March 19/USA dollar rises coupling with the fall in the Euro/Cdn dollar and British Pound/More gold leaving the comex/Silver OI continues to rise/Oil inventories rise causing oil to fall back to the 43 level for WTI/54 forBrent/Greece raids utilities to pay the IMF Capital controls imminent/





Good evening Ladies and Gentlemen:



Here are the following closes for gold and silver today:



Gold:  $1169.10 up $17.70 (comex closing time)

Silver: $16.10 up 58  cents (comex closing time)



In the access market 5:15 pm



Gold $1172.00

Silver: $16.13



Gold/silver trading:  see kitco charts on the 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 3 notices for 15,000 oz .



Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 245.90 tonnes for a loss of 57 tonnes over that period. Lately the removals  have been rising!



In silver, the open interest rose by 599 contracts as yesterday’s silver price was down by 4 cents. The total silver OI continues to remain extremely high with today’s reading at 179,123 contracts. The front month of March fell by 118 contracts to 574 contracts. We are now at a multi year high in the total OI complex despite a record low price. This dichotomy has been happening now for quite a while and defies logic.What is also strange today again is the fact that the OI went up with a very tiny volume yesterday.  This must be scaring our bankers to no end.



We had  3 notices served upon for 15,000 oz.



In gold we had a huge rise in OI as gold was up by $3.40 yesterday. The total comex gold OI rests tonight at 430,737 for a gain of 599 contracts. Today, surprisingly we again had 0 notices served upon for nil oz.



Today, we had no changes  at the GLD/ inventory at  the  GLD/Inventory rests at 749.77  tonnes



In silver, /SLV  we had no change in inventory at the SLV/Inventory, remaining at 327.332 million oz



We have a few important stories to bring to your attention today…


1, Another increase in silver OI /silver OI at multi year highs and yet silver is extremely low in price. Gold OI again rises by close to 600 contracts  (harvey)

2,Greece scrambles to raise 2 billion euros by tomorrow. The IMF basically is giving up on these guys.  The European Minister is basically calling for capital controls but this can only be orchestrated by Greece itself. Today Greece raided the utilities doing a repo for their cash.  We wish the utilities all the luck in the world.

3.Yesterday, the big news was the dovish report from the FOMC/gold and commodities rose with the Euro and just about all currencies rising against the dollar.  Today, that reversed with the Euro tumbling along with the Canadian dollar, and the British pound

(zero hedge)

4. European sovereign bond risks rise (yields rise) due to potential GREXIT:

(Bloomberg/zero hedge)


5. Saber rattling between Russian and the USA

(zero hedge)


6.More countries are leaving the USA fold, by joining the new Chinese development bank.  Today, South Korea and Luxembourg are joining.

(zero hedge)


7.Oil retreats in price due to oversupply.  Jim Quinn reports that shale producers are getting 37 USA dollar per barrel and none are making any money

(zero hedge/Jim Quinn/Burning Platform)



we have these and other stories for you tonight.



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 599 contracts from 429,738 up to 430,337 as gold was up by $3.40 yesterday (at the comex close). We are now in the contract month of March which saw it’s OI rose to 125 for a gain of 15 contracts. We had 2 notices filed upon yesterday so we  gained 13 gold contracts or additional 1300 oz will stand for delivery in this delivery month of March. The next big active delivery month is April and here the OI fell by 6,234 contracts down to 202,545. We have less than two weeks before first day notice for the April gold contract month. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 90,316.  (Where on earth are the high frequency boys?). The confirmed volume on yesterday ( which includes the volume during regular business hours + access market sales the previous day) was good at 226,989 contracts. Today we had 0 notices filed for nil oz.



And now for the wild silver comex results.  Silver OI rose by 599 contracts from 178,524 up to 179,123 despite the fact that silver was down by 4 cents with respect yesterday’s trading and equally astonishing that the volume yesterday was extremely light. We are now in the active contract month of March and here the OI fell by 118 contracts falling to 574. We had 118 contracts served upon yesterday. Thus we neither lost nor gained any silver contracts standing in this March delivery month. The estimated volume today was simply awful at 18,714 contracts  (just comex sales during regular business hours.  The confirmed volume yesterday (regular plus access market) came in at 42,143 contracts which is good in volume. We had 3 notices filed for 15,000 oz today.



March initial standings

March 19.2015





Withdrawals from Dealers Inventory in oz  nil
Withdrawals from Customer Inventory in oz   64,609.286  oz  (JPM)
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 32,150.000 (1000 Kilobars) Scotia
No of oz served (contracts) today 0 contracts (nil oz)
No of oz to be served (notices)  125 contracts (12,500 oz)
Total monthly oz gold served (contracts) so far this month 8 contracts(800 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month  114,790.651 oz

Total accumulative withdrawal of gold from the Customer inventory this month

 559,020.3 oz

Today, we had 0 dealer transaction


total Dealer withdrawals: nil oz


we had 0 dealer deposit



total dealer deposit: nil oz



we had 1 customer withdrawals

i) Out of JPM:  64,609.286 oz



total customer withdrawal: 64,609.286 oz



we had 1 customer deposits:


i) Into Scotia:  32,150.000 oz

total customer deposits;  32,150.000 oz



We had 1 adjustment


i) Out of Delaware:


5,698.817 oz was adjusted out of the dealer and this landed into the customer account of Delaware:



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 (8) x 100 oz  or  800 oz , to which we add the difference between the open interest for the front month of March (125) 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 (8) x 100 oz  or ounces + {OI for the front month (125) – the number of  notices served upon today (0) x 100 oz} =  13,300 oz or  .4136 tonnes


we gained 1300 additional ounces standing for delivery in this March contract month.


Total dealer inventory: 658,344.514 oz or 20.477 tonnes

Total gold inventory (dealer and customer) = 7.936 million oz. (246.84) tonnes)

Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 56.0 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 19 2015:





Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 409,459.98 oz (Brinks)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory nil
No of oz served (contracts) 3 contracts  (15,000 oz)
No of oz to be served (notices) 571 contracts (2,855,000)
Total monthly oz silver served (contracts) 2004 contracts (10,020,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal  of silver from the Customer inventory this month  4,798,774.8 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 0 customer deposits:



total customer deposit: nil oz



We had 1 customer withdrawals:


i) Out of Brinks:  409,459.98 oz


total withdrawals;  409,459.98 oz



we had 0 adjustment



Total dealer inventory: 70.021 million oz

Total of all silver inventory (dealer and customer) 176.415 million oz


The total number of notices filed today is represented by 3 contracts for 15,000 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 (2004) x 5,000 oz    = 10,020,000 oz to which we add the difference between the open interest for the front month of March (574) and the number of notices served upon today (3) x 5000 oz  equals the number of ounces standing.

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

2004 (notices served so far) + { OI for front month of March(574) -number of notices served upon today (3} x 5000 oz =  12,875,000 oz standing for the March contract month.

we neither gained nor lost any silver ounces standing in this March delivery month.


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 19/we had no changes in inventory at the GLD/Inventory 749.77 tonnes



March 18/ we had a withdrawal of .9 tonnes of gold from the GLD/Inventory at 749.77 tonnes


March 17.2015: no change in gold inventory at the GLD/Inventory 750.67 tonnes


March 16/no change in gold inventory at the GLD/Inventory 750.67 tonnes



March 13/ we had a small change in gold inventory at the GLD (small withdrawal/probably to pay for fees)/Inventory at 750.67 tonnes

March 12.we had a withdrawal of 2.09 tonnes of gold at the GLD/Inventory at 750.95 tonnes

March 11.2015: no changes in gold inventory at the GLD/Inventory at 753.04 tonnes

March 10 no report on the GLD tonight/computer down/inventory remains 753.04 tonnes

March 9/ we had another huge withdrawal of 3.38 tonnes of gold from the GLD, no doubt heading for Shanghai/Inventory 753.04 tonnes

March 6/we had a huge withdrawal of 4.48 tonnes of gold from the GLD/inventory rests tonight at 756.32/Also HSBC is getting out of the gold business in London and is giving up all of its 7 vaults.

March 5 no change in gold inventory at the GLD/760.80 tonnnes

March 4/ no change/inventory 760.80 tonnes

March 3 we had another 2.69 tonnes of gold withdrawn from the GLD. Inventory is now 760.80 tonnes.

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





March 19/2015 /  we had no changes at GLD/Inventory at 749.77 tonnes

inventory: 749.77 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 : 749.77 tonnes.








And now for silver (SLV):


March 19/ no change in silver inventory/327.332 million oz


March 18/ no change in silver inventory/327.332 million oz


March 17/ no change in silver inventory/327.332 million oz


March 16/no change in silver inventory/327.332 million oz



March 13.2015: no change in silver inventory/327.332 million oz

March 12: no changes in silver inventory/327.332 million oz

March 11/no changes in silver inventory/327.332 million oz

March 10/ no change in silver inventory/327.332 million oz

March 9/ no change in silver inventory at the SLV/327.332 million oz

March 6: huge addition of 1.34 million oz of silver into the SLV/Inventory 727.332 million oz

March 5 no change in inventory/725.992 million oz

March 4 a slight reduction of  126,000 oz of silver/SLV inventory at 725.992 (probably to pay for fees)

March 3 a small deposit of 328,000 oz of silver into the SLV/Inventory at 726.118 million oz.

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






March 19/2015 no change in    silver inventory at the SLV/ SLV inventory rests tonight at 327.332 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)

Not available tonight

1. Central Fund of Canada: traded at Negative  7.2% percent to NAV in usa funds and Negative 7.3% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.5%

Percentage of fund in silver:38.0%

cash .5%

( March 19/2015)



Sprott gold fund finally rising in NAV

2. Sprott silver fund (PSLV): Premium to NAV falls to + 1.22%!!!!! NAV (March 19/2015)

3. Sprott gold fund (PHYS): premium to NAV falls to -.38% to NAV(March 19  /2015)

Note: Sprott silver trust back  into positive territory at +1.22%.

Sprott physical gold trust is back into negative territory at -38%

Central fund of Canada’s is still in jail.








And now for your more important physical gold/silver stories:



Gold and silver trading early this morning



(courtesy Mark O’Byrne)


Gold Surges – Fed Loses “Patience” and Signals Loose Monetary Policies to Continue

– Gold rose over 2% – Fed signals ultra loose monetary policies to continue
– Fed dampens expectation of a rate hike in June
– Yellen no longer “patient” – notes weakness in recent US economic data
– Fed knows that fragile, debt laden U.S. economy cannot handle higher rates
– Despite recent dollar strength, dollar vulnerable in long term
– Sole reserve currency status threatened in currency wars

Gold rose sharply following yesterday’s Fed announcement in which it was indicated that the Fed are unlikely to raise rates in June – although the possibility was not ruled out – due to the poorer economic data that has been emerging this year.

‘Helicopter Janet’

Gold rose after Fed Chair Yellen said that economic growth had “moderated somewhat” which means that ultra loose monetary policies look set to continue. The Federal Reserve dropped the word “patience” from its policy statement, stoking expectations for a mid-year rise in U.S. interest rates.

Many analysts regard this as further evidence that the Fed is caught in a bind. It needs to tighten monetary policy in order to rein in the developing bubbles in stock, bond and certain property markets. Stocks are seeing “irrational exuberance” once again and valuations surging despite declining earnings and dividends. Earnings and dividends are not likely to be improved given the weak economic data emerging from the U.S..

On the other hand, raising rates could cause the dollar to surge even higher in the short term, further undermining U.S. exports and the jobs market with a knock on effect on consumer confidence.

What is yet to be appreciated by most analysts is that it is unlikely that the massively over-leveraged and debt saturated financial system can weather increases in interest rates.

Global debt has ballooned since the 2008 crisis – itself a product of gargantuan debt. If consumers, investors, banks and other financial institutions are forced to service their debts at higher interest rates it will likely cause a new debt crisis and contagion.

Most likely the Fed will continue suggesting an imminent rate hike while plodding along as long as it can. But at some point rates will rise or the Fed will be overwhelmed when it finally becomes clear that they are reacting to events and are no longer in control of monetary policy.


Meanwhile, the dollar’s status as the world’s reserve currency continues to be undermined. Now, even its UK and European allies are beginning to adapt a more international approach to monetary affairs and not slavishly following Washington’s diktats.

Britain recently joined China in establishing a new infrastructure bank – the Asian Infrastructure Investment Bank (AIIB) – and is now being joined by France, Germany and Italy.

This new bank – which along with the BRICS bank will rival the U.S. dominated IMF and World Bank system – will not lend exclusively in dollars and will likely undermine the status of the dollar as sole reserve currency.

There has been much negative comment of gold in the financial sphere despite the fact that gold has been protecting investors in the Euro zone and in terms of other currencies gold has seen slight losses or has been thriving.

In dollar terms gold is marginally lower in the past year. Most currencies are lower than the dollar this year. But the undue status of the dollar as safe haven reserve currency is growing more questionable as we move from a uni-polar U.S. dominated world to a multi-polar world with an increasingly powerful China, India and Asia.

A new international currency order is emerging and we believe that certain countries, such as Russia and China, will bring back some form of quasi gold standard, using gold as backing, in order to bolster confidence in fiat currencies.

Gold will almost certainly be a foundation stone in a new international monetary system. Therefore, we expect it to be revalued to much higher levels in the coming years in dollar and all currency terms.

Must Read Guide: Currency Wars: Bye Bye Petrodollar – Buy, Buy Gold


Today’s AM fix was USD 1,164.00, EUR 1,091.52 and GBP 781.10 per ounce.
Yesterday’s AM fix was USD 1,149.00, EUR 1,080.50  and GBP 782.91 per ounce.

Gold climbed 1.96% percent or $22.50 and closed at $1,171.00 an ounce yesterday, while silver surged 3.21%  or $0.50 at $16.06 an ounce.

In Singapore, bullion for immediate delivery ticked lower after the sharp gains seen on Wall Street.

Yesterday’s dovish tone of the U.S. Fed policy statement that left out the word “patient” sent precious metals upward and pressurized the U.S. dollar.

The Fed downgraded its economic growth and inflation projections for the first time since 2006, hinting that it is in no rush to push borrowing costs to more normal levels. It also cut its median estimate for the federal funds rate.

It is important to note that the Fed has been suggesting it will raise rates for many years now.

Gold in US Dollars - 1 Week (GoldCore)

Chairwoman Janet Yellen also noted that the dollar would be a “notable drag” on exports and may be a downward force on inflation.

The U.S. central bank removed a reference to being “patient” on rates from its policy statement, opening the door for a hike in the next couple of months while sounding a cautious note on the health of the economic recovery.

Of interest is the fact that Fed officials also slashed their median estimate for the federal funds rate – the key overnight lending rate – to 0.625 percent for the end of 2015 from the 1.125 percent estimate in December.

In London’s late morning trading gold is at $1,165.75 or down 0.2 percent. Silver is at $15.88 or off 0.55 percent and platinum is at $1,118.97 or down 0.65 percent.

Updates and Award Winning Research Here







We will just have to wait and see what develops tomorrow!!


(courtesy Reuters/GATA)

Chinese banks won’t be part of new gold benchmarking at start, source tells Reuters


New Era of Gold Benchmarking to Start with Handful of Pioneers

By Clara Denina
Thursday, March 19, 2015

LONDON — A handful of banks will start setting gold prices electronically on Friday, sources with direct knowledge of the matter said, as Intercontinental Exchange completes a sweeping change to London’s bullion benchmarks and dispenses with the century-old gold “fix.”

Since 1919, representatives from four or five banks have agreed a twice-daily price on which their customers — producers, consumers, and investors — could trade and value gold.

Sweeping reform triggered by a regulatory push for more transparency after the Libor interest rate-rigging scandal broke in 2012, saw banks stop acting as both data providers and market makers. …

Banks will still submit orders during the process, as they currently do.

“I would like to think (there will be) more than the current (four) … but we’ll have to wait and see,” a source with direct knowledge of the matter said.

Current providers of the gold “fix,” Barclays, HSBC, Bank of Nova Scotia, and Societe Generale, declined to comment on whether they will participate. …

The LBMA, which will retain intellectual property of the new benchmark, had said that 11 entities intended to participate in the new mechanism from the start.

Industrial and Commercial Bank of China, Bank of China International and China Construction Bank, which are ordinary members of the LBMA, were unlikely to be in the list of new participants at this stage, the first source said. …

… For the remainder of the report:







Hugo advises Greece that they should also back their drachma with a silver coin:


(courtesy Hugo Salinas Price)


Hugo Salinas Price: Greece’s currency options go beyond predatory euro and laughable drachma


12:45p SGT Thursday, March 19, 2015

Dear Friend of GATA and Gold:

Greece’s options go beyond a currency controlled by its stupid creditors, the euro, and re-establishing a domestic currency, the drachma, which would purport to draw value from an economy whose main enterprises are welfare and tax evasion. That is, as Mexican Civic Association for Silver President Hugo Salinas Price writes this week, Greece could issue a commodity currency with intrinsic value, a silver coin whose value in drachmas would be guaranteed by the nation’s central bank never to fall. Salinas Price’s commentary is headlined “Letter to Alexis Tsipras from Hugo Salinas Price, Dated July 25, 2012,” and it’s posted at the civic association’s Internet site here:…

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






Talk is cheap


Bill Holter tackles yesterday’s FOMC announcement;


(courtesy Bill Holter/Miles Franklin)

 Yesterday the Fed made their announcement and deleted the famous word “patient”.  I have never seen such a nonsensical frenzy over anything, never mind a single word.  The reaction was everything …except the dollar was bid.  Sadly, reality has also been deleted as the Fed cannot “go there”, if they did and when they do (are forced to), life as we knew it will be history.  Reality is the global economy has stalled.  Most of Europe is in recession, China’s growth has stalled and the U.S., even with fudged numbers will not be able to show any growth.

  As recent examples, China’s real estate crashing at the fastest pace ever, Canada’s wholesale trade crashing, the Fed growth model show only .3% growth, housing starts dropped 17% and car sales have turned horrible.  The sovereigns Ukraine and Greece are clearly bankrupt and currencies have already been more volatile than any time in history.  Add to the previous an oil market that has collapsed and clearly a margin call has been issued.
  My topic today of a global margin call is a serious one and one which should be looked at with an eye towards the debt and derivatives markets.  For example, can the oil markets handle a 60% drop in product price without creating some dead and insolvent bodies?  Oil is the largest and most important commodity market in the world with $trillions borrowed to drill, frack, produce, refine and ship to market.  Some of this debt has been impaired and will never be paid back, who will take the losses?  Someone, somewhere MUST take the losses,  ultimately it will be whoever originally lent the capital.  Ah yes, we will hear “but they were hedged”.  I would ask how and by whom because as just mentioned, “someone must eat the loss”.  The funny thing about debt is this, unless it is paid off, it never goes away and must be accounted for somewhere and by someone or entity.
  Oil is just one market.  What about the derivatives on currencies?  Or sovereign treasury securities?  What about stock markets?  I ask these questions because one must question whether any central bank on the planet can ever actually tighten or if any treasury can employ austerity?  Think about this long and hard.  Central banks all over the world have been easing and printing while nearly all treasuries are deficit spending …and yet here we are with real economies stuck in the mud and financial markets with more leverage and less ability to perform than ever before.
  The above is unfortunately lost on our academics driving the financial bus. While listening this morning to former Fed governor Robert McTeer, he actually said the Fed should just “let ‘er rip and raise rates, who’s afraid of a quarter point hike in rates after six years of 0%?”  He also said the Fed did not initially lower rates for the stock market but it is a “referendum” on their policy.  A few questions might be in order starting with a one worder, REALLY?  The Fed does not act to affect the stock market?  Do QE’s 1, 2, and 3 come to mind at all?  Weren’t the stock markets collapsing and promptly reversed with each QE announcement?  Yes I know, the plunge protection team is a minion of the Treasury, the Fed would never stoop so low…  And what exactly does a “measly” quarter percent hike in rates mean?
  In relation to one quarter point, a quarter point is a 100% increase …and here’s the rub.  Everything from real estate to stocks and of course bonds are “based” or calculated doing an interest rate assumption.  Using an interest rate, one can calculate how much of a mortgage they can carry or how much cash flow from a commercial or rental property is required to carry the note.  As for stocks, PE ratios are discounted off of a base interest rate, a higher rate will generally mean a lower price.  Bonds of course are directly inverse to interest rates.  As I mentioned yesterday, the aspect of “front running” to exit is the problem we will now face.  In other words, if you know or believe a margin call is going to be issued, your natural reaction will be to exit ahead of time …which creates a problem.
  This problem arises because the “exit door” is so small.  What I am trying to say is this, volume has decreased markedly over the last several years and in particular the last year.  How exactly do investors actually exit?  This is not a problem for Mom and Pop, it is a problem for those managing their pension plans.  How will money managers with $billions under management get out?  Who will stand as a buyer?  If you are a seller, there must be a buyer …but at what price?  Do you see?  Any moves to exit or get out of the way will be self fulfilling in the form of a crash.  More and more leverage has built in all markets as they went higher and higher, but volume has become less and less.  Now, the Fed wants you to believe they will actually raise rates, it is like a lifeguard whistle telling everyone to get out of the water.  But how?
  Before finishing, the action of the dollar needs to be looked at.  The dollar has been on a wild tear to the upside.  Higher interest rates would presumably exacerbate this, but, there is a problem with this.  A higher dollar will create more inflation for already inflation stricken countries and also cause financial stress for those short dollars.  Remember, the financial system as a whole has never been more levered than it is now and rarely been under the current stress.  A higher dollar will increase the stress on the financial system to the breaking point, yet with this much leverage nothing can be allowed to fail because it will spread like a virus.
  Talk is cheap as the saying goes, but it is all the Fed can afford to do at this point.  Higher rates cannot be allowed to happen, they certainly cannot be “policy” because it is suicide.  I will be shocked if next move by the Fed is not the exact opposite of what they are talking about currently.  The next move by the Fed in my opinion will be a massive QE4 to try to stop a tsunami of panic engulfing everything financial.   Regards,  Bill Holter.

And now for the important paper stories for today:



Early Thursday morning trading from Europe/Asia



1. Stocks generally higher on major Chinese bourses (only India’s Sensex and Nikkei lower)/yen falls to 120.69

1b Chinese yuan vs USA dollar/yuan skyrockets to 6.1958

2 Nikkei down 67.92 or 0.35%

3. Europe stocks mostly in the green/USA dollar index up to 98.58/Euro falls to 1.0697

3b Japan 10 year bond yield .32% (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.69/

3c Nikkei still above 19,000

3d USA/Yen rate now below 121 barrier this morning

3e WTI  43.00  Brent 55.02

3f Gold down/Yen down

3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion.  Japan’s GDP equals 5 trillion usa.

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.

3h  Oil down for both WTI and Brent this morning.

3i European bond buying continues to push yields lower on all fronts in the EMU

Except Greece which sees its 2 year rate rise to 22.88%/Greek stocks down again by a huge 1.24%today/expect continual bank runs on Greek banks.

3j  Greek 10 year bond yield:  11.27% (up  by 46 basis point in yield)

Greece needs another 2 million euros raiding their pension fund.

3k Gold at 1166.00 dollars/silver $15.89

3l USA vs Russian rouble;  (Russian rouble down  1/2 rouble/dollar in value) 59.96 despite lower oil prices

3m oil into the 43 dollar handle for WTI and 55 handle for Brent

3n Higher foreign deposits out of China sees hugh risk of outflows and a currency depreciation.  This scan spell financial disaster for the rest of the world/China may be forced to do QE!!

30  SNB (Swiss National Bank) still intervening again in the markets driving down the SF

3p Britain’s serious fraud squad investigating the Bank of England/ the British pound is suffering

3r the 7 year German bund still is  in negative territory/no doubt the ECB will have trouble meeting its quota of purchases and thus European QE will be a total failure.

3s  Netanyahu wins Israeli election/direction is to the right/drops negotiations with Palestinians to form a Palestinian state

3t Greece to auction 1.3 billion euros to cover Friday’s treasuries expiry.

3u ECB gives Greece only an additional 400 million euros for its emergency ELA



4.  USA 10 year treasury bond at 1.95% early this morning. Thirty year rate well below 3% at 2.51%/yield curve flatten/foreshadowing recession.

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.



Dollar Regains Most Of Yesterday’s “Flash Crash” Losses. Oil Resumes Slide; 10Y Under 2%


If it was the Fed’s intention to slow down the relentless surge in the dollar with yesterday’s “impatient” removal which blamed the dollar strength on the “strength” in the US economy, it promptly failed after algos and a few carbon-based traders looked at the Atlanta Fed andrealized that a 0.3% Q1 GDP print is anything but “strong.” As a result the EURUSD, after soaring by nearly 400 pips yesterday in a market reminiscent of a third-world FX pair’s liquidity especially following the previously noted USD flash crash, the dollar has recoupped nearly all losses, and the DXY is once again on the way up and eyeing the resistance area of 100.

Of course, the only Fed intention was to push stocks higher, where it certainly succeeded compliments as usual of Citadel, and the S&P futures are flat since yesterday’s epic surge, which saw the market move from red to the year to just shy of all time highs. So as Larry Kudlow said“Just enjoy it: stocks are going up.

One place where the resumption in dollar strength, however, has promptly manifested itself, is the price of crude, which soared yesterday as EURUSD rate differentials sent it soaring, At last check, WTI had fallen back to $43/bbl as focus returns to U.S. supply glut that saw prices fall to 6-yr low yday before FOMC policy statement gave prices a boost in U.S. afternoon. Yesterday’s gain ended a six-day losing streak. Today, Brent futures down less, allowing premium to WTI to widen toward $10. U.S.

“Markets had anticipated a stronger commitment from the Fed to start the interest rate hike sooner-rather-than-later; as this did not happen, the dollar weakened,” says Global Risk Management oil risk manager Michael Poulsen. “The weaker dollar made dollar-priced commodities, such as oil, increase.” Not for long though, and as the math turns to how long it takes before the US runs out of oil storage capacity, the bigger “June countdown” is not to the next FOMC meeting, but when in June the US will no longer be able to warehouse any unusued oil (aspresented first here).

Another asset class that has seen a far stickier response to the Fed’s statement in addition to stocks were bonds, with the US 10Y trading well under 2.00% again, even as the German Bund plunged just off record lows, and was at  0.18% at last check. Still, this is well above the negative print we (jokingly) predicted the German 10Y paper would see within 48 hours of the FOMC statement.

But one place whose assets are not benefiting from the Fed’s generosity at all, and which inexplicably trade with something called “risk” is Greece, whose 10 Year continues to surge, and was at 11.3% at last check, the widest since 2013, as fears the country may actually really Grexit this time around get louder and more credible by the day.

Unlike other asset classes, European equities have held relatively steady in the wake of the FOMC release. Stocks in Europe were left relatively unphased by the more dovish than anticipated Fed release as the subsequently stronger EUR would not do the European export sector any favours, therefore over-looking the move higher in US stocks. On an index specific basis, the DAX initially saw some underperformance following a downbeat update from Siemens which has subsequently weighed on the index-heavyweights shares. Elsewhere, the FTSE MIB outperforms on bid speculation for Pirelli and the FTSE 100 is being supported by miners after the move higher in metals markets yesterday. In fixed income markets, USTs have held steady at their post-FOMC best levels, while Gilts lead the way higher in a catch up play from the early UK close. In terms of macro news, according to sources, the ECB have approved EUR 400mln extension to their ELA programme, although this figure is reportedly not as much as had been requested by the Greek central bank. As such, focus on Greek/Europgroup negotiations still remain in vogue and the Greek 10yr yield resides at its highest level in a month.

In the 3rd TLTRO the ECB allotted EUR 97.848bln vs. Exp. EUR 40bln, which given the potential uptick in Eurozone liquidity saw EUR/USD tick lower by just under 20 pips, while modestly lifting Bunds and Euribor.

Asian equities traded mostly higher in the wake of the FOMC statement with the exception of the Nikkei 225 (-0.35%) which was weighed on by the subsequent JPY strength. However, Japanese stocks have since narrowed the losses on news that three large Japanese pension funds who manage around USD 250bln of assets will move funds away from fixed income markets and into equities, in addition to USD/JPY recovering as the session progressed. The ASX surged overnight as participants factored in the implications of lower rates for their domestic economy, with the index also supported by higher basic material prices.

FX markets have seen the greatest source of traction, with the USD-index (+1.2%) paring a bulk of yesterday’s significant slide, much to the detriment of its major counterparts with EUR/USD down in excess of a point. Today has once again also been another one for the central banks with the SNB keeping rates on hold at -0.75% as expected, although EUR/CHF was weighed on as some participants had been looking for the SNB to cut rates further. Elsewhere, the NOK has seen a dramatic strengthening against EUR after the Norges Bank unexpectedly kept rates on hold despite their Scandinavian counterpart Sweden cutting rates yesterday and increasing their bond-buying programme.

In the commodity complex, price action for Brent and WTI has largely been swayed by the aforementioned stronger USD. As such WTI crude futures trade lower by around USD 1.50, although still remain north of their lows heading into the Fed meeting. Spot gold and silver nonetheless still reside in close proximity to their post-FOMC levels given the attractiveness of gold as an inflation-hedge, with commodity newsflow otherwise light.

In summary: European stocks head toward highest level since 2000 after Fed said data indicated economic growth has moderated, fueling speculation it won’t be in a rush to raise interest rates. SNB keeps deposit rate at record low, Norway signals reduction after unexpectedly holding rate. Siemens sees ‘soft’ industrial business profit margin in 2Q. The Italian and Swedish markets are the best-performing larger bourses, German the worst. The euro is weaker against the dollar. Japanese 10yr bond yields fall; German yields decline. Commodities decline, with WTI crude, Brent crude underperforming and nickel outperforming. U.S. jobless claims, continuing claims, Bloomberg consumer comfort, Bloomberg economic expectations, Philadelphia Fed index, leading index, current account balance  due later.

Market Wrap

  • S&P 500 futures down 0.2% to 2087.4
  • Stoxx 600 up 0.7% to 401.3
  • US 10Yr yield up 2bps to 1.94%
  • German 10Yr yield down 1bps to 0.18%
  • MSCI Asia Pacific up 0.8% to 147.1
  • Gold spot down 0.1% to $1165.9/oz
  • 71.2% of Stoxx 600 members gain, 26.7% decline
  • Eurostoxx 50 +0.2%, FTSE 100 +0.3%, CAC 40 +0.2%, DAX +0.1%, IBEX +0.4%, FTSEMIB +0.8%, SMI +0.4%
  • MSCI Asia Pacific up 0.8% to 147.1, Nikkei 225 down 0.3%, Hang Seng up 1.4%, Kospi up 0.5%, Shanghai Composite up 0.1%, ASX up 1.9%, Sensex down 0.2%
  • Euro down 1.72% to $1.0677
  • Dollar Index up 0.3% to 98.85
  • Italian 10Yr yield down 5bps to 1.26%
  • Spanish 10Yr yield down 5bps to 1.22%
  • French 10Yr yield down 2bps to 0.45%
  • S&P GSCI Index down 0.3% to 394.8
  • Brent Futures down 0.8% to $55.4/bbl, WTI Futures down 3% to $43.3/bbl
  • LME 3m Copper up 1.8% to $5771.5/MT
  • LME 3m Nickel up 1.8% to $13750/MT
  • Wheat futures up 0.2% to 511.8 USd/bu

Bulletin headline summary

  • European equities trade higher alongside a pullback in EUR strength, much to the benefit of the European export sector
  • SNB (as expected) and Norges Bank (unexpectedly) hold fire on cutting rates
  • Looking ahead, today sees the release of the weekly US jobs data and potential comments from Fed’s Tarullo
  • Treasuries modestly lower, paring some of gains seen yesterday after FOMC reduced estimates for how much fed funds rate is likely to rise this year and next, forecasts for GDP and PCE inflation.
  • Behind the Fed’s wary stance is a surge in USD, triggered in part by easier monetary policies abroad, and which is repressing already too-low U.S. inflation while restraining economic growth
  • The ECB raised the maximum amount of emergency liquidity available to Greek lenders by EU400m, less than the Greek central bank requested, people familiar with the decision said
  • Greek Prime Minister Alexis Tsipras heads to a EU summit hoping for a political breakthrough as German Chancellor Angela Merkel works to regain control over efforts to keep the euro- area together
  • U.K. PM Cameron will arrive in Brussels Thursday seeking to burnish his credentials as the best person to fight for British interests in the European Union during the bloc’s final summit before the May 7 U.K. election
  • Norway’s central bank unexpectedly left rates unchanged and signaled it’s prepared for more pronounced monetary easing to protect the economy against a plunge in oil prices
  • SNB President Thomas Jordan pledged to keep interest rates at a record low to weaken the franc after acknowledging that dropping his defense of the currency added to challenges for the economy
  • Sovereign 10Y yields mostly lower; Greece 10Y +21bps to 11.48%. Asian stocks mostly higher, European stocks gain, U.S. equity-index futures decline. Crude and gold lower, copper rises


DB’s Jim Reid as customary concludes the overnight summary



The Fed divorced itself from its previous rate forecasts with a pretty major down-scaling of their dots. YE 2015 was cut 50bps to 0.625%, 2016 was cut 63bps to 1.875% and 2017 was reduced 50bps to 3.125%. These have been looking odd for sometime given where the market was and the international trends (easing across the globe) and the likelihood of negative inflation over the summer. However even though the Fed moved, the market also moved with Dec 15, 16 and 17 futures contracts falling 20bps,18bps and 19bps to imply rates at 0.4%, 1.1% and 1.7% respectively at the end of the next 3 years. So the dots were probably the main story as the dropping of patient was expected. Outside of this not much has really changed as the Fed will still be data dependent but it’s becoming increasingly apparent that inflation is gaining more Fed attention relative to employment, especially as the Fed also marked their longer-run unemployment rate down (i.e. suggesting more slack than previously thought). Overall we continue to think a rate rise in 2015 will still be tough with headline inflation likely to be negative all summer and markets likely to take fright as a hike comes into view. One word of caution to this view would be if we have more days like yesterday where we saw a sizeable dollar correction and a commodities rally. If sustained then the inflation outlook might recover more quickly. So nothing is preordained.

Our view has long been that European equities would out-perform US through all of 2015. However if the Fed end up pushing back rate rises more and more, the pace of this trade will likely slow. We don’t think it reverses as Europe still have the upper hand with heavy QE but the easy part of the trade might be over given the move to a more dovish Fed. Maybe the trades that have worked well in 2015 might get a bit more two-way flow now that there are some doubts about the Fed.

Indeed the currency reversal was one of the highlights post Fed. The Euro had traded below $1.06 before the US market opened but a few hours later and after the FOMC it hit a high of $1.104 before settling down and closing at $1.086 (+2.52%) which is roughly where it is now. The broader DXY closed 1.04% weaker and has declined another 0.3% this morning. Amazingly, the intraday high to low range for the Euro was 4.4% which is the second highest on record since the commencement of the single currency in 1999. In fact, it was higher than any move we saw during the height of volatility in 2008/09 and second only to the move in September 2000 when we had the coordinated Central Bank intervention to support the Euro. Equity markets bounced with the S&P 500 closing +1.22% yesterday having traded some -0.6% intraday in the run up to the statement and credit markets rallied also with CDX IG 3bps tighter. There was a significant move in Treasuries too with the rally led by the belly of the curve with 5y (-16.5bps) and 10y yields (-13.1bps) rallying to 1.39% and 1.92% respectively. The latter is now back at early February levels. Commodity markets rebounded also, led by oil with WTI (+2.76%) and Brent (+4.49%) rallying hard. Gold (+1.57%) temporarily halted a recent slide with the largest single day rise since January 30th.

Quickly refreshing our screens this morning, most major bourses are trading firmer in Asia. The Shanghai Composite (+0.27%), Hang Seng (+1.31%) and Kospi (+0.40%) in particular are following the US lead. The Nikkei (-0.43%) is the exception, not helped by yesterday’s rally in the Yen. The better sentiment has helped fuel a rally in Asian credit too. The iTraxx Asia is 4bps tighter while 5y CDS in China (-5bps), Indonesia (-9bps) and Malaysia (-8bps) are firmer.

Back to yesterday, although something of a sideshow, there were contrasting moves in European sovereign bond markets with 10y benchmark yields in Germany (-8.5bps) and France (-6.3bps) rallying, but peripheral yields selling off some 2-10bps – perhaps reflecting the renewed Greece concerns. The sell-off in Bunds over the previous four days has in fact now been wiped out with yesterday’s rally with the 10y hitting a new record low at 0.197% – closing below 0.2% for the first time. Equity markets were more mixed on the other hand. The Stoxx 600 (+0.33%) closed firmer while the DAX (-0.48%) declined and peripheral markets were largely mixed.

Data was focused in the UK where readings were generally in line. The ILO unemployment rate was unchanged at 5.7% yoy and the claimant count ticked down a tenth of a percent to 2.4% yoy. Average weekly earnings were on the weaker side however with the 1.8% yoy reading below expectations of 2.2%. In terms of yesterday’s Budget, DB’s George Buckley noted that overall it did little to change the fiscal picture. Rather, the Chancellor delivered a number of electoral sweeteners that were broadly offset by plans to clamp down on tax evasion, among other measures, resulting in a broadly neutral budget over the forecast horizon. Meanwhile the Office for Budget Responsibility upgraded the growth forecasts for the UK by a relatively modest 0.1% in 2015 and 2016 to 2.5% and 2.3% respectively.

Focus today could well be on Greece where PM Tsipras is due to meet with the ECB’s Draghi, Germany’s Merkel, France’s Hollande and the EC’s Juncker on the sidelines of the EU summit. Yesterday we heard that the ECB had approved an increase in the ELA ceiling for Greek banks for €400bn while the government auctioned €1.3bn of T-bills ahead of the upcoming February maturities. Despite beginning technical discussions, progress so far appears to be limited with tensions between Greece and the German government continuing to run high. DB’s George Saravelos notes that this, along with the diminishing cash position for the Greek government is only adding to the continued concerns. Clearly a lot still needs to be done with a resolution still far from certain. A successful conclusion first of all to the current program review needs to be completed followed by this being passed through Greek parliament via legislation, which in turn would allow funding to be disbursed.

Recent talks on the European side of potential capital controls and also talks on the Greece side of a possible referendum highlight the delicate situation. George now puts equal probability on each of the three possible outcomes; 1) No agreement and suspension of ECB financing, 2) Full agreement followed by parliamentary ratification and 3) Reluctant agreement followed by a referendum. Clearly a lot of uncertainty lies ahead.

Just wrapping up Europe, there was more focus on Sweden yesterday when the Riksbank – in an unscheduled move – cut its repo rate deeper into negative territory, lowering the rate 15bps to -0.25% having previously eased last month. At the same time the Central Bank quadrupled its quantitative easing programme to 40bn Kronor as inflation continues to run well below target. The Kronor weakened 1.27% versus the Euro yesterday following the move.

Yesterday ahead of the roll to series 23 of the iTraxx indices we published a note looking at how the new series compares with the previous series looking at the rating and geographical breakdown of the indices as well as assessing where spreads should broadly trade on the new indices. The roll to the new Main series provides us with the greatest changes as the index replaces 5 consumer names with 5 financial names, increasing the number of financials to 30. The FV levels for the new series 23 indices are around 57bps, 59bps, 139bps and 279bps for the Main, Financial Senior, Financial Sub and Crossover indices respectively with the FV roll levels broadly in the region of +6bps, +4bps, +4bps and +7bps for the same indices respectively.

It’s a quiet calendar in Europe this morning with no notable releases to speak of. However the EU leaders summit could well generate some Greece-related headlines. In terms of the first data releases post FOMC this afternoon, we’ve got jobless claims, the February leading index and also the Philadelphia Fed business outlook to look forward to.






Greek bank deposits are falling badly with words that capital controls will be upon Greece very shortly.  Greece got only 400 million euros of emergency ELA after requesting 900 million euros.  They need 2.0 billion euros by tomorrow to repay the IMF and fund the next tranche of treasury bills:



(courtesy zero hedge)




Greek Bank Deposit Outflows Spike As Capital Controls Concern Spreads


With Greek bank bonds collapsing, stocks near record lows, Greek default risk at post-crisis record highs, and Greek government bond yields spiking, it has been surprisng that we have not seen the ATM lines and generalized ‘panic’ of a population in fear of being “Cyprus’d.” Well, now as ekathimerini reports, that appears to escalating and rapidly as credit sector officials estimated that the flight of deposits yesterday alone amounted to 350-400 million euros, which wassome five times higher than the daily average in previous days.

As ekathimerini reports, Greek banks are suffering from fresh turbulence due to the tension and the apparent collision course between Athens and its creditors. Bank stocks gave up more than 8 percent of their value on Wednesday, while the outflow of deposits was far greater than on previous days.

Credit sector officials estimated that the flight of deposits yesterday alone amounted to 350-400 million euros, which was some five times higher than the daily average in previous days. They added that Wednesday’s withdrawals totaled the most since an agreement was reached at the February 20 Eurogroup meeting.

This followed Tuesday’s statement by Eurogroup chief Jeroen Dijsselbloem regarding the possibility of imposing capital controls in Greece. There was also a flurry of statements from Greek and European officials that aggravated the climate between the two sides, a phenomenon that continued on Wednesday. As we noted previously…

The Eurogroup cannot impose capital controls on Greece. Our understanding is that only the Greek government can impose capital controls (restrictions on bank withdrawals, cross-border transfers) and this would require the consent of the European Commission, as guardians of the single market.


Tsipras knows how unpopular this move would be and has no desire to be driven into it. The ECB could force Greece by making capital controls a condition for continued ELA, but is trying hard to avoid becoming an active player in the Greek drama.


Still, a resumption of accelerated deposit drain as the conflict between Greece and its creditors continues seems quite plausible. And if this happens the list of options is very thin.


The fact that Dijsselbloem has highlighted the possibility of capital controls makes this outcome more likely.Depositors may now withdraw funds to avoid restrictions on their bank accounts and end up forcing the very imposition of capital controls their individual actions were intended to preempt.


What is going on? One possibility is that Dijsselbloem made a rookie mistake at a time when he is deeply frustrated with Athens. Another is that he fully intended to ramp up pressure on the Greek government to move forward with program implementation by raising the specter of Greek citizens being unable to access their bank accounts. Neither is particularly encouraging.

In this context banks are worried about a new surge of withdrawals while the credit system is at a marginal point and with the European Central Bank only supplying liquidity drop by drop.

On Thursday the governing council of the ECB is expected to renew the financing of Greek lenders through the Bank of Greece’s emergency liquidity assistance (ELA) mechanism and will probably increase the limit of funding that now stands at 69.4 billion euros. The increase will again be small, just as was the case at the last few meetings of the ECB board, aimed only at covering necessary cash needs.

Deposits and the credit system have taken a big blow in the last few monthsdue to the political and economic uncertainty as well as the absence of any progress toward finding a solution to the standoff between Greece and its creditors. Banks estimate that the deposits of households and enterprises have declined by as much as 26 billion euros since the end of November, and today amount to no more than 138 billion.

Bank of Greece data showed that deposits shrank by 4 billion euros in December and went on to drop by 12 billion in January. Bankers estimate that the outflow has amounted to another 10 billion euros since early February.Therefore deposits have declined to their lowest level since the outbreak of the financial crisis in 2010, while banks’ smooth operation is secured by the funding of the Eurosystem.




Domestic lenders had tapped a total of 104 billion euros through the ELA mechanism of the BoG and from the ECB by end-February.

Of course the liquidity crisis has had a direct impact on the issue of loans. According to credit sector officials, all procedures for the issue of new loans have been frozen for the last few months, thereby reversing plans for a credit expansion within 2015.

They also point out that unless there is an agreement between the government and its creditors soon, in order to lift the uncertainty, then the consequences on the Greek economy will be such that they will be impossible to reverse even if a better agreement is eventually reached with the country’s eurozone peers.

*  *  *

The massive surge in deposit outflows should be no surprise…

 My goodness what is Tsipras thinking:  last week he raids pensions and this week he raids the utilities by giving them worthless bonds for their euros:
(courtesy zero hedge)



After Pillaging Pensions, Greece Raids Utilities To Repay Troika; Bonds Plunge As Bank Run Accelerates


Following yesterday’s news that the ECB is now running simulations on what a Grexit would mean for Greek bond prices (spoiler alert:
“fundamentals” suggest a 95% loss), overnight we got more confirmation that Mario Draghi continues to tighten the screws on the Greek sovereign corpse, whenBloomberg reported that the ECB once again raised the maximum amount of emergency liquidity available to Greek lenders by €400 million, but less than the Greek central bank requested, people familiar with the decision said.

The increase was approved by the ECB’s Governing Council on Wednesday, the people said, asking not to be identified as the council meeting was private. Greece requested about 900 million euros, one of the people said. The increase should take ELA to about 70 billion euros. Policy makers raised the limit by 600 million euros on March 12, after a boost by 500 million euros to 68.8 billion euros on March 5. Greek banks haven’t used all their ELA and have a total of about 3 billion euros in liquidity available, one of the people said.

However, not a single penny from this additional emergency “liquidity” would enter the economy, as all of it was merely provided to offset the ever faster Greek bank run because as Reuters reported, on WednesdayGreek banks saw deposit outflows of €300 million,the highest in a single day since a February deal with the euro zone that staved off a banking collapse, two senior Greek bankers familiar with the matter said on Thursday.

“The uncertainty over the lack of progress in negotiations and the negative newsflow has affected sentiment,” one banker told Reuters. “It’s not a huge amount but the worry is whether this is the start of a trend that could get worse.”


“Under the current climate, with worries of a ‘Grexident’, savers are unlikely to return cash to the banking system soon,” said another banker. “Outflows may continue ahead of this weekend.”

Congratulations to those who were among the Greeks who successfully withdrew the €300 million: this is probably one of the last batches of capital permitted to be pulled from Greek banks. For now the ECB has granted Greece a few more days (hours) in which deposit withdrawals are permitted. However, all that will cease and Greece will be “blueprinted” the moment the ECB announces that there will be no more ELA boosts and it’s all over.

Meanwhile, the Greek government, instead of seriously contemplating a Plan B outside of the Eurozone, was busy thinking of new ways to raid its own population just to repay the “loathed” Troika.

 In the latest sad indication of just how truly insolvent Greece is, Reuters also reported that days after raiding its own Pension funds to repay the IMF (which in turn lent the cash to Ukraine so it could repay Ukraine’s obligations to Gazprom and thus Putin), the Syriza government is now raiding the major state utility firms to lend the government cash through short-term repo transactions as it scrambles to avoid running out of cash.

Prime Minister Alexis Tsipras’s government has already resorted to dipping into the cash reserves of pension funds through such transactions, officials told Reuters earlier this month.


Kathimerini, citing unnamed sources, said the government was calling on the main utilities, such as the Athens Water Co (EYDAP) and the Public Power Company, to undertake repo transactions in which state entities lend money to the Greek debt agency through a short-term repurchase agreement.


Kathimerini also named the telecoms company OTE as on of those that Athens could look to for cash, though the Greek state only holds a 10 percent stake in OTE. The company is 40 percent-owned and managed by the German telecoms giant Deutsche Telekom. PPC, EYDAP and OTE had no immediate comment.

This is how the market assessed the latest batch of Greek developments: Greek bond yields just soared to the highest in two years!

Needless to say, unless Greece is actively negotiating right now, not only how to implement the current bailout, but the terms of the third Greek bailout as well (which will likely demand a left kidney from every Greek citizen as collateral), it is all over.







This is not good.  Washington retaliates by placing anti missile batteries into Poland as well as initiate rapid response drills.  Putin will not like this at all;


(courtesy zero hedge)





Washington Retaliates: Shifts Anti-Missile Battery Into Poland, Begins Rapid-Response Drills




In yet another sign that Washington is keen on preserving the sanctity of sovereign nations’ right to choose peaceful democracy over violent tyranny, the US is set to use Poland as a staging ground in an effort to prove (because some folks weren’t sure) that despite the UK’s inexplicable reluctance to engage in an arms race with Russia and China, the US can still blow things up at the drop of a dime. Here’s The State Dept with more:

This week the U.S. Army deployed to Poland about 30 vehicles and 100 troops from the 5th Battalion/7th Air Defense Regiment, based in Germany. The U.S. soldiers will train for several days with Polish troops from the 37th Missile Squadron of Air Defense, the 38th Support Squadron, and the 3rd Brigade of Air Defense Command.  

The American forces will set up their Patriot air and missile defense assets in Poland to demonstrate the U.S. Army’s capacity to deploy Patriot systems rapidly within NATO territory.  Training elements will include defending high value assets, ground forces, and population areas from ballistic missiles and air strikes.

Yes, “rapid deployment” of missiles systems. This makes a lot of sense because as we explained yesterday, Vladimir Putin (fresh from an as yet unexplained media hiatus), is busy conducting “snap combat readiness drills” in territories which the Kremlin has Santander-Consumer-style repossessed. But that’s certainly not the only reason for the White House’s move to ratchet up its Eastern European war readiness. As we noted on Monday, Moscow recently made it clear that it isn’t afraid to instigate a nuclear holocaust if it means defending Russia’s natural right to annex a peninsula:

Having re-emerged from his hibernation, Vladimir Putin is wasting no time getting back to business. Having paced 40,000 troops on “snap-readiness,” AP reports that a documentary which aired last night shows Putin explaining that Russia was ready to bring its nuclear weapons into a state of alert during last year’s tensions over the Crimean Peninsula and the overthrow of Ukraine’s president, and admitted well-armed forces in unmarked uniforms who took control of Ukrainian military facilities in Crimea were Russian soldiers. In the documentary, which marks a year since the referendum, Putin says of the nuclear preparedness, “We were ready to do this … (Crimea) is our historical territory. Russian people live there. They were in danger. We cannot abandon them.”

So regardless of how rational that sounds (i.e. some people who may or may not be Russians live there, so it makes sense that we would deploy nuclear weapons on anyone who questions our right to unilaterally commandeer an entire republic), the US isn’t necessarily ok with what the West perceives as unnecessary acts of aggression and so, in order to counter the idea that military posturing is an effective foreign policy tool, Washington will get more aggressive militarily:

All of these Operation Atlantic Resolve exercises aim to reassure allies and demonstrate the freedom of movement of NATO defense assets throughout NATO territory.  The United States remains dedicated to maintaining a persistent rotational presence of air, ground, and naval resources in Poland and the Baltic States as long as the need exists to reassure our allies and deter Russian aggression. 

Meanwhile, US allies such as the UK, Australia, and South Korea are set to join the China-led Asian Infrastructure Development Bank and Greek PM Alexis Tsipras is scheduled to meet with Putin next month in what looks like an attempt to undermine the perception of Western economic dominance. In the end, we’ve got posturing on both sides, and with the US seemingly determined to make a show of strength in the Kremlin’s backyard, things could get interesting.

Stay tuned.

Russia’s response:

Russian Submarine Activity Surges 50% Since 2014, Admiral Claims “Not Saber-Rattling”

With US forces moving into Poland, Russian “rapid-response” drills underway, and navy exercises in the Baltic Sea, the idea of “saber-rattling” now seems obvious. However, as NATO closes in on its borders, the Russian Navy’s commander, Admiral Chirkov, stated that the intensity of Russian submarines’ combat patrol missions has been up 50% since the beginning of 2014. As the nation celebrates “Submariner Day”, Chirkov explained, “we do not indulge in saber rattling… this is necessary and natural for guaranteed security of the state.”



As TASS reports,

The intensity of Russian submarines’ combat patrol missions has been up 50% since the beginning of 2014, the Russian Navy’s commander, Admiral Chirkov, said on the occasion of Submariner Day.



“I can say that the intensity of combat patrol missions by strategic and multi-role nuclear-powered submarines in the World Ocean is maintained at a level that guarantees the security of our country.


Moreover, I should say that in January 2014 through March 2015 the intensity of combat patrol missions by our submarines has been up by 50% in contrast to 2013,” Chirkov said.


“This is necessary and natural for guaranteed security of the state,” Admiral Chirkov said. “We do not indulge in saber rattling. We are just regaining our foothold,” he said.



Chirkov said last year alone ten crews were trained for Northern and Pacific Fleet submarines, expected to patrol various parts of the World Ocean.

*  *  *

This comes a day after Chirkov explained that Russia will upgrade 10 of its multi-purpose nuclear submarines…

“This process is accompanied by the work to maintain the combat readiness of existing-project strategic nuclear submarines and their basic armaments,”the Navy chief said.

* * *

Nope, no saber-rattling byu eother side at all…

Yesterday we reported the major countries of Europe have abandoned Obama and joined the new development bank orchestrated by China.
Today, Luxembourg and surprisingly South Korea joins/another huge dagger into the heart of the uSA dollar:
(courtesy zero hedge)

De-Dollarization Accelerates As More Of Washington’s “Allies” Defect To China-Led Bank

The global de-dollarization trend continues as it appears the UK’s move to join the China-led Asian Infrastructure Development Bank has indeed shown other US “allies” that spurning Washington’s advice is actually acceptable and concerns about the institution’s “standards” may simply be a diversion aimed at undermining China’s attempt to exercise more influence in its own backyard. Here’s more from the NY Times:

Ignoring direct pleas from the Obama administration, Europe’s biggest economies have declared their desire to become founding members of a new Chinese-led Asian investment bank that the United States views as a rival to the World Bank and other institutions set up at the height of American power after World War II.


The announcement on Tuesday by Germany, France and Italy that they would follow Britain and join the Chinese-led venture delivered a stinging rebuke to Washington from some of its closest allies. It also called into question whether the World Bank and the International Monetary Fund, which grew out of a multination conference in Bretton Woods, N.H., in 1944 and established an economic pecking order that lasted 70 years, will find their influence diminished.


The announcement by Germany, Europe’s largest economy, came only six days after Secretary of State John Kerry asked his German counterpart, Frank Walter-Steinmeier, to resist the Chinese overtures until the Chinese agreed to a number of conditions about transparency and governing of the new entity. But Germany came to the same conclusion that Britain did: China is such a large export and investment market for it that it cannot afford to stay on the sidelines.

South Korea, another US ally that the Obama administration has not-so-subtly lobbied to stay out of the AIIB for the time being, is reportedly reconsidering a bid to join and although reports that Seoul had already committed to the venture appear to have been a bit premature, the country will make a decision this month and is expected to discuss specifics this weekend at a meeting with Chinese and Japanese officials. Here’s FT:

The foreign ministers of China, Japan and South Korea will meet in Seoul this weekend for the first time in three years, in an effort to calm tensions in the region.


The trio have strong economic ties but frosty relations. International angst about this state of affairs among the regional superpowers has been further piqued by the Asian Infrastructure Investment Bank, a Chinese-led initiative sparking alarm in Washington and proving divisive elsewhere.

Meanwhile, even Europe’s own “magical fairyland” is taking the plunge. Via Bloomberg:

China welcomes Luxembourg’s application to be a founding member of the Asian Infrastructure Investment Bank, China’s finance ministry says in a statement on website.

And so, with the most European of European countries on the bandwagon, and with South Korea leaning unmistakably towards joining up, we say again:

Bottom line: this isn’t theory or conjecture anymore. Every shred of objective evidence suggests that the dollar’s dominance is coming to an end.

China is set to give Venezuela a badly needed 5 billion dollar loan:
(courtesy zero hedge)

Amid “US Coup”, Venezuela Takes Another $5 Billion Loan From China

The people of Venezuela can rejoice… not so fast. Amid paranoid-sounding (though not unlikely) rantings about US-created coups (and blaming ‘economic’ war for his nation’s Socialist utopia hyperinflation), it appears President Maduro just got another life-line (or more rope to hang himself). After begging China’s leader Xi early in January for moar money (and getting it), China – which is already Venezuela’s biggest creditor with over $50 billion loaned since 2007 – as Reuters reports, is said to plan on signing another $5bn loan to Venezuela for “wide-ranging” projects like “mature oil fields.” So, it appears China is enabling Maduro to hollow out his economy even more.


As Reuters reports,

China is poised to lend Venezuela around $10 billion in coming months, half as part of a bilateral financing deal and the other half for development of oil fields, a senior official at state oil company PDVSAsaid on Thursday.


The first $5 billion loan, part of the Joint Chinese-Venezuelan Fund, is due to be signed this month and will be destined for wide-ranging projects in the OPEC country, said the official.


The other separate $5 billion loan is set to be clinched in June and will likely stipulate contracting Chinese companies to boost production in PDVSA’s mature oil fields, the source added.


“China wants to decisively back investments in areas like mature oil fields so that PDVSA can rapidly increase its production,” said the source, who asked not to be identified.

*  *  *

Maybe it’s time to stock up on condoms and toilet paper?

*  *  *

Finally, as we noted previously, the thread by which Venezuelan socialism hangs may soon snap…

For many years, the Venezuelan government was able to mask the failures of Hugo Chavez’ “socialist revolution” somewhat with the help of the country’s oil revenues. However, it should be remembered that shortages of basic goods in Venezuela are nothing new; the first press reports appeared about two years ago, when oil prices were still quite high (see also this late 2013 article of ours: “The Hygienically Challenged Crack-Up Boom”). As we quoted from a press report on that occasion, some Marxists – as long as they are members of the ruling class – seem actually not overly worried about scarcity:


“Not everyone thinks these shortages spell bad news. Planning Minister Jorge Giordani, an avowed Marxist, famously quipped in 2009 that “socialism has been built based on scarcity.”


Of course it was easy to make such quips, callous though they may be, back when the hugely popular Hugo Chavez was still around and able to distribute large oil revenues with both hands. The situation is a lot more difficult for Nicolas Maduro, who is probably slowly but surely getting worried about the potential for a counter-revolution (there has already beenintermittent unrest in Caracas – and at the time the bolivar’s black market rate was still 85 to the dollar instead of 185).


Russia’s economy is likewise suffering from the decline in oil prices , but its government has a lot more breathing room in terms of debt and foreign exchange reserves and would be able to greatly help its economy merely by getting serious about tackling corruption.


Maduro has a much bigger problem, as he would essentially be forced to abandon the very ideology he so wholeheartedly supports if he wants to turn the floundering ship around. He does have one advantage over Putin though: he has very little to lose anymore in terms of his approval ratings. He probably must worry about his party comrades though, many of whom will be reluctant to abandon the late and great Hugo Chavez’ “socialist achievements”. It will be interesting to see how things will play out, in light of Maduro lately adopting steps he would never have taken a year ago. Still, given the government’s debt situation and Venezuela’s monetary statistics, a complete loss of confidence in the currency remains a very real possibility. In other words, the thread by which Venezuelan socialism hangs may soon snap.

* * *

Oil related stories:
Early this morning, Kuwait reports on over supply concerns which sends WTI back into the 42 dollar handle:
(courtesy zero hedge)

Kuwait “Over-Supply” Concerns Send WTI Tumbling Back To $42 Handle

Reversing all of yesterday’s FOMC-inspired idiocy, WTI has plunged back to reality this morning. Following comments by Kuwait’s comments that OPEC had no choice but to keep production steady, refocusing the market on global oversupply, April WTI is back down to a $42 handle.


All of yesterday’s idiocy unwound…


As Reuters reports,

Kuwait’s oil minister said on Thursday he was concerned by the 50 percent drop in oil prices since June because of its impact on the Gulf Arab state’s budget, but said OPEC had no choice but to keep output steady.


“We don’t want to lose our share in the market,” Ali al-Omair told reporters.

*  * *



Jim Quinn states that nobody in the shale sector in the USA is making money as the price for shale oil drops to 37 dollars per barrel!!

He states that there is going to be massive layoffs of high paying jobs




(courtesy Jim  Quinn/Burning Platform)





How Many Shale Oil Plays Make Money At $37 Per Barrel? (Spoiler Alert: None)

Your more important currency crosses early Thursday morning:



Eur/USA 1.0697 down  .0152

USA/JAPAN YEN 120.69  up .613

GBP/USA 1.4898  down .0062

USA/CAN 1.2670 up .0113

This morning in Europe, the Euro resumed its spiraling downward movement  upwards by a huge amount, 152 basis points, trading now just below the 1.07 level at 1.0697; Europe is still reacting to deflation, announcements of massive stimulation,  and the ramifications of a default at the Austrian Hypo bank, and possible defaults of Ukraine and Greece.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen form 70 trillion on Oct 31.  The yen continues to trade in yoyo fashion as this morning it settled down again in Japan by 61 basis points and trading just above the 120 level to 120.69 yen to the dollar.

The pound was well down this morning as it now trades well below the 1.49 level at 1.4898  (very worried about the health of Barclay’s Bank and the FX/precious metals criminal investigation/Dec 12 a new separate criminal investigation on gold, silver and oil manipulation).  The Canadian dollar is also down and is trading down by 113 basis points at 1.2670 to the dollar trading in sympathy with the lower oil price.

We are seeing that the 3 major global carry trades are being unwound.  The BIGGY is the first one:

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the dollar against all paper currencies  (see below)

2. the Nikkei average vs gold carry trade/still ongoing

3. Short Swiss Franc/long assets (European housing), the Nikkei etc. This has partly blown up (see Hypo bank failure)

These massive carry trades are terribly offside as they are being unwound.  It is causing global deflation (we are a debt saturation) as the world reacts to lack of demand and a scarcity of debt collateral.  Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: Thursday morning : down 67.92 points or 0.35%

Trading from Europe and Asia:
1. Europe stocks mostly in the green except Germany (slightly in the red)

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

Gold very early morning trading: $1166.00



Early Thursday morning USA 10 year bond yield: 1.95% !!! up 5 in basis points from Wednesday night/


USA dollar index early Thursday morning: 98.75  up 92 cents from Wednesday’s close. (Resistance will be at a DXY of 100)


This ends the early morning numbers, Thursday morning



And now for your closing numbers for Thursday:




Closing Portuguese 10 year bond yield: 1.71% down 3 in basis points from Wednesday


Closing Japanese 10 year bond yield: .34% !!! down 3 in basis points from Wednesday/


Your closing Spanish 10 year government bond,  Thursday down 5 in basis points in yield from Wednesday night.

Spanish 10 year bond yield: 1.24% !!!!!!


Your Thursday closing Italian 10 year bond yield: 1.24% down 6 in basis points from Wednesday:

trading 0 basis points higher than  Spain.






Closing currency crosses for Thursday night/USA dollar index/USA 10 yr bond: 4 pm



Euro/USA: 1.0642 down .0207  (down a whopping 2307 basis points)

USA/Japan: 120.91 up 0.831  ( yen down a whopping 171 basis points)

Great Britain/USA: 1.4711 down .0249  (down 249 basis points)

USA/Canada: 1.2734 up .0179 (Can dollar down 179 basis points)



The euro reversed course  this afternoon.  The Euro plummeted by an amazing 207 basis points.  The yen was also down in monster fashion in the afternoon, and it was down by closing to the tune of 83 basis points and closing well above the 120 cross at 120.914. The British pound lost huge ground during the afternoon session and was down on the day closing at 1.4711. The Canadian dollar was also down hugely today joining the other currencies falling against the dollar.  It closed at 1.2734 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 and huge losses on the USA dollar will no doubt produce many dead bodies.








Your closing 10 yr USA bond yield: 1.98 up 8 in basis points from Wednesday



Your closing USA dollar index:

99.28 up $1.45  on the day.


European and Dow Jones stock index closes:



England FTSE  up 17,12 points or 0.25%

Paris CAC up 3.76 or 0.07%

German Dax down 23.37 or 0.20%

Spain’s Ibex up 41.00 or 0.37%

Italian FTSE-MIB down 239.98 or 1.06%



The Dow: down 117.16 or 0.65%

Nasdaq; up 9.55 or 0.19%



OIL: WTI 43.93 !!!!!!!

Brent: 54.43!!!!

Closing USA/Russian rouble cross: 59.95  down 1/2 roubles per dollar on the day.






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



Your New York trading for today:


Yellen Hangover Strikes Stocks, Bonds, Euro, Oil; Banks Bashed, Biotechs Boom

Tyler Durden's picture

After yesterday’s exuberance comes the hangover… (if youi are a dollar short, oil long or buyer of financials)…

But perhaps this best sums up the markets as ‘bond’ bears wrestle with ‘stock’ bears as the ‘crude oil’ dog wags its tail… (cute little things… not!)


Stocks were mixed – The Dow and S&P gave back half yesterday’s gains but Nasdaq surged over 5,000 again… Dow loses 18,000


And on the day…


Nasdaq wanted 5,000 so much…


as Biotechs ripped to record-er highs…


nothing odd-looking here at all? And all this as Yellen says they are stretched and over-valued…


Financials gave back all their gains and are unch from FOMC… Healthcare (dominated by Biotechs) is surging…


On thge week, The Dow is lagging (APPL?)


The Dollar roundtripped all its FOMC and flash-crash losses…


As EUR crashed back to earth…


Treasury yields retraced around half their drop from the Fed…


Credit spreads were not as excited as stocks yesterday and HYG caught down to themn today…


The Dollar strenghth was ignored by commodities which re-wurged on the day… (copper up large on Indoniesa production shutdown) – Gold and Silver up nicely on the week…


From The OMC Statement copper and silver are best – note the rip in commodities as US equities opened today


Crude’s manic rip was entirely undone…



BTW – Bakkan UHC hit $37…


Charts: Bloomberg



This does not look good as the huge manufacturing base in the Philadelphia area suffered a huge collapse again:


(courtesy Philly Index/zero hedge)






Philly Fed Suffers Worst Run In 3 Years, All Sub-Indices Collapse



Philly Fed hasn’t missed for 4 months in a row since Feb 2012. Printing at 5 (against expectations of 7) the March Philly Fed data is the weakest since Feb 2014. Under the covers it was even uglier… Employees, Average Workweek, New Orders, Prices Received, and Shipments all plunged. Great news for the stock market bulls… yet another dismally bad data item to keep The Fed from hiking.



Every sub-index weakened dramatically…


Shipments lowest since Sept 2012

Prices Paid Collapses…


Not pretty!





This is another important article for you to read.  If you have difficulty just go to the last 3 paragraphs with the graph so you can visualize what is going on.  This is something that Bill Holter and I have been harping on for several years.  It is impossible for the Fed to raise rates:


(courtesy zero hedge)




Here Is Why The Fed Can’t Hike Rates By Even 0.25%


There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government’s employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system. A quick refresh of his bio from the Institute for New Economic Thinking:

Mr. Pozsar has been deeply involved in the response to the global financial crisis and the ensuing policy debate. He joined the Federal Reserve Bank of New York in August 2008 in charge of market intelligence for securitized credit markets and served as point person on market developments for senior Federal Reserve, U.S. Treasury and White House officials throughout the crisis; played an instrumental role in building the TALF to backstop the ABS market; and pioneered the mapping of the shadow banking system which inspired the FSB’s effort to monitor and regulate shadow banking globally. Prior to Credit Suisse, Mr. Pozsar was a senior adviser to the U.S. Department of the Treasury, where he advised the Office of Debt Management and the Office of Financial Research, and served as Treasury’s liaison to the FSB on matters of financial innovation. He also worked with the Federal Reserve Board on improving the U.S. Flow of Funds Accounts.

While Zoltan is currently working in the private sector at Credit Suisse, he is perhaps best known for laying out, back in 2009, the full topographical map of the US shadow banking system in all its flow of assets (or is that contra-assets when it is a repo) beauty.

Which is also why we bring him up, because in a much welcome follow up to his previous work title “A Macro View of Shadow Banking” which we will discuss further in the coming days because it is not only Zoltan’s shadow banking magnum opus and must read for anyone who wants to get up to speed with all the latest development in the unregulated shadow banking space, but because Poszar also provides perhaps what is the most important chart which explains why the Fed is so very terrified of even the smallest possible incremental rate hike of 0.25%.

Specifically, we look at Poszar’s findings about the implied leverage within the fixed income asset space in America’sjust a little levered buyside community. This is what he says:

Although no precise measures are available, the presence of leverage among hedge funds with credit and fixed income strategies has been recognized since the LTCM crisis (see Figure 21), as is leverage in separate accounts in the asset management complex.

While hedge funds and separate accounts are allowed to use leverage liberally – in fact, leverage is the sine qua non of these investment vehicles – it is widely underappreciated that bond mutual funds that are typically thought of as unlevered and long-only also have considerable room to use leverage.


The extent to which this room to use leverage is utilized is up to bond portfolio managers to decide, and it is not uncommon for the largest bond funds to maximize the leverage they may bear in their portfolio within the limits allowed by the Investment Company Act of 1940, and the SEC’s interpretation of the portfolio leverage and concentration incurred through the use of derivatives.


However, the creep of leverage into what are traditionally thought of as long-only bond funds was missed by the mainstream economics literature and textbooks entirely. For example, recent works that identify asset managers as the core intermediaries behind the “second phase of global liquidity” focus solely on indirect forms of leverage (FX mismatches) embedded in bond portfolios through holdings of dollar-denominated emerging market sovereign and corporate bonds (see Shin, 2013).


Other works state even more explicitly the widely-held assumption that fixed income mutual funds are unlevered, and analyze episodes of market volatility induced by redemptions without any regard to how direct forms of leverage embedded in fixed income mutual funds may amplify volatility during periods of rising redemptions (see for example Feroli, Kashyap, Schoenholtz and Shin, 2014, Chapter 1 of the International Monetary Fund’s October 2014 Global Financial Stability Report, Chapter 6 of the BIS’ 84th Annual Report, and Brown, Dattels and Frieda, 2014 (forthcoming)).


But all of these views sit uncomfortably with the hard evidence presented above, and recent revelations about “perceived” alphas (see Gross, 2014b) and price action in the interest rate derivative markets amidst soaring redemptions from the largest bond portfolio in the global financial ecosystem – the PIMCO Total Return Fund (see Mackenzie and Meyer, 2014). More concretely, a look at the portfolio of this specific fund provides good examples of the forms of leverage discussed above.


More broadly, the above example demonstrates the evolution of the traditional core product of the asset management industry – long-only, relative-return funds – as it came under pressure from two directions: from hedge funds, offering absolute return strategies, and from passive index-replication products in the form of low-cost exchange traded funds (ETFs). Core-satellite investment mandates became the trend, with hedge funds providing alpha and index-replication vehicles delivering beta at low cost. Traditional asset managers responded to this challenge a number of ways: some by launching their own, internal hedge funds, and some by incorporating into their core products many of the alternative investment techniques used by the hedge funds. These industry trends were the sources of competitive push that drove the above-mentioned creep of leverage into the industry’s traditional, long-only, relative-return bond funds (and hence the rise of levered betas), all designed to stem the flow of assets to the hedge fund competition and command higher fees as the profitability of traditional core products was squeezed (see Bank of New York, 2011 as well as Haldane, 2014).

And visually:

In short, what Poszar is saying is that in a world in which the traditional broker-dealers and banks have indeed reduced leverage and instead use $2.5 trillion in Fed reserves as fungible collateral against which to buy credit derivatives (for example as in the case of JPM’s CIO office and its attempt to corner the IG9 market) the buyside community, which as we have long discussed has largely avoided equities due to fears of a spectacular market implosion (and certainly minimized levered exposure in the space with the exception of several prominent HFT participants) has instead been forced to chase after fixed income products. And chase with leverage that would make one’s head spin as can be seen in the outlier chart above.

And while Poszar may be quite correct in stating that most have missed the leverage creep he observes above…

Perhaps the key reasons why economists have missed the creep of leverage into the traditionally long-only world of fixed income mutual funds are the conceptual gaps in the way in which the U.S. Financial Accounts (formerly the Flow of Funds) depict the global financial ecosystem, and by extension, the limited mental map it gives to economists who use it to understand asset prices.

… one entity that does understand all this and grasps the momentuous implications of even the smallest quantum of interest rate increase, is the entity where Poszar previously worked: the US Treasury and the Federal Reserve itself.

And so, the next time someone asks “why is Yellen so terrified of even the smallest possible rate hike“, show them this chart above and explain that the Fed vividly remembers what heppened when LTCM blew up. What the Fed doesn’t want, is not one but one thousand LTCMs going off at exactly the same time in what is now the world’s most levered trade…





Initial claims are now at their worst level in 1/2 year.  The shale states joblessness surges again:


(courtesy BLS/zero hedge)


Initial Claims Hold Worst Levels In 6 Months As Shale State Joblessness Re-Surges




After some ‘stability’ in the last few weeks, initial jobless claims in the major shale states has started to rise again with Texas the most impacted for now. Overall initial jobless claims rose very modestly to 291k, but leaves the 4-week average above 300k for the 2nd week in a row – the first time in over 6 months. Contonuing claims rose modestly also, confirming the change in trend from improving to stable-to-deteriorating again.


Overall initial claims hovering at its worst level in over 6 months…


Texas Initial Claims are starting to ramp up again




Charts: Bloomberg






You will enjoy this interview:


(courtesy Prof Kotlikoff/Greg Hunter/USAWatchdog)



Financial System Will Collapse Just a Matter of When-Laurence Kotlikoff


By Greg Hunter’s

Renowned economist Laurence Kotlikoff recently testified at the U.S. Senate about the runaway U.S. budget.  How bad is it?  Kotlikoff says, “I told them the real (2014) deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. . . . The government is 58% underfinanced . . . . Social Security is 33% underfinanced . . . . So, the entire government enterprise is in worse fiscal shape than Social Security is, but they are both in terrible shape.”  So, how much is America on the hook for in the future?  Kotlikoff contends, “If you take all the expenditures that the government is expected to make, as projected by the Congressional Budget Office (CBO), all the spending on defense, repairing the roads, paying for the Supreme Court Justices’ salaries, Social Security, Medicare, Medicaid, welfare, everything and take all those expenditures into the future . . . and compare that to all the taxes that are projected to come in, and the difference is $210 trillion.  That’s the fiscal gap.  That’s our true debt.”

Professor Kotlikoff goes on to say, “It will collapse.  It is just a matter of when.  I can’t say when, but all I can say it’s going to be too late. . . . We are seeing signs of this in the economy, but we are not picking it up that clearly.  The macro economy is not doing all that well.”  Kotlikoff goes on to say, “I think our financial system is really built to fail because it combines two things which really haven’t been addressed. . . . It combines leverage, borrowing by the financial middlemen and then investing in things that they don’t tell you they are investing in.  So, there is opacity and leverage.  These are the two major problems for the banking system.  What we need to do is get rid of the leverage and get rid of the opacity.  We need full disclosure of the investments of our financial institutions.”

Where can you get a safe investment?  Kotlikoff says forget U.S. Treasury bonds.  “I think they are one of the riskiest securities in the world because interest rates are likely to go up.  I think the Fed is going to have to keep printing money because Congress isn’t paying our bills, and that’s going to lead to inflation eventually.  So, I think long term Treasuries are extremely risky, and they can drop 5%, 10% or 20% overnight.  That could put my bank that was viewed as perfectly safe today out of business.  So we could have inflation take off and interest rates go up.  We could have banks fail, and that could lead to runs on other banks.  That’s the scenario,” says Professor Kotlikoff.

Professor Kotlikoff also has a new best-selling book titled “Get What’s Yours: The secrets to maxing out your Social Security.”  It is currently the number one seller on  Kotlikoff says many people do not know the rules, and if you don’t it, could cost you tens of thousands of dollars. . . . We have two big problems.  Social Security is in terrible shape.  We need to fix that.  Some people get more out of Social Security because they know the rules.  That’s one problem.  Problem B is Social Security is 33% under financed.  Fixing problem A could make problem B worse.  We need to fix problem A and B in the future.”

Join Greg Hunter as he goes One-on-One with Professor Laurence Kotlikoff, best-selling author of“Get What’s Yours: The secrets to maxing out your Social Security.” 

(There is much more in the video interview.)



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