance of owning gold in a properly diversified portfolio has been shown in numerous academic papers. It has been shown in independent research by the asset allocation specialists, Mercer Consulting and Ibbotson Associates. It has also been shown by consulting group, New Frontier Advisors and by leading international think tank, Chatham House.
Gold has protected people throughout history from inflation and currency debasement. The historical record also shows how gold has protected people from stock and property market crashes and from asset confiscation.
Research on gold as as safe haven can be accessed here
The outlook in 2015 is uncertain – as uncertain as it has been in our lifetimes.
Volatility and turbulence is guaranteed. Financial repression and currency debasement is certain. Bail-ins, a currency reset and international monetary crisis is on the cards. The question is not if, rather when.
The only free lunch in 2015 and the coming years will again be diversification. We cannot emphasise strongly enough the importance of being properly diversified. Owning hard assets and allocated ownership of physical bullion will aid in protecting and growing wealth.
Dollar, pound or euro cost averaging into position remains prudent. Similarly, when prices rise sharply or rather when currencies devalue – dollar, pound or euro cost averaging out of a position will be prudent as it will be nigh impossible to time a currency bottom or a market top.
China released data for the last 3 days of the year. Gold withdrawals = gold demand came in at 29 tonnes. This figure does not include sovereign China purchases. Total demand for the year: 2102 tonnes of gold or almost equal to the entire gold’s production per year (ex China ex Russia at 2200 tonnes)
(courtesy Koos Jansen)
Every year around January first the Chinese ramp up gold buying at retail level to an unprecedented pace (click, click and click to read about the buying spree last year). The Chinese calendar (Lunar Year) is slightly different than the Western (Gregorian) calendar. In China new year will be celebrated on February 19, 2015, this time to begin the year of the goat. For the occasion the Chinese buy each other gifts, quite often in the form of gold.
We can see elevated gold purchases on wholesale level (SGE withdrawals) of late, rapidly being sold to end consumers in the shops at the moment. China Gate News Channel reported on January 3rd a “stampede phenomenon” in a shopping mall in Beijing, were gold was sold at a rate of 400,000 yuan per minute.
Reporters saw hundreds of people this morning to appear in a stampede phenomenon. To prevent congestion stores set up a special security tower, have someone on the lookout, to control the shoppers.
…Additionally the staff was increased to ensure smoothly shopping.
Perhaps the shopping mall was prepared for the stampede after what happened last year; in some Chinese shopping malls 200 Kg was sold in one hour.
400,000 yuan per minute means it’s likely more than 0.6 metric tonnes of gold is sold per day in just one shopping mall in Beijing. How many of these shopping malls are there across China? I wish I knew.
These numbers provide an interesting perspective to reflect on SGE withdrawals. The Chinese SGE report that was released today only covered the last three trading days of 2014. Withdrawals (December 29 -31) were strong at 29 tonnes, a rate that transcends global mining production. Total withdrawals for 2014 have reached 2,102.4 tonnes, down 4 % y/y.
I we correct SGE withdrawals by SGEI trading volume – read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals – SGE withdrawals in the mainland, were at least 18 tonnes, at most 29 tonnes (in the last three days of 2014). Total SGE withdrawals in 2014, in the mainland, were at least 2,025 tonnes, at most 2,102 tonnes.
My estimates for the supply side of the Chinese gold market in 2014 are (based on 2,025 tonnes SGE withdrawals):
- Import 1,218 tonnes.
- Domestically mined 451 tonnes.
- Recycled through the SGE 356 tonnes.
This would mean at least 1,669 tonnes has been added to Chinese non-government gold reserves, putting the total at 11,623 tonnes. Guessing PBOC reserves at 4,000 tonnes, the total amount of physical gold in China could be approximately 16,000 tonnes.
Read the end of this post to learn how I conceived this chart.
E-mail Koos Jansen on: email@example.com
Alasdair Macleod: 2015, the year of the slump?
12:01p ET Friday, January 9, 2015
Dear Friend of GATA and Gold:
The hastening decline in the world economy will increase systemic risks, GoldMoney research director Alasdair Macleod writes today.
The slump, Macleod writes, “can be expected to undermine global equities, property, and finally bond markets, which are currently all priced for economic stability. Even though these markets are increasingly controlled by central bank intervention, it is dangerous to assume this will continue to be the case as financial and systemic risks accumulate.”
Macleod concludes: “Precious metals are ultimately free from price management by the state. Furthermore, they are the only asset class notably under-priced today, given the enormous increase in the quantity of fiat money since the Lehman crisis. In short, 2015 is shaping up to be very bad for fiat currencies and very good for gold and silver.”
Macleod’s commentary is headlined “2015: The Year of the Slump?” and it’s posted at GoldMoney’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Questions for the French central bank about its secret market interventions
10:55a ET Friday, January 9, 2015
Dear Friend of GATA and Gold:
Fabrice Drouin Ristori, CEO of Goldbroker.com, today publishes six questions he has sent to Alexandre Gautier, the director of market operations for the French central bank, the Banque de France, about the bank’s secret interventions in the gold market particularly and possibly the commodity markets generally. Ristori’s questions are exactly the sort of questions that would be posed by the mainstream financial news media if they had any real journalists and not mere toadies for government and big investment houses.
If you know any journalists, real or otherwise, Ristori’s questions are worth forwarding.
Ristori’s letter to the Banque de France official is headlined “French Gold Reserves: Letter to Alexandre Gautier, Banque de France” and it’s posted at Goldbroker here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Of course Turkish gold reserves are overstated — nearly everybody’s are
10:41a ET Friday, January 9, 2015
Dear Friend of GATA and Gold:
Responding to gold researcher Koos Jansen’s report yesterday about what is effectively the official remonetization of gold in Turkey, in which citizens’ gold is deposited with commercial banks and then used by the banks to satisfy the reserve requirements of the Turkish central bank, moving temporarily to the central bank’s books —
— the Perth Mint’s Bron Suchecki notes today that this falsifies the central bank’s gold position, which is in turn misleadingly reported by the World Gold Council. Suchecki’s commentary is headlined “WGC Overstating Turkish Gold Reserves” and is posted at his Internet site, Gold Chat, here:
Suchecki’s point is well taken, for it means that a lot of gold in Turkey is double-counted.
But then multiple counting of gold reserves long has been Western central bankpolicy and, by extension, World Gold Council policy too, since the council reports central bank gold holdings so uncritically.
For as the secret March 1999 report of the staff of the International Monetary Fund discloses, central banks conceal their gold swaps and leases precisely to deceive the gold and currency markets about their secret interventions, to trick the markets into thinking that official gold reserves are far larger than they really are, to prevent the markets from knowing how much gold has actually left central bank vaults and been injected into the market for price suppression through swaps and leases:
As your secretary/treasurer has observed for years, official gold reserves are the ultimate weapons of government, and the true location and disposition of central bank gold reserves are secrets far more sensitive than the location and disposition of nuclear weapons — that most official data on gold reserves is completely bogus, concocted for a deception in which the World Gold Council is fully complicit.
The deception highlighted so valuably by Suchecki today is only a small part of the fraud.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
We brought this to your attention yesterday that finally the Indian government will no longer worry about gold imports:
(courtesy Lawrence Williams/Mineweb)
India no longer worried about gold imports
Recent speculation that very strong gold imports into India in October and November would lead to further import restrictions, a new statement suggests that this is no longer seen as necessary.
A Reuters report yesterday quoted India’s Trade Secretary Rajeev Kher as saying that the country’s Current Account Deficit (CAD) was now under control so there was no need to impose further import controls on gold.
India’s gold imports in October and November were running so high (152 tonnes in November and almost as much in October) that there had been speculation that the country would impose additional import controls over and above the 10% import duty on gold and silver currently prevailing. However imports eased to only 39 tonnes in December and 7 tonnes in the first few days of January suggesting that the October and November figures were something of a blip ahead of the major 2014 Festival and Wedding seasons. Imports had been running at relatively low levels earlier in the year and once the high latest figures fell away the Modi government obviously feels that matters are now in hand – and there have even been hints that gold import restrictions may be eased further should the CAD stay under control. These hints may well have contributed to the lower import levels too as traders wait in hope that duties might be relaxed.
It should be recalled that the Reserve Bank of India, at the government’s behest, scrapped the 80:20 rule that stated that 20% of imported gold had to be re-exported in fabricated form only last month. However the 10% import duty remains in place. The import duties have led to significant smuggling of gold into the nation – some have estimated this at 300 tonnes or more in 2014 and while this doesn’t show up in import figures it still has an adverse effect on the economy – not least through avoiding the import tax. It also damages the business of the more scrupulous traders, while benefiting those prepared to flout the law.
The precious metals sector is big business in India and employs huge numbers of people, most of whom will have voted for the new government which had appeared to be more friendly to the precious metals industry. However gold imports in the past had been such a major contributor to the CAD imbalance that this caused the import duties to be imposed by the previous government, and so far maintained by the new one which won the April election. The new Modi government is seen, however, to be much more business oriented and has pledged to bring down the CAD and if it succeeds in doing so there has been a wide expectation that it would ease the import duties, but it is probably unlikely to do so for some months yet.
And now for the important paper stories for today:
Early Friday morning trading from Europe/Asia
1. Stocks mainly up on major Asian bourses / the yen rises to 119.23
1b Chinese yuan vs USA dollar/ yuan strengthens to 6.2088
2 Nikkei up 31 points or 0.18%
3. Europe stocks in the red /Euro rises/ USA dollar index down to 92.16/
3b WOW!!! Japan 10 year yield at .28% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.23/
3c Nikkei now above 17,000
3e The USA/Yen rate well below the 120 barrier this morning/
3fOil: WTI 48.56 Brent: 50.51 /all eyes are focusing on oil prices. This should cause major defaults.
3g/ Gold up/yen up;
3h/ Japan is to buy the equivalent of 108 billion usa dollars worth of bonds per MONTH or $1.3 trillion
Japan’s GDP equals 5 trillion usa/thus bond purchases of 26% of GDP
3i Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt (see Von Greyerz)
3j Oil falls this morning for both WTI and Brent
3k China to stimulate its economy by 1 trillion dollars worth of infrastructure/poor Chinese PPI numbers as their economy softens.
3l jobs report in the morning will dictate bourses
3m Gold at $1213. dollars/ Silver: $16.31
3n USA vs Russian rouble: ( Russian rouble down 1 rouble per dollar in value) 61.50!!!!!!
3 0 oil falls into the 48 dollar handle for WTI and 50 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 ECB still unsure of QE format weighs down European bourses
4. USA 10 yr treasury bond at 2.00% early this morning. Thirty year rate well below 3% (2.59%!!!!)/yield curve flattens/foreshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid
(courtesy zero hedge)/your early morning trading from Asia and Europe)
Futures Fade After Report ECB Still Unsure On QE Format
While the trading world, or at least the kneejerk-reaction algos, is focused on today’s US nonfarm payrolls due out in just 2 hours (consensus expects 240K, with unemployment declining from 5.8% to 5.7%) the key event overnight came out of China, (where inflation printed at just 1.5% while PPI has imploded from -1.8% in September to -2.2% in October to -2.7% in November to a whopping -3.3% in December) because as per BofA “soft domestic demand over-capacity issue have kept inflation pressures low”. This extended a record stretch of negative PPI prints and was the steepest drop in factory-gate prices in two years. “The oil price drop is one factor, but the more important factor of the PPI decline is the weakness of the global economy — look at Europe and Japan,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “With trade and other inflation transmission methods, the whole world is facing disinflation pressure.”
Europe promptly followed with big news of its own, thanks to a Bloomberg report that as recently as Wednesday ECB staff “presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets… options included buying only AAA-rated debt or bonds rated at least BBB-, the euro-area central bank official said. Governors took no decision on the design or implementation of any package after the presentation.” In other words less than two weeks before the fateful ECB meeting and Mario Draghi not only still hasn’t decided on which of three public QE version he will adopt, but the ECB has reverted back to a private QE plan. Not surprisingly the EURUSD jumped back over 1.18 on the news (and USDJPY and stock markets dropped) on the news that Europe still is completely unsure how to proceed with QE despite the endless jawboning.
In other news, and as reported last night, Fed’s non-voting, and outgoing, dove Kocherlakota said the Fed should not raise US interest rates this year and raising interest rates would slow progress towards inflation goal. Kocherlakota added that Fed stimulus is insufficient to hit inflation target and sees few years for inflation to return to 2%. Unlike Evan’s “catastrophe” comment, stocks not only had no response but actually retreated on the comment.
Speaking of China, something peculiar happened in its stock market when the Shanghai Composite Index fell,erasing a gain of as much as 3.4 percent in the last half hour of trading, as traders weighed the prospect of stimulus amid data signaling a deeper economic slowdown. Energy companies led declines after Chinese factory-gate prices posted their sharpest drop in two years.
European equities (EuroStoxx50 -1%) also traded lower after the abovementioned report that ECB staff are said to have outlined EUR 500bln investment grade QE plan although have said not to have taken any decision on QE. Furthermore, IBEX (-2.45%) is the underperforming index and financial names are leading the way lower for Europe as Santander (-9.6%) have resumed trade this morning following yesterday’s news that they are to boost capital. However, Chairwoman Botin refuted claims that the bank are interested in Banca Dei Monte Paschi (-4.9%) after the Italian lender were seen higher by 12.4% yesterday on the back of rumours of Santander interest. Fixed income remains tentative with light volumes observed in the Bund as it trade flat with while the ECB reports propelled periphery paper higher.
The USD-index (-0.24%) remains offered in the session following yesterday’s remarks from Fed’s Kocherlakota saying that the Fed should not raise US interest rates this year, raising interest rates would slow progress towards inflation goal, however these comment did not impact the fixed income or equity markets. The subsequent ECB comments lifted EUR/USD back above the 1.1800 handle after initially moving lower before reports that the ECB confirmed that no decision on QE had been made. Separately, GBP/USD saw some strength ahead of the UK Manufacturing and Industrial Production with rumours circulating that the releases were positive, however the data points came in mixed causing GBP/USD to come off session highs.
The softer USD earlier supported spot Gold although has since come off best levels in the session with copper prices remain near 4½ year lows as commodities traded relatively flat following mixed inflation data from China. Elsewhere, WTI crude futures have seen its overnight gains trimmed as oil prices are headed for its 7th weekly loss today.
And now all eyes focus on today’s main report, the December non-farm payrolls.
Bulletin Headline Summary from Bloomberg and RanSquawk
- European equities reside in negative territory heading into the US crossover after reports that the ECB are still undecided on QE.
- Looking ahead, the US NFP data scheduled for 1330GMT/0730CST is expected to show another month of strong employment growth in the US with analysts forecasting a reading of 240K.
- ECB staff presented policy makers with models for buying as much as EU500b ($591b) of investment-grade assets, according to a person who attended a meeting of the Governing Council
- Dec.’s 0.2% decline in euro-area consumer prices is especially difficult for policy makers because companies are more likely to set wages and prices in Jan., meaning a falling inflation rate will set the tone for such decisions, according to Jefferies economist Marchel Alexandrovich
- China’s producer-price index fell 3.3% in Dec. (est. 3.1%), extending a record stretch of declines; slide has yet to be fully reflected in consumer prices, which rose 1.5%, matching the median estimate
- Raising rates in 2015 “would only further retard the pace of the slow recovery in inflation,” Minneapolis Fed’s Kocherlakota said in a speech yesterday
- German industrial production unexpectedly fell for the first time in three months in November as energy output slumped; France’s industrial production fell 0.3%
- U.K. manufacturing output rose 0.7% in Nov., most in seven months; industrial production fell 0.1% as oil and gas extraction declined 5.5%
- Norway is considering tapping reserve funds to shield western Europe’s biggest oil producer from the worst slump in crude prices in more than half a decade
- Kaisa Group’s woes show investors will demand yields of at least 10% to buy Chinese real-estate junk bonds amid growing wariness of state interference in the property market
- French police closed in on the suspects in the massacre of journalists at magazine Charlie Hebdo, cornering them in a small town near Paris’s Charles de Gaulle airport
- U.K. Independence Party leader Nigel Farage called PM Cameron “a chicken running scared” after the premier told ITV News he wouldn’t take part in debates unless they also include Green leader Natalie Bennett, whose party is vying for fourth place in terms of voter support with the Liberal Democrats
- Sovereign yields mostly lower. Asian stocks mostly higher; European stocks, U.S. equity-index futures lower. Brent crude, WTI lower; copper falls, gold lower
DB’s Jim Reid concludes the overnight recap
After last month’s +321k headline print we’ve had 2 bouts of risk off and another large rally in bonds so anyone who traded payrolls based on the number alone has been overtaken by other events (Oil, Greece and the ECB in particular). For today expectations are for +240k on the street and +200k at DB with our US colleagues highlighting a potential December seasonal factor having an influence on the data.
We go into the number on the back of an impressive rebound for risk over the last couple of days. Indeed the US, UK and German markets yesterday wiped out their YTD losses after an impressive rally off the intra-day lows from Tuesday. Digging into the details, the S&P 500 (+1.79%) and Dow (+1.84%) both finished the day strongly – the S&P 500 in particular now 3.5% up from Tuesday’s lows. In fact it was a strong day for risk assets across the board, CDX IG closing 1.5bps tighter and US HY energy names tightening a further 17bps. This index is now -93bps off the December 16th wides from last year.
Yesterday’s positive sentiment was centered on supportive comments from both the ECB’s Draghi, which we’ll touch upon later, and also comments out of the Fed’s Evans in Chicago after the US close on Wednesday. On the latter, Evans, one of the more dovish Fed members, commented that he does not think that ‘we should be in a hurry to raise rates’, noting that although job growth is clearly moving in the right direction, the outlook for inflation is ‘more worrisome’. Evans however, didn’t rule out a rate hike in 2015, suggesting that in regards to hitting the 2% inflation target over a reasonable period of time, that ‘it is a tradeoff as to whether or not we delay for quite a long time before the first liftoff, or liftoff begins a little earlier than maybe I would think, but with a shallow enough path of increases so that the overall path still remains adequately accommodative to have confidence’. Another Fed member, Rosengren, in a report on Reuters lent some support to Evans’ comments noting that ‘we want to make sure that the recovery is sustainable before we raise interest rates’. Finally after the market close Fed member Kocherlakota commented in his speech that the Fed ‘can best achieve its macroeconomic objectives by not raising the fed funds rate target this year’ and that the Central Bank ‘has not provided sufficient stimulus to hit its inflation target’.
With a better tone in the market, US Treasuries weakened for a second successive day with the 10y benchmark yield closing back above 2% at 2.018% (+5bps). Yesterday’s data was supportive also. Initial jobless claims continued to stay below 300k with the latest 294k reading meaning the four-week average print ticked down slightly to 290.5k. The Dollar also appears to show little sign of retreating with the DXY +0.52% helped by further gains against the Euro (+0.39%) to $1.179. Elsewhere oil markets appeared to take something off a backseat yesterday with WTI and Brent +0.29% and -0.37% respectively.
Closer to home yesterday, it was a strong day for European equities with the Stoxx 600 (+2.75%) and Dax (+3.36%) both closing significantly firmer. After soft inflation prints out of Germany and the Euro-area this week, comments from the ECB’s Draghi appeared to add further hope that ECB QE is imminent with the January 22nd monetary policy meeting now just around the corner. Responding to the European Parliament, Draghi noted in his letter that following a review of monetary stimulus the ECB may look to adjust size, pace and composition and that ‘such measures may entail the purchase of a variety of assets – one of which could be sovereign bonds’. With the rally in risk assets Bunds closed weaker with 10y yields +2.6bps wider at 0.510% although yields in Spain (-1.9bps), Italy (-6.0bps) and Portugal (-13.6bps) all closed tighter. In credit Crossover (-16bps) closed firmer although on the micro side Tesco has been downgraded into high yield territory by Fitch.
Elsewhere Greek equities continued their downward trajectory with the ASE closing 2.06% lower. The ECB’s Coeure was reported on France 24 playing down a ‘Grexit’, specifically saying that ‘there is a very strong commitment from European political authorities to ensure the integrity of the euro area’ and that ‘no-one is now working on an exit of Greece from the euro area’. Coeure also went on to mention that the ECB monetary policy decision due at the end of the month will not be influenced by the Greek election due 3 days after.
Moving to the overnight session Asian equity markets are following the US lead with major bourses trading higher across the region. The Nikkei, Hang Seng and KOSPI are up +0.06%, +1.21% and +1.20% respectively as we type. Chinese equities (+2.00) have recovered having previously traded with a softer tone this morning probably not helped by further weakness in factory gate prices. Indeed China’s PPI continues to decline with a -3.3% yoy print for December. This compares with a -2.7% yoy print in November and also below market consensus of -3.1%. China PPI has been in negative territory for the last 34 months signaling chronic over capacity problems in Chinese industrials. CPI numbers are a little firmer though at +1.5% which is in line with consensus. Away from macro, credit markets are still focused on the developments around Kaisa. As we go to print the market is yet to receive confirmation whether the property developer has paid its bond coupon ($25.625mn) due yesterday. We are starring at potentially the first ever default by a Chinese property developer in the offshore Dollar bond market.
Speaking of defaults S&P noted that the first week of 2015 has seen 3 corporate defaults globally. The 3 defaults so far are all based in emerging markets and one of them was Kaisa which has been lowered by the agency to Selective Default on Monday after the company defaulted on a HK$400m offshore term loan. The second default relates to a Brazilian engineering and construction and infrastructure investment group OAS S.A after a failure to pay event. The third default was confidential and not disclosed but it is not a good start to the year on this front.
Looking at the day ahead we kick this morning off in Europe with industrial production numbers for Germany, UK and France. We’ll also get trade data for Germany along with manufacturing production prints for both France and the UK. Construction output in the UK could also be of some interest this morning. This afternoon in the US, as well as the aforementioned payrolls print we’ll get unemployment and average hourly earnings readings. We round off the calendar with wholesale inventories later today whilst comments from the Fed’s Lacker (on the economic outlook) could be worth keeping an eye on.
The German opposition states that Europe cannot afford a GREXIT:
(courtesy zero hedge)
“Europe Can’t Afford A Greek Exit” German Opposition Warns Merkel Is “Playing With Fire”
The mainstream media narrative – that Germany is ready and prepared for Grexit and that it is no longer a threat to financial stability – is all hype, according to German opposition finance minister Joachim Poss. As Bloomberg reports, all that is mostly posturing for an electorate tired of the aid and angst Greece has demanded since 2010. Simply put, the potential for Euro instability from a Grexit is a detriment to Germany’s massive benefits from the single currency – “Europe can’t afford a Greek exit,” Poss concludes, complacency by Merkel is “playing with fire.”
A reading of the German press suggests Chancellor Angela Merkel is at peace with the idea of Greece quitting the euro.Der Spiegel says her government views that as a manageable outcome; Bild reports that officials are preparing for the prospect. Lawmaker Michael Fuchs says Greece is no longer a threat to financial stability.
All that is mostly posturing for an electorate tired of the aid and angst Greece has demanded since 2010. In fact, Germany has no interest in risking the dissolution of the single currency that a Grexit could entail.
That’s because the status quo is a boon for Germany economically and politically. Indeed, the biggest European economy benefits more than most of its fellow euro members from the single currency. While a Greek departure alone may not end the euro, the risk would be of contagion through the bloc’s financial markets that forced others out.
If it had to return to the deutsche mark, German exporters, which account for about half of gross domestic product, would become much less competitive and Merkel’s prized current-account surplus would shrink. Inflation would weaken further.
On the geopolitical stage, Germany would also see its star dimmed. Former U.S. Treasury Secretary Timothy F. Geithner last year identified German Finance Minister Wolfgang Schaeuble as the go-to-guy for the U.S. during Europe’s crisis. Russian President Vladimir Putin would also welcome strains on the continent.
“Europe can’t afford a Greek exit,”Joachim Poss, the Social Democrats’ deputy finance spokesman in the German parliament, said in an interview this week. Suggestions by allies of Merkel that the 19-nation currency bloc could weather Greece’s departure amount to “playing with fire,”he said.
* * *
It appears for now that investors believe Grexit is increasingly possible…
On This Day In History, The Baltic Dry Index Has Never Been Lower
Must be over-supply too, right? Just like oil prices… The Baltic Dry Index – which apparently is only relevant when it is rising – has never been lower at this time of year.
Perhaps GDP expectations, bond yields, crude oil prices, and credit risk are on to something about the global economy after all?
France continues to be in turmoil with another hostage taking:
(early Friday morning)
2 Dead After Another Armed Man Takes 5 Hostages In Eastern Paris Kosher Grocery Store
Update: AT LEAST TWO DEAD IN PARIS HOSTAGE SITUATION: LES ECHOS
Even as the Charlie Hebdo shooting suspects, who have holed up in the town of Dommartin with a hostage in tow, are engaged in what is likely a final showdown with the police, a second hostage situation appears to have developed in a Kosher grocery in eastern Paris, where according to preliminary reports the shooter from the Montrouge policewoman killing yesterday, has taken several hostages. According to AFP, Fresh shooting broke out in eastern Paris on Friday, with reports that an armed man had taken a hostage at a kosher grocery store. “The gunman was suspected of being the same man who killed a policewoman in southern Paris on Thursday, who is thought to have links to the assailants who stormed.” AFP just added that at least 5 hostage are involved in the parallel hostage situation.
The hostage situation is taking place near the Porte de Vincennes, where according to social media reports a major police operation is taking place. “Panic at Porte de Vincennes. Policemen in bulletproof vests are evacuating everyone. The operation is underway,” tweeted Raquel Garrido from France’s Left Party. Police sources told Reuters that one person has been wounded.
Live feed from France24:
The drama ends with both suspects in the Charlie Hebdo massacre dead and one of the suspects in the kosher deli hostage taking. It looks like 4 of the hostages are dead and 4 more are severely injured.
‘Charlie Hebdo’ Suspects, Paris Hostage-Takers Killed; Four Hostages Dead, Four Severely Injured
Update: the hostage-takers are dead. However, according to Reuters at least four hostages at the Kosher supermarket have been killed according to Reuters, citing a police source. Additionally, and take this with a grain of salt, CNN adds that the female suspect in the Paris grocery siege escapes.
* * *
- *FRENCH POLICE START RAID ON CHARLIE HEBDO SUSPECTS’ HIDEOUT
- *2 EXPLOSIONS, 10 SHOTS AS POLICE RAID DAMMARTIN HIDEOUT
- *CHARLIE HEBDO SUSPECTS KILLED IN POLICE RAID: AFP
- *CHARLIE HEBDO SUSPECTS’ HOSTAGE IS FREE: AFP
- *DAMMARTIN HOSTAGE FREED, ISN’T HURT, AFP REPORTS
Gunshots have been heard in Dammartin-en-Goele where the two Charlie Hebdo suspects are holed up with a hostage.
Sky’s Ian Woods, who is on the scene, said:“There was a burst of gunfire that lasted about 10 seconds. Since then we’ve heard four or five explosions.
Clearly this is the end game of this operation.”
Within the past few minutes smoke was seen rising from the factory complex close to the outskirts of Paris and near to Charles De Gaulle airport.
And now we are hearing explosions at the 2nd hostage situation in Paris:
- *FOUR EXPLOSIONS HEARD AT PARIS PORTE DE VINCENNES HOSTAGE SITE
- *EXPLOSIONS, GUNFIRE HEARD AT PORTE DE VINCENNES HOSTAGE SITE
- *SEVERAL HOSTAGES FREED AT JEWISH SUPERMARKET IN PARIS: AFP
Clip of the Police Storming the grocery store…
— José Miguel Sardo (@jmsardo)
US Rig Count Crashes At Fastest Pace Since 2009 To 14-Month Lows
Just as T.Boone Pickens warned, US Rig Counts are plunging. Down by 61 this week alone – the biggest weekly drop in over 5 years – at 1,750, this is now the lowest since November 2013 (and very close the lowest since 2010). The 10% or so plunge in the last 7 weeks is following the same trajectory as the 2008 collapse – which led to – just as Pickens suggested – a 50% crash in rig counts…
Pickens… “demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months”
This the first rig count drop year-over-year in a year…
Since the pricing of LNG is linked to oil prices, we now have a new casualty to report to you with the low oil prices
(courtesy Nick Cunningham/OilPrice.com
LNG Another Casualty Of Low Oil Prices
The oil industry is facing rising debt from collapsing oil prices, but there could be another sector that becomes a casualty of the low oil price environment: liquefied natural gas (LNG).
Much of the global LNG trade occurs in Asia, where buying and selling occurs according to long-term fixed contracts that are indexed to the price of oil. As a result, when oil prices were high, so were LNG prices. That is exactly why there has been a rush along the U.S. Gulf Coast to begin exporting cheap American natural gas to take advantage of high prices in Asia.
The practice of indexing LNG contracts to the price of oil was something that Japan, the world’s largest consumer of LNG, had hoped to change. High oil prices were inflicting an economic toll on Japan, which had radically increased energy imports after shuttering its nuclear reactors. However, oil-indexed contracts cut both ways. Now with oil prices hovering around $50 per barrel – less than half of what they were last summer – spot cargoes for LNG have seen their prices collapse as well. Japan isin no hurry to see the industry undergo dramatic reforms.
Not only are low oil prices pushing down LNG prices, but demand in Asia for LNG is much lower than anticipated. In fact, a new Wood Mackenzie analysis says that weak demand in China, Japan, and Korea helped push LNG prices below $10 per million Btu at the end of 2014, less than half of the $20/MMBtu spot cargoes were selling for earlier in the year.
Adding to the sector’s problems is the fact that new supplies are starting to come online. A massive build out of LNG export capacity is still underway, with earlier projects now reaching completion. Just as the shale boom led to oversupply and crashing prices, LNG markets are showing early signs of a similar bust.
Last year, ExxonMobil brought online its Papua New Guinea project and ramped up to full capacity, helping to supply Asian customers with 6.9 million tonnes of LNG per year (mtpa). But new supplies in 2014 were nothing compared to what is coming down the pike. An estimated 100 mtpa of new liquefaction capacity is set to hit the market between 2015 and 2018, which will be about a 35 percent expansion over last year’s total global capacity of 290 mtpa.
Demand may struggle to handle all the new supplies, which could keep prices much lower than expected. That spells trouble for the spate of projects under construction as well as the ones set to begin operations this year.
For example, Gladstone LNG, a massive project on the northeast coast of Australia that just began operations, is under pressure. The project involves producing natural gas from coal seams, and then liquefying and exporting the gas through a newly constructed terminal. Santos, the lead on the project, may be forced to writedown some of the losses, according to a Citi report. BG Group may also take a $2 billion impairment charge for its own LNG project nearby.
U.S. LNG projects are facing pressure too. Cheniere Energy is leading the pack with its Sabine Pass export terminal, which is expected to come online in late 2015. But the company has taken on a lot of debt to build and retrofit its export facility. Cheniere has about $9 billion in debt with just $791 million in cash. That may not be a problem since Cheniere has customers contracted out for much of its export volume, but if its customers choose to suspend deliveries, Cheniere will take in much less than expected.
Still, Cheniere is much better positioned than other LNG projects, precisely because it is at the front of the line. For many projects that have not achieved final investment decisions, they could be scrapped altogether. At current prices, most greenfield LNG projects are not economical.
Without a rise in oil prices, 2015 is looking like a grim year for LNG exporters.
Your more important currency crosses early Friday morning:
Eur/USA 1.1814 up .0022
USA/JAPAN YEN 119.23 down .570
GBP/USA 1.5141 up .0057
USA/CAN 1.1830 up .0003
This morning in Europe, the euro stopped its downward spiral, trading up and now well above the 1.18 level at 1.1814 as Europe reacts to deflation, announcements of massive stimulation and crumbling bourses. In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. He now wishes to give gift cards to poor people in order to spend. The yen continues to trade in yoyo fashion. This morning it settled up in Japan by 57 basis points and settling well below the 120 barrier to 119.23 yen to the dollar. The pound was up this morning as it now trades well above the 1.51 level at 1.5141.(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 down 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 Friday morning USA 10 year bond yield: 2.00% !!! down 2 in basis points from Thursday night/
USA dollar index early Friday morning: 92.16 down 21 cents from Thursday’s close
The NIKKEI: Friday morning : up 31 points or 0.18%
Trading from Europe and Asia:
1. Europe stocks all in the red.
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: $1213
Closing Portuguese 10 year bond yield: 2.64% up 5 in basis points from Thursday
Closing Japanese 10 year bond yield: .28% !!! down 1 in basis points from Thursday
Your closing Spanish 10 year government bond, Thursday up 5 in basis points in yield from Thursday night.
Spanish 10 year bond yield: 1.72% !!!!!!
Your Friday closing Italian 10 year bond yield: 1.88% up 3 in basis points from Thursday:
trading 16 basis points higher than Spain:
IMPORTANT CLOSES FOR TODAY
Closing currency crosses for Friday night/USA dollar index/USA 10 yr bond:
Euro/USA: 1.1836 up .0044
USA/Japan: 118.52 down 1.27
Great Britain/USA: 1.5165 up .0080
USA/Canada: 1.1858 up .0031
The euro rose a lot in value during the afternoon and by closing time , finishing, it finished up by .0044 and well above the 1.18 level to 1.1836. The yen was well up in the afternoon, but it was up by closing to the tune of 127 basis points and closing well below the 119 cross at 118.52 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 up on the day closing at 1.5165. The Canadian dollar was down in the afternoon and was down on the day at 1.1858 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: 91.98 down 39 cents from Thursday.
your 10 year USA bond yield , down 5 in basis points on the day: 1.97%!!!!
European and Dow Jones stock index closes:
England FTSE down 68.82 points or 1.05%
Paris CAC down 81.12 or 1.90%
German Dax down 189.11 or 1.92%
Spain’s Ibex down 396.00 or 3.91%
Italian FTSE-MIB down 614.74 or 3.27%
The Dow: down 170.50 or 0.95%
Nasdaq; down 2743 or 0.58%
OIL: WTI 48.23 !!!!!!!
Closing USA/Russian rouble cross: 61.36 down 3/4 rouble per dollar.
And now for your more important USA economic stories for today:
(Your trading today from the New York):
Oil’s 7th Weekly Drop In A Row Drags Stocks To Worst Start To Year Since 2009
Submitted by Tyler Durden on 01/09/2015 16:03 -0500
Quite a day and quite a week… and quite an ugly close…
The S&P – closing down 0.5% – had the worst first week of the year since 2009.
Stocks ended the day red (but don’t blame the dreadful labor data under the surface because headlines were great – instead blame France!)… with an ugly close
Intraday from the Payrolls data…
and the week…
Homebuilders (thank you Obama) and Healthcare (Biotechs) led the week with Energy and Financials the laggards… (financials worst start to the year since 2009)
It appears stocks began to creep back down to reality in bonds… and USDJPY…
Treasury yields tumbled 5-12bps (some notable steepening on the week)… not ethat bonds rallied every day from 8ET
The USDollar lost ground today (led by EUR and JPY strength) but closed the week at fresh 9 year highs…
Despite USD strength, gold and silver rose on the week, copper small loss and crude another big drop…
Crude is down 14 of the last 15 weeks (and 7 in a row)…
Silver and Bonds lead 2015, stocks and oil lag…
The official non farm payroll report: a larger than expected gain. Rises by 252,000 jobs. However average hours earned dropped .2% instead of gaining .2%. This was a huge crash and this sent the down crumbling!
(courtesy BLS/zer0 hedge)
Non-Farm Payrolls Rise By More Than Expected 252K, But Hourly Earnings Plunge Most In At Least 8 Years
On the surface, the December jobs report was good, with 252K jobs added, higher than the 240K expected, leading to a fresh cycle low unemployment rate of 5.6%, down from 5.8% and below the 5.7% expected, and with the November data revised to a whopping 353K from 321K, a net change of 50K including the October revision.
However it was the average hourly earnings where the real details were hid, and it was here that Wall Street was expecting a 0.2% increase. Intead the BLS reported a whoppping 0.2% decline in average hourly earnings, with the last month’s 0.4% jump revised lower by half to 0.2%.This was the biggest crash in hours earnings since the data series began in 2006.
Which means one thing: the waiter, bartender, retail worker recovery continues.
Total nonfarm payroll employment increased by 252,000 in December. In 2014, job growth averaged 246,000 per month, compared with an average monthly gain of 194,000 in 2013. In December, employment increased in professional and business services, construction, food services and drinking places, health care, and manufacturing. (See table B-1.)
Employment in professional and business services rose by 52,000 in December. Monthly job gains in the industry averaged 61,000 in 2014. In December, employment increased in administrative and waste services (+35,000), computer systems design and related services (+9,000), and architectural and engineering services (+5,000). Employment in accounting and bookkeeping services declined (-14,000), offsetting an increase of the same amount in November.
Construction added 48,000 jobs in December, well above the employment gains in recent months. Specialty trade contractors added jobs in December (+26,000), with the gain about equally split between residential and nonresidential contractors. Employment also increased in heavy and civil engineering construction (+12,000)
and in nonresidential building (+10,000).
In December, employment in food services and drinking places increased by 44,000. The industry added an average of 30,000 jobs per month in 2014.
Health care added 34,000 jobs in December. Job gains occurred in ambulatory health care services (+16,000), nursing and residential care facilities (+11,000), and hospitals (+7,000). Employment growth in health care averaged 26,000 per month in 2014 and 17,000 per month in 2013.
In December, manufacturing employment increased by 17,000, with durable goods (+13,000) accounting for most of the gain. Manufacturing added an average of 16,000 jobs per month in 2014, compared with an average gain of 7,000 jobs per month in 2013.
Employment in wholesale trade and in financial activities continued to trend up in December.
Employment in retail trade changed little in December, following a large gain in November. Employment in other major industries, including mining and logging, transportation and warehousing, information, and government, changed little in December.
The average workweek for all employees on private nonfarm payrolls was unchanged at 34.6 hours in December. The manufacturing workweek edged down by 0.1 hour to 41.0 hours, and factory overtime edged up by 0.1 hour to 3.6 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.9 hours. (See tables B-2 and B-7.)
In December, average hourly earnings for all employees on private nonfarm payrolls decreased by 5 cents to $24.57, following an increase of 6 cents in November. Over the year, average hourly earnings have risen by 1.7 percent. In December, average hourly earnings of private-sector production and nonsupervisory employees decreased by 6 cents to $20.68. (See tables B-3 and B-8.)
The change in total nonfarm payroll employment for October was revised from +243,000 to +261,000, and the change for November was revised from +321,000 to +353,000. With these revisions, employment gains in October and November were 50,000 higher than previously reported.
The labour participation rate drops to a fresh new 38 year low as a record 92.9 million Americans are not in the labour pool. And the pundits think this is a good jobs report???
(courtesy zero hedge)
Labor Participation Rate Drops To Fresh 38 Year Low; Record 92.9 Million Americans Not In Labor Force
Another month, another attempt by the BLS to mask the collapse in the US labor force with a goalseeked seasonally-adjusted surge in waiter, bartender and other low-paying jobs. Case in point: after a modest rebound by 0.1% in November, the labor participation rate just slid once more, dropping to 62.7%, or the lowest print since December 1977. This happened because the number of Americans not in the labor forced soared by 451,000 in December, far outpacing the 111,000 jobs added according to the Household Survey, and is the primary reason why the number of uenmployed Americans dropped by 383,000.
And another chart that will not be mentioned anywhere: the Civilian Employment to Population Ratio: at 59.2%, it is now unchanged for 4 months in a row.
And where did those new jobs go: to our famous waiter and bartender category:
(courtesy zero hedge)
The “Waiter And Bartender” Recovery: Most Food Service Jobs Added Since 2012
For those wondering why average hourly earnings in December plunged by -0.2% on expectations of a 0.2% increase and why the November “Green shoot” surge in wages of 0.4%, which everyone took as a signal of imminent wage inflation was cut in half…
… here is the answer: in December the number of workers employed in Food Service and Drinking Places, i.e., sub-minimum wage waiters and bartenders jumped by 43,600: the highest monthly increase since 2012…
… taking the series to an all time high record of 10.848 million workers, and rapidly catching up with America’s barely growing manufacturing sector.
What about other industries? Here is the full breakdown of the December 250,000 seasonally-adjusted job increase by industry: note the relentless “strength” in low-paying education and health, leisure and hospitality, and retail sectors.
Late last night from President Obama:
you have to be kidding?
(courtesy zero hedge)
Obama’s Latest Handout: Two Years Of Free Community College For Everyone
With the number of college graduates working minimum wage jobs nearly 71% higher than it was a decade ago, and the average graduate leaving college with $29,400 in debt (crushing their hopes of leveraging up to buy that American Dream-creating house), President Obama has unleashed a double whammy of ideas in the last few days. Reducing mortgage insurance and cutting down-payment restrictions for FHA loans (i.e. providing huge leverage to segments of society to repeat the mistakes of the last housing bubble); and now, as The LA Times reports, President Obama says he is rolling out a plan to make two years of community college free, or nearly so, to every student across the country. Because it’s “fair”?
President Obama says he is rolling out a plan to make two years of community college free, or nearly so, to students across the country.
“What I’d like to do is to see the first two years of community college free for everybody who is willing to work for it,”Obama said in a video filmed on Air Force One and posted on Facebook on Thursday.
Obama’s announcement comes ahead of a visit Friday to a community college and technical center in Knoxville, Tenn., as part of a trip designed to preview his policy plans for 2015.
* * *
Just what this nation needs… more higher-educated, taxpayer-funded citizens demanding higher-paid jobs (“well we have a community college education now”) when all the jobs being ‘created’ are waiters, bar staff, and shale oil workers (oh wait… not them)
Unintended Consequence #546278283: Community College fees soar for non-qualifying-for-handout Americans…
* * *
Moar Free Stuff…
And now the plan:
(courtesy zero hedge)
The Cost Of Obama’s “Free” Community College Plan To Taxpayers? $60 Billion
Yesterday, to much shock and dismay, Obama revealed his latest “noble” grand vision: provide a free community college education to millions of folks. Apparently now, far too late, even the community organizer-in-chief realized that with $1.2 trillion in student loans, almost double the total outstanding credit card debt, which as the TBAC warned will rise to a mindblowing $3.3 trillion in one decade all else equal…
… and of which already one third will likely end up unrepad..
… there is simply no way the US economy can grow and absent a major overhaul of the educational system, the Millennials will never be able to take their rightful place as the dynamo of US economic growth.
What is Obama’s solution? Another free lunch.
Of course, one look at Venezuela should suffice to see how the myth of free lunches ends every single time:
Socialist unicorns and Marxist rainbows aside, what will Obama’s “free” plan cost taxpayers? The answer: $60 billion over 10 years, according to a White House official.
The details from the latest White House pool report:
Eric Schultz, the deputy press secretary, said that President Obama would be joined in Knoxville by Vice President Joe Biden and Dr. Jill Biden to announce his proposal to make two years of community college free for all responsible students no matter their age.
Among other things, here is what he said about the cost of the program:
How would you pay for this program:
Will release details in the budget
Said there was “intense” interest in the idea. More than 5.7 million people viewed the Facebook video by 10 am Friday, he said. 21.1 million people “have been reached” by the Facebook post. He said it was the most successful Facebook post.
Said the college program will cost “roughly $60 billion over 10 years.”
“That is a significant investment, but it’s one the president believes is worthwhile because we need to make sure that America’s young people are getting the skills they need to succeed in the 21st century economy.”
He said the $60 billion represents the federal share of the program.
And if “$60 billion” is what the president considers free, we dread to think how much it would cost taxpayers if Obama decided to actually to some aggressive wealth redistributing for a change…
The plight of an average American:
(courtesy Michael Snyder/EconomicCollapse Blog)
On The Verge Of The Next Economic Crisis, 62% Of Americans Are Living Paycheck To Paycheck
Nearly two-thirds of all Americans are completely and totally unprepared for the next economic crisis. As you will read about below, a new survey has found that only 38 percent of Americans have enough money on hand to cover “a $500 repair bill or a $1,000 emergency room visit”. That essentially means that 62 percent of the people in this country do not have an emergency fund. Even after the extremely bitter financial lessons that millions of Americans learned during the last recession, most of us are still choosing to live on the edge. That is utter insanity, and when the next major economic downturn strikes most people are going to find themselves totally unprepared.
The number one thing that you need to do to get ready for the coming economic collapse is to build up an emergency fund.
I know that is not the most “sexy” piece of advice in the world, but it is the truth. Just think about it. During the last recession, millions of Americans suddenly lost their jobs. Because they did not have any cushion to fall back on, millions of them also suddenly could not pay their bills and their mortgages. Foreclosures skyrocketed and countless families went from living a very comfortable middle class lifestyle to being out on the street in very short order.
And now because the people of this country have been so foolish it is going to happen again.
Because of my website, people are constantly asking me what they should do to prepare for the coming economic collapse.
I think that they expect me to say something like this…
“Sell everything that you possibly can and buy gold and silver, go purchase a llama farm, and dig a bunker where you can bury 10,000 cases of MREs.”
Not that there is anything wrong with those kinds of preparations.
But before you do anything else, you have got to have an emergency fund. My recommendation is to have an emergency fund that can cover at least six months of expenses in case something happens.
Sadly, a solid majority of Americans do not have any emergency cash at all. The following comes from the Wall Street Journal…
Only 38% of those polled said they could cover a $500 repair bill or a $1,000 emergency room visit with funds from their bank accounts, a new Bankrate report said. Most others would need to take on debt or cut back elsewhere.
“A solid majority of Americans say they have a household budget,” said Bankrate banking analyst Claes Bell. “But too few have the ability to cover expenses outside their budget without going into debt or turning to family and friends for help.”
The survey found that an unexpected bill would cause 26% to reduce spending elsewhere, while 16% would borrow from family or friends and 12% would put the expense on a credit card. The remainder didn’t know what they would do or would make other arrangements.
And of course this is not the only poll that has come up with these kinds of results. In fact, a Federal Reserve survey from last year produced similar numbers…
The findings are strikingly similar to a U.S. Federal Reserve survey of more than 4,000 adults released last year. “Savings are depleted for many households after the recession,” it found. Among those who had savings prior to 2008, 57% said they’d used up some or all of their savings in the Great Recession and its aftermath. What’s more, only 39% of respondents reported having a “rainy day” fund adequate to cover three months of expenses and only 48% of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.
Meanwhile, the financial condition of most American families is far worse than it was just prior to the last major economic crisis. As a recent MarketWatch article detailed, the average family currently has far less wealth than it did back then…
But while the jobs market is improving and the Affordable Care Act has given an estimated 15 million people access to medical care, the Great Recession does appear to have taken its toll on Americans’ finances; in fact, they’re 40% poorer today than they were in 2007. The net worth of American families — that is, the difference between the values of their assets, including homes and investments, and liabilities — fell to $81,400 in 2013, down slightly from $82,300 in 2010, but a long way off the $135,700 in 2007, according to a report released last month by the nonprofit think tank Pew Research Center in Washington, D.C.
So we have a lot less wealth, and almost two-thirds of us have no emergency cushion to fall back on whatsoever.
What could go wrong?
In addition, there is lots of evidence that much of the country has not bothered to make any preparations at all for even a basic emergency that would last for just a few days. For example, the following are results from a survey conducted by the Adelphi Center for Health Innovation that I featured in a previous article…
- 44 percent don’t have first-aid kits
- 48 percent lack emergency supplies
- 53 percent do not have a minimum three-day supply of nonperishable food and water at home
- 55 percent believe local authorities will come to their rescue if disaster strikes
- 52 percent have not designated a family meeting place if they are separated during an emergency
- 42 percent do not know the phone numbers of all of their immediate family members
- 21 percent don’t know if their workplace has an emergency preparedness plan
- 37 percent do not have a list of the drugs they are taking
- 52 percent do not have copies of health insurance documents
What are all of those people going to do if there is an extended crisis or disaster in this nation?
That is a very good question.
Meanwhile, the signs that we are on the verge of the next major economic crisis just continue to grow. Yesterday, I shared 10 things that happened just prior to the financial crisis of 2008 that are happening again right now.
Today, we learned that a major oil driller down in Texas has just declared bankruptcy, and many more energy companies are expected to follow suit in the coming months. The following is from the Wall Street Journal…
[S]igns of strain are building in the oil patch, where revenue growth hasn’t kept pace with borrowing. On Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money and citing debt of between $10 million and $50 million. Neither the Austin-based company nor its lawyers responded to requests for comment.
Energy analysts warn defaults could be coming. “The group is not positioned for this downturn,” said Daniel Katzenberg, an analyst at Robert W. Baird & Co. “There are too many ugly balance sheets.”
And we also learned today that teen retailer Wet Seal is going to be closing two-thirds of its stores.
Dozens more retailers are expected to make similar announcements over the coming months.
We are moving into the most chaotic time for the U.S. economy that any of us have ever seen, and most Americans are totally oblivious to what is happening and are totally unprepared.
So what is our country going to look like when tens of millions of unprepared people are blindsided by a crisis that they never saw coming?
Let us wrap up this week with Greg Hunter and head of British MI 5
Parker as they discuss the continuing Islamic terror spreading on the west:
By Greg Hunter’s USAWatchdog.com (Weekly News Wrap-Up 1.9.15)
The Head of MI 5, British security, is sounding the alarm that Islamic terrorists from Syria are planning more attacks on the West. Andrew Parker says al-Qaeda fighters from Syria are planning mass casualty attacks against the West. He was not specific on the targets, but an attack on the United Kingdom was highly likely according to Parker. Parker also said that these terrorists want to “cause large-scale loss of life, often by attacking transport systems or iconic targets.” These are the same al-Qaeda fighters that the West has armed in Syria. The policy of arming al-Qaeda to overthrow the Assad Regime is backfiring once again.
Many law enforcement agencies in the West, including the United States, are on high alert after what happened in Paris where Islamic radicals gunned down more than a dozen people, including editors and journalists of a satirical newspaper that criticized Islam and the Prophet Mohammad. Many in Europe are outraged, and I am sure this act will turn up more violence, not only in Europe but here in America. I think the war on terror is going to kick into another gear, and now terrorists will be carrying out more bloody attacks. The President is maintaining an unusually low profile here, unlike his comments surrounding Ferguson Missouri.
Folks may be celebrating plunging gasoline prices, but there is a big downside, and that is possible financial calamity associated with debt tied to oil and fracking. JP Morgan and Citi have about $135 trillion in derivatives between them. You might remember that JP Morgan and Citi were frantic to get Congress to void taxpayer protections from risky derivatives. Now, in the event of a derivative meltdown, the taxpayer is going to be on the hook for losses, and the losses could be huge. It seemed to me that these two banks were panicked to get this protection from losses, and now I think I know why. Oil prices are down 50% from six months ago, and that means that have to go up 100% just to get back to where they were.
To make matters worse, the President was saying this week in an NPR interview that the oil price decline was a “strategy” against Russia. Obama said, “. . . the only thing keeping that economy afloat was the price of oil.” This is a stunning admission that the U.S. and its allies were manipulating the price of oil down, and it was to punish Russia over Ukraine. This is nothing short of confirmation of government price manipulation of the biggest commodity on the planet and financial war against Russia. Why would he do this? The downside, here at home and abroad, is going to be enormous.
Finally, the President is getting ready for the State of the Union address, and he is going to tout the so-called recovery. As you know, I have been telling you there is no real recovery for Main Street. Of course, there are a few bright spots, and the only recovery taking place is for Wall Street. Congress is going to try to do some things to spur the economy such as the XL Pipeline and setting 40 hours as full-time employment as opposed to 30 hours per week under Obama Care. Obama is threatening to veto both of them, and then he will become the President of “No.” Expect Democrats to jump ship and vote with Republicans more and more in the next two years.
Join Greg Hunter as he looks at these stories and more in the Weekly News Wrap-Up.
We will see you on Monday.
bye for now