jan 14/European OMT “legal”/ gets green light for QE/Copper tanks in price/Oil on a roller coaster ride today/GLD small withdrawal of .23 tonnes/no change in silver SLV/gold advances/silver falls/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:


Gold: $1234.40 up $0.10   (comex closing time)
Silver: $16.96 down 17 cents  (comex closing time)



In the access market 5:15 pm


Gold $1230.90
silver $17.05


Yesterday we had gold and silver higher but the gold/silver equity shares were much lower.  It sure looked like the boys were going to raid today.  However FEAR spread throughout the globe with oil crashing in Europe along with the price of copper.  Then once NY started to trade, we were greeted with news of awful retail sales (remember that the consumer is 70% of GDP) coupled with horrible earnings report from JPMorgan.  The housing sector continues to act in disarray.  This sent the Dow futures down dramatically. However  gold and silver started to rise on those fears.  The bankers had their work cut out for them, trying to cool the prices for our precious metals.  Judging what they did late in the comex session and in the access market, one can expect another raid attempt tomorrow.


For some unknown reason, oil rose late in the day by over 2 dollars and this caused the Dow to rise from negative 350 to negative 187.

It looks like Europe is heading into huge headwinds of deflation. The USA will no doubt head into hyperinflation, once all of those unwanted USA dollars from the Petrodollar seeks to purchase stuff in the USA.




Gold/silver trading:  see kitco charts on right side of the commentary.




The gold comex today had a poor delivery day, registering 0 notices served for nil oz. Silver comex registered 130 notices for 650,000 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 1299 contracts with yesterday’s silver price up by 59 cents.  The total silver OI continues to  remains relatively high with today’s reading at 157,282 contracts. However the bankers are still loathe to supply much of the non backed silver paper. The January silver OI contract rose by 237 contracts up to 252 as somebody was in great need of silver.


In gold we had a large increase in OI with the rise  in price of gold  yesterday to the tune of $1.60. The total comex gold OI rests tonight at 402,108 for a gain of 2,583 contracts. The January gold contract remains constant at 87 contracts.




Today,  we had a small withdrawal of .23 tonnes of gold/ /Inventory 707.59 tonnes


In silver, no change in   silver inventory/

SLV’s inventory rests tonight at 327.979 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:


Most rates moved in the positive direction/  All months are in contango and thus positive in rates.


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


Jan 14 2015


+.1075%                     +1025%                       +.1075%                +.12            .15%


Jan 13 2014:



+.10%                     +.1025%                 +.105 %               +.1125%               +.1475%






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



Here are today’s comex results:



The total gold comex open interest rose today by 2,583 contracts from  399,525 all the way up to 402,108 with gold up by $1.60 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 constant at 87 for a loss of 0 contracts. 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 5,832 contracts to 184,045 contracts with many moving to April. The estimated volume today was poor at 122,491. The confirmed volume yesterday was good at 210,092 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 1,299 contracts from 155,983 up to 157,282 with  silver was up by 59  cents yesterday. The front January contract month saw its OI rise to 252 contracts for a gain of 237 contracts. We had 0 notices filed yesterday, so we gained 237  silver contracts or an additional 1,185,000 oz will stand for silver in the January contract month. As I mentioned above, somebody was in great need of physical silver today and they robbed the cookie jar.. The next big contract month is March and here the OI fell by 78 contracts down to 104,215.  The estimated volume today was fair at 31,701. The confirmed volume yesterday was excellent at 71,068. We had 130 notices filed for 650,000 oz today. The rise in silver is certainly scaring our bankers into supplying more non backed paper. The OI in silver has seen a slow and steady rise for the past few weeks.


January initial standings


Jan 14.2015



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)  87 contracts (8700 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

 2507.7 oz

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 notices 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 (87) minus the number of notices served upon today (0) x 100 oz  = 9500 oz , the amount of gold oz standing for the January contract month. (.2954 tonnes of gold)


Thus the initial standings:

8 (notices filed for the month x 100 oz) +OI for January (87) – 0(no. of notices served upon today) 9500 oz (.2954 tonnes).


We neither lost nor gained any gold ounces standing for delivery today.


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 14 2015:



 January silver: initial standings





Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 35,313.90 oz (CNT,BRINKS,)  oz
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory  600,557.67 oz (BRINKS)
No of oz served (contracts) 130 contracts  (650,000 oz)
No of oz to be served (notices) 122 contracts (610,,000 oz)
Total monthly oz silver served (contracts) 234 contracts (1,170,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal  of silver from the Customer inventory this month  4,611,944.9 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 deposit:



total customer deposit  nil oz



We had 2 customer withdrawals:

i) Out of CNT:  10,200.34 oz

ii) Out of Brinks: 25,113.56 oz


total customer withdrawal: 35,313.90 oz



we had 1 adjustment


i) Out of CNT:  656,344.03 oz was adjusted out of the customer account and this landed into the dealer account of CNT


Total dealer inventory: 65.694 million oz

Total of all silver inventory (dealer and customer) 173.928 million oz.

The total number of notices filed today is represented by 130 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 (234) x 5,000 oz  to which we add the difference between the OI for the front month of January (252) – the Number of notices served upon today (130) x 5,000 oz  = 1,780,000 oz the number of ounces standing so far for the January delivery month.


Initial standings for silver for the January contract month:

234 contracts x 5000 oz= 1,170,000 oz  +OI standing so far in January  (252)- no. of notices served upon today(130) x 5,000 oz  = 1,780,000 oz



we gained a huge 237 contracts or an additional 1,185,000 oz will stand for the January contract month. The bankers were in great need of silver today.


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

http://www.harveyorgan.wordpress.com or http://www.harveyorganblog.com







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

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

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

i) demand from paper gold shareholders

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

vs no sellers of GLD paper.



And now the Gold inventory at the GLD:


Jan 14.2014  we had a small withdrawal of .23 tonnes of gold from the GLD/inventory 707.59 tonnes


Jan 13.2014 no change in gold inventory/GLD inventory tonight at 707.82 tonnes


Jan 12 no change in gold inventory/GLD inventory tonight at 707.82 tonnes


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 14/2015 /a small change in   gold   inventory at the GLD )(withdrawal of .23 tonnes) /Inventory rests tonight at 707.59 tonnes


inventory: 707.59 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 : 707.59 tonnes.






And now for silver (SLV):


Jan 14.2014: no change in silver inventory/327.979 million oz



Jan 13.2014 no change in silver inventory/327.979 million oz/


Jan 12.2014 we had a huge withdrawal of 1.915 million at the SLV/inventory at 327.979 million oz.


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

million oz.

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

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




Jan 14/2015 / no change in  silver inventory at the SLV

registers: 327.979 million oz







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

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

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

1. Central Fund of Canada: traded at Negative  9.5% percent to NAV in usa funds and Negative 9.2 % to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.7%

Percentage of fund in silver:37.8%

cash .5%



( Jan 14/2015)



2. Sprott silver fund (PSLV): Premium to NAV rises to + 1.48%!!!!! NAV (Jan 14/2015)

3. Sprott gold fund (PHYS): premium to NAV rises to negative -0.51% to NAV(Jan 14/2015)

Note: Sprott silver trust back  into positive territory at +1.48%.

Sprott physical gold trust is back in negative territory at -0.51%

Central fund of Canada’s is still in jail.





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




Early gold trading from Europe early Wednesday  morning:


(courtesy Mark O’Byrne)


Oil Collapses and Copper Crashes 8% in Day – Great Recession Cometh?




Oil prices fell another 1 percent this morning  and continue their collapse – down 57% in just over 6 months. Copper crashed 8% on the London Metal Exchange, plunging to 5 and a half year lows.

Doctor Copper -  Usually a good indicator for economic trends and markets via Marketwatch

Oil fell to fresh six-year lows and has fallen almost 60 percent since June 30, 2014 to levels last seen in early 2009 after the 2008 crash (see chart).

February Brent crude dropped another 79 cents to $45.80 a barrel and West Texas Intermediate crude for was at $45.34, down 55 cents. Copper for delivery in three months on the LME dropped as much as 8.7 percent to $5,353.25 a metric ton, the lowest intraday price since July 2009. Nickel slid 4.6 percent and lead fell 3.8 percent to the lowest in more than two years.

Commodities came under further pressure after the World Bank cut its forecasts for global growth, reinforcing worries of a gloomy economic outlook.

There has been much speculation in recent months as to the causes of oil’s dramatic crash in price. Some analysts have suggested that Saudi Arabia is attempting to put the U.S. shale oil industry out of business in order to keep the U.S. dependent on Saudi oil exports. Others suggest that prices were forced down by the Gulf states and the U.S. in order to damage Russia’s exports and its economy.

Copper Comex Spot HG Index - 1997 to January 14, 2015 (Thomson Reuters)

These may be factors but it is becoming increasingly clear that if they are, they are secondary factors to the major trend which is falling demand and a slowdown in the global economy – this is most pronounced in China, in Japan and in Europe.

We already have witnessed the customary New Year’s hype from many banks and governments that this year will finally be the year when economies come off the life-support of ultra low interest rates – even as they cheer-lead the ECB’s expected foray into QE and euro money printing.

However, the fact is that the omens for the economy this year are far from good. The most telling sign is not specifically that oil prices are collapsing but that it is happening in conjunction with the most widely used industrial metal – copper.

Copper fell over 8 per cent today, after a 1.3 per cent fall yesterday hitting its lowest level in nearly five years on the back of an 18% decline last year.

China has been the major user of the metal in recent years as its construction industry boomed. The Chinese housing and property market is now slowing down with the potential for a staggering collapse as dozens of “ghost cities” – brand new cities financed by reckless banks with nobody to occupy them – unwind.

The effects of such would be harsh on metal and commodity exporting countries, particularly those exposed to China like Australia and Brazil.

While copper has seen the most notable declines, other industrial metals are also faring poorly. According to Bloomberg, “A gauge of the six main industrial metals has declined 9.3 percent in the past 12 months to the lowest since June 7, 2010.”

Clearly global industrial production is slowing down.

When oil price declines are viewed against this backdrop a more worrying picture emerges. Oil prices are now at almost six-year lows and this despite record imports of oil by China.

The Financial Times report that trade data showed “China imported 30.37m tonnes of crude in December, up 19.5 per cent month-on-month.”

In only six months oil has lost 60% of it’s value. This may have been partly exacerbated by strategic maneuvering by various players but, by any standard, such a decline must be viewed with alarm.

The recent plunge in commodity prices and especially copper should also be viewed with alarm. It is said that copper should be known as Doctor Copper as the metal is said to have a PhD in Economics and the ability to predict future economic growth or a lack thereof.

Are we on the verge of a global depression?

Only, time will tell. The inability of central banks to stoke inflation and sustainable economic growth, statistics from Europe suggesting deflation, and stubborn and rising unemployment across the western world would suggest that it is a real possibility.

At the very least, the ‘great recession’ seems likely to continue. A serious recession or depression will likely collapse the already fragile banking system, especially in Europe, and the savings of ordinary people and companies will become exposed to bail-ins.

As ever, there are so many actors, factors and potential outcomes, it is unwise to predict exact outcomes. All we can be sure of is that the outlook is uncertain and unfortunately negative and we should prepare accordingly.

From a financial perspective, now is the time to be risk averse and diversify and favor safe haven assets such as safer forms of cash, bonds, hard assets and of course physical gold.

Get Breaking Gold News and Updates Here

REVIEW of 2014 – Gold Second Best Currency, +13% in EUR, +6% GBP

Today’s AM fix was USD 1,228.75, EUR 1,044.99 and GBP 808.76 per ounce.
Yesterday’s AM fix was USD 1,239.00, EUR 1,049.91 and GBP 820.97 per ounce.

Spot gold fell $3.40 or 0.28% to $1,230.40 per ounce yesterday and silver climbed $0.44 or 2.66%  to $17.01 per ounce.

Gold in Euros - 2 Years (Thomson Reuters)

Gold prices are little changed near $1,230 early in late trading in London, after hitting a 12-week high of $1,243.60 in the previous session.

Spot gold in Singapore fell marginally as demand in China was muted and there were COMEX resting offers. Intraday stops were triggered pushing gold lower before quickly rebounding back to $1,230 per ounce, where gold remains.

The euro was pinned near nine-year lows today and euro gold remained near EUR 1,050 per ounce on investor concerns  regarding ‘Gexit’ and the possibility of ECB QE. The metal rose to  EUR 1,054.74 per ounce yesterday, its strongest since September 2013.

Gold in euros remained just short of its highest level since September 2013 after Greek Finance Minister Gikas Hardouvelis said that Greece could exit the currency bloc as the opposition party holds a slim lead heading into the election on January 25th.

Sentiment remains poor – ETF gold bullion holdings slipped 3.2 metric tons to 1,595.9 tons yesterday, the lowest since April 2009.

On the wider markets , concerns about the global economy saw Asian equities lower and European stocks are down, mirroring a slump in copper and oil prices after the World Bank cut its global growth forecast for this year.

Benchmark Brent crude oil futures are 1.4% lower, extending their recent sharp slide as commodities were sold off (see above).

Silver is down 2 per cent after a near 3 percent jump yesterday. Platinum lost 0.6 percent to $1,233.13 an ounce and palladium dropped 2.6 percent, to reach $785.80 an ounce.

Gold remains the most resilient of the metals and indeed the commodities and is down just 0.15% despite its recent strong gains and the losses in stocks markets and the sharp losses seen in commodity markets.

OUTLOOK 2015 – Uncertainty, Volatility, Possible Reset – DIVERSIFY





John Embry explains that the bankers are desperate to quell excitement in gold/silver commodity by whacking the equity shares


(courtesy John Embry/Eric King/Kingworldnews)




Banks desperate to quell excitement in monetary metals sector, Embry says


8:11p ET Tuesday, January 13, 2015

Dear Friend of GATA and Gold:

The pounding of gold and silver mining shares today amid continued rises in gold and silver prices is evidence that central banks and their investment bank agents are desperate to prevent the renewal of interest in the sector, Sprott Asset Management’s John Embry tells King World News today. Embry’s interview is excerpted at the KWN blog here:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.






(courtesy Bron  Sucheki/Chris Powell/GATA)


Does gold production by marginal mines compare to ‘production’ by central banks?


11:57a ET Wednesday, January 14, 2015

Dear Friend of GATA and Gold:

The Perth Mint’s Bron Suchecki argues today that gold’s price is being kept down in large part because too many marginal mines remain in operation.

Suchecki writes: “We need a much, much lower price to really kill this potential supply but this hasn’t happened. We haven’t seen large numbers of bankruptcies or care-and-maintenance mothballing occurring.”

Well, maybe. But how does metal supplied to the market by marginal mines compare with what has been called “synthetic” metal supplied by central banks and their bullion bank agents — “paper gold”? Of course the volume of “paper gold” in the market has been estimated to exceed the volume of real metal by a factor of as much as 100.

So what is the real “marginal” supply here? Does it come out of the ground, extracted with great effort and expense, or is it created effortlessly and largely electronically by central banks, which, as Federal Reserve Chairman Alan Greenspan told Congress in 1998, “stand ready to lease gold in increasing quantities should the price rise”?:


While central banks and bullion banks are not as transparent about their“production” as mining companies are, overlooking central bank “production” while disparaging the production of marginal mines is straining at gnats while swallowing camels.

Suchecki’s commentary is headlined “Gold Price May Be Affected by Marginal Miners Not Going to Company Heaven” and it’s posted at his Internet site, Gold Chat, here:


While the gold price also may be affected by central banks not going to central bank heaven — or elsewhere, as the case may be — it remains exceedingly hard to get respectable people to discuss that part of the market.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.





And now for the important paper stories for today:



Early Wednesday morning trading from Europe/Asia



1. Stocks all down on major Asian bourses / the  yen rises  to 116.96

1b Chinese yuan vs USA dollar/ yuan strengthens  to 6.1974
2 Nikkei down 292 points or 1.71%

3. Europe stocks all in the red  /Euro collapses/ USA dollar index up to 92.32/

3b WOW!!! Japan 10 year yield at .27% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 116.96/

3c Nikkei now slightly below 17,000

3e The USA/Yen rate well below the 120 barrier this morning/
3fOil: WTI 45.69 Brent: 46.54 /all eyes are focusing on oil prices. This should cause major defaults.

3g/ Gold par/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 copper collapses on the LME/so does Euro

3m Gold at $1233. dollars/ Silver: $16.85

3n USA vs Russian rouble:  ( Russian rouble down 1/2 rouble per dollar in value)  66.05!!!!!!

3 0  oil falls into the 45 dollar handle for WTI and 46 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/OMT opinion gives green light to outright QE on conditions/sends the Euro southbound

4. USA 10 yr treasury bond at 1.88% early this morning. Thirty year rate well below 3%  (2.46%!!!!)/yield curve flattens/foreshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid



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


Market Wrap: Copper Plummets; Euro Plunges To 9 Year Low On Euro-Court’s OMT Ruling, Futures Down


After two days of sharp intraday and vicious reversals, the BTFD algos are suspiciously missing overnight, when as reported earlier, a bout of margin calls and stop loss selling meant not crude but copper would crash in today’s episode of “guess the crashing commodity”, on what Goldman dubbed a Chinese demand collapse which for those confused is different than an OPEC supply glut, and is also the reason why the entire commodity complex is trading at a decade plus low. As a result copper plunged to a five and a half year low, in the process halting the market due to the severity of the plunge. But the big event overnight was the farcical announcement by the European top court, which as everyone expected, rejected the German rejection of the OMT as illegal, stating it was not only legal (with certain conditions) but greenlighting the way for the ECB’s QE in one week, a move which sent the EURUSD crashing to a fresh 9 year low!

In other news, overnight the Fed’s Kocherlakota (non-voter, dove) repeated he does not favour Fed raising rates in 2015 and it will take a few years before inflation back to 2%. (RTRS) With the market focus on the ECB, President Draghi finally ended weeks of speculation and confirmed that the ECB are ready to purchase government bonds, however, market reaction was particularly muted as this announcement was in fitting with market expectations and as such EUR/USD only fell a moderate 15 pips. In related news, the European Court of Justice (ECJ) declared that the OMT bond buying plan may be legal and is in line with EU law in an interim ruling which is a positive for the legalities for the impending ECB sovereign bond purchase program.

Adding insult to injury, the World Bank cut their 2015 Global growth forecast to 3% from 3.4% and says they expect the Fed to hold off on interest rate hikes longer than anticipated due to falling prices, stagnant US wages and lower global growth. Euro-area cut to 1.1% from 1.8%, Japan GDP to 1.2% from 1.3%. China GDP to 7.1% from 7.2% and Russia GDP to -2.9% from -0.7% however US 2015 GDP was raised to 3.2% from 3.0%.

Asian equity markets traded mostly lower with the Hang Seng (-0.3%) and Shanghai Comp (-0.4%), as the indices failed to extend yesterday’s post Chinese Trade Balance inspired gains with sentiment weighed upon by the steep decline in copper prices. Elsewhere, the Nikkei 225 (-1.01%) broke back below the 17,000 handle weighed on by weakness in energy stocks and amid JPY strength.

In summary: European shares remain lower with the basic resources and oil & gas sectors underperforming and retail, media outperforming. Copper falls to lowest in more than 5 years. World Bank lowers global GDP growth forecast. Treasury 10-year yield falls to lowest since May 2013, ruble falls for fourth day. EU court aide signals OMT plan in line with rules. The U.K. and Swedish markets are the worst-performing larger bourses, the Italian the best. The euro is weaker against the dollar. French 10yr bond yields fall; German yields decline. Commodities decline, with copper, nickel underperforming and natural gas outperforming. U.S. mortgage applications, retail sales, import price index, business inventories due later.

Market Wrap

  • S&P 500 futures down 0.3% to 2010.9
  • Stoxx 600 down 0.6% to 342.9
  • US 10Yr yield down 2bps to 1.88%
  • German 10Yr yield down 3bps to 0.45%
  • MSCI Asia Pacific down 0.4% to 137.3
  • Gold spot down 0.2% to $1228.9/oz
  • Euro down 0.13% to $1.1758
  • Dollar Index down 0.06% to 92.25
  • Italian 10Yr yield down 6bps to 1.76%
  • Spanish 10Yr yield down 3bps to 1.61%
  • French 10Yr yield down 4bps to 0.7%
  • S&P GSCI Index down 0.5% to 379.1
  • Brent Futures down 0.2% to $46.5/bbl, WTI Futures down 0.5% to $45.7/bbl
  • LME 3m Copper down 5.2% to $5557/MT
  • LME 3m Nickel down 3.1% to $14200/MT
  • Wheat futures down 0.9% to 543.3 USd/bu


Bulletin Headline Summary From RanSquawk and Bloomberg

  • Treasuries gain, 10Y yield falls to new low since May 2013 as slide in copper leads commodities to 12-year low, stocks decline. Week’s auctions conclude with $13b 30Y, WI yield 2.48%, lowest on record, vs 2.848% in December.
  • WTI crude, down more than $60 since June to below $45 yesterday, is on its way to $40, according to SocGen and BofAML; Goldman says WTI needs to remain near $40 during 1H to deter investment in new supplies that would add to the glut
  • Draghi won a legal endorsement as an adviser to the EU’s top court said a bond-buying program designed to help save the euro area may only require fine tuning to bring it in line with EU law; EUR/USD falls to new 9-yr low at 1.1727
  • Draghi signaled that the ECB is ready to buy government bonds to revive euro-area inflation, according to German newspaper Die Zeit
  • Giorgio Napolitano, Italy’s longest-serving president, resigned today, creating a challenge for Prime Minister Renzi’s plans to overhaul the nation’s economy and political system.
  • The plunge in oil makes it increasingly uncertain whether the Bank of Japan will reach its 2% inflation target in the coming fiscal year, according to people familiar with the central bank’s discussions
  • Kaisa Group Holdings Ltd.’s bondholders are seeking restructuring and legal advice after a missed coupon payment pushed the Chinese developer closer to a default; Moody’s predicted “substantial losses”
  • A spate of murders by North Koreans inside China’s border is prompting some residents to abandon their homes, testing China’s ability to manage both the 880-mile (1,400- kilometer) shared frontier and its relationship with the reclusive nation
  • Sovereign yields fall. Asian stocks fall; European stocks, U.S. equity-index futures decline. Crude steady; copper plunges 5.1%, gold falls


DB’s Jim Reid concludes the overnight recap




The star of today’s movie will be the exotically named Pedro Cruz Villalon, one of the ECJ advocates generals, who will today at 9.30am CET give his opinion on the German constitutional court’s referral to the ECJ on OMT. While the opinion doesn’t seem to be binding on anyone it will be influential. Indeed it will be several months before the German court translates today’s findings. Whatever the outcome today (DB is sanguine) we’re not sure it automatically has a direct read through to QE even if causes obvious complications if negative. We are not experts on this subject, especially the legal side, so we have to be careful but for what it’s worth we think QE and OMT can be legally separated. The former can be argued as being a vehicle to facilitate monetary policy in the course of meeting the ECB inflation target (which they are failing on), whereas the latter could be argued to be financing a member state which is problematic treaty wise. Different enough? We think so. Anyway expect news to start to filter through the wires after he starts speaking this morning.

Also to look forward to today is JP Morgan’s earnings which is often an early read into conditions in what is still one of the largest sectors in the markets. One of the other biggest sectors, namely Energy continues to grab the headlines with energy stocks (-0.73%) dragging the S&P 500 (-0.26%) lower yesterday for its third consecutive day. Credit markets in the US closed softer also with IG23 half a basis point wider and US HY energy credits widening +8bps in cash spread terms. It was in fact a volatile day yesterday with equities initially opening some +1.4% firmer, helped in part by a decent European session – which we’ll touch on later – and also generally solid data. The S&P 500 later succumbed to the declines in oil, hitting an intraday low of -1.0% before paring back some of those losses into the close.

There were similar volatile moves in oil markets over the course of the day. After both markets traded as much as 3-5% lower for the majority of the session, WTI (-0.39%) and Brent (-1.77%) recovered into the close at $45.89/bbl and $46.59/bbl respectively. Yesterdays moves mean WTI and Brent are 12.5% and 18.7% lower year-to-date already and some 55%-58% off their 2014 highs. The spread between the two markets has continued to narrow recently and yesterday Brent briefly traded below WTI. Yesterday’s moves were not helped by news out of the UAE energy minister who was quoted on Reuters as saying that ‘the strategy will not change’ with regards to any cuts in production out of OPEC. An article in the WSJ also noted that production at Canada’s Oil Sands project will continue to stay high. We’ve previously mentioned the pressure of declining energy prices at the micro-level for energy producers but yesterday we had evidence of stress at the sovereign level too with Moody’s downgrading oil-sensitive Venezuela two notches to Caa3 – with Bloomberg noting that the sovereigns 1y CDS is now implying a 75% probability of default.

In terms of data in the US yesterday, both the December NFIB small business optimism survey (100.4 vs. 98.5 expected) and January IBD/TIPP economic optimism survey (51.5 vs. 48.7 expected) surprised to the upside whilst the JOLTS job openings reading (4.97m vs. 4.85m expected) continued to paint a strong employment picture – the reading was in fact the highest since January 2001. Breaking down the reading further, the hiring rate declined a tenth to 3.6% but still remains high relative to the range whilst the quits rate was stable at 1.9%. Treasuries bounced around over the course of the session. The 10y benchmark initially rallied into a low of 1.862% – matching the October 15th intraday lows on the incredible day of the flash crash – before giving up those gains and closing relatively unchanged at 1.900% (-0.7bps). A weaker than expected 10y auction perhaps didn’t help with the bid-to-cover ratio (2.61) below the average of the past ten auctions (2.73).

It was a different story in Europe yesterday with the Stoxx 600 (1.44%) and Dax (+1.63%) having a second successive strong day. Unlike in the US, energy stocks (+0.84%) proved resilient. Commentary out of the ECB’s Benoit Coeure helped support the better tone. In a report with German press Die Welt, the official was quoted as saying that ‘the discussion is far advanced’ with regards to prep work on QE and that last week we ‘had discussed a lot of technical details’. Coeure then went on to say that ‘we are in any case ready to take a decision on January 22nd’ but that ‘doesn’t necessarily have to mean we will actually decide’. As we’ve previously mentioned, the ‘how’ is perhaps more important than the ‘when’ in terms of the overall impact. Coming back to Coeure’s comments, the official also noted that in regards to Greece ‘an election there changes nothing on the path of monetary policy’. Greek equities (+3.26%) continued to strengthen yesterday, pushing them back into positive territory for the year.

On the data front the main release was the UK CPI which came in yesterday at +0.5% yoy (from +1.0%) which using our long-term data is the joint lowest print since 1963, matching lows seen in spring 2000. So we continue to be in very unusual times. DB’s George Buckley noted that the entirety of the monthly fall can be attributed to energy and petrol – evidenced in an uptick in the core rate to +1.3% yoy (from +1.2%). In terms of where inflation goes from here, George believes that we should see it rising from mid-year, albeit from low levels however given the declines in energy prices we could yet have further surprises to the downside. Elsewhere it was a quiet day data-wise with just a modestly better Italian industrial production print (+0.3% mom vs. +0.1% mom expected). After initially trading lower intra-day (0.455%), 10y Bund yields finished the day relatively unchanged at 0.477%. Finally the Euro hit a fresh 9-year low at $1.1773. Rounding up yesterday’s news, the World Bank yesterday cut its forecast for global growth to 3% for 2015 (from 3.4%) and 3.3% for 2016 (from 3.5%). Chief economist, Kaushik Basu, at the Bank noting in particular that although the US recovery is helping, ‘we need several engines’ and that ‘risks to this slow-moving global recovery are significant and tilted to the downside’.

Looking at the trading this morning bourses are generally mixed although WTI (-1.18%) and Brent (-1.05%) have both taken another leg lower. Copper also continues to tumble, trading as much as 6.6% lower overnight to a five and a half year low. The Nikkei (-1.27%), Kospi (-0.05%) and ASX 200 (-0.95%) are all trading softer, however the Hang Seng (+0.07%) and Shanghai Composite.

In terms of the day ahead, as well as the aforementioned ECJ this morning we’ve got more inflation readings in Europe with both France and Italy CPI due. Euro-area industrial production will also be of some interest. Across the pond this afternoon, December retail sales will likely be a key focus with the market looking for an energy-weakened negative headline reading (-0.1% mom). Stripping out the auto and gas component however, consensus is for a +0.5% print. Elsewhere in the US, we will also get the import price index and business inventories reading as well as the release of the Fed Beige Book. Comments from the Fed’s Kocherlakota speaking on the US economic outlook could also be of some interest.





from last night  9 pm Tuesday night, copper and oil falter again:


(courtesy zero hedge)




Copper Carnage Continues – Bloodbath At China Open



Update: COMEX Copper trades $242.35

Heavy volumes in the futures markets have smashed COMEX Copper prices to as low as $251.90 as China opens. This is the lowest level for copper since July 2009… LME prices are as low as $5,500/mt… Blame OPEC! In fact – we suspect – blame massive rehypothecation hedge unwinds…


Total Carnage


This is not a normal China open…


As Bloomberg reports, the catalyst for this latest leg down appears to be World Bank global growth forecast cuts…

Copper tumbled below $5,500 a metric ton for the first in five years as a cut in the World Bank’s global growth forecast fueled speculation demand for raw materials won’t be enough to eliminate a supply glut.


Copper dropped as much as 6.6 percent and nickel slid 2.2 percent. The world economy will expand 3 percent in 2015, according to a World Bank report released today, down from a projection of 3.4 percent in June. The Bloomberg Commodity Index of 22 energy, agriculture and metal products slid to the lowest level since November 2002 yesterday after dropping 17 percent last year.


“The news everywhere is doom and gloom,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “Prices are going to keep sinking.”


Copper for delivery in three months on the London Metal Exchange dropped as much as $388 to $5,472 a ton, the lowest intraday price since July 2009. The metal was trading 6.1 percent lower at $5,501.25 ton at 9:54 a.m. in Hong Kong.


All other metals on the LME declined, with nickel dropping to the lowest since February 2014.

*  *  *

Maybe commodities are on to something…


Naah – stocks are all-knowing…

*  *  *

Copper’s cost curve is coming under pressure…


*  *  *

Crude is also under pressure…



then during London trading, copper is halted at the LME after crashing 8%.  The Aussie dollar crashes.  This is prior to the announcement on the Euro monetary union’s OMT non binding ruling opinion.


(courtesy zero hedge)


Copper Halted After Crashing 8% On LME, Sends AUD Plunging, Futures Dip Under 2000


Today’s prime time event hasn’t even arrived, that would be the European Court of Justice (ECJ) delivering its final opinion on the legality of the ECB’s previously announced OMT program, in less than an hour, and already the fireworks have begun, most notably out of Asia where after yesterday’s epic commodity drubbing many were caught with their pants down and margin calls up, and what followed was a classic liquidation puke, when Copper prices crashed over 8% on the LME, to fresh 5 year lows and below USD 5,500/T in London.

This plunge prompted Shanghai futures to hit a daily-trading limit, while copper COMEX also dropped to a five and a half year low. According to traders, the sell-off was sparked by stop-loss selling as the World Bank downgraded global growth and amid expectations of increasing supply. Adding gasoline, so to say, to the excess capacity fire, Goldman said risks to copper prices are heavily skewed to downside and a Q1 rise in LME and SHFE inventory is to weigh on prices. Oh, and before you blame the selloff on another OPEC-driven supply glut, here is the real culprit according to Goldman:


Yes: it is, sadly for the apologists, all about China, whose credit creation dynamo has all but run dry. Worse, with copper the primary funding metal of its shadow banking system (read The Bronze Swan Arrives: Is The End Of Copper Financing China’s “Lehman Event”? and Bronze Swan Lands: Goldman Explains How The China Commodity Unwind Will Happen) things in China are about to get very interesting.

Here is a blow by blow of the copper crash from RanSquawk:

The sharp move lower in copper was initially attributed to stop-loss selling and a surge in trading volumes.

  • The World Bank then cut its 2015 Global growth forecast to 3% from 3.4% sending prices further lower.
  • In response, Goldman Sachs said risks to copper prices are heavily skewed to downside and a Q1 rise in LME and SHFE inventory is to weigh on prices.
  • In tandem with the copper weakness, commodity-related currencies including NZD, AUD and CAD came under selling pressure, notably against JPY.
  • Of note, yesterday BNP Paribas cut 2015 copper forecast to USD 6,175 from USD 6,500 per tonne.  Elsewhere, Deutsche Bank head of commodity research said short positions in copper are now at multi-year highs in the face of oil weakness.
  • The negative sentiment also comes ahead recent heightened expectations of increasing copper supply. Yesterday,  Peru (world’s third largest copper producer) finance minister Segura sees very strong copper output on new mines, output to rise through 2018

This also comes after LME Warehouse Stock Movements showed copper stockpiles rise 2.1% to highest since May.

The copper crash has also impacted adversely all commodity currencies, and NZD, CAD but mostly AUD all fell against all major peers. Here is the AUDJPY tumbling to the lowest since October.

The flight from, well, all commodities was also evident in JPY crosses after the USD/JPY tumbled below 117, the lowest since December 17, dragging the E-mini lower with it.

And now we sit back and see if Draghi’s “whatever it takes” OMT has been deemed illegal, or, instead, if the ECJ finds it legal and begins a full blown political war with Germany.





We now have the OMT non binding opinion on the ECB’s  OMT

funding  (i.e. QE).  It has the green light but with special conditions:


(courtesy zero hedge)


A “Conditional Bazooka”: European Top Court Finds ECB’s OMT “May Be Legal” But Must Meet Conditions


Almost a year ago, the German top court found that ECB’s OMT is “illegal”, then promptly washed its hands of the final decision, kicking the ball in the court of the European Court of Justice. Moments ago, the Advocate General Pedro Cruz Villalon of the EU Court of Justice in Luxembourg delivered the non-binding opinion on issue of Mario Draghi’s “unconditional” OMT.

The full opinion can be found here. Below are the details from Reuters and Bloomberg:


The conditions:


Basically, the court has allowed the ECB to drive down borrowing costs using the OMT but it can’t fund bailouts. How the two will be “separated” in a world of fungible money is unclear and will likely be the basis for another court appeal.

The conditionality clause from the Press Release:



A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases. The involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme.


The Governing Council will consider Outright Monetary Transactions to the extent that they are warranted from a monetary policy perspective as long as programme conditionality is fully respected, and terminate them once their objectives are achieved or when there is non-compliance with the macroeconomic adjustment or precautionary programme.


Following a thorough assessment, the Governing Council will decide on the start, continuation and suspension of Outright Monetary Transactions in full discretion and acting in accordance with its monetary policy mandate.



Here is the full Default Risk section:

Default risk


The BVerfG also points out that a purchase of government bonds with a, to some extent foreseeably, low credit rating exposes the ECB to an excessive default risk and is therefore incompatible with Article 123(1) TFEU. Although the referring court itself recognises that the assumption of risk is inherent to the activity of a central bank, it considers that the Treaties do not authorise exposure to losses of a significant amount.


Once again, I refer to the reasoning set out in points 193 to 198 of this Opinion, in which I dealt in some detail with the assumption of risks by the ECB. To my mind, that reasoning may perfectly well be applied to the present aspect of the case, since, as has been observed above, the fact that there is a possibility — which purely on principle cannot be discounted — of the ECB’s insolvency or a Member State’s default does not convert the risk, on that ground alone, into a certainty. The fact that a programme for the purchase of government bonds exposes the ECB to a risk is, as one might expect, inherent in this kind of operation and, consequently, doubts as to legality need arise only when the technical conditions of the programme, or its subsequent specific implementation, confirm that the ECB is clearly faced with a default scenario.


In fact, the technical features of the OMT programme do not suggest that the ECB is exposed, with any degree of foreseeability, to a scenario like the one depicted by the BVerfG. It should be recalled that the central objective of the OMT programme is to stabilise the interest rates applicable to certain government bonds with the ultimate aim of restoring the instruments of monetary policy. However, the immediate objective (the reduction of the financing costs of the State concerned) itself contributes to that State recovering its ability to meet its obligations in the medium and long term. The framework in which the OMT programme would be accorded is intended to eliminate or at least reduce such a risk. As I have already pointed out in point 197 of this Opinion, the fact that, considered as a whole, the transactions announced in the OMT programme confirm the ECB’s intention of guarding against or preventing more or less irrational processes which generate or significantly increase risks, tends to establish that a measure such as that at issue does not entail circumvention of the prohibition in Article 123 TFEU.


I consider, in short, that that intention on the part of the ECB has been sufficiently established for it to be concluded that a purchase of government bonds — even ones with a low credit rating — which may expose the ECB to a degree of risk of default, is not as such contrary, in the circumstances described, to the prohibition of monetary financing laid down in Article 123(1) TFEU.

So the ECB does not “take on risk” – did this guy miss the whole part about how the ECB became one of the world’s biggest hedge funds in recent years with its record direct and indirect holdings of European peripheral bonds? Apparently all it took was a few phone calls from Goldman and the ECB to make sure he did.

On Pari Passu status:

Creditor treatment


The Eurosystem intends to clarify in the legal act concerning Outright Monetary Transactions that it accepts the same (pari passu) treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the Eurosystem through Outright Monetary Transactions, in accordance with the terms of such bonds.

And this is how Article 123 was just squashed:

Waiver of rights and pari passu status


The full or partial waiver of claims securitised in government bonds of the State subject to the OMT programme is the first feature which, according to the BVerfG, could render the programme contrary to Article 123(1) TFEU. In the referring court’s view, as in that of a number of the applicants in the main proceedings, the fact that the ECB and the central banks do not have the status of preferential creditor but rank pari passu and may be obliged to accept a full or partial waiver in the context of a restructuring agreement, (92) makes the measure into an indirect means of financing the debtor State.


I do not find that argument convincing. In the first place, it must be borne in mind that the risk of a full or partial waiver relates only to a future and hypothetical situation entailing the restructuring of the debtor State’s debt and is not, so to speak, an intrinsic component of the OMT programme. As I have already explained in points 193 and 194 of this Opinion, the assumption of risk is inherent in a central bank’s activity, so that an event such as that described by the referring court cannot become, merely because it might conceivably occur, a necessary consequence of implementation of the programme.


Moreover, the ECB has stated in its written observations that, in the context of a restructuring subject to CACs, it will always vote against a full or partial waiver of its claims. In other words, the ECB will not actively contribute to bringing about a restructuring but will seek to recover in full the claim securitised on the bond. The fact that the ECB acts with a view to preserving its claim in full confirms that the aim of its conduct is not to grant a financial advantage to the debtor State but to ensure that the latter meets the obligation it has entered into.


Finally, I think that the point should also be made that a purchase by the ECB, as a non-preferential creditor, of the debt securities of a Member State will inevitably involve a degree of distortion of the market, which appears to me, however, to be tolerable from the point of view of the prohibition in Article 123(1) TFEU. By contrast, as has been explained in point 183 of this Opinion, purchases made with the status of preferential creditor deter other investors, since they send out the message that a significant creditor, in this case a central bank, will be given preference over other creditors in the recovery, with the impact that that will have on demand for bonds. Accordingly, I take the view that pari passu clauses may be regarded as a means that seeks to ensure that the ECB disrupts the normal functioning of the market as little as possible, which, ultimately, involves a further guarantee of compliance with Article 123(1) TFEU.


I therefore consider that the fact that the ECB might be obliged — in the hypothetical event of a restructuring of a Member State’s debt — to waive, in full or in part, its claims securitised in government bonds, as a result of the OMT programme being activated, does not mean that the programme amounts to a monetary financing measure contrary to Article 123(1) TFEU.

And then some more goalseeked humor to validate the breach of Article 123:

Holding the bonds until maturity


The BVerfG also asserts that holding government bonds until maturity may conflict with Article 123(1) TFEU, since it reduces the number of bonds circulating on the secondary market, thereby disrupting the normal development of market prices.


It is true, as the BVerfG has argued, that if the ECB were to purchase government bonds under an obligation to hold them until maturity, that would give rise to a significant distortion on the secondary market for government securities. The secondary government bond market would have to reckon with the presence of an investor — the ECB — holding a substantial portfolio of government bonds which would not circulate on that market, regardless of the way in which their market price developed.


The ECB has, in response, emphasised that at no point in the press release of 6 September 2012 is it stated that government bonds purchased under the OMT programme will be held until maturity

Bottom line: Draghi’s “unconditional” bazooka just became conditional, but it is still a bazooka, albeit one that willnever actually be used since well over two years after it was revealed following Draghi’s famous “whatever it takes” speech, it still has no legal termsheet or basis, and no definition on its pari passu or burden-sharing status. And it never will: after all it was merely meant as a precautionary device designed to scare away the bond vigilantes, and never to be actually implemented.

Some more from the FT:

Mr Villalón said in a statement that the ECB’ should have “broad discretion” in framing and implementing the eurozone’s monetary policy”, and argued that legal courts therefore “must exercise a considerable degree of caution when reviewing the ECB’s activity, since they lack the expertise and experience which the ECB has in this area”.


Therefore, in Advocate General Cruz Villalón’s view, the OMT programme decided upon by the ECB, as it results from the technical features described in the press release, does not infringe the principle of proportionality and may be considered lawful, provided that, in the event of the programme being implemented, the obligation to state reasons and the requirements deriving from the principle of proportionality are strictly complied with.


However, the advocate general did say that the OMT programme constituted an “unconventional monetary policy measure”, which must comply with certain legal provisions.


Thus, in the event of the OMT programme being implemented, the ECB must, if the programme is to retain its character of a monetary policy measure, refrain from any direct involvement in the financial assistance programme that applies to the State concerned.


The Advocate General considers that the ECB must give a proper account of the reasons for adopting an unconventional measure such as the OMT programme, identifying clearly and precisely the extraordinary circumstances that justify the measure. Given that no such justification is to be found in the press release of 6 September 2012, if the programme is put into practice, both the legal act which gives it form, and its implementation, will have to satisfy those requirements relating to reasons.

So what does this mean, and how will Germany react? Here is a useful primer from SocGen which we posted several days ago explaining the next steps,and whose outcome we now know:

Where are we now? It appears the answer, absent additional details, is the red “baseline” scenario, which as SocGen noted “would undermine Draghi’s promise of “whatever it takes” and leave the region more vulnerable to an eventual ressurgence of risk.”

Finally some other observations via the social networks:

Italy’s President Napolitano Resigns: What Happens Next

Moments ago, Italy’s 89-year-old president Giorgio Napolitano resigned, as had been expected.

Here, courtesy of Bloomberg, is what happens next.

Giorgio Napolitano, Italy’s longest-serving president, resigned before the end of a second 7-year presidential term. Napolitano accepted 2nd term in 2013 after parliament failed to elect his successor for days, had signaled from start he wouldn’t have served another full mandate.

When will Napolitano’s successor be elected?

  • Parliament, together with 58 regional delegates that have yet to be appointed, has to meet within 15 days to  elect successor.
  • Procedure can take several days as max 2 rounds of voting are held each day
  • While some presidents, such as Francesco Cossiga in 1985, were chosen in one day, the election of Giovanni Leone in 1971 took 23 rounds of voting

How does vote work?

  • Presidential election is held in Parliament in roll-call vote of more than 1,000 lawmakers and regional officials

Ballot is secret

  • To win in first 3 rounds the candidate must secure 2/3 of as many as 1,009 potential votes; from 4th round simple majority of 505 electors is required
  • Senate speaker Pietro Grasso acts as caretaker president until a new head of state is elected
  • Napolitano becomes now senator for life

Why Napolitano’s resignation poses challenge for Premier Matteo Renzi?

  • Renzi needs head of state willing to support his reform agenda and dissolve parliament at his request if he finds himself in position to push for early elections

How are electors split?

  • Without taking into account 58 regional officials from various parties who have yet to be appointed by local councils, Renzi’s Democratic party has 415 electors, while former Premier Silvio Berlusconi’s Forza Italia party has 130 and Beppe Grillo’s Five Star Movement has 137
  • Majority that supports govt, which includes Renzi’s PD, New Center-Right and Civic Choice, would have enough votes to elect a president from 4th round, assuming there are no defections
  • PD failed to elect its candidate for president Romano Prodi in April 2013 after reportedly more than 100 defections among the center-left coalition
  • Renzi would also have enough votes to elect president from  4th round if he strikes deal with either Berlusconi’s Forza Italia party or Grillo’s movement, which are both at the opposition

What is the role of Italy’s president?

  • The president, whose term lasts 7 years, is the head of the armed force and can reject laws that he considers unconstitutional
  • While he’s often seen as a ceremonial figure, he also has the power to dissolve parliament, designate prime minister candidates and call early elections

What will be Napolitano’s remembered for?

  • During his 9-yr tenure, Napolitano has been regarded as the guarantor of stability amid unstable governments and Italy’s longest recession since World War II
  • During financial crisis in 2011, Napolitano fended off risk of bailout by appointing former European Commissioner Mario Monti to lead govt of non politicians to reassure markets after Berlusconi’s majority crumbled amid record high bond yields




This is certainly to be expected as Russia pulls itself out of the USA dollar (the Petrodollar).  However one can visualize that many exporters of oil pulling out of the dollar


Russia Just Pulled Itself Out Of The Petrodollar

Back in November, before most grasped just how serious the collapse in crude was (and would become, as well as its massive implications), we wrote “How The Petrodollar Quietly Died, And Nobody Noticed“, because for the first time in almost two decades, energy-exporting countries would pull their “petrodollars” out of world markets in 2015.

This empirical death of Petrodollar followed years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

We added that in 2014 “the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations.”

The problem was compounded by its own positive feedback loop: as the last few weeks vividly demonstrated, plunging oil would lead to a further liquidation in foreign  reserves for the oil exporters who rushed to preserve their currencies, leading to even greater drops in oil as the viable producers rushed to pump out as much crude out of the ground as possible in a scramble to put the weakest producers out of business, and to crush marginal production. Call it Game Theory gone mad and on steroids.

Ironically, when the price of crude started its self-reinforcing plunge, such a death would happen whether the petrodollar participants wanted it, or, as the case may be, were dragged into the abattoir kicking and screaming.

It is the latter that seems to have taken place with the one country that many though initially would do everything in its power to have an amicable departure from the Petrodollar and yet whose divorce from the USD has quickly become a very messy affair, with lots of screaming and the occasional artillery shell.

As Bloomberg reports Russia may unseal its $88 billion Reserve Fund and convert some of its foreign-currency holdings into rubles, the latest government effort to prop up an economy veering into its worst slump since 2009.”

These are dollars which Russia would have otherwise recycled into US denominated assets. Instead, Russia will purchase even more Rubles and use the proceeds for FX and economic stabilization purposes.

“Together with the central bank, we are selling a part of our foreign-currency reserves,” Finance Minister Anton Siluanov said in Moscow today. “We’ll get rubles and place them in deposits for banks, giving liquidity to the economy.

Call it less than amicable divorce, call it what you will: what it is, is Russia violently leaving the ranks of countries that exchange crude for US paper.


Russia may convert as much as 500 billion rubles from one of the government’s two sovereign wealth funds to support the national currency, Siluanov said, calling the ruble “undervalued.” The Finance Ministry last month started selling foreign currency remaining on the Treasury’s accounts.


The entire 500 billion rubles or part of the amount will be converted in January-February through the central bank, according to Deputy Finance Minister Alexey Moiseev. The Bank of Russia will determine the timing and method of the operation.


The ruble, the world’s second-worst performing currency last year, weakened for a fourth day, losing 1.3 percent to 66.0775 against the dollar by 3:21 p.m. in Moscow. It trimmed a drop of as much as 2 percent after Siluanov’s comments. The ruble’s continued slump this year underscores the fragility of coordinated measures by Russia’s government and central bank that steered the ruble’s rebound from a record-low intraday level of 80.10 on Dec. 16. OAO Gazprom and four other state-controlled exporters were ordered last month to cut foreign-currency holdings by March 1 to levels no higher than they were on Oct. 1. The central bank sought to make it easier for banks to access dollars and euros while raising its key rate to 17 percent, the emergency level it introduced last month to arrest the ruble collapse.


Today’s announcement “looks ruble-supportive, as together with state-driven selling from exporters it would support FX supply on the market,”Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said by e-mail. “Also, it will be helpful for banks, while there might be some negative effects related to extra money supply and risks of using some of the money on the FX market for short-term speculations.

Bloomberg’s dready summary of the US economy is generally spot on, and is to be expected when any nation finally leaves, voluntarily or otherwise, the stranglehold of a global reserve currency. What Bloomberg failed to account for is what happens to the remainder of the Petrodollar world. Here is what we said last time:

Outside from the domestic economic impact within EMs due to the downward oil price shock, we believe that the implications for financial market liquidity via the reduced recycling of petrodollars should not be underestimated. Because energy exporters do not fully invest their export receipts and effectively ‘save’ a considerable portion of their income, these surplus funds find their way back into bank deposits (fuelling the loan market) as well as into financial markets and other assets. This capital has helped fund debt among importers, helping to boost overall growth as well as other financial markets liquidity conditions.

[T]his year, we expect that incremental liquidity typically provided by such recycled flows will be markedly reduced, estimating that direct and other capital outflows from energy exporters will have declined by USD253bn YoY. Of course, these economies also receive inward capital, so on a net basis, the additional capital provided externally is much lower. This year, we expect that net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save.The implications for financial markets liquidity – not to mention related downward pressure on US Treasury yields – is negative.

Considering the wildly violent moves we have seen so far in the market confirming just how little liquidity is left in the market, and of course, the absolutely collapse in Treasury yields, with the 30 Year just hitting a record low, this prediction has been borne out precisely as expected.

And now, we await to see which other country will follow Russia out of the Petrodollar next, and what impact that will have not only on the world’s reserve currency, on US Treasury rates, and on the most financialized commodity as this chart demonstrates

… but on what is most important to developed world central planners everywhere: asset prices levels, and specifically what happens when the sellers emerge into what is rapidly shaping up as the most illiquid market in history.






Here is a list of USA states that stand to lose with the crude collapse”


(courtesy zero hedge)





Which States Stand To Lose The Most From The Crude Collapse



By now, it is no secret that the one state that conventional wisdom expects to suffer the most as a result of the crude collapse is the one state that through the Great Recession was the primary provider of (well-paying) job creation, the same state which is now expected to enter into a full-blown recession as confirmed by Jeff Gundlach in hislatest outlook call who, correctly, observed that all the jobs created during the “recovery” were thanks to the shale sector (something we presented previously).

But is it really Texas that will be impacted the most? The answer, at least according to a recent Pew report, is aresounding no.

As Stone McCarthy summarizes, the Pew report assessed the volatility in state tax revenues for the U.S. overall and for all 50 states. The analysts assigned a revenue volatility score to each state based on year-to-year changes in state revenues; the scores control for changes in state tax laws.

The volatility score for the U.S. overall was 5.0%; 29 states had higher volatility scores and 21 had lower scores. Three of the four states with the greatest volatility in revenues — Alaska, North Dakota and Wyoming — derive a large share of their revenue from so-called severance taxes on the extraction of oil, gas and other natural resources. Revenue from severance taxes in those states has been quite volatile, as the following chart shows.

Alaska, which had the highest volatility score by far at 34.4%, derived 78.3% of its revenue in 2013 from severance taxes, according to PEW. Severance taxes made up 46.4% of revenue in North Dakota in 2013, and 39.7% of revenue in Wyoming.

Incidentally, where is Texas? Smack in the middle.

So yes: in absolute terms, Texas may be facing a recession as a result of the retrenching of the energy industry – the biggest source of revenue for the state. However, in relative terms, when looking at state tax revenue volatility and reliance on energy, there may be some 25 or so state that stand to suffer even more than Texas!

Still think the crude crunch is “unambiguously” good?




One would have thought that the airline industry would do great with the lower oil prices.  The problem is debt saturation and thus tumbling traffic:


(courtesy zero hedge)





Despite ‘Gas Tax Cut’, Airlines See Tumbling Traffic, Outsource US Jobs


This wasn’t how it was supposed to be? Collapsing crude oil prices – according to the mainstream (Fed-spoonfed) narrative means lower costs for business and ‘massive’ tax cuts for consumers enabling disposable income to surge. But, American Airlines just announced a 3.4 percentage point plunge in its load factor (ability to fill its planes) in December and while Southwest saw traffic rise, its load factor also fell as passenger revenue per seat tumbled 4-5%. So no extra spending… and nowUnited reports it is looking to outsource 2,000 jobs in a cost-cutting effort (which seems odd given the total collapse of the fuel cost overhead?). Oh well, just keep repeating – crashing oil prices are unambiguously good.


As IBD reports, Consumer disposable income is not being spent on flights…

American said December traffic in revenue passenger miles dipped 0.4% compared with the prior year. Available seat miles, or capacity, gained 3.7%.


Load factor, which measures an airline’s ability to fill its planes, hit 80.4%, down 3.4 percentage points from December 2013.


For Q4, American expects passenger revenue per available seat mile (PRASM), a measure of unit revenue, to be flat to down 2%. That suggests weak unit revenue in December.



Southwest’s traffic rose 2.8% in December while capacity increased 2.9%. Load factor reached 82.7%, down 0.1 percentage point from December ’13.


Southwest estimates that its PRASM for December fell in the range of 4% to 5%.But for Q4, PRASM is estimated to have increased 1% to 2% compared with last year.

And then Fortune reports, it appears the utter carnage in the price of fuel is not enough to cut the costs for United…

United Airlines is assessing whether to outsource jobs at airports around the country in a cost-cutting effort that could affect some 2,000 workers.


The Chicago-based carrier, an arm of United Continental, informed employees Monday that jobs up for review included baggage handlers and gate and customer service agents at 28 airports that are not hubs, ranging from Atlanta to Anchorage. It has yet to make any decisions.


The potential outsourcing marks another step the carrier could take to help meet the goal it laid out in 2013 to cut costs by $2 billion annually. United said in an investor update Friday that it expects 2014 unit costs to increase up to 1.4% year-on-year, excluding fuel and other special charges.


The outsourcing review comes on top of plans announced in July to outsource more than 630 jobs.


“We need to ensure that our costs are competitive,” company spokesman Luke Punzenberger said.

*  *  *

But apart from that, crashing oil prices are awesome.





The Fed deeply concerned on the huge fall in oil’s price:


(courtesy zero hedge)



Fed’s Beige Book Shows Widespread Concerns Over Oil’s Impact


The standard modest or moderate growth comments of the Fed’s typically boring Beige Book were awkwardly interspersed with a narrative-interrupting 45 mentions of concerns about oil’s price plunge impact…


The Dallas District indicated that growth slowed slightly during the reporting period and that several contactsexpressed concern about the effect of lower oil prices on the District economy.

The Dallas District noted that office leasing activity remained strong, but one contact noted a slight pullback in demand from oil and gas firms.

Demand for oilfield services fell in the Eleventh District. Declines were concentrated in the Permian Basin as firms moved away from traditional vertical drilling, but the Eagle Ford and other oil basins in the District also saw a slight drop off in activity. Outlooks for the first half of 2015 are very uncertain and significantly weaker than in the prior reporting period, with firms expecting anywhere from a 15 to 40 percent decline in demand for their services.

The Kansas City and Dallas Districts reported that demand for oilfield services decreased, while the Atlanta District reported that growth in the supply of crude oil and natural gas continued to outpace demand growth.

Oil drilling activity in the Kansas City District declined, and contacts expect that District’s energy sector to slow further in response to lower energy prices.

Cleveland –  Our contacts are fairly optimistic and expect moderate to strong growth in 2015, though some expressed concern about weakening foreign economies and a decline in the price of oil.

However, a sustained decline in oil and gas prices may pose some downside risk to drilling and production, and it is uncertain what the effect will be on hiring and wages in the near term. Overall pricing for materials and equipment is down slightly during the past six weeks. Capital spending is projected to decline in 2015.

Atlanta Supply of crude oil and natural gas continued to outpace demand, leading to high inventory levels across the Gulf Coast. Industry contacts in the energy sector reported that the downturn in the price of oil has influenced their outlook and strategic planning for 2015, including a heightened focus on cost management, more prudent investments, and faster, more efficient drilling techniques. Exploration and production firms shared plans to continue drilling operations across the Gulf Coast and in Louisiana in 2015, though they intend to approach projects more cautiously.The same goes for oil service companies in the region, which are evaluating cost reduction strategies if low energy prices are sustained.

Chicago – Banking contacts noted the fall in oil prices as a source of medium-term uncertainty for business lending, with downside risk to loan quality for firms in the oil supply chain.

MinneapolisLower oil prices led to an overall slowing in hiring in the energy producing regions of North Dakota and Montana.

Oil and gas exploration activity decreased in late December compared with a month earlier in Montana and North Dakota.




But apart from that – unambiguously good.




No wonder the Saudi’s are angry!!:


(courtesy zero hedge)




OPEC Who? US Crude Oil Production Hits Record High



US Crude oil production shows absolutely no sign of slowing – despite tumbling rig counts – as this morning’s data shows the US produced 9.19mm barrels/day last week – the most since records began in 1983.



Since the OPEC meeting in November, US crude production has only accelerated…


The global ‘game of chicken’ continues.

Charts: Bloomberg







Your more important currency crosses early Wednesday morning:


Eur/USA 1.1748 down .0029

USA/JAPAN YEN 116.96  down .833

GBP/USA 1.5171 up .0004

USA/CAN 1.1977 up .0022

This morning in Europe, the euro continues on  its  downward spiral, trading  down  and now well below the 1.18 level at 1.1748 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 again in Japan by 83 basis points and settling still just below the 117 barrier to 116.96 yen to the dollar.  The pound was slightly up this morning as it now trades just above the 1.51 level at 1.5171.(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 1.1977 to the dollar. It seems that the three major global carry  trades are being unwound. (1) 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 with the massive rise in the dollar against all paper currencies.We also have the second big yen carry trade unwind as the yen refuses to blow past the 120 level.(3) the Nikkei vs gold carry trade as the Nikkei now collapses causing those short gold to purchase our scarce physical yellow metal. These massive carry trades are causing deflation as the world reacts to a lack of demand. Bourses around the globe are reacting in kind to these events.




Early Wednesday morning USA 10 year bond yield: 1.88% !!!  down 1  in basis points from Tuesday night/


USA dollar index early Wednesday morning: 92.32  par in cents from Tuesday’s close



The NIKKEI: Wednesday morning : down 292 points or 1.71%

Trading from Europe and Asia:
1. Europe stocks all in the red.

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

Gold early morning trading: $1231





Closing Portuguese 10 year bond yield: 2.66% par in basis points from Tuesday


Closing Japanese 10 year bond yield: .26% !!! down 1 in basis points from Tuesday


Your closing Spanish 10 year government bond, Wednesday  down 11 in basis points in yield from Tuesday night.

Spanish 10 year bond yield: 1.55% !!!!!!
Your Wednesday closing Italian 10 year bond yield: 1.73% down 9 in basis points from Tuesday:


trading 18 basis points higher than Spain:





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



Euro/USA: 1.1784  up .0006

USA/Japan: 117.33 down .487

Great Britain/USA: 1.5219 up .0051

USA/Canada: 1.1956 up .0001

The euro again reversed course heading northbound during the afternoon and by closing time,  finishing up by .0006 and  well below the 1.18 level to 1.1784. The yen was down in the afternoon, but it was well up by closing  to the tune of 49 basis points and closing well below the 118 cross at 117.33 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 and it was  up  on the day closing at 1.5219. The Canadian dollar was up in the afternoon but was down on the day at 1.1956 to the dollar.

As explained above, the short dollar carry trade is being unwound, the yen carry trade and now the Nikkei/gold carry trade and these unwinding are  causing massive derivative losses. And as such. these massive derivative losses is the powder keg that will destroy the entire financial system.






Your closing USA dollar index: 92.15 down 16 cents from Tuesday.


your 10 year USA bond yield , down 4  in basis points on the day: 1.85%!!!!





European and Dow Jones stock index closes:



England FTSE  down 153.74 points or 2.35%

Paris CAC down 67.04 or 1.56%

German Dax  down 123.92 or 1.25%

Spain’s Ibex  down  120.00 or 1.20%

Italian FTSE-MIB down 298.25 or 1.59%


The Dow: down 187.84. or 1.07%

Nasdaq; down 27.96 or 0.60%


OIL: WTI 48.36 !!!!!!!

Brent: 48.55!!!!



Closing USA/Russian rouble cross: 64.97  up 1 1/4 roubles per dollar on the day.





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



(Your trading today from the New York):



Markets Turmoiled But Crude ‘Buying Panic’ Lifted Stocks “Off The Lows”




Whocouldanode that collapsing oil prices were not unambiguously good for everyone… The day’s narrative was set by disappointing retail sales and selling across every sector ensued as Treasury yields hit record lows, copper crashed, and crude oil pushed back to cycle lows…

And then this happened!!

Crude spiked 7% into the OPEX close (on absolutely no fundamental/news catalyst at all)…


But Energy credits pushed back wider to close to record high levels of risk…


And that rescued everything “off the lows” – somehow making CNBC comfortable that all is well…

Dow dropped almost 700 points from yesterday’s highs


But everything bounced with crude into the close…


And of course the Energy sector ripped (along with Utes!) but financials really ugly…


Year-to-date, stocks remain in the red…


USDJPY did its best but stocks took a while to get into the game…


Stocks once again caught down to bonds… but once again tried to escape reality this afternoon…


Treasury yields spiked lower to record lows for 30Y…


The USDollar slipped lower led by JPY but note the USDJPY ramp that lifted stocks…


Gold and Silver flatlined again but copper (crashed) and oil (spiked) were the big movers…


But Copper’s crash was epic…


and then there’s Blackberry… lifted on Samsung sniffing rumors…


Charts: Bloomberg





USA retail sales drop dramatically:


(courtesy zero hedge)




US Retail Sales Drop Most Since June 2012 (And Don’t Blame Gas Prices)


But but but… US retail advanced sales dropped a stunning 0.9% MoM (massively missing expectations of a 0.1% drop). The last time we saw a bigger monthly drop was June 2012. Want to blame lower gas prices – think again… Retail Sales ex Autos and Gas also fell 0.3%(missing an exuberantly hopeful expectation of +0.5% MoM) and the all-important ‘Control Group’ saw sales fall 0.4% (missing expectations of a 0.4% surge). Boom goes the narrative.

Advance Retail Sales massively missed For Dec.


Ironically, the great gas price plunge was the worst thing to happen to the US economy since the Polar Vortex:

The breakdown: a sales decline in 9 out of 13 major categories.

as The Control Group shows – this is not gas price related.


Charts: Bloomberg






An extremely weak financial earnings report from JPMorgan this morning:


(courtesy zero hedge)



JPM Misses Revenues And EPS Due To Another $1 Billion In Legal Costs


Looks like the Jefferies earnings harbinger were right, because with another quarter down, and here is another painful report by JPM, which just launched the Q4 earnings season for financials with a miss on both the top and bottom line, reporting $1.19 in EPS, well below the $1.32 consensus, and just barely above the lower estimate of $1.16. This was a decline from both the previous quarter (by 17 cents) and from a year ago (by 11 cents). Revenues missed as well, with JPM reporting $23.552 billion in top line, a decline of $560 million from a year ago ($1.6 billion lower than Q3), and below the $24.0 billion consensus. And while JPM’s latest recurring, non-one time “one-time, non-recurring” charge came as a surprise to most (although how over $30 billion in legal charges can be considered one-time is beyond us), at the same time JPM once again resorted to the oldest trick in the book, taking the benefit of some $704 million in loan loss reserve releases, nearly offsetting the entire negative impact of the legal charge.

Of course, the reported revenue should not be confused with the GAAP revenue, which actually was $1 billion less at $22.5 billion, the lowest quarterly real revenue in over a year!

The miss happened despite JPM repurchasing another $1.5 billion in common stock, leaving $2 billion in buyback capacity for Q1 2015.

The weakness in earnings was widespread, and now that JPM’s prop desk is dead and buried, and the bank has to make money the old fashioned way using NIM, the fact that Mortgage Banking Income dropped from both the prior quarter and Q4 2013 will hardly inspire much confidence in the firm. Still the result was better than some had expected – the reason: Total headcount down over 7,500 for the year.

And then there was investment banking, where net income tumbled $715 Million from Q3, to 4972 MM, as a result of a $1.2 billion plunge in the most important Fixed Income Markets revenue to just $2.533 BN, below the $2.64 billion consensus estimate, down $1.21BN from Q3, and down a whopping $748MM from Q4 2013. The good news, if any, is that Equity Markets, while also declining BY $147MM from the prior quarter, actually posted a modest gain of $222 MM from a year ago to $1.1 billion; still a far cry from what the firm normally generates in Fixed Income


Of note: after taking its VaR to what may be a historic low of $35 in Q3, JPM has slowly started increasing it, with Q4 VaR rising to $40, below the $42 a year ago.

And then there was the “old faithful” piggy bank of EPS boosting: loan loss reserve releases. Because even though JPM took the highest provision for credit losses in Q4 since Q1, which rose to $840 million, up from $757MM in Q3, and from $692 in Q2 on what supposedly was “improved portfolio credit quality”, it also decided to ramp up its loan loss reserve release which jumped to $704 million in Q4, the highest artificial boost to earnings since 2013, when it took the benefit of $1.3 billion in loan loss reserve releases.

Altogether, another weak report by the bank that is slowly but surely taking a long, hard look at Goldman’s suggestion that it may have more value broken up than in its current state. And if Jamie Dimon isn’t, than his shareholders surely are.

Full earnings presentation (link) below: whatever you do, don’t look for the Net Interest Margin slide (usually first in the Appendix as can be seen here) – after it hits a record low in Q3, JPM decided to just do away with its entirely!



Housing in trouble:


(courtesy Dave Kranzler/IRD)




First out this morning (Tuesday) was this:   “Oil crash may whack earnings of top U.S. homebuilders in Texas”  (Article Link).  Well that’s obvious.  I wrote a post a few weeks ago in which I surmised that the crashing price of oil was likely the U.S. economy’s “black swan.”   Sorry, it doesn’t take Einstein to figure that out.  In my year-end investor letter I stated that the housing markets in States like Texas and Colorado were going to get hammered hard.  I’m already seeing high-end housing inventory all around Denver pile up like litter in a junkyard.

THEN, KB Home (KBH) reported its fourth quarter (fiscal) ending November:

  • *KBH SEES 1Q BOTTOM LINE ABOUT BREAK-EVEN (against expectations of a 17c rise!)

Hmmm…the stock was annihilated today, down 16.3%.  But guess what?  45% of KBH’s sales revenue is derived from the West Coast – primarily California.  Yes, the Company reported “impressive” year over year revenue and backlog gains, but guess what?  That’s rear view mirror stuff.  You can completely ignore its reported GAAP net income number because 90% of it was from a NON-CASH massive income tax benefit it accrued into earnings.

KBH is a viper’s nest of accounting gimmicks and questionable use of capitalized interest, which also serves to inflate its GAAP earnings.  Oh, by the way, did anyone notice that KBH’s Q4 cancellation rate was 37%?   That means you can slash their new order and backlog report by at least 37%.

KBH’s debt/equity is 167%.  Once KBH is forced to start writing down the value of massively bloated inventory, it’s book equity to hit zero or go negative.   It’s inventory value is more than 200% of its book equity.  This stock is going to hit the wall eventually.

You can ignore reality but you can’t ignore the consequences of reality (Ayn Rand).  The reality is that my assessment of the housing market is correct.

Another indicator to show how bad things really are as we are experiencing a global lack of demand :
(courtesy zero hedge)

The US Economy Is So Bad… Even Lottery Sales Are Collapsing

For what appears to be the first time on record, Powerball Lottery Sales declined year-over-year. As the following slides show, lottery sales declined 19% in FY14 vs FY13 and even more stunningly reflective of a nation whose disposable income (and hope) is in such short supply, sales in the first half of FY15 are down 40% from the first of FY14. As LaFleurs concludes, this will make it very challenging for most Lotteries to manage their budgets…


Lottery Sales are plunging…


and the first half of 2015 looks even worse…


And it’s widespread…


And FY15 looks like a disaster…


But apart from that… The US economy is recovering!!!


h/t Nick Colas at ConvergEx

*  *  *

It’s not just the US…

The UK National Lottery has had its worst six months of sales since its launch in 1994, operator Camelot reported today.


Revenue from the various Lottery games slumped to almost £2.3 billion in the period to September 28, down 5.2% on the same time last year.

*  *  *






We  will see you on Thursday.

bye for now



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