March 2/Huge Default coming to a big Austrian bank/expect a major Bail in/Greece contemplating using pension accounts to fund the IMF/War of words between Russia and NAT0/huge withrawal of 7.76 tonnes of gold from the GLD


Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold: $1207.70 up $4.90   (comex closing time)
Silver: $16.41 down 10  cents  (comex closing time)



In the access market 5:15 pm



Gold $1206.20
silver $16.42


Tonight we have three hot spots to cover.



The first is the crisis in Greece where it seems that the pressure on Greece continues.  Over the weekend, JPMorgan has established that another 10 billion euros of deposits have been removed.  The government is contemplating using pension deposits to fund the IMF loan due next week.  We wish all Greek pensioners all the luck in the world.


The second crisis continues to be the war of words between Russia and the Ukraine/West.  Russia stated today that any threat by NATO with respect to the Ukraine will be meet with a swift military response.  This is something that we did not want to hear. Also on Friday night, the Russian Parliamentary opposition leader was murdered.


As I pointed out to you on the weekend, the Ukraine is experiencing hyperinflation to no end.  Food has disappeared from shelves.  The country has about 2.5 weeks of liquid reserves left before they run out.


The third hot spot is the failure of the 6th largest bank in Austria (Hypo Bank). A few days ago, they were given a clean bill of health and these guys were rated AAA.  Today they halted payment of 8 billion euros of debt and they will enter shortly into a default position. In previous debt defaults, we had a bail out or a taxpayer funded rescue leaving senior bond holders and depositors completely whole.  We will now witness the new modus operandi of rescues:  bail ins where the bond holders and the depositors get hosed.  Due to the fact that the liability on the balance sheet of Hypo is some bank’s assets, I can assure you we will have massive contagion coupled with a sprinkling of credit default losses. Not only that but depositors who are paying money to deposit at these banks will suddenly realize that they are nuts to keep their money there.


We have many stories on these three fronts for you tonight as well as other important topics.






And now for gold/silver trading today.


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



Following is a brief outline on gold and silver comex figures for today:



The gold comex today had a poor delivery day, registering 0 notices served for nil oz.  Silver comex registered 141 notices for 705,000 oz .


Three months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 258.83 tonnes for a loss of 44 tonnes over that period.


In silver, the open interest rose by 14 contracts as Friday’s silver price was down by 7 cents. The total silver OI continues still remains relatively high with today’s reading at 160,392 contracts. The front month of March contracted by 1603 contracts.

We had 141 notices served upon for 705,000 oz.


In gold we had a good rise in OI as gold was up by $3.00 on Friday. The total comex gold OI rests tonight at 401,689 for a gain of 4,782 contracts. Today, surprisingly we again had 0 notices served upon for nil oz.




Today,  we had a huge withdrawal of 7.76 tonnes of gold inventory at the GLD/Inventory now at 763.49  tonnes



In silver, /SLV  we had no changes in inventory to the SLV/Inventory 325.734 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



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 by 4,782 contracts today from  396,927 up to 401,689 as gold was up by $3.00 on Friday (at the comex close). We are now in the contract month of March which saw it’s OI rise by 29 contracts up to 202. We had 0 notices filed on Friday so we gained 29 contracts or an additional 2900 oz will stand for delivery in March. The next big active delivery month is April and here the OI rose by 1,824 contracts up to 259,681. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 82,602. The confirmed volume on Friday ( which includes the volume during regular business hours  + access market sales the previous day) was poor at 123,142 contracts even  with mucho help from the HFT boys. Today we had 0 notices filed for nil oz.

And now for the wild silver comex results.  Silver OI rose by 14 contracts from 160,378 up to 160,392 with silver down by 7 cents with respect to Friday’s trading. We are now in the active contract month of March and here the OI fell by a larger than expected 1,603 contracts down to 1,539. We had 1,252 contracts served on Friday. Thus we lost 351 contracts or 1,755,000 oz will not stand.  The estimated volume today was poor 15,018 contracts  (just comex sales during regular business hours. The confirmed volume on Friday was fair (regular plus access market) at 32,673 contracts. We had 141 notices filed for 705,000 oz today.

March initial standings


March 2.2015



Withdrawals from Dealers Inventory in oz nil oz
Withdrawals from Customer Inventory in oz   16,107.65  501 kilobars (Manfra, HSBC)
Deposits to the Dealer Inventory in oz nil
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)  202 contracts (20,200 oz)
Total monthly oz gold served (contracts) so far this month 0 contracts(nil oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month

Total accumulative withdrawal of gold from the Customer inventory this month

 16,590.00 oz

Today, we had 0 dealer transactions

we had 0 dealer withdrawals:

total dealer withdrawal: nil oz



we had 0 dealer deposits:




we had 2 customer withdrawals

i) Out of Manfra:  1 kilobar or 32.15 oz

ii) Out of HSBC: 16,075.500 oz (500 kilobars)


total customer withdrawal: 16,107.65 oz (501 kilobars)



we had 0 customer deposits:



total customer deposits;  nil  oz


We had 0 adjustment






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 March contract month, we take the total number of notices filed so far for the month (o) x 100 oz  or  0 oz , to which we add the difference between the open interest for the front month of March (202) and the number of notices served upon today (0) x 100 oz equals the number of ounces standing.


Thus the initial standings for gold for the March contract month:


No of notices served so far (0) x 100 oz  or ounces + {OI for the front month (202) – the number of  notices served upon today (0) x 100 oz} =  20,200 oz or .628 tonnes



Total dealer inventory: 814,895.586 oz or 25.34 tonnes

Total gold inventory (dealer and customer) = 8.321 million oz. (258.83) tonnes)


Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 44 tonnes have been net transferred out. However I believe that the gold that enters the gold comex is not real.  I cannot see continual additions of strictly kilobars.







And now for silver


March silver initial standings

March 2 2015:



Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 282,499.65 (CNT,Delaware, HSBC,Scotia)  oz
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory  550,205.000????  oz ( Scotia)
No of oz served (contracts) 141 contracts  (750,000 oz)
No of oz to be served (notices) 1398 contracts (6,990,000)
Total monthly oz silver served (contracts) 1393 contracts (6,265,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal  of silver from the Customer inventory this month  282,499.65 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit: nil   oz


we had 0 dealer withdrawal:

total dealer withdrawal: nil oz


We had 1 customer deposit:


i) Into Scotia:  550,205.000 EXACT ounces!!!  (how can this be possible on a continuous basis????)


total customer deposit: 550,205.000 oz


We had 4 customer withdrawals:

i) Out of CNT:  90,496.258 oz

ii) Out of Delaware: 20,893.362 oz

iii) Out of HSBC: 30,374.820 oz

iv) Out of Scotia: 140,645.235 oz


total customer withdrawal: 282,499.65  oz


we had 0 adjustment



Total dealer inventory: 68.811 million oz

Total of all silver inventory (dealer and customer) 177.162 million oz


The total number of notices filed today is represented by 141 contracts for 750,000 oz. To calculate the number of silver ounces that will stand for delivery in March, we take the total number of notices filed for the month so far at (1393) x 5,000 oz    = 6,965,000 oz to which we add the difference between the open interest for the front month of March (1398) and the number of notices served upon today (141) x 5000 oz  equals the number of ounces standing.


Thus the initial standings for silver for the March contract month:

1393 (notices served so far) + { OI for front month of March (1298) -number of notices served upon today (141} x 5000 oz =  13,955,000 oz standing for the March contract month.


we lost 351 contracts or 1,755,000 oz will not stand for delivery in March.



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





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

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

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

i) demand from paper gold shareholders

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

vs no sellers of GLD paper.




And now the Gold inventory at the GLD:


March 2  we had 7.76 tonnes of withdrawal from the GLD today and this physical gold landed in Shanghai/Inventory 763.49 tonnes


feb 27.2015 no change in gold inventory at the GLD/Inventory at 771.25 tonnes



Feb 26. no change in gold inventory at the GLD/Inventory at 771.25 tonnes

Feb 25. no change in gold inventory at the GLD/Inventory at 771.25 tonnes


Feb 24.2015: no change in gold inventory at the GLD/Inventory at 771.25 tonnes


Feb 23.2015: no change in gold inventory at the GLD/Inventory at 771.25 tonnes



Feb 20/we had another good addition of 1.79 tonnes of gold into the GLD.  Inventory 771.25 tonnes


Feb 19/ a huge addition of 1.5 tonnes of gold into the GLD/Inventory 769.46


Feb 18/ a small withdrawal of .3 tonnes/no doubt to pay for fees/Inventory 767.96 tonnes


Feb 17/no changes in gold inventory at the GLD/Inventory 768.26 tonnes







March 2/2015 / we had a huge withdrawal of 7.76 tonnes of gold inventory at the GLD/ no doubt we had physical gold leaves London’s shores and head over to Shanghai.

inventory: 763.49 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 : 763.49 tonnes.






And now for silver (SLV):


March 2/ no change in silver inventory tonight; 725.734 million oz



Feb 27.2015 no change in silver inventory tonight: 725.734 million oz



Feb 26. no change in silver inventory at the SLV/Inventory at 725.734 million oz



Feb 25. no changes in silver inventory/SLV inventory at 725.734 million oz

Feb 24.we had an addition of 1.435 million oz of silver to the SLV/SLV inventory at 725.734 million oz


Feb 23 no change in silver inventory/324.299 million oz

Feb 20 no change in silver inventory/324.299 million oz


Fen 19/ we had a huge addition of 4.082 million oz of silver into the SLV/Inventory 324.299 million oz



Feb 18.2015/ no change in silver inventory at the SLV/Inventory at 320.327 million oz


Feb 17 no changes in silver inventory at the SLV/Inventory at 320.327 million oz





March 2/2015   no changes/SLV inventory registers: 325.734 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  7.2% percent to NAV in usa funds and Negative 7.1% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.4%

Percentage of fund in silver:38.2%

cash .4%


( March 2/2015)


Sprott gold fund finally rising in NAV


Sprott NAV not available at press time/I will adjust later tonight.


2. Sprott silver fund (PSLV): Premium to NAV falls to + 3.07%!!!!! NAV (March 2/2015)

3. Sprott gold fund (PHYS): premium to NAV falls to +.25% to NAV(March 2  /2015)

Note: Sprott silver trust back  into positive territory at +3.07%.

Sprott physical gold trust is back into positive territory at +.25%

Central fund of Canada’s is still in jail.





And now for the important paper stories for today:



Early Monday morning trading from Europe/Asia



1. Stocks mixed on major Asian bourses  / the  yen falls  to 119.77

1b Chinese yuan vs USA dollar/ yuan weakens  to 6.2727
2 Nikkei up 28.94 or 0.15%

3. Europe stocks mixed  // USA dollar index down to 95.14/

3b Japan 10 year yield huge fall to .35%/ (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.77/everybody watching the huge support levels of 117.20 and that level acting as a catapult for the markets.

3c Nikkei now  above 17,000/

3e The USA/Yen rate still  below the 120 barrier this morning/
3fOil: WTI 48.89 Brent: 61.41 /all eyes are focusing on oil prices. This should cause major defaults as derivatives blow up.

3g/ Gold up /yen down;

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

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

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

3j Oil down this morning for  WTI  and Brent

3k  European PMI data weaker than the initial flash report/sends European stocks lower


3l  Greek 10 year bond yield :9.53% (up 10 basis points in yield)

3m Gold at $1216.50. dollars/ Silver: $16.65

3n USA vs Russian rouble:  ( Russian rouble  down 3/4 per rouble / dollar in value)  62.18!!!!!!.

3 0  oil  into the 48 dollar handle for WTI and 61 handle for Brent

3p  CHINA CUTS ITS INTEREST RATE by 25 basis points being the 21st country to do so (see below)

3Q  SNB (Swiss National Bank) still intervening again driving down the SF/window dressing/Swiss rumours of intervention to keep the  soft peg at 1.05 Swiss Francs/euro and major support for the Euro.

3r  USA justice department investigating 10 major USA banks in the manipulation of gold and silver pricing

3s the rate cut from China fails to inspire bourses!

3t  India expected to increase gold imports/gold gets boost from the Chinese rate cut.

4. USA 10 yr treasury bond at 2.01% early this morning. Thirty year rate well below 3%  (2.60%!!!!)/yield curve flattens/foreshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid



Market Wrap: Futures Unchanged Despite Latest Chinese Rate Cut


With key economic data either behind us (with the downward revised GDP), or ahead of us (the February payrolls on deck), and the Greek situation currently shelved if only for a few days/weeks until the IMF payment comes due and the farce begins anew, stocks are focuing on the widely telegraphed 25 bps Chinese rate cut over the weekend, which however has so far failed to inspire a broad based rally either in Asia (where the SHCOMP closed up 0.8% after first dipping in the red) or across developed markets. In fact, as of this moment futures are hugging the unchanged line as the USDJPY attempted another breakout of 120.000 but with numerous option barrier expiration stop at that level, it has since retracted all the overnight gains and is back to the Sundey lows, even as the EURUSD has seen a powerful breakout from overnight lows and is currently at the highest level since the US GDP print, following the release of the final European February PMI data, as a result of USD weakness since the European open.

Look at regional performance, Asian equities traded mostly higher as the PBoC cut its benchmark interest rate. The bank lowered its benchmark interest rate by 25bps to 5.35%, citing deflationary risk and the property market slowdown. It also lowered the 1yr deposit rate to 2.5% and lifted the ceiling on the deposit rate to 1.3x the benchmark rate. Shanghai Comp (+0.8%) and Hang Seng (+0.3%) traded in the green, despite fluctuating between losses and gains, following an initial pessimistic reaction to the central banks’ actions. Nikkei 225 (+0.15%) traded on a caution note, paring back earlier gains following yet another surge to a fresh 15yr high. Chinese HSBC Manufacturing PMI (Feb F) M/M 50.7 vs. Exp. 50.1 (Prev. 50.1); 7-month high. Official Manufacturing PMI (Feb) M/M 49.9 vs. Exp. 49.7 (Prev. 49.8); second consecutive contraction. Chinese Non-manufacturing PMI (Feb) M/M 53.9 vs. Prev. 53.7 (BBG).

The first session of the week sees European equities trade mostly in positive territory in the aftermath of the latest action by the PBoC. This subsequently supported Asian equities overnight, although gains were capped as some participants have concerns over Chinese growth prospects and the timing of the cut, suggesting it may have come too late. Nonetheless, with European news flow relatively light, this has been enough to provide a lift to stocks, with the exception of the CAC which has been dragged lower following earnings from Vivendi. In fixed income markets, Bunds ebbed lower alongside the strength in stocks. Of note, today sees EUR 12.4bln in redemptions from Italy,while peripheral yields have continued to print further record lows ahead of the upcoming launch of the ECB’s bond buying programme.

Also today we got the final Euro area Manufacturing PMI, which came in at 51.0 in February, marginally weaker than the flash estimate. Overall, the area-wide Manufacturing PMI has been stable in February. Improvements in the Manufacturing PMIs for Germany and Italy — which increased by 0.2pt (to 51.1) and 2.0pt (to 51.9) respectively — were offset by similar-sized contractions in France (-1.6pt to 47.6) and Spain (-0.6pt to 54.2). While the Italian manufacturing PMI came in 0.8pt above market expectations, the Spanish equivalent undershot expectations by 0.9pt.


In the US, some are focusing on the latest piece by Fed mouthpiece Jon Hilsenrath, who says the Fed’s latest forecast show 9 out of 17 policy makers see the Feds fund rate at 1.13% or higher by year-end. The median estimates point to 2.5% for the end-2016 and 3.63% end-2017. Conversely, Fed funds futures markets expect the Feds fund rate at 0.50% on avg. in Dec’15, 1.35% in Dec’16 and 1.84% Dec’17.

Today we get US personal spending (1330GMT/0730CST) and construction data (1500GMT/0900CST) although these may be delayed today due to the adverse weather in Washington DC.

In FX markets, AUD/USD and NZD/USD were both seen lower overnight ahead of Tuesday’s RBA rate decision, with markets currently pricing in a 58% chance for a 25bps rate cut. This subsequently initially strengthened the USD-index which saw USD/JPY surge to a 2-week high to trade just 4 pips shy of the 120.00 handle, with further moves higher capped by a large vanilla option expiry (1.2bln) at the handle. Nonetheless, the USD-index has come off its best levels throughout the morning amid no new fundamental news, much to the benefit of EUR, leading EUR/GBP higher, although GBP gained back some ground in the wake of the latest UK manufacturing PMI data (54.1 vs. Exp. 53.3).

In the commodity complex, Gold gained overnight with prices supported following the surprise PBoC rate cut over the weekend, while India is also expected to increase its imports of the precious metal despite the government maintaining import duties, as industry participants which were side-lined in anticipation of a cut in duties, return to the market to replenish stockpiles. In energy markets, both WTI and Brent crude futures have traded lower since the get-go following the latest survey data which revealed Saudi Arabia’s output rose +130,000bpd to 9.85mln bpd in Feb; highest since Sept’13. Furthermore, Friday’s Baker Hughes Rig Count which showed a slowing of the rate at which US rigs are becoming idle has also weighed on sentiment.

In summary: European shares little changed with the basic resources and real estate sectors outperforming and health care, food & beverage underperforming. Dollar rises to two-year high vs yuan after China’s second rate cut in 14 weeks. China Feb. HSBC manufacturing PMI above estimates, Euro-area PMI slightly below. Mobile World Congress takes place in Barcelona. The Italian and Dutch markets are the best-performing larger bourses, French the worst. The euro is little changed against the dollar. Japanese 10yr bond yields rise; Portuguese yields decline. Commodities decline, with natural gas, WTI crude underperforming and wheat outperforming.* U.S. Markit U.S. manufacturing PMI, ISM manufacturing, construction spending, personal income, personal spending, due later.

On today’s docket, we get the release of US personal income, PCE, manufacturing PMI, construction spending and ISM manufacturing.

Market Wrap:

  • S&P 500 futures up 0.1% to 2105.8
  • Stoxx 600 up 0.1% to 392.4
  • US 10Yr yield up 2bps to 2.01%
  • German 10Yr yield up 1bps to 0.34%
  • MSCI Asia Pacific down 0.1% to 146.1
  • Gold spot up 0.2% to $1215.8/oz
  • 66.3% of Stoxx 600 members gain, 31.3% decline
  • Eurostoxx 50 +0.1%, FTSE 100 +0.3%, CAC 40 -0.2%, DAX +0.2%, IBEX +0.3%, FTSEMIB +0.6%, SMI -0.2%
  • Asian stocks little changed with the Shanghai Composite outperforming and the Sensex underperforming.
  • MSCI Asia Pacific down 0.1% to 146.1
  • Nikkei 225 up 0.2%, Hang Seng up 0.3%, Kospi up 0.6%, Shanghai Composite up 0.8%, ASX up 0.5%, Sensex up 0%
  • Euro up 0.01% to $1.1197
  • Dollar Index up 0.03% to 95.32
  • Italian 10Yr yield down 3bps to 1.3%
  • Spanish 10Yr yield up 3bps to 1.29%
  • French 10Yr yield up 0bps to 0.61%
  • S&P GSCI Index down 0.4% to 419.4
  • Brent Futures down 0.9% to $62/bbl, WTI Futures down 1.3% to $49.1/bbl
  • LME 3m Copper up 0.1% to $5903/MT
  • LME 3m Nickel down 0.8% to $13980/MT
  • Wheat futures up 0.7% to 516.5 USd/bu

Bulletin Headline Summary from Bloomberg and RanSquawk:

  • The PBoC cut its benchmark and deposit rates by 25bps each, sending Asian equities higher, although gains were capped as some participants voice concerns over Chinese growth prospects and the timing of the cut
  • Fed Watcher Hilsenrath suggests there is a disconnect between when the Fed and market expects the FOMC to hike rates, with the Fed seeing rates at 1.13% on avg. by end of 2015 while markets forecast 0.5%
  • Treasuries decline, 10Y holds near 2.00% before personal income/spending and PCE reports and amid expectations for heavy IG corporate calender this week.
  • The January reading of the Fed’s preferred inflation measure is likely to be weighed down by a one-time drop in medical care costs, sending a potentially false signal of disinflation that policy makers will probably ignore
  • PBOC cut benchmark rates for 2nd time in 3 months, lowering one-year deposit rate 25bps to 2.5%, one-year lending rate to 5.35% as property slump, tighter controls over local government debt and rising capital outflows squeeze growth and liquidity
  • Euro-area consumer prices fell less than forecast last month, offering some relief to the ECB  as it prepares to put its unprecedented bond-buying program into action
  • Markit’s U.K. PMI rose to 54.1 in Feb, the highest in seven months, from a revised 53.1 in January, median est. for 53.3 in a Bloomberg survey; euro zone PMI 51 last month, unchanged from Jan.
  • The Supreme Court is poised to consider a new challenge to Obamacare — an appeal that has turned a question of how to interpret the statute into a threat to unravel the law; court to hear arguments on March 4, rule by end of June
  • Sovereign 10Y yields mostly lower. Asian, European stocks stocks higher; U.S. equity-index futures rise. Crude lower; gold and copper higher


DB’s Jim Reid concludes the overnight summary:



So we march forward towards a busy week which includes the first February estimate for Euro CPI, various global PMIs, an ECB meeting, the China National People’s Congress meeting and payrolls. At the end we’ll review February and YTD performance in our usual global asset class review. March has started with a small beat for the China manufacturing PMI (a still soft 49.9 vs. 49.7 expected) but we also have a weekend rate cut to mull over. In terms of the details, the PBOC cut the benchmark deposit rate by 25bps to 2.5% and the one-year lending rate by the same amount to 5.35%, whilst also raising the deposit-rate ceiling to 1.3x from 1.2x. Our China economist Zhiwei Zhang noted that the move was driven by weak economic momentum and falling CPI mainly. He believes that the move probably highlights what will be soft macro prints for the upcoming January and February readings also. Zhiwei also suggests that although the move was in line with his expectations, it’s probably not enough to stabilize the economy and he continues to expect growth to weaken in March (forecasting Q1 GDP of 6.8%). Given the slow policy response and a lack of a meaningful pickup in fiscal spending a softlanding remains a base case, but Zhiwei believes there are rising risks of a mini hard-landing.

Following the China news over the weekend, the Shanghai Comp is +0.31% firmer as we go to print whilst the Nikkei (+0.22%), Kospi (+0.56%), Hang Seng (+0.26%) and ASX (+0.51%) are all higher on the back of the move. Credit markets in China meanwhile are around half a point tighter generally.

Also this morning we’ve published a quick note showing that February set a new record in the Euro iBoxx non-financial corporate bond market. We’ve now seen 14 consecutive months of positive total returns beating the run between Nov ’08 – Nov ’09. For overall corporates (non-fins and fins) February extends its record sequence (again 14) with the previous best being the 10 months from Jun 2000 to Mar 2001. The return on Bunds have been a much bigger component of this run vs. the previous record and with the ECB about to embark on sovereign bond purchases this month we think the pressure to own credit will intensify in an attempt to boost yield. However as iBoxx EUR index yields are now comfortably below 1% for the first time in history it’s seems inevitable that there will finally be some negative total return months ahead. Indeed the effective benchmark Government yield for the iBoxx EUR indices has now gone negative for the first time for both these indices. A remarkable stat. Indeed all-in yields are now so low that for the main broad EUR iBoxx credit indices a move of as little as 1.5-2bps higher in a month will see a negative total return.

We think the market will face a test if and when we get the negative total return month or perhaps two or three within a short space of time. With the lower and lower starting yields the probability of this occurring gets higher and higher. Will flows fall in IG (inflows in 45 out of last 49 weeks) when it sees negative monthly total returns or will it be seen as an opportunity to get higher exposure to a market at a better price? Overall with QE about to start, the shortage of high quality paper will likely continue to keep yields generally low for some time. However with the yield in EUR iBoxx IG indices now completely made up of spread it’s fair to say that we’re more comfortable with further spread compression from this starting point than performance arising from continually lower Government yields. While we’re still positive on European credit spreads for reasons laid out in our 2015 annual ‚Plate Spinning?, we will be watching investor behaviour and flows with interest when we see the inevitable negative total return months arrive. The report should be in your inbox within the last hour. Let us know if you didn’t receive it.

Recapping the market moves on Friday, with much of the focus on what was generally a mixed set of macro data releases, the S&P 500 finished -0.30% for its third consecutive day of declines. It was a firmer day for Treasuries however as 2y and 10y yields fell 2.8bps and 3.7bps respectively – the latter back below 2% at 1.993%. In terms of the data, much of the focus was on the revision to Q4 GDP which was revised 40bps down to 2.2% saar, although beating expectations of 2.0% – supported in particular by a pick-up in business investment (+4.5% saar vs. +2.3% previously). Elsewhere, the February Chicago PMI was a notable miss (45.8 vs. 58.0 expected) and down from 59.4 in January. The reading was in fact the lowest since September 2009 and also the largest downside miss versus estimates since data was collected although the suggestions are that weather played a large part. Elsewhere, the ISM Milwaukee (50.32 vs. 54.00 expected) and pending home sales (+6.5% yoy vs. +8.7% expected) also came in below consensus however the final February University of Michigan consumer sentiment reading was revised upwards to 95.4 from 93.6 previously. Fedspeak offered something for both the doves and the hawks. The NY Fed’s Dudley in particular was noted as saying that the risks of hiking rates ‘a bit early are higher than the risks of lifting off a bit late’ in comments on Reuters. On the other hand the Fed’s Fisher said that whilst there is no emphasis for June over September with regards to a move he noted that these two months get the main weight of probabilities. Meanwhile over the weekend the San Francisco Fed President Williams was quoted in the WSJ reiterating similar upbeat comments around the US and also said that he believes the unemployment rate will likely fall from 5.7% to 5.0% by the end of the year – consistent with full employment.

It was a better day for oil markets on Friday as WTI (+3.30%) and Brent (+4.21%) both closed higher – supported by the latest Baker Hughes rig count which saw the number of operating rigs falling 43 to 1,267 last week. As we mention later in the performance review, the +16% February return for Brent was in fact the first positive return month since June last year and the single largest monthly return since May 2009.

Before all this in Europe, bourses closed firmer across the region with the Stoxx 600 (+0.39%), DAX (+0.66%) and CAC (+0.83%) all finishing higher. Peripheral bond markets also firmed with 10y yields 1-5bps tighter generally. Similar maturity Bunds weakened however, closing 3.1bps wider at 0.326%. It was all eyes on the data in Europe. German inflation was the main focus for markets with the annualized print coming in firmer than expected at +0.1% yoy vs. (-0.3% expected), with the dip into deflation lasting only one month. The stronger print was evident in the monthly figure which rose +0.9% mom in February and was the largest positive monthly move since December 2004. Our colleagues in Europe noted that although a bounce back in energy and food prices helped, a recovery in core inflation was the most important contributor. They do however warn that inflation will likely stay near 0% over the next few months given the influence of energy prices and don’t rule out another temporary dip into deflation. Back to data, French consumer spending (+2.6% yoy vs. +1.8% expected) surprised to the upside whilst Italy CPI (-0.2% yoy -0.5% expected) and the German import price index (-4.4% vs. -4.6% expected) also helped support the better tone.

Just wrapping up the weekend’s news, the FT reported yesterday that Eurogroup Chairman Dijsselbloem was quoted as saying that Europe is prepared to make a first disbursement of the €7.2bn remaining in the Greece’s bailout as early as this month, but only if the two sides can agree upon reforms quickly. The comments highlight the uncertain funding position that Greece now finds itself in with conflicting reports that the government will run out of cash sometime this month. Meanwhile, in an article with German press Bild over the weekend, German finance minister Schaeuble also appeared to offer a somewhat softer stance relative to previous views saying that the current Greek government needs time but is committed to implementing the necessary reforms. Despite reiterating that Greece will not receive any aid payments until demonstrating that it meets the pledges of the bailout programme, Schaeuble said that ‘I am confident that it will put in place the necessary measures, set up a more efficient tax system and in the end honor its commitments’.

Taking a look at the week ahead, it’s a busy calendar in Europe this morning highlighted by the February advanced CPI reading for the Euro-area. As well as this, we’ve got unemployment due for the region and the final manufacturing PMI print for February. Regionally, we’ve also got the manufacturing PMI’s due in Germany, France and Italy whilst closer to home in the UK money supply and consumer credit prints will be of interest. It’s no less quiet over in the US this afternoon with the PCE deflator due along with the final manufacturing PMI print for February, construction spending and ISM manufacturing and prices paid. Turning to Tuesday, cash earnings data in Japan will be of interest in the Asia timezone before we get German retail sales, Euro-area PPI and the construction PMI for the UK. In the US on Tuesday we’ve got the ISM NY, IBD/TIPP economic optimism reading for March and vehicle sales for February to keep an eye on. We kick off Wednesday in Asia with services and composite PMI prints in China and Japan. The final services and composite PMI prints will also be the attention of the market in Europe on Wednesday when we get the February prints for the Euro-area, Germany and France as well as advanced readings in Italy and the UK. Retail sales for the Euro-area will also be of focus. Over in the US, the ADP employment print will be important particularly ahead of the payrolls reading later in the week. As well as this, the composite and services PMI’s, ISM non-manufacturing and Fed’s Beige Book will also be of focus. Turning to Thursday, we’ve got the ECB and BoE meetings to look forward to. It’ll be interesting to see if we hear of any updates on the collateral waiver for Greek bank funding in particular at the ECB. Before this in China we’ve got the annual meeting of the National People’s Congress where we may well see the government cut the growth target for the year. In the US on Thursday we’ve got nonfarm productivity, jobless claims and factory orders due. We round off the weak in Europe on Friday with Q4 GDP data out of the Euro-area with the market looking for a +0.9% yoy reading. As well as this, industrial production out of Germany will be worth keeping an eye on. The focus in the US will of course be on the February payrolls print with our US colleagues looking for a 250k print vs. a current 257k 12-month average. We also get the usual employment data that comes with payrolls as well as consumer credit.





The surprise Chinese rate cut of 25 basis points.  The Chinese economy is slowing down, so the rate cut is very necessary.  Gold welcomed the news:


(courtesy zero hedge)




China Cuts Interest Rates, Takes Number Of Central Banks Easing In 2015 To 21



And then there were 21.

Hours ago on Saturday, the country whose currency is largely pegged to the dollar which itself is now anticipating a rate hike in the coming months, surprised the world by confirming its economic slowdown yet again following a recent rate cut just this past November when it lowered its benchmark rate by 40 bps, after it again cut benchmark lending and deposit rates by 25 bps starting on March 1. Specifically, the PBOC will lower the one-year lending rate to 5.35% from 5.6% and its one-year deposit rate to 2.5% from 2.75%. It also said it would raise the maximum interest rate on bank deposits to 130% of the benchmark rate from 120%.

From the PBOC announcement:

People’s Bank of China decided to cut financial institutions RMB benchmark lending and deposit interest rates since March 1, 2015. The one-year benchmark lending rate by 0.25 percentage point to 5.35%; year benchmark deposit rate by 0.25 percentage points to 2.5%, while the combination of market-oriented reforms to promote the interest rate, the upper limit of the floating range of interest rates on deposits of financial institutions by the deposit base 1.2 times to 1.3 times the interest rate adjustment; adjusted lending rates and individual housing provident fund deposit and other deposit and lending rates.

As the WSJ notes, “the latest move took place just as China’s legislature, the National People’s Congress, prepared to gather Thursday for its annual meeting. The gathering is usually when China unveils its economic growth target for the year. Last year’s growth of 7.4% came in just below the 2014 target of about 7.5%. It was the lowest growth rate in nearly a quarter century.”

However, just so the rate cut is not seen as being, well, a rate cut and an easing shift to China’s monetary policy especially considering that the November rate cut did absolutely nothing to boost China’s all important housing market, the PBOC was quick to note that the second rate cut in 4 months is “to keep real interest rates at level to adapt to economic growth, prices, employment trends, and does not represent a sound monetary policy changes. China’s economic development has entered a new normal, and development conditions and development environments are changing, and its core is to change the way of economic development and economic structure.”

In other words, when is a rate cut not a rate cut? When it’s in China. The PBOC also provided the following stock announcement explaining what happens next:

Next, we will continue to follow the CPC Central Committee and the State Council, the strategic plan, adhere to the general tone of the work while maintaining stability and macroeconomic policy should be steady, micro policies to live the general idea, more actively adapt to the economic development of the new normal, the transfer and adjustment structure in a more important position, maintain the continuity and stability of policy and continue to implement a prudent monetary policy, pay more attention to an appropriate degree, comprehensive use of various monetary policy tools, timely and appropriate fine-tuning for the adjustment of economic structure and the transformation and upgrading Moderate to create a neutral monetary and financial environment, and promote economic science and sustainable development. At the same time, more focus on innovation, blending in regulatory reform among the tight monetary policy combined with the deepening of reform, timely for businesses and individuals through the introduction of certificates of deposit, etc., continue to expand the financial institution independent pricing space, orderly interest rate reform and further improve the rate-control system, improve the interest rate transmission mechanism and constantly enhance the ability of the central bank interest rate regulation and macro-control effectiveness.

Said otherwise, a whole lot of reform promises. Kinda like Greece. Of course, what is not said is that as long as the Fed keeps threatening to and eventually actually hiking rates, not to mention the global economic contraction persists, China will have no choice but to engage in non-monetary, non-policy rate cuts for the indefinite future.

Here is Goldman’s recap of what China did:

The People’s Bank of China (PBOC) announced that benchmark lending and deposit rates will both be cut by 25 bps, effective from March 1. In addition, the deposit rate ceiling will be raised from 1.2 times to 1.3 times the benchmark interest rates, which effectively lowers the maximum deposit rate by 5 bp from 3.3% pa to 3.25% pa.


Economic growth is widely viewed as weak in early 2015, despite modestly better HSBC flash PMI data for February. The official PMI data to be released tomorrow (which should be known to senior government officials at this point and may well have remained below 50) might have been one factor behind the decision to cut now. The central bank also has a tendency not to take major policy actions during the CPPCC and NPC, which will start on March 3 and close on March 15. Waiting until after those events would have then implied more than two full weeks of delay.


The decision to cut benchmark interest rates again has been widely expected by the market (including us). There was also some speculation that the deposit rate ceiling would be increased. While the raise in the ceiling did come about, we believe a larger cut to the benchmark deposit rate arguably would have been more desirable as it could help lower funding costs more broadly in the economy. The increase in deposit rate ceiling is also a small further step towards interest rate liberalization. The cut to the benchmark lending rate is also smaller than the last cut in November (40 bps). This may make some observers view the move as cautious.


We expect further policy loosening in the coming months. The next move is likely to be a RRR cut, likely in 2Q, but a cut towards the end of 1Q cannot be ruled out (RRR cut is also a tool of liquidity management). Further benchmark interest rate cuts are also possible. The government is also loosening other policies such as allowing the exchange rate to depreciate modestly against the USD and stepping up infrastructure investments. These measures will likely provide some support for short-term growth, though the cautious nature of the measures so far may raise some questions in terms of whether the economy will experience a rebound as significant as the one seen in Q2 2014.

In conclusion, expect markets to soar even more on Monday while China continues to stealthily devalue the Renminbi in order to fight a housing market collapse that is now worse than what the US experienced after Lehman failed.

* * *






Bank runs continue in Greece despite the “deal”.  JPMorgan now highlights that they may have lost another 10 billion euros from last month and its level is now 140 billion euros.  Greece’s total banking loans is around 190 billion euros of which 40% are non performing (approx. 76 billion).  No wonder the reports that the banks have run out of money


(courtesy zero hedge)



As Greece Scrambles To End Its Bank Run, JPM Throws A Wrench: Says Deposit Outflows Continued After “Deal”


Now that Greece and the Eurogroup are back on the same page and “cooperating” to use a game theory term, and any attempts of Eurozone “defection”, pardon the pun, by the Syrizia government have been postponed until the 4 month bailout extension runs out in June when the entire charade is set to repeat, it is critical for Greece to undo the mess that the Troika did when heading into the mid-February negotiations, the ECB did everything in its power to foment a massive bank run by spooking both banks and citizens that their funds may be Corzined, or otherwise capital controlled, thereby crushing any negotiation leverage the Tsipras government may have (just as we had laid out previously).

What we do know, is that it didn’t take much, and sure enough in the month of January, Greek banks suffered the biggest deposit outflow in both absolute and relative terms in Greek history.


One can only guess how bad it must have gotten in February, when rumors of €1 billion daily outflows were a daily occurence, and when even the likes of Stratfor reported (incorrectly as per official denials) that one of the largest Greek banks, Piraeus had run out of cash into month end.

As a result, everyone in Greece is now in full-blown confidence rebuilding mode in a desperate attempt to restore some of the deposit outflows, which have pushed total Greek deposits back to 2005 levels, even though nothing has been resolved vis-a-vis long-term Greek sustainability. As the WSJ reported late last week, “according to one senior banking official, more than €800 million ($905 million) in deposits have been put back into the Greek banking system since Monday when Greece’s banks were closed for a public holiday. “We saw €700 million return on the first day and another €150 million yesterday,” the banking official, speaking on the sidelines of central bank conference, told journalists. “Things are going well.”

Maybe, or maybe this is just yet another attempt to play off the public mood, because while as recently as 2 weeks ago the western media was desperate to see lines in front of Greek ATMs to accelerate the Greek government’s folding to the Troika’s demand (which ultimately happened), now it is just trying to talk back some of these destructive, confidence-crushing innuendos.

To be sure, the WSJ noted as much: “But, in fact, the money that has dribbled back since last Friday’s deal, pales in comparison with the amount withdrawn in the past three months, say analysts, and it will take several months of inflows to confirm that the trend is here to stay. And, if past experience serves as precedent, many of the deposits that have left, may never come back.”

“These figures are a good starting point but a reversal of this trend will take a few more quarters to appear,” said Nikos Magginas, a senior economist of National Bank of Greece . “People are waiting for more signs of stability, such as the successful review of the country’s reforms program. Two to three more supportive events are needed to secure this stability but this takes time.”

There is an even less pleasant possibility: namely that Greek bankers and media outlets, knowing just how close they are to total collapse if the deposit outflow continues, which itself is a function of confidence in the local financial system (or lack thereof),  even as the ECB refuses to grant Greece any further funding, are simply lying.

This is the possibility articulated, in more politically correct phrasing of course, by JPM’s Nikolaos Panigirtzoglou, in his latest “Flows and Liquidity” piece:

Our daily proxy of deposit outflows based on the purchases of offshore money market funds by Greek citizens, which is one way for Greek citizens to deploy their withdrawn deposits, was €64m this week (Mon to Thu), sharply lower than the €153m during the previous week (between Feb 13th and Feb 20th), €104m during the week between Fed 6th and Feb 13th, and €62m between Jan 30th and Feb 6th. While it is encouraging that the latest Eurogroup agreement with the Greek government caused a sharp decline in deposit outflows this week, our deposit outflow proxy suggests that Greek banks have not stopped bleeding. This is inconsistent with the statement by the Greek finance minister that €700m returned to Greek banks after Eurogroup’s deal.

So yet another accusation, as diplomatic as it may have been phrased, that Varoufakis lied. There seems to be quite a few of those lately…

Of course, maybe Varoufakis did not lie: he simply forgot to let the European Commission check the math (they seem to do a good job of at least converting his doc files to pdfs).

It is possible that the rise in retail deposits referred to by the Greek finance minister included the month-end payment of pensions which typically results in a transfer of bank deposits from government organizations to households.

So what does the math come out to?

What do the above offshore money market fund purchases imply about Greek bank deposit outflows? The rule of thumb we used before based on December flows was that each €100m of purchases of offshore money market funds are associated with around €3bn of deposit outflows. January data point to a somewhat lower ratio with €562m of offshore money fund purchases corresponding to €12bn of deposit outflows. Applying January’s proportionality to February, we calculate that the €292m of purchases of offshore money market funds in February were associated with bank deposit outflows of around €6bn. This week’s €64m of purchases of offshore money funds mechanically point to deposit outflows of around €1bn.

In other words, if JPM is correct, not only did the January outflows not cease in February, but what’s even worse, is that in the last week of the month, when after the “deal”, people would feel confident enough to return to their banks, another €1 billion of deposits were withdrawn. In total, this means that Greek deposits will have fallen to just about €140 billion as of today – the lowest level since March of 2005.

Worse, assuming an NPL ratio of around 40%…

… the continued deposit flight suggests that Greek banks indeed have at most a few days of cash left, and the Cyprus “blueprint” scenario is increasingly likely, unless the ECB either boosts its ELA allotment for Greece, or once again allows Greek debt to be used as collateral in ECB operations. So far, the ECB has been mum on the possibility of either of those.

All of this, of course, assumes that Greece somehow manages to get its already unconfident citizens to resume paying taxes, or else the government will have no remaining cash with which to either run the country or repay the IMF’s significant loan maturity in March, which as we preciously noted, is an increasingly possible outcome.

In short: assuming JPM’s math is accurate, not only is Greece not out of the woods despite the “bailout extension deal”, but the woods are getting darker and more deadly with every passing minute.

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




As Greek default draws near, these doorknobs are planning on “borrowing”  from the pension funds.  I bet all of those seniors in Greece will be delighted with this action:


(courtesy zero hedge)

As Greek Default Fears Return, Government Considers “Borrowing” Pensions To Repay IMF



Greek short-term default risk jumped over 300bps today putting the odds of a restructuring at 50-50 within the next year as the warnings we issued last week with regard Greece’s imminent default on its IMF loan loom. Seeking to reassure its lenders (and avoid yet more capital flight), Reuters reports the Greek government said it was “exploring solutions,” including delaying payments to suppliers or try to raise up to 3 billion euros by borrowing from state entities such as pension funds.   


As Reuters reports, Athens is running out of options to fund itself despite striking a deal with the euro zone in February to extend its bailout by four months. Faced with a steep fall in revenues, it is expected to run out of cash by the end of March, possibly sooner.

“The Greek government has been exploring solutions … to ensure there won’t be a single problem with repaying the IMF loan, or its funding obligations in March,” Government Spokesman Gabriel Sakellaridis told Greek radio.


So far, Athens’s other funding options have stumbled upon problems.Transferring 1.9 billion euros worth of profits the European Central Bank made on buying Greek bonds will not be allowed until Greece has completed promised reforms.


Another option is the issuance of additional Treasury bills, but Athens’s EU/IMF lenders have set a 15 billion euro cap on such debt and it has already been reached.


On Wednesday, Athens will go ahead with a regular six-month T-bill auction of 875 million euros to refinance a maturing issue, in a sale that will be closely watched as the government faces a possible funding gap.


When asked if Greece could cover its liquidity needs without issuing more T-bills or receiving the ECB profits, a finance ministry official said Athens had “alternatives”, without specifying the options at hand.


Athens could save money by delaying payments to suppliers or try to raise up to 3 billion euros by borrowing from state entities such as pension funds though the government may already have used up part of this, a source has told Reuters.

Of course, this public pension fund ‘cash’ will all be repaid when Greece returns to growth and pays down its debt…

We are sure the Greek people will be enthused when they find out what the ‘radical left’ has in store for their funds…

*  *  *

The Greek banking index fell nearly 10 percent, while lenders National Bank of Greece, Piraeus Bank and Alpha Bank fell 10.0 to 11.8 percent to feature among the top decliners.

“The fears about a possible default for Greece are certainly not completely off the table,” Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said.

Greek bank stocks (and bonds) are making it very clear that Greece’s problems are not over… now down hard from the pre-deal levels…

*  *  *

Still none of that matters – ECB QE is about to start and the world has loaded up…


Charts: Bloomberg







Goldman says no.  I hope they are wrong!!


(courtesy zero hedge)


Can Greece “Just Print Drachmas”? Goldman Answers



A few days ago, in advance of the new Greek parliament throwing in the towel in its negotiations with the Eurogroup and conceding to virtually all demands, we showed what, in a worst case scenario, the new Greek currency would look like using data from a previous News247 report. Some of the proposed samples are shown below.


But how realistic is a Greek monetary conversion out of Euros and into a “Nea Drachma”?

For the answer we go to Goldman, which after late last week reported that the possibility of a Grexit is now substantially lower…

… the Greek government chose the solution that would be the least costly to the economy and the country overall – that of the acceptance of a mutually agreeable framework in order to continue negotiations for an updated Greek programme. And this rational choice is significant as it reveals the reaction function of Greek officials.

It also notes that “GRexit is not the binary event it is often portrayed to be. Transitioning from the Euro to a new national currency is no straightforward task either for Greece or for Europe to pursue.”

Goldman then proceeds to explain “why Greece can’t just (re)introduce a national currency.

Here is the full take why, at least according to Goldman, Greece really has zero leverage even when threatening with a Grexit, something which after the February negotiations, it most likely will no longer do, at least until another, even more “radical” cabinet takes power.

Debt Unpaid is Not Debt Forgiven


One of the first and most important issues to understand is that Greek debt structure does not resemble that of other Euro-area nations. The loans given to Greece as part of a) the first Greek Loan Facility, b) the EFSF/ESM-funded second Greek programme and c) the IMF sum up to more than EUR200bn, or 2/3 of the Greek debt stock. For all intents and purposes, they are foreign treaties with other governments and failure to pay them does not lead to an automatic write-off, particularly as maturities of those loans are primarily 15-30 years in the future (except for IMF loans that mature in the years ahead). They also cannot be redenominated.


Furthermore, about half of Greece’s marketable debt of EUR66bn is in foreign law as a result of the PSI bond restructuring.There are also cross-default complications with the official sector as part of the co-financing agreement.


Overall, failure to meet obligations would not lead to a default and write-off of part of the debt stock. Instead, liabilities would most likely run in arrears that would need to be paid off before Greece could ever tap financial markets. And costly litigation would probably drastically reduce the flow of EUR funds in and out of the country.


There is of course the possibility of a mutual agreement on a write-off of a significant chunk of Greek debt following an exit. But that voluntary restructuring of official sector debt would require concessions on the Greek side. In the current Euro-area set up, this would probably involve a new MoU with fresh conditionality backing a “recovery” programme. And such an option is already on the table, at less punitive terms for the Greek economy. It may also take time to reach such a consensual agreement during which the Greek economy would come under severe strain.


Secluded from International Capital Markets, Greece would not be Able to Issue a Globally Traded Currency


With senior liabilities outstanding, Greece would be secluded from international capital markets. This would not just hold for the Greek government. It is likely that the implications touch the Greek private sector too, with Greek exporters and importers not being able to rely on letters of credit provided by Greek institutions. In such a case, Greek trade would collapse to the level that can be sustained by cash businesses in Euros.


Should a Greek currency be introduced following failure to pay, it would likely have very limited convertibility into Euros outside Greece. It would purely be a means of internal transactions, in all likelihood.


But is this an equilibrium solution for Greece? No. Because in such an event, it would be hard to convince even the Greeks to hold any drachmas. Put simply, while public sector employees, pensioners and government supply providers would be paid in drachmas (and be expected to pay part of their tax liabilities in the new currency), they would not be able to use that currency to buy imported goods.Exported goods would also become too valuable to be bought in drachmas, as they would correspond to hard currency receivables. Anticipating this, even providers of domestic services (taxi drivers, hairdressers etc) would avoid receiving payments in drachmas if possible.


If at all, the drachma would trade at a huge discount to the Euro. The economy would remain largely euro-ised but without a natural source of Euro-liquidity.


Drachma Would Prove An Unsustainable Means of Taxation


Ultimately as we discuss in our note with Huw Pill, it would be very hard for Greece to introduce a viable new currency unilaterally. Baring the complications of actually printing a new note, such a move would likely lead to a collapse in Greece’s international transactions and trade (both for the government and the private sector), would expose the country to litigation risks and trigger a significant destabilization of the banking system.


The only function of such a new currency would be to “tax” parts of the population that would not naturally receive hard currency as part of their payments structure. But that tax would not lead to a natural increase in government receivables as the economy (both the internal and the external economy) would shrink in a downward spiral.


The equilibrium outcome of such a situation would be a deep recession that would help build current account surpluses despite declining export activity. Once such recessionary surpluses were realized, a natural flow of hard currency would be established, which would help Greek authorities start meeting external financing requirements again.


As we conclude, we would like to point out that this is a highly theoretical exercise. We do not think that such an outcome is either desirable or feasible by the current Greek leadership. Instead, this exercise is meant to illustrate the strong disincentive for unilateral default and currency introduction from the Greek side.

In other words, sorry Greece: you are stuck: according to Goldman you can’t go back to the Drachma, even if you wanted to.

And now, let’s focus on the Greek government using the “far more sustainable means of taxation”, the Euro, where the new (and all previous) governments have shown an amazing inability to actually collect…. regardless of what currency is used.









Spain announces that Greece will need another 30 to 50 billion of funds for a third Greek bailout and believe it or not, the bankrupt state of Spain is to provide 14% of those funds:


(courtesy zero hedge)


Theater Of The Absurd: Spain To Provide 14% Of Funds For Third Greek Bailout


The ink is not even dry on the much fought extension of the Greek bailout, so hated in Greece because it perpetuates the “austerity” memorandum conditions and already Spain, which as a reminder is suddenly not on very good speaking terms with the Syriza government, is stoking the anti-austerity fire in Athens even more when moments ago Spain’s Guindos revealed that not only is a third Greek bailout imminent, and will cost Europe’s (and America’s via the IMF) taxpayers between €30 and €50 billion, but that Spain, whose banks were completely insolvent as recently as 2 years ago and were only “saved” thanks to the ECB’s direct and indirect (repo) bond monetization pathways will provide between 13% and 14% of the funding!


What makes the announcement doubly ironic (the broke bailout  the insolvent, or is the bankrupt saving the liquidating?), is that after yesterday’s allegation by Tsipras that there was a “conspiracy” between Spain and Portugal to derail the new Greek government, earlier today German Finance Ministry spokesman Martin Jaeger tells reporters in Berlin that “Tsipras’ remarks that Spain and Portugal took negotiations over Greece’s bailout to the brink of failure in a bid to avoid domestic political consequences was “a very unusual foul play.”

He was further quoted as saying that “we should not interfere in the affairs of our partner governments” and that “we don’t do that in the euro group. This isn’t how we do business.” Jaeger continued that “we have a very high recognition for what both countries have achieved in the past few years on their reform path.”

He concluded by saing that Greek govt’s behavior doesn’t correspond to the “usual pattern” which forms the basis of Eurogroup negotiations. “A lot of trust has been lost in past weeks.”

Then the EU itself showed once again quite clearly that in the case of banker interests vs common Greek people, it will side with the former, after earlier today EU Commission spokeswoman Mina Andreeva told reporters in Brussels that “Greece, the euro area and international authorities “struck a very clear deal last week” adding that Greece’s actions on aid review are more important than words.

“What matters now beyond any public statements is that Greece implement its reform commitments swiftly and with a termination, and this will be key to a successful conclusion of the review and the strengthening of the Greek economic recovery.”

But what actions does Greece need when the second it is forced to actually implement reforms, here comes Spain, yes don’t laugh, and bails it out. Again.

Completing the comedy is that the “suddenly very concerned” Spain, just hours earlier Spain’s deputy minister for the European Union Inigo Mendez de Vigo said that “Greece should do less talking, do more reforms.”

But why if Spain will be so kind as to provide the funding needed for the next Greek bailout (one which we predicted in November is inevitable), and the bailout after that, and the one after. In fact, why reform anything if Mr. Draghi “will get to work” in perpetuity, making the old “democratic” model in which elected politicians decide how to fix the country dead as the dodo







On Friday night, the leader of the Russian opposition, Nemtsov, was murdered next to the Kremlin.  Tens of thousands rally in Moscow in memory of the slain leader..





(courtesy zero hedge)





Tens Of Thousands Rally In Moscow To Mourn Slain Boris Nemtsov


If there was supposed to be any crackdown on opposition voices in Russia following the shocking death of Boris Nemtsov, it wasn’t evident today during a rally in which tens of thousands converged in central Moscow this monring to mourn the veteran liberal politician Boris Nemtsov, whose killing on the streets of the capital has, according to AP, shaken Russia’s beleaguered opposition.

As AP reports, and as the photos below show, the mourners marched to the bridge near the Kremlin where Nemtsov was gunned down shortly before midnight Friday. “The march could serve to energize the opposition or it could prove to be a brief outpouring of emotions that once again dissipates in a climate of fear.”

Russia’s federal investigative agency said it was looking into several possible motives for his killing.

The first possibility, the Investigative Committee said, was that the murder was aimed at destabilizing the political situation in Russia and Nemtsov was a “sacrificial victim for those who do not shun any method for achieving their political goals.”


This suggestion echoed comments by Putin’s spokesman and other Russian politicians that the attack was a “provocation” against the state.

Opposition activists had planned a protest rally on Sunday, which the city demanded they hold in a suburban neighborhood. After Nemtsov’s death, they called instead for a demonstration to mourn him in central Moscow. The city gave its quick approval.





Russia warns NATO to but out!! If there is any threat in the Ukraine, they will see a military response:


(courtesy zero hedge)




Russia Warns NATO: Any Threat In Ukraine Will See Military Response



As Russia announces the expansion of its Navy by 50 vessels this year, including two new nuclear-powered submarines and an aircraft carrier, it appears NATO’s sabre-rattling has drawn a response/threat/warning. Following British plans to send military ‘advisers’ into Ukraine (which NATO has stated are not confirmed), TASS reports, Russia’s NATO envoy, Alexander Grushko, warns Russia will take all measures against possible NATO threat in Ukraine, adding that Russia’s response may include military measures.


As TASS reports,

NATO has taken no decisions on sending British or any other instructors to Ukraine, Russia’s Ambassador to the North Atlantic Alliance Alexander Grushko said on Monday.


“NATO has taken no decisions on sending instructors,” he told the Rossiya 24 television channel. “NATO is implementing the decisions that were taken at the political level at the Wales summit in September 2014.”


Moscow will take all measures, including military-technical, to neutralize possible threat from NATO presence in Ukraine, he added.

*  *  *

And this is happening as Russia dramatically expands its military forces. As The Moscow Times reports,

The Russian navy will receive 50 vessels of various sizes and classes this year,navy Chief Admiral Viktor Chirkov was quoted as saying by the Interfax news agency on Monday.


The new boats are part of a rearmament program begun under President Vladimir Putin that aims to provide Russia with a navy capable of operating far away from home — a capability lost after the collapse of the Soviet Union — by 2050. Russia’s navy today is largely relegated to a coastal defense role.


“The period of stagnation in the development of our potential has long since passed,” Chirkov said.

*  *  *

And here is The West’s defence…


*  *  *

Of course all this military machismo comes as Russia and Ukraine hold emergency talks in Brussels over gas supply amid imminent cutoff threats for non-payment. As AP reports,

Russia and Ukraine’s energy ministers are holding emergency talks after the Russian gas supplier said it would cut off deliveries to the war-torn country as soon as Tuesday if it does not get new payments.


The European Union, which is mediating the talks in Brussels hoping to keep gas flowing despite the dispute, imports around 40 per cent of its gas from Russia, half through conflict-torn Ukraine.


Kyiv and Moscow have fought out several gas price wars over the past years and concerns are mounting that any fresh cuts could again hit European supplies.


Cash-strapped Ukraine is struggling to buy time and made a $15 million payment last week, but Moscow says that will cover only a day’s worth of gas, leaving a potential cutoff looming Tuesday.


Arriving for talks with his Ukrainian counterpart Volodymyr Demchyshyn and the European Union’s energy chief Maros Sefcovic, Russian Energy Minister Alexander Novak acknowledged the “need to resume an energy dialogue.”


Russia has said that it will cut supplies unless Kyiv pre-pays for gas it wants to use. Ukraine, meanwhile, accuses Russia of failing to abide by its contractual obligations.


Complicating the dispute are deliveries to Ukraine’s rebel-held east, where fighting between Kyiv’s forces and Russia-backed rebels has killed nearly 5,800 people.


Kyiv cut gas supplies to rebel-held areas last week, prompting Russia to pump gas there directly. Russia said those deliveries should be counted in gas exports to Ukraine.

*  *  *

“Peace Deal”?







The truth behind Portugal:  their total debt to GDP including corporate debt and sovereign debt is over 390%.  They are probably more bankrupt than Greece:


(courtesy Stelter/Globalist Blog)



The Fairy Tale Of Portugal’s Successful Turnaround


Submitted by Daniel Stelter via The Globalist blog,



For all the attention given to Greece, is Portugal really that much better off?

Even a brief glance at the facts suffices. Portugal is no less bankrupt than Greece. The country’s government debt, at 124% of GDP, might be lower than in Greece. However, government debt is just one – even though important – part of the full debt picture.

On an aggregate level, Portugal’s overall debt level — at 381% of GDP when also including private households and non-financial corporations — is well above Greece’s total debt level (286% of GDP).

So while Greece’s problems mainly manifest themselves via government debt, Portugal suffers from too much debt in all three sectors of the economy.

The debt that keeps on growing

At the same time, debt continues to grow much faster than the Portuguese economy. Between 2008 and 2013, aggregate debt grew by 69 percentage points. In order to stop the debt growing faster than the country’s economy, the government sector alone would have to improve its fiscal position by 3.6% of GDP.

Given the overall status of the Portuguese economy and the debt problems of the private sector, that improvement is an impossible task. Trying to achieve it would push the economy into outright depression.

Given all these facts, it is all the more astonishing that the German Bundestag voted unanimously in favor of Portugal’s proposal to pay back loans from the IMF earlier.

Bundestag members did so with great pleasure. Why? Amidst the fraught negotiations in Brussels with the new Greek government about the extension of the Greek program, it was a welcome opportunity to claim that the European approach to the crisis with austerity and reform was indeed working.

For Portugal, it was a good deal, because it could replace relatively costly money from the IMF carrying interest around 4% with cheaper loans from the capital market. But Portugal’s refinancing itself in the markets is not really a sign of the success of the policy mix in Europe.

Given that the country’s creditors are mainly foreigners, Portugal cannot inflate the debt away. It is also in no position to grow out of its debt problem. Assuming a current account surplus of 0.9% (as achieved in 2013), it would take 128 years just to pay back all foreign debt.

Portugal’s sober realities

Debt aside, Portugal faces other quite extraordinary challenges: It has the lowest birth rate in the Eurozone, has to contend with an exodus of the young people to other countries, the lowest overall level of qualifications of its population in Europe, as well as low productivity levels.

With just nine patents per one million inhabitants, Portugal performs better than Greece (with four patents per million). However, it lags significantly behind countries such as Italy with 70 and Germany with 277. What about competing on price alone? That is a difficult proposition for a European country with high debt levels.

Thus, I arrive at two conclusions: First, Portugal will never be in a position to serve its debt. Second, having access to the capital market is only the result of ECB policies and not the result of successful macro or micro policies pursued inside Portugal. But what will this lead to?

A Greek-style solution?

Until now, the Greek finance minister Yanis Varoufakis is one of the few asking openly for direct funding of the governments by the ECB. His proposal that the ECB buy up government bonds and exchange these into interest-free perpetuals still seems to be too creative to be broadly acceptable.

The higher the debt levels of European nations in crisis grow — and this is simple mathematics — the more visible it will become that this debt is out of control. Then, the pressure on the ECB to “fix” the problem with its balance sheet will become overwhelming.

When speaking about Greece, the media often claim that, thanks to the Eurozone’s extension of the program, the “bankruptcy of the country was avoided.” This is of course rubbish.

What was postponed was not the bankruptcy itself, but only the official declaration of Greece’s bankruptcy. Once Greece runs out of money, it won’t be a temporary liquidity issue (as it is perceived in the media), but the open declaration of an already well-known fact.

It is important to realize that essentially the same holds true for Portugal.






Venezuela is going from bad to worse:


(courtesy Bloomberg)




Venezuela Orders U.S. Embassy to Reduce Staff in Caracas


Venezuela’s President Nicolas Maduro
Venezuela’s President Nicolas Maduro said U.S. officials who remain in the country will be required to obtain approval for any meetings they hold in the country. Photographer: Leo Ramirez/AFP via Getty Images










(Bloomberg) — Venezuelan President Nicolas Maduro ordered his foreign ministry to reduce the number of officials allowed to work at the U.S. embassy in Caracas as tensions mount between the two countries.

U.S. officials who remain will be required to obtain approval for any meetings they hold in the country, Maduro said Saturday on state television. He presented a folder during the speech that he said contained evidence embassy officials were working to destabilize the South American country.

“I have the proof here,” Maduro said after a pro-government march in Caracas. “Videos, audio recordings, and testimonies of the illegal, conspiratory activities of various functionaries of the U.S. government. I’ve thought about it very well. It’s for our homeland, our sovereignty.”

A U.S. embassy official in Caracas declined to immediately comment Saturday after Maduro’s speech. The U.S. State Department said Feb. 19 that accusations it was involved in coup plotting were “baseless and false,” and an attempt to distract attention from the country’s economic woes. A White House spokesman, Patrick Ventrell, referred questions to State, which didn’t immediately respond to a request for comment.

Buffeted by plunging oil prices, Venezuela’s economy will contract 7 percent this year, according to the International Monetary Fund, while inflation, which accelerated to 69 percent in December, is the fastest in the world.

Bush Banned

U.S. citizens who travel to Venezuela now will be required to obtain visas, Maduro said, and some current and former U.S. officials will be banned from entering the country. They include former President George W Bush, former Vice President Dick Cheney, former director of central intelligence George Tenet, and Senator Marco Rubio, a Florida Republican who is running for president.

“In the past several days, we’ve detected activity and captured several Americans involved in espionage, trying to capture people,” Maduro said. “To protect our country we’re going to introduce an obligatory visa system for any American who wants to come here. They’ll have to pay in dollars what Venezuelans have to pay to go to the U.S.”

Another U.S. politician banned by Maduro, Republican Representative Mario Diaz-Balart of Florida, responded in a Twitter message: “I’ve always wanted to travel to a corrupt country that is not a free democracy. And now Castro’s lap dog won’t let me!”

Missionaries Freed

Earlier this month, the U.S. expanded visa restrictions on Venezuelan government officials believed to be complicit in human rights abuses and public corruption. Maduro said Saturday that Venezuela would not accept any U.S. sanctions.

“The U.S. thinks it owns the world,” Maduro said. “They give their opinions all over. Something happens in Asia, and a spokesperson comes to speak out against it. What is that? Are we going to accept a world government?”

Maduro said he asked the Union of South American Nations to send its foreign ministers to Caracas so that he could present proof of U.S. intervention in Venezuela.

Sporadic protests across Venezuela have broken out this month as Maduro cracked down on opposition politicians with the arrest of Caracas opposition Mayor Antonio Ledezma.

Four American missionaries detained by authorities in Venezuela earlier this week have been freed and are on their way back to the U.S., North Dakota Senator John Hoeven, a Republican, said Saturday.

To contact the reporter on this story: Nathan Crooks in Caracas






The big story of the day!!


Sunday afternoon:


you will recall that Hypo bank was taken over by the Austrian government (nationalized) and then they proceeded to form a bad bank to which they would  place it’s bad assets.  It now seems that there is a 8 billion euro hole in the bad bank due to the huge rise in the Swiss Franc and it looks like we are going to have a BAIL-IN on a AAA rated bank.

The world will begin to realize that it is foolish to keep funds in a bank paying negative interest rates and then the banks CORZINES your money!!


(courtesy zero hedge)


(courtesy zero hedge)


“Spectacular Developments” In Austria: Bail-In Arrives After €7.6 Billion Bad Bank Capital Hole “Discovered”

Slowly, all the lies of the “recovery”, all the skeletons in the closet, and all the bodies swept under the rug are emerging.

Moments ago, Austrian ORF reported that there have been “spectacular developments” in the case of the Hypo Alpe Adria bad bank, also known as the Heta Asset Resolution, where an outside audit of Heta’s balance sheet exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the Austrian Financial Market Authority said.

As a result, according to Reuters, the bad bank that was created in the aftermath of the Hypo collapse, is itself about to be unwound, as the bad bank itself goes bad!

“Austria’s Financial Market Authority stepped in on Sunday to wind down “bad bank” Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria.”

In short: Austria just cut off state support of what was until this moment a state-backed, wind-down vehicle and a key pillar of trust in what was already a shaky financial system.

Not surprisingly, today’s shock announcement comes a week after Austria’s Standard reported that up to a five billion euro impairment at Heta would take place, a report which the Finance Ministry called “pure speculation” and noted that the Bank was in good health. According to Standard, among the reasons for the massive capital shortfall was the plunge in collateral as a result of the continuing crisis in South East Europewhich meant that the value of “real estate in South East Europe, shopping centers and tourism projects, deteriorated massively” driven largely by the appreciation of the Swiss Franc. “As a result, the volume of bad loans has increased significantly.”

Everyone was wondering who the first big casualty of the SNB’s currency peg failure would be. We now know the answer.

Further from Reuters, the finance ministry confirmed this in a statement, adding Heta was not insolvent and that debt guarantees by Hypo’s home province of Carinthia and the federal government were unaffected by the move.

The problem is that going forward that nobody knows who insures what, what various other state and quasi-state guarantors suddenly unclear as to who is responsible for what: the province of Carinthia guarantees back €10.7 billion worth of Heta debt. The federal government backs a 1 billion euro bond issued in 2012 that the ministry said would be honored in full.

As a result of the “sudden” capital deficiency, there will be a moratorium on repayment of principal and capital lasts until May 31, 2016, giving the FMA time to work out a detailed plan to ensure equal treatment of all creditors, the FMA said in a decree published on its website.

Perhaps a badder bank to rescue the bad bank?

According to Reuters calculations, More than 9.8 billion euros worth of debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.

But the punchline, is that while the world was waiting for Greece to announce capital controls, or a bail-in over the past week, it was none other than one of the Europe’s most pristeen credits (one which until recently was rated AAA/Aaa) that informed creditors a bail-in is imminent: “The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta – or “bailed in” – under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden.

Bloomberg confirms that the ministry announced that under new EU rules means creditors can be forced to share losses.

Of course, this being Austria, and the Creditanstalt, aka the bank which failed in 1931 under almost identical circumstances and set off the dominos that led to a global financial crisis which in turn bank fanned the flames of the Great Depression, also being Austrian, suddenly everyone is asking: “what just happened and what happens next?




And this story continues today with the threat of contagion as many banks are owed huge amounts of money from one another.  This is when money seems to evaporate into thin air when bank assets on one big is Hypo bank’s liabilities…. and everybody panics:


(courtesy zero hedge)



Lehman Moment For Austrian “Bad Bank” Means Worse Coming


Not “contained.” Just six short months ago, the 2Y bonds of Austria’s bank bank – HETA Asset Resolution AG – were trading well above par as the world and his mom reached for yield (~6%) in all the wrong places. Today, following the “spectacular development” over the weekend that the bank will be wound down due to the discovery of an $8.5bn “hole” in its balance sheet, the 2Y HETA bonds are trading below 50c on the dollar (at a yield of 54%). This is indeed Austria’s “Lehman” moment as for the first time in the new European ‘bail-in’ era, senior debt is getting a massive haircut.


As we noted yesterday, the punchline, is that while the world was waiting for Greece to announce capital controls, or a bail-in over the past week, it was none other than one of the Europe’s most pristeen credits (one which until recently was rated AAA/Aaa) that informed creditors a bail-in is imminent: “The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta – or “bailed in” – under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden.

Bloomberg confirms that the ministry announced that under new EU rules means creditors can be forced to share losses…

Resolution of wind-down vehicle of Hypo Alpe-Adria-Bank International represents first bail-in of senior debt under new European regime for imposing losses on bondholders, Gildas Surry and Geoffroy de Pellegars, analysts at BNP, write in client note.


Moratorium on liabilities of Heta Asset Resolution until May 31, 2016 gives time to work out necessary haircut and reduce the risk of litigation to a minimum


Bail-in legislation in Austria implements the European framework to the letter


Other jurisdictions that follow Austria’s example can be expected to treat resolution in this sequence: point of non-viability, independent review of assets vs liabilities, moratorium, haircut


Expect senior CDS old contract to trigger on Failure to Pay, and that HETAR govt-guaranteed sub bonds will continue paying (and trade with accrued interest)

*  *  *

And sure enough, the bonds have crashed…



Remember – these are senior unsecured notes of a major bank! Contagion is now a big problem for Austria (and its banking system).

*  *  *

Of course, this being Austria, and the Creditanstalt, aka the bank which failed in 1931 under almost identical circumstances and set off the dominos that led to a global financial crisis which in turn bank fanned the flames of the Great Depression, also being Austrian, suddenly everyone is asking: “what just happened and what happens next?

As a gentle reminder, this is what happened to Lehman… Surprise!


One thing is certain when one bank’s liabilities are another bank’s assets, it is that such an arrangement is simply screaming for a systemic crisis to prove to everyone just how dumb this idea was from the get go.

The question is – how long do authorities let the contagion go before they ‘change’ the rules on bail-ins and apply taxpayer funds once again – as a one-off of course – to stabilize what is, after all, a well funded and highly liquid banking system… It appears HETA gave markets a glimpse behind the curtain as the lies of the recovery come out.






Oil related stories:


Saudi Arabia increases production to kill high cost USA production.

Cushing Oklahoma is filling faster than expected:


(courtesy zero hedge)


Crude Carnage Continues Amid Saudi Production & Storage Limits



Crude oil prices are once again following the path of least deja vu resistance this morning. Having spiked into NYMEX close on Friday (exactly as they did following the rig count data the previous week), WTI is back to a $48 handle this morning following news that Saudi Arabia has increased production to its highest level since 2013. Iraq (another OPEC nation) stirred the pot further by forecasting increased supplies in the next month. This comes as US production hits record highs and vital Oklahoma storage tanks will fill up even sooner than expected, driving the “JK” spread above $2.50 (April delivery drastically cheaper than May). As on analysts noted, as “Cushing continues to fill massively, we could see a ‘3’ handle on WTI.”


As Ransquawk notes, the latest survey data showed that Saudi Arabia’s output had increased to its highest level since Sep. 2013. Furthermore, OPEC production output was at 30.6mln bpd in February as OPEC leader Saudi Arabia increased production by 130,000bpd to 9.5mln bpd. Iraq exported more than 2.5mln bpd in February and expects to export more than 3mln bpd this month.



As Reuters reports, the market is flashing warning signs that vital Oklahoma storage tanks will fill up even sooner than expected

While benchmark U.S. crude oil futures CLc1 still appear to be holding firm after trading at around $50 a barrel for the past month or so, the spread between first- and second-month oil futures collapsed last week, with prompt prices diving by more than $1 to their deepest discount in four years.


Shorthanded as “JK” in market jargon, U.S. West Texas Intermediate for April delivery (known as “J”) were $2.38 a barrel cheaper than those for May (“K”) on Friday, a gap that likely signals the early onset of another milestone in the great oil supply glut, running out of space in Cushing, Oklahoma, delivery point for the New York Mercantile Exchange contract.



“Cushing is filling faster than we had expected back in January,” said Michael Cohen, head of energy commodities research at Barclays.


“We feel that we may break the $44 level, we might even see a $3 handle,”said Tariq Zahir, an analyst at Tyche Capital Advisors. “Maybe not next week, but Cushing continues to fill massively.”


But as traders know, timing is everything, and it’s unclear whether fundamentals will change quickly or significantly enough to prevent another lurch lower.

*  *  *

Perhaps this sums the situation up best…

“What happens to a barrel of crude oil if no one wants it and no one can even store it?” asked Walter Zimmerman, chief technical strategist for United-ICAP. “How do you even value that crude?”


Your more important currency crosses early Monday morning:




Eur/USA 1.1224 up  .0033

USA/JAPAN YEN 119.77  up .207

GBP/USA 1.5396 down .0030

USA/CAN 1.2504 up .0002

This morning in Europe, the euro is  up, trading now well above the 1.12 level at 1.1224 as Europe is supported by other nations keeping the Euro afloat,  Europe reacts to deflation, announcements of massive stimulation, the default at Austrian Hypo bank and the possible default of the Ukraine and Greece.   In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen continues to trade in yoyo fashion as this morning it settled down again in Japan by 21 basis points and settling just below the 120 barrier to 119.77 yen to the dollar. The pound was down this morning as it now  trades just below the 1.54 level at 1.5396.(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 and now the HSBC criminal probe). The Canadian dollar was down again reacting to the lower oil price and is trading  at 1.2504 to the dollar. It seems that the 4 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. (4) short Swiss Franc/long assets  (European housing), the Nikkei, etc. These massive carry trades are terribly offside as they are being unwound. It is  causing deflation as the world reacts to a lack of demand. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT.

The NIKKEI: Monday morning : up 28.94 points or 0.15%

Trading from Europe and Asia:
1. Europe stocks mixed

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

Gold very early morning trading: $1214.00



Early Monday morning USA 10 year bond yield: 2.01% !!!  up 1  in basis points from Friday night/


USA dollar index early Monday morning: 95.14  down 15 cents from Friday’s close.



This ends the early morning numbers, Monday morning




And now for your closing numbers for Monday:







Closing Portuguese 10 year bond yield: 1.86% up 3 in basis points from Friday


Closing Japanese 10 year bond yield: .35% !!! up 1 in basis points from Friday


Your closing Spanish 10 year government bond,  Monday up 9 in basis points in yield from Friday night.


Spanish 10 year bond yield: 1.35% !!!!!!


Your Monday closing Italian 10 year bond yield: 1.35% up 2 in basis points from Friday:



trading 0n par with Spain.




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

Euro/USA: 1.1183  down .0009

USA/Japan: 120.18 up .608

Great Britain/USA: 1.5367 down .0059

USA/Canada: 1.2539 up .0037



The euro fell like a stone again this afternoon but it was down  on the day by 9 basis points finishing the day just below the 1.12 level to 1.1183. The yen was down badly in the afternoon, and it was down by closing to the tune of 61 basis points and closing well above the 120 cross at 120.18. The British pound lost some ground during the afternoon session and was down on  the day closing at 1.5367. The Canadian dollar was down again today as the oil price was down today.  It closed at 1.2539 to the USA dollar

As explained above, the short dollar carry trade is being unwound, the yen carry trade , the Nikkei/gold carry trade, and finally the long dollar/short Swiss franc carry trade are all being unwound and these reversals are  causing massive derivative losses. And as such these massive derivative losses is the powder keg that will destroy the entire financial system. The losses on the oil front will no doubt produce many dead bodies. The last asset still rising are the stock exchanges.



Your closing 10 yr USA bond yield: 2.09 up 10 in basis points from Friday




Your closing USA dollar index: 95.47 up 18 cents on the day.



European and Dow Jones stock index closes:


England FTSE  down 6.02 points or 0.09%

Paris CAC  down 34.16 or 0.69%

German Dax up 8.70 or 0.08%

Spain’s Ibex up  .20 or .00%

Italian FTSE-MIB down 40.19. or 0.18%



The Dow:up 155.93 or 0.86%

Nasdaq; up  44.57 or 0.90%



OIL: WTI 49.77 !!!!!!!

Brent: 59.90!!!!



Closing USA/Russian rouble cross: 62.55 down almost 1   roubles per dollar on the day.









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




Your New York trading for today:



Lehman-Like Spending Collapse Sparks Panic-Buying – Nasdaq 5,000; S&P, Dow Records


An unofficial count of the number of utterances of the word “different” on CNBC following NASDAQ hitting 5000 stands at 47 as of the close… There’s only one thing for it…


For the first time since Q1 2009 (i.e. post Lehman), we have just had back to back drops in consumer spending…


and all but 1 data item missed today extending the string of shitty data and further inspiring stocks to record highs…


But all that mattered was that Nasdaq 5000 was achieved amid the broken market and then retested…


Perhaps this sums up that best…


All equity markets rose today magically levitated during that broken market period amid terrible data… then melted up in the last hour


Notably, US futures got an initial bump from China PMI then pumped up at the European open (before dumping the S&P to unch… and then it took off)… a small dip as Europe closed was quickly turned around and then a panic-buying melt-up ensued into the close…


VIX was punched back under 13.. lowest close since Dec 5th…


Treasury yields sold off from the US equity open but we suspect given the massive upsizing in the Actavis bond issue that this was notable rate locks being on amid a low liquidity market… (i.e. this is not sustainable)


The US Dollar traded weak in the European session but started to rally back into positive territory as US markets opened, ending up 0.15% or so on the day…


Silver, gold, and copper were all sold non-stop from Europe’s open. Crude was very weak but rallied spike-like in its entirely algo-ized manner into the European close… only top dump it all back to unch by the NYMEX close…


Seriously!! So next another leg down on into tomorrow’s API data…?


Charts: Bloomberg











ISM Manufacturing falters in the uSA, construction spending plummets:


(courtesy zero hedge)



ISM Manufacturing Tumbles To 13-Month Lows, Employment Slumps, Construction Spending Plunges


Despite a collapse in US macro data in February, Markit somehow managed to conjure a better than expected 55.1 print for US Manufacturing PMI. Under the covers employment creation was the slowest since July and inflationary pressures loom as selling prices rose notably. ISM Manufacturing printed 52.9 – a small miss vs 53.0 expectations – down for the 4th month in a row to 13-month lows, with employment at its weakest since June 2013. Construction spending’s modest rebound in (seemingly un-weather-affected) December (after dropping in November) has been destroyed with a 1.1% drop in January (against expectations of 0.3% rise) for the biggest drop in 8 months.

Spot The Odd One Out – one of these is a soft survey… the other summarizes US macro hard data into one variable…


Doesn’t exactly look like a ‘recovery’ in manufacturing based on the jobs created…


ISM Manufacturing fell and missed for 4th month in a row – but only modestly…


Here is the breakdown of New Orders seasonal adjusted vs unadjusted.

Respondents in ISM

  • West Coast port issue has been a problem for exporting.” (Food, Beverage & Tobacco Products)
  • “Business is steady to slightly up.” (Fabricated Metal Products)
  • “The major concern for us across the board is the ongoing situation with the West Coast ports. Air freight and overtime have been required to cover for products waiting to be offloaded at the ports.” (Transportation Equipment)
  • “Lower oil and natural gas prices continue to put pressure on our revenues. We continue to pursue capital budget cuts and rate reduction efforts with our suppliers.” (Petroleum & Coal Products)
  • “The dock delay on the West Coast is seriously impacting the supply chain logistics.” (Computer & Electronic Products)
  • “Kind of a mixed bag right now. Some product demand up, some down, basically flat.” (Chemical Products)
  • “West Coast port congestion and work slowdowns by the union is hurting our imports and exports, getting worse by the week.” (Miscellaneous Manufacturing)
  • “Customer behavior is being negatively impacted by ongoing resin price decreases. Order placement is being delayed to receive lower finished good pricing.” (Plastics & Rubber Products)
  • “Business in general is staying its course.Concerns abound over strike possibilities by West Coast longshoremen.” (Machinery)
  • “Improving and 2015 off to a good start.” (Furniture & Related Products)

Given the historical relationship between earnings expectations and ISM, we leave it to @Not_Jim_Cramer to express his opinion: “If ISM does not print quite a bit lower this month – it’s rigged”

You decide.

*  *  *

And finally, construction spending was a disaster – falling 1.1% against expectations of a 0.3% rise…


Prepare for the GDP downgrades…

Charts: Bloomberg, @Not_Jim_Cramer






Consumers are saving and not spending:



US Savings Rate Surges To Highest Since 2012 As Consumers Save “Gas Tax Cut” Instead Of Spending


Following December’s worse than expected drop in personal spending (and slowing groweth in incomes), analysts wewre expected the usual hockey-stick bounce… it did not happen. Despite all the exuberance over low gas prices, US personal spending dropped 0.2% in January – twice as bad as the 0.1% drop expected and the 3rd miss in a row. The spending drop was driven in large part by a slide in non-durables. Personal income also missed excpectations, rising just 0.3% (against a +0.4% expectation) hovering at its lowest growth since September. The savings rates surged to 5.5% – its highest since Dec 2012.

Spending drops again and misses for 3rd month in a row…


The reason for the drop? Continuing declines in non-durable spending, as a result of lower gas prices.


As is clear from the right hand side – the gap (savings) is widening


As the savings rate jumps to its highest since 2012…


Not what Yellen wants to see, because what the above data suggests, at least until its revision is that US consumers – waiter and bartender “recovery” notwithstanding – are saving the “gas tax cut” instead of spending it. Time to call the Keynesian police and instite a few executive orders or better yet, start punishing US savers just like in Europe.







It looks like the auto loans subprime business is about to crack. (they never learn)

Wells Fargo the leading bank in this area reports:


(courtesy zero hedge)



Housing Bubble Redux: Subprime Auto Market Begins To Crack


As noted last week, the aggregate amount of loans for new and used cars will in short order eclipse the $1 trillion mark, joining total student debt in full-on bubble mode. Better still, early delinquencies on auto loans are now sitting back at their 2008 highs (both for all borrowers and for subprime borrowers, with 9% of the latter now missing a payment within the first 8 months of origination). Despite this, and despite the fact that nearly a third of all auto loans in 2013 were made to subprime borrowers (the same amount we saw in 2006 at the very height of reckless underwriting standards), Experian says everything is fine.

Meanwhile, Wells Fargo recently noted that although lending standards had indeed gotten back to “normal” (and as a reminder, “normal” now means how things were in 2006) it’s beginning to look like some households “might be overleveraged.” Simultaneously, lenders are again showing a propensity towards origination for the purpose of selling loans rather than holding them; that is, originating loans and then happily passing them on to the Wall Street securitization machine, which explains why despite a collapse in the issuance of ABS backed by home equity loans since the crisis, total ABS issuance in the U.S. hit its highest level since 2008 last year.

These are things that Wells should know something about as they made some $30 billion in auto loans last year and indeed it now appears the bank may be getting concerned about the market it’s helped to build. As the NY Timesreports:

Wells Fargo, one of the largest subprime car lenders, is pulling back from [subprime auto lending], a move that is being felt throughout the broader auto industry…


Wells Fargo has imposed a cap for the first time on the amount of loans it will extend to subprime borrowers.

The bank is limiting the dollar volume of its subprime auto originations to 10 percent of its overall auto loan originations, which last year totaled $29.9 billion, bank executives said.

The decision, detailed in interviews with top Wells Fargo executives, along with other large auto lenders, is a sobering moment for the booming market. Other lenders may decide to take their cue from Wells Fargo, one of the nation’s largest lenders.

The Times’ description of industry dynamics could easily be mistaken for a recap of the buildup to the housing bust, as investors chase returns, Wall Street chases fees, banks ease lending standards to increase volumes, and borrowers who are jobless (which must mean they aren’t experienced waiters) throw every semblance of prudence out the window:

Large banks, weathering a slowdown in other types of lending like mortgages, have increased their auto lending. And much as in the housing boom, investors in search of higher returns, like insurance companies and hedge funds, are buying billions of dollars of investments backed by subprime auto loans.

Such growth, though, has given rise to concerns, like those at Wells Fargo, that growing competition is fostering lax lending practices, including longer repayment periods and increased loan balances.

Federal and state authorities, meanwhile, are examining whether dealerships have been inflating borrowers’ income or falsifying employment information on loan applications to ensure that any borrower, even some who are unemployed and have virtually no source of income, can buy a car.

Just how bad has it gotten? This bad:

Last week at the annual conference of the Global Association of Risk Professionals in New York, Darrin Benhart, a senior regulatory official at the Office of the Comptroller of the Currency, which regulates Wells Fargo, noted that lenders had extended repayment periods to 84 months — 40 percent longer than the typical period — and were making loans that were far greater than the value of the car.

This is perhaps the clearest sign yet that we have learned literally nothing from the crisis years. That is, this is precisely the same dynamic and it will end precisely the same way: defaults will rise, investors in assets backed by these loans will suffer outsized losses, and the assets themselves will become completely illiquid. Indeed, the dominoes have already started to fall. Here’s Fitch with the last word:

Weaker seasonal trends led to annualized net losses (ANL) on U.S. subprime auto ABS reaching their highest level since 2009, according to the latest monthly index results from Fitch Ratings.

Subprime auto loan ABS ANL rose 4.5% month-over-month (MOM) to 8.19% last month, the highest level since February 2009 (9.07%). Prime ANL also crept higher in January. 

In the subprime sector, 60+ day delinquencies rose to 4.75% in January, a 7.7% move higher and were 24% above the same period in 2014. This is the highest level recorded since October 2009 (4.76%). Meanwhile, ANL rose 4.5% MOM in January hitting a five-year high when 9.07% was recorded in early 2009. Asset performance has slowed over the past two years driven mainly by softer underwriting and collateral credit quality in securitized pools.





We  will see you on Tuesday.

bye for now


One comment

  1. Love the blog Harvey, keep it coming.


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