March 26/Huge withdrawal again from GLD of 5.97 tonnes headed for Shanghai/ Saudi Arabia and Egypt bombard Yemen in a proxy war between Sunnis and Shiites/Russia refuses to take a haircut on its 3 billion usa loan given to Ukraine/ECB quietly asks European banks for their exposure to the failure of Austria’s Hypo bank



Good evening Ladies and Gentlemen:



Here are the following closes for gold and silver today:



Gold:  $1205.10 up $7.80 (comex closing time)

Silver: $17.12 up 14 cents (comex closing time)



In the access market 5:15 pm



Gold $1203.55

Silver: $17.08



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 1 notice served for 100 oz.  Silver comex registered 129 notices for 645,000 oz .


Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 248.27 tonnes for a loss of 55 tonnes over that period. Lately the removals  have been rising!


In silver, the open interest fell by 589 contracts, due to short covering, as Wednesday’s silver price was up by 1 cent. The total silver OI continues to remain extremely high with today’s reading at 172,070 contracts. The front month of March fell by 171 contracts to 312 contracts. We are still close to 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. There is no doubt that the silver situation is scaring our bankers to no end.


We had  129 notices served upon for 645,000 oz.



In gold we again have a total collapse of OI as we enter the next active delivery month of April . The total comex gold OI rests tonight at 416,312 for a whopping loss 17,455 contracts. With June gold almost equal to April gold in price, it just does not make sense why so many would liquidate their positions.Today is options expiry.  Surprisingly we had 1 notice served upon for 100 oz.




Today, we had a huge withdrawal of 5.97 tonnes  at the GLD/  Gold Inventory rests at 737.24  tonnes


In silver, /SLV  we had no changes in silver inventory at the SLV/Inventory, at 325.323 million oz



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




1, Today we again had some short covering in the silver comex with the silver OI falling by 589 contracts.  Gold OI fell by a whopping 17,455 contracts.  Both gold and silver rose nicely again today.  1,028.80 oz of .  (report Harvey)


2. Yemen rebels heading straight for the strategic city of Aden, on the southern tip of the Red Sea. Saudi Arabia and 10 nations join force to oust these rebels in what is becoming another proxy war with Sunnis on one side (Saudi Arabia, Egypt, Kuwait etc and Iran on the other side. The big question of course is where does China and Russia sit with this.

(zero hedge/IRD/Dave Kranzler)


3.The ECB is quietly asking its banks how much exposure they have to the big Austrian Hypo bank failure.  Bail ins will commence in about one month . (zero hedge)


4.  Russia refuses to take a haircut on the 3 billion usa dollar loan given to the Ukraine. The IMF is requesting everybody take a haircut on its debt for the new loan from the iMF to commence.  Russia can call this note early setting off a disorderly default.  (zero hedge)


5. Has the USA blundered with respect to the latest Chinese initiative infrastructure bank

(Ambrose Evans Pritchard/UKTelegraph/Bill Holter/Miles Franklin)


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 fell by a whopping 17,455 contracts from 433,767 down to 416,312 as gold was up by $5.60 yesterday (at the comex close). As I mentioned above, the complete collapse of OI as we enter an active delivery month makes no sense.The fact that we have a middle eastern war, troubles in Ukraine and in Greece and then to have a complete collapse in OI is beyond comprehension. We are now in the contract month of March which saw it’s OI fall to 92 for a loss of 389 contracts. We had 0 notices filed upon on Tuesday so we lost 389 gold contracts or an additional 38,900 ounces will not stand for delivery in this delivery month of March. The next big active delivery month is April and here the OI fell by 43,312 contracts down to 111,698.  We have 5 days before first day notice for the April gold contract month, on Tuesday, March 31.2015. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 203,523.  (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 fair at 290,533 contracts. Today we had 1 notice filed for 100 oz.

And now for the wild silver comex results.  Silver OI fell by 589 contracts from 172,659 down to 172,070 despite the fact that silver was up 1 cent, with respect to Wednesday’s trading . We therefore again had some more short covering by our bankers. We are now in the active contract month of March and here the OI fell by 134 contracts falling to 212. We had 154 contracts served upon yesterday. Thus we gained 20 contracts or an additional 100,000 oz will stand in this March delivery month. The estimated volume today was fair at 27,073 contracts  (just comex sales during regular business hours.  The confirmed volume on Wednesday (regular plus access market) came in at 33,300 contracts which is also fair in volume. We had 129 notices filed for 645,000 oz today.



March initial standings

March 26.2015



Withdrawals from Dealers Inventory in oz  nil
Withdrawals from Customer Inventory in oz  3552.160 oz (Manfra,Brinks, Delaware, Scotia, HSBC)
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 97,738.120 oz (Delaware, HSBC, Scotia)
No of oz served (contracts) today 1 contracts (100 oz)
No of oz to be served (notices)  108 contracts (10,800 oz)
Total monthly oz gold served (contracts) so far this month 9 contracts(900 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

 656,689.9 oz

Today, we had 0 dealer transaction

total Dealer withdrawals: nil oz



we had 0 dealer deposit

total dealer deposit: nil



we had 5 customer withdrawals

i) Out of Manfra:  64.3 oz  (2 kilobars)

ii) Out of Scotia:  2989.95oz (93 kilobars)

iii)Out of Delaware:  204.64 oz  (real bars)

iv) Out of Brinks:  96.45  (3 kilobars)

v)Out of HSBC  196.82 oz (real bars)

total customer withdrawal: 3,552.16



we had 3 customer deposits:

i) Into Delaware:  888.415 oz

ii) Into HSBC: 202.886 oz

iii) Into Scotia:  96,450.000 oz

total customer deposit:  97,738.12 oz


We had 2 adjustments

Out of Brinks;  96.45 oz was adjusted out of the customer and this landed into the dealer account at Brinks

Out of Delaware;  199.74 oz was adjusted out of the customer and this landed into the dealer account at 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 1 contract 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 (9) x 100 oz  or  900 oz , to which we add the difference between the open interest for the front month of March (92) and the number of notices served upon today (1) 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 (9) x 100 oz  or ounces + {OI for the front month (92) – the number of  notices served upon today (1) x 100 oz} =  10,000 oz or  .3110 tonnes


we lost a huge 389 contracts or 38,900 oz will not stand for delivery.

Total dealer inventory: 658,833.604 oz or 20.49 tonnes

Total gold inventory (dealer and customer) = 7,981,965.774  oz. (248.27) tonnes)


Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 55.0 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 26 2015:



Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 401,239.24 oz (Delaware, HSBC)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory  234,806.700 oz (Scotia)
No of oz served (contracts) 129 contracts  (645,000 oz)
No of oz to be served (notices) 83 contracts (415,000)
Total monthly oz silver served (contracts) 2432 contracts (12,160,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal  of silver from the Customer inventory this month  7,416,837.6 oz

Today, we had 0 deposits into the dealer account:

total dealer deposit: nil   oz



we had 0 dealer withdrawal:

total dealer withdrawal: nil oz



We had 1 customer deposits:

i) Into Scotia:   234.806.700 oz

total customer deposit: 234,806.700  oz



We had 2 customer withdrawals:

i) Out of HSBC:  400,248.09 oz

ii) Out of Delaware; 991.15 oz

total withdrawals;  401,239.24 oz



we had 0 adjustments:



Total dealer inventory: 70.569 million oz

Total of all silver inventory (dealer and customer) 175.180 million oz


The total number of notices filed today is represented by 129 contracts for 645,000 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 (2432) x 5,000 oz    = 12,160,000 oz to which we add the difference between the open interest for the front month of March (212) and the number of notices served upon today (129) x 5000 oz  equals the number of ounces standing.


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



2432 (notices served so far) + { OI for front month of March(212) -number of notices served upon today (129} x 5000 oz =  12,575,000 oz standing for the March contract month.

we gained 100,000 oz of additional silver 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 26 we had another huge withdrawal of 5.97 tonnes of gold.  This gold is heading straight to the vaults of Shanghai, China/GLD inventory 737.24 tonnes

March 25.2015 we had a withdrawal of 1.19 tonnes of gold from the GLD/Inventory at 743.21 tonnes

March 24/ no changes in gold inventory at the GLD/Inventory 744.40 tonnes

March 23/we had a huge withdrawal of 5.37 tonnes of gold from the GLD vaults/Inventory 744.40 tonnes

march 20/we had no changes in  inventory at the GLD/Inventory at 749.77 tonnes

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 26/2015 /  we had a withdrawal of 5.97 tonnes of gold/Inventory at 737.24 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 : 737.24 tonnes.






And now for silver (SLV):

March 26.2015; no change in silver inventory/SLV inventory 325.323 million oz

March 25.2015:no change in silver inventory/SLV inventory 325.323 million oz

March 24.2015/ we had another withdrawal of 835,000 oz of silver from the SLV/Inventory rests tonight at 325.323 million oz

March 23./we had a huge withdrawal of 1.174 million oz of silver from the SLV vaults/Inventory 326.158 million oz

March 20/ no changes in silver inventory/327.332 million oz

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 26/2015 we had no changes in inventory/SLV inventory at 325.323 million oz







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

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

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

1. Central Fund of Canada: traded at Negative  8.8% percent to NAV in usa funds and Negative 8.6% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.5%

Percentage of fund in silver:39.1%

cash .4%


( March 26/2015)


Sprott gold fund finally rising in NAV

2. Sprott silver fund (PSLV): Premium to NAV falls to + 1.22%!!!!! NAV (March 26/2015)

3. Sprott gold fund (PHYS): premium to NAV falls -.45% to NAV(March 26  /2015)

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

Sprott physical gold trust is back into negative territory at -.45%

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 Goldcore/Mark O’Byrne)


Oil Surges, Gold and Silver Spike as Saudi Arabia Bombs Yemen



– Geopolitical tensions in Middle East escalate dramatically as Saudi Arabia bombs Yemen

– Yemen’s government seized power in coup – Regarded as hostile to Saudi and ally of Iran

– Saudi attack is an escalation of Middle Eastern proxy war between Gulf States and Iran

– Action has broader geopolitical implications in deepening cold war between the West and East

– Oil surged 6% and gold 2% on the the news

– Should oil prices return to new record highs will impact struggling global economy


Geopolitical tensions escalated dramatically over night as Saudi Arabia launched military operations including air strikes in Yemen. The Saudis claim the action is to counter Iran-allied forces besieging the southern city of Aden where the U.S. backed Yemeni president had taken refuge.

Oil surged and gold rose nearly 2% following a sharp drop in stocks on Wall Street globally in response to the bombing in Yemen.

Gulf broadcaster al-Arabiya TV reported that the kingdom was contributing as many as 150,000 troops and 100 war planes to the operations. Egypt, Jordan, Sudan and Pakistan were ready to take part in a ground offensive in Yemen, the broadcaster said.

The Saudi’s seem determined to pull geopolitically strategic Yemen back into its orbit following the coup d’etat in February.


The Syrian state news agency said the Saudi-led military operation is an act of “blatant aggression”.

“Gulf war planes led by the regime of the Saudi family launch a blatant aggression on Yemen,” read their headline. The Syrian government led by President Bashar al Assad is an ally of Iran, which is in turn allied with the Yemeni Houthi rebels who are fighting to oust the country’s U.S. backed president.

Saudi Arabia and other Gulf states have been important sponsors of the insurgency against Assad.

Traditionally Saudi Arabia has kept Yemen under its control through patronage of various tribal factions. This system was disrupted in 2011 when internal social pressures forced the incumbent President Saleh to step down.

In September, the Houthis – a Shia group seen as allied to Iran – seized control of Yemen’s capital Sana’a. Shia’s make up up to 45% of Yemen’s population. In February, the Houthis declared themselves the new government of Yemen filling the vacuum caused by the resignation of the previous government amid a political impasse.

Saudi’s actions in Yemen is a dramatic escalation in the proxy war between the Gulf states and Iran now raging in Iraq and Syria. The tensions arise out of competition over who has access to the lucrative, oil-hungry, European markets.

That a country would choose to directly intervene militarily in the affairs of another country is a dangerous precedent and could lead to a wider conflagration in the region – especially if Syria or Iran decide to retaliate against Saudi Arabia.


Iran now may claim to have justification to involve itself directly into the affairs of neighbouring countries and the potential for direct conflict and a full scale regional war has just increased.

It may also lead to heightened tensions in the simmering Cold War between the West and the East. Russian diplomacy disrupted moves by the West and western-backed Gulf states to remove yet another secular leader, one of the few remaining secular leaders, in the Islamic world – Assad in Syria.

Iran and Syria have close diplomatic and business ties with Russia. The White House has already made its support for Saudi actions clear and it is likely that Russia will support Iran in any response it may deliver.

Given the strategically vital nature of the whole region it is unlikely that either the U.S. or Russia will allow events to be determined by local players and this has serious implications in the new Cold War.

Oil surged over 6% on the news. A full-on conflict between Iran and the Gulf states would likely shut off the Straits of Hormuz, dramatically reducing the supply of oil coming out of the Gulf and a spike in oil prices.

This would benefit both Russia’s struggling economy and the U.S. energy sector but impact struggling consumers in the U.S. and internationally. Indeed, Europeans are particularly vulnerable to a sharp rise in oil prices now after the significant fall in the euro in recent months.

Gold’s rise is indicative of its function as a hedge against economic and geopolitical uncertainty. A supply crunch in oil in the middle of a slump driven by lack of demand would put even more pressure on industries struggling to sell product to heavily indebted western consumers.

While oil prices remain very depressed, surging oil prices could again be the ‘straw that breaks the global economies back’.

“A must read for family offices seeking wealth preservation”
Essential Family Office Guide to Investing In Gold



Today’s AM fix was USD 1,209.40, EUR 1,097.26  and GBP 809.23 per ounce.
Yesterday’s AM fix was USD 1,192.55, EUR 1,088.89  and GBP 801.18 per ounce.

Gold rose 0.16 percent or $1.90 and closed at $1,195.60 an ounce yesterday, while silver slipped 0.18 percent or $0.03 at $16.97 an ounce.

Gold has been bid higher due to the escalation of geopolitical risk in the Middle East and technical buying after gold rose above the $1,200/oz level.

Gold in U.S. Dollars - 1 Week

Gold climbed more than 1.4% to a three and a half week high and silver soared almost 3 percent as air strikes in Yemen had a ripple effect on markets.

Saudi Arabia and its Arab allies launched air strikes in Yemen against allies of Iran in the southern city of Aden. The return of ‘risk off’ sentiment for the first time in many weeks, boosted gold, silver and German bunds while equities and the U.S. dollar fell.

The question is whether this is a flash in the pan for gold or the start of a more meaningful rally in prices. Gold appears overbought in the very short term. The last winning streak for 7 days in a row for the yellow metal was in August 2012.

In the end of day trading in Singapore, gold prices rose 0.8 percent to $1,204.20 an ounce, but earlier reached $1,204.60, its highest since March 5th. In London, Spot gold hit a peak of $1,219.40 an ounce and climbed 1.2 percent at $1,210.30 in morning trading.  Comex U.S. gold futures for April delivery were up $12.70 an ounce at $1,209.70.

On the Shanghai Gold Exchange (SGE), premiums pulled back to about $2-$3 an ounce, compared with $6-$7 last week.

Silver prices jumped to a three month high at $17.38 per ounce. Platinum was $1,153.25 per ounce up 0.6 percent, while palladium was $770.39 an ounce or up 1 percent.







(courtesy Chris Powell/GATA)

Gold market manipulation is ‘too inflammatory’ to be debated at Hong Kong conference


6:51p HKT Thursday, March 26, 2015

Dear Friend of GATA and Gold:

Yesterday’s concentration on gold at the spectacular Mines and Money Hong Kong conference may have inadvertently proved GATA’s longstanding contention that gold market manipulation simply can’t be discussed in polite company almost anywhere in the world.

For at the outset of a panel discussion described as a debate about the direction of the gold price, its moderator, Rod Whyte, a longtime gold advocate and member of the Board of Directors of Australia-based business information provider Aspermont Ltd., announced that the panelists had agreed that gold market manipulation would not be discussed because the topic is “too inflammatory.”

Since Whyte has expressed support for GATA at other venues, the calculated avoidance of the manipulation issue would seem to have been someone else’s idea. In any case the panel included two members who could not have been expected to want to discuss the issue: Philip Klapwijk, formerly an analyst for Gold Fields Mineral Services, now managing director of Precious Metals Insights Ltd. in Hong Kong, and Albert Cheng, Far East managing director for the World Gold Council.

While Klapwijk predicted that the price of gold will fall substantially, predictions for the gold price are of no particular concern to GATA. We recognize that as long as the futures markets are operating, central banks can drive the price down to zero or up to infinity.But your secretary/treasurer was in the audience and would have liked to ask Klapwijk and Cheng a few questions.

For example:

— Was the Banque de France’s director of market operations, Alexandre Gautier, telling the truth when he told the London Bullion Market Association meeting in Rome in September 2013, that the bank is secretly trading gold for its own account and the accounts of other central banks “nearly on a daily basis”? (See:

— Is the Bank for International Settlements telling the truth when it maintains in its annual report that it does the same sort of secret trading on behalf of its member central banks, trading not only gold itself but also gold futures, options, and other derivatives? (See:

— Is the BIS sincere when it advertises that it undertakes secret interventions in the gold market for its members? (See

— If these central banks are indeed doing so much secret trading in the gold market, what are their objectives and might this secret trading manipulate the market and thereby deceive and cheat investors?

— And for the World Gold Council’s Cheng in particular: In its various analyses of the gold market, does the World Gold Council ever consider this secret trading by central banks, and does the council have any opinion about it?

Unfortunately the program did not permit questions.

An hour later your secretary/treasurer began his own presentation by noting the gold debate panel’s determination that discussion of market manipulation is “too inflammatory” to be discussed and reminding the audience that they had been warned and might want to leave so as to avoid the ensuing unpleasantness. It was gratifying that no one walked out, though of course Klapwijk and Cheng had not stuck around.

Your secretary/treasurer said that GATA has spent 15 years collecting the documentation of largely surreptitious manipulation of the gold market by central banks and clamoring and litigating against it —

— and that the presentation of this documentation had served mainly to get GATA disparaged as “conspiracy theorists.”

But your secretary/treasurer added that there is such a thing as conspiracy fact — as when the European Central Bank gathers its members secretly every few years to determine their policy in the gold market and then announces that this policy indeed has been determined in secret and that it will continue to be determined in secret and executed in secret as well:

It is also conspiracy fact when the G-10 Gold and Foreign Exchange Committee, representing the treasury departments and central banks of the industrial world, undertakes the same sort of secret meetings for policy formation and execution —

— just as it is conspiracy fact when the U.S. Federal Reserve secretly undertakes and executes gold swap arrangements with foreign banks —

— and when members of the International Monetary Fund swap and lease gold in secret to facilitate their secret interventions in the gold and currency markets:

Indeed, insofar as it operates largely in secret much of the time, government itself is by definition one big conspiracy.

Any serious analysis of the gold market, your secretary/treasurer said, must begin with these questions:

— Are central banks in the gold market largely surreptitiously or not?

— If central banks are in the gold market largely surreptitiously, is it just for fun — for example, to see which central bank’s trading desk can make the most money by cheating the most investors — or is it for policy purposes?

— If central banks are in the gold market for policy purposes, are these the traditional purposes of defeating a potentially competitive world reserve currency (see or might there be other purposes as well (see

Then your secretary/treasurer presented as many documents as the remainder of his 20 minutes allowed. Fortunately this allowed citation of the U.S. Commodity Futures Trading Commission and U.S. Securities and Exchange Commission documents indicating that central banks are secretly trading all major U.S. futures markets and contracts:

Grateful as he was to be allowed to participate again at the Hong Kong conference, your secretary/treasurer would be even more grateful to participate in any forum at which anyone of any standing in the gold market who dismisses complaints of gold market manipulation as “conspiracy theory” would be prepared to address the questions and documents cited here.

Of course it would be ideal if anyone in authority in government anywhere would attend a forum for addressing these questions and documents.

Yes, these questions and documents may be considered inflammatory, but only insofar as the world’s financial system has become a cosmic fraud that deserves to go up in flames.

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





(courtesy Koos Jansen)



Posted on 26 Mar 2015 by

Euronews: If China Joins The New Gold Fix, There’ll Be Less Manipulation

On March 24, 2015, Euronews broadcasted Business Middle East, in which Nour Al Hammoury from ADS securities, stated that if Chinese banks would join the new gold fix it would be less sensitive for manipulation. Having Chinese banks participate in the fix, would indeed be very welcome.

If you like to read more about if Chinese banks will participate in the new fix read Chinese Banks as direct participants in the new LBMA Gold and Silver Price auctions? Not so fast!

Global gold price setting arrives in the 21st century

…Better late than never, the gold market has entered the digital era, joining other precious metals in the 21st century. Criticism of an archaic global price fixing system intensified with some claiming it lacked credibility. Following numerous fines on international banks due to scandals of price manipulation, gold traders may now have more peace of mind with a new electronic system to manage price setting.

…Since 1919, the gold price setting process was limited to four international banks “Barclays, HSBC, Société Générale and Scotiabank”. In the original process, inter-bank representatives would set up a secure conference call each day in order to determine the price. UBS Swiss and Goldman Sachs have now joined this list of bank representatives. The new digital system follows the same process:

Each round is 45 seconds long. Bids and offers are displayed and updated in real-time. The difference is automatically calculated and if it stays within 20,000 troy ounces, the price is fixed. In this new system, orders are separated between clients and the banks’ trading desks.

Daleen Hassan

“Is the new electronic system able to make the daily price benchmark less vulnerable to manipulation?”

Nour Al Hammoury

“We hope. Major global banks have faced many scandals related to commodities and not only gold. The banks who were predicting the price of gold to reach above 2,000 USD/oz are the same banks who are predicting now that the price will fall below 1,000 USD/oz. Despite that, the major banks remain the biggest gold buyers, according to the latest report from the world gold council. In the meantime, the new pricing might give the market some confidence, especially if its transparent and this is what we will be watching out for the coming period.”

Daleen Hassan

“According to projections, China could play a key role in the new pricing system. How so?”

Nour Al Hammoury

“From the start of the financial crisis until today, China has been buying a huge amount of gold, making it one of the biggest consumer and buyers of gold in the past few months. Indeed, if China joins the new pricing plan, there’ll be less manipulation; the more they increase the participants the less chance of manipulation as we’ve seen before, when price setting was done by a few banks.”

Koos Jansen
E-mail Koos Jansen on:





Bill Holter pounds the table on what the AIIB initiate will mean.

Bill’s commentary is also reinforced by Ambrose Evans Pritchard



(courtesy Bill Holter/Miles Franklin)



Dropping an F-bomb at a Sunday afternoon social?



Many people believe the Chinese are on the cusp of replacing the U.S. in many fashions, I believe this myself.  There are others out there who believe the Chinese economy and financial markets will crash and burn with all the rest when the derivatives chain finally breaks, I don’t disagree with this either.  Let’s look at what the Chinese have done, what they are doing and where they may end up.  The spoiler is this, I believe you can equate the Chinese to where the United States stood in the late 1920’s and early 1930’s.

  China has done many things over the past years.  They have built their manufacturing base and infrastructure faster and on a far larger scale than America did in the early years of the 20th century.  They have financed the U.S. budget deficits and “played the game” just as the U.S. did with Britain.  It seems as if everything they do is geared toward one goal, that being economic and financial supremacy.
  The list of what they have done over just the last few years is very long.  China has set up global currency hubs in a dozen or more places all over the world.  They have done trade deals all over the world and in various businesses and deals in various raw materials.  The recent formation of the AIIB bank is a perfect example of how wide their sight is.
  Asian Infrastructure Investment Bank Members Map

Do you notice anything strange about this map?  All of the names from Asia you would expect to see are on the list, but there are others that are (were) shockers.  Two weeks ago we heard Britain had applied for charter member status.  This was followed by president Obama’s very harsh words the next day …which was then followed by Germany, France and Italy making their application.  This is all old news, I know.  Let me ask you again, is there something else quite strange about this map?

   Until I saw this, I did not know that Qatar, Jordan, Oman, our old Gulf War friends Kuwait AND the biggie, Saudi Arabia have all applied for membership.  Our allies in Europe was bad enough and certainly a slap on Uncle Sam’s kisser, but Saudi Arabia?  This is like dropping an F-bomb at a Sunday afternoon social!  Aren’t they the absolute cornerstone of the “petrodollar”?  Where has this news been in our mainstream media?  Is it important news?  Just a little, or just irrelevant?
  Think about this and the ramifications for a moment.  The AIIB will be a bank which does not use dollars and will be a direct competitor to the World Bank.  Over the last 25 years, rulers have been deposed and countries invaded and bombed for less, just ask Saddam Hussein or Mr. Qaddafi.  All they had to do was mention they would accept euros for oil and their lifespans became shortened significantly.  If Saudi Arabia is straying off the reservation and no longer using dollars “EXCUSIVELY”, what does this mean for the future of the dollar?
  There is one more area where insult was added to injury.  Last week  the IMF’s Christine Lagarde and Chinese central bank governor Zhou Xiaochuan were to give a speech about monetary policy in the “new normal”, the topic turned 180 degrees.  Rather than talk about monetary policy, Zhou talked about the merits of including the Chinese yuan in the IMF’s SDR basket!
  Do you see where this is all going?  China is the United States of 1929.  Will their financial system crash and burn with the West’s?  In my opinion, yes most probably.  Do they care?  Probably yes but it is unavoidable.  However, China has built out new infrastructure that will serve them well for the next 50-100 years.  It is REAL stuff, paid for with credit which will evaporate in the coming collapse.  (As an interesting side note, China used more concrete in 3 years than the U.S. did throughout ALL of the 20th century).
  China is moving to not only be a “part of the competition”, they will lead the “rest of the world”.  They want to be included in the SDR basket of which the U.S. dollar is the lions share.  Think about this for a moment, the IMF supposedly has over 3,000 tons of gold and the U.S. over 8,000 tons.  Gold “was” deemed to be important when the SDR was formed (and will again).  What if it turns out the U.S. doesn’t have the gold?  …And China does?  Could the yuan just substitute for the dollar in a reengineered SDR?  It pains me to say this but it is what it is, the U.S. has bullied, cheated and lied its way into what looks like an isolated corner while China politely slides into Uncle Sam’s emptied chair.  American leadership has no one to blame other than themselves.  The options remaining to the U.S. are now few.  Unfortunately, kicking the table over and shooting all the players is at the top of the list.   Regards,  Bill Holter

And now for the important paper stories for today:

Early Thursday morning trading from Europe/Asia


1. Stocks generally lower on major Chinese bourses (only  Shanghai higher)/yen rises to 118.70

1b Chinese yuan vs USA dollar/yuan slightly weakens to 6.2124

2 Nikkei down by 275.08 or 1.39%

3. Europe stocks all in the red/USA dollar index down to 96.51/Euro rises to 1.1003

3b Japan 10 year bond yield .33% (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 118.70/

3c Nikkei still above 19,000

3d USA/Yen rate now below the 119 barrier this morning

3e WTI  51.23  Brent 58.73

3f Gold up/Yen up

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 up for WTI and up for Brent this morning as a proxy civil war breaks out in Yemen  (see below zero hedge commentary)

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

Except Greece which sees its 2 year rate slightly rises to 19.89%/Greek stocks down by a huge 2.54%today/ still expect continual bank runs on Greek banks.

3j  Greek 10 year bond yield:  10.94% (up  by 15 basis point in yield)

3k Gold at 1208.00 dollars/silver $17.16

3l USA vs Russian rouble;  (Russian rouble up  1/2 rouble/dollar in value) 56.45 rising with the higher brent oil price

3m oil into the 51 dollar handle for WTI and 58 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 Eurogroup reject Greece’s bid for the return of previous 1.2 billion euros of bailout funds. The ECB increases ELA by 1.5 billion euros up to 71.3 billion euros.  This money is used to replace fleeing depositors.

3t Bloomberg calculates Greece’s shortfall in March at 3.5 billion euros.

4.  USA 10 year treasury bond at 1.91% early this morning. Thirty year rate well below 3% at 2.50%/yield curve flatten/foreshadowing recession.

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



(courtesy zero hedge/Jim Reid Deutsche bank)


Futures Tumble As Yemen War Starts; Oil, Gold Surges

In a somewhat surprising turn of events, this morning’s futures reaction to last night’s shocking start of a completely unexpected Yemen proxy war, which has seen an alliance of Gulf State launch an air, and soon land, war against Yemen’s Houthi rebels, is what one would expect: down, and down big.

This is surprising, because on previous occasions one would expect the NY Fed, or its pet hedge fund, Citadel, or the BOJ or ECB (via the CME’s “Central Bank Incentive Program“) to aggressively buy ES to prevent a slide, something has changed, and for the BTFDers, that something may be very fatal with the e-Mini rapidly approaching a 1-handle yet again.

The offset to tumbling stocks, as previously observed, is oil, with WTI soaring over 6% in a delayed algo response to the Qatar headlines.


WTI rose as high as mid-$52 before retreating modestly:


“Rising prices could become a self-fulfilling prophecy if market participants see this as the beginning of a rally and start buying,” says Global Risk Management oil risk manager Michael Poulsen. “We are already seeing some reaction, as buyers start looking for protection from more costly oil.”

It wasn’t just oil: gold also soared briefly after European traders arrived in the office, but since then the BIS gold trading desk headed by Benoit Gilson has managed to get things mostly back in order.

Why is tiny Yemen, which produced just about 133,000 barrels a day of oil in 2013, making it the 39th biggest producer, according to the U.S. Energy Information Administration, roiling the market? Bloomberg has a quick explainer:

While Yemen contributes less than 0.2 percent of global oil output, its location puts it near the center of world energy trade. The nation shares a border with Saudi Arabia, the world’s biggest crude exporter, and sits on one side of a shipping chokepoint used by crude tankers heading West from the Persian Gulf. Global oil prices jumped more than 5 percent on Thursday after regional powers began bombing rebel targets in the country that produced less than Denmark in 2013.

“While thousands of barrels of oil from Yemen will not be noticed, millions from Saudi Arabia will matter,” said John Vautrain, who has more than 30 years’ experience in the energy industry and is the head of Vautrain & Co., a consultant in Singapore. “Saudi Arabia has been concerned about unrest spreading from Yemen.”

Shipping Chokepoint

Brent, the benchmark grade for more than half the world’s crude, gained as much as $3.30, or 5.8 percent, to $59.78 a barrel in electronic trading on the London-based ICE Futures Europe exchange on Thursday. West Texas Intermediate futures, the U.S. marker, jumped as much as 6.6 percent to $52.48 on the New York Mercantile Exchange.

“Yemen is not an oil producer of great significance but it is located geographically and politically in a very important part of the Middle East,” said Ric Spooner, a chief strategist at CMC Markets in Sydney.

The Bab el-Mandeb strait is the fourth-biggest shipping chokepoint in the world by volume, and is 18 miles wide at its narrowest point, according to the EIA. It’s located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea.

Transport Threat

In 2013, 3.8 million barrels a day of oil and petroleum products flowed through Bab el-Mandeb, EIA data shows. More than half of the shipments moved to the Suez Canal and SUMED Pipeline, which serve as the link between Egypt’s ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean.

Closure of the waterway may keep tankers from the Persian Gulf from reaching the Suez Canal and the SUMED Pipeline, diverting them around the southern tip of Africa, adding to transit time and cost, according to the EIA. Ships carrying oil from Europe and North Africa won’t be able to take the most direct route to Asian markets if Bab el-Mandeb is shut, the EIA said on its website.

“As the situation in Yemen has dramatically escalated, it’s seen primarily as a threat to international shipping and oil transport,” Theodore Karasik, an independent geopolitical analyst, said from Dubai. “There’s concern that the more ungovernable Yemen becomes, the more it could become a base for piracy in the Red Sea area.”

Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Kuwait responded to a request from Yemen’s President Abdurabuh Mansur Hadi, according to a statement carried by the official Saudi Press Agency.

Proxy War

Saudi Arabia led OPEC’s decision in November to resist calls to reduce its output target of 30 million barrels a day, a resolution that Iranian Oil Minister Bijan Namdar Zanganeh said was “not in line with what we wanted.”

OPEC’s decision and an expanding U.S. supply glut have driven global benchmark oil prices to a six-year low.

“In the longer term, Iran will be happy to disrupt oil supplies,” Vautrain said. “They literally want to control Saudi Arabia and Iraq. They would love that. They’re fighting a proxy war and they will continue to fight a proxy war.” The Houthis, who follow the Zaydi branch of Shiite Islam, say they operate independently of Iran and represent only their group’s interests.

* * *

For now surging oil appears to be dragging the tightly correlated EURUSD by the bootstraps, and as a result the US Dollar despite it traditionally being a flight to safety during global proxy wars such as this one.

Looking at equities, overnight developments in Yemen have also been the key focus in early European trade after Saudi Arabia and a coalition of regional allies launched a military operation in Yemen against the Iranian-backed Houthi rebels, who deposed the US-backed Yemeni president last month. WTI crude futures rallied overnight, heading for its biggest 5 day gain since 2011 after Saudi Arabia and its allies confirmed that they had started military operations. Although Yemen is not a large oil-exporter, markets have become concerned by the situation in Yemen, largely because of the involvement OPEC nations in a Middle-Eastern conflict and because in a worst case scenario this conflict between Sunni and Shia Muslims could be used as a proxy for a larger conflict between Saudi and Iran. Alongside geopolitical concerns, European stocks are also being weighed upon by heavy selling in Asia, particularly in tech names, and with window dressing ahead of quarter-end.

Another slide in the USD led to moves across the FX space and a break above post-FOMC highs in EUR/USD and trades sources note large size (~EUR 1bln) bought on a break of 1.1000 in the pair. GBP sees some outperformance in early trade, gilts are underperforming and the short sterling strip lower following overnight comments from BoE’s Miles (soft dove) who said he believes the next move by the BoE will be a hike. This followed comments made yesterday by BoE Deputy Governor Shafik (Soft Dove) who said that the next move in rates is likely to be higher and BoE’s Forbes who said that low inflation would be temporary.

Asian stocks mostly fell overnight in a continuation of similar moves seen yesterday in European and US equity markets, which saw the S&P 500 erase all of its gains for the year to close below its 50 DMA. Consequently, both the Nikkei 225 (-1.6%) and ASX 200 (-1.6%) finished in the red, the latter recording its steepest drop in more than 2-weeks. Elsewhere, the Hang Seng (+0.2%) and Shanghai Comp (+1%) bucked the negative trend, led by financials and energy names ahead of earnings from PetroChina and ICBC.

Bund have been supported this morning with flows seen out of equities and into core fixed income, alongside little supply this week and prelim month-end extensions fairly average. Concerns over the situation in Greece also continue to linger and have supported this morning’s bid in bund futures.

Barclays Prelim Pan Euro Agg month-end extensions +0.07yrs (Prev. +0.07yrs, Avg. Of last 12 months +0.08yrs) Barclays Prelim month-end extensions for US Treasury +0.09yrs (Prev. +0.13yrs, Average of last 12 months +0.10yrs).

WTI crude futures rallied overnight, heading for its biggest 5 day gain since 2011 after Saudi Arabia and its allies confirmed that they had started military operations. In early trade WTI broke above its 50DMA and both WTI and Brent are trading with gains of over USD 2.00 ahead of the US open. Concerns have not only led to a bit in crude and equity markets in Europe falling over 1%, but has also led to a bid in gold which earlier broke above USD 1,200/oz and its 100DMA.

In summary: European shares fall with the tech and financial services sectors underperforming and oil & gas, basic resources outperforming. Stoxx 600 trades near session low; European energy stocks outperform as Saudi Arabia directs bombing sorties at Shiite Houthi rebels in Yemen. Brent, WTI crude futures both gain. U.K. retail sales rise more than forecast. The German and Swedish markets are the worst-performing larger bourses, the U.K. the best. The euro is stronger against the dollar. German 10yr bond yields fall; U.S. yields decline. Commodities gain, with soybeans, corn underperforming and WTI crude outperforming. U.S. jobless claims, continuing claims, Bloomberg consumer  comfort, Kansas City Fed index, Markit U.S. composite PMI, Markit U.S. services PMI due later.

Market Wrap

  • S&P 500 futures down 0.9% to 2034.7
  • Stoxx 600 down 1.7% to 391.1
  • US 10Yr yield down 3bps to 1.89%
  • German 10Yr yield down 2bps to 0.21%
  • MSCI Asia Pacific down 0.8% to 148
  • Gold spot up 1.4% to $1212/oz
  • Eurostoxx 50 -1.8%, FTSE 100 -1.4%, CAC 40 -1.6%, DAX -2%, IBEX -1.4%, FTSEMIB -1.9%, SMI -1.8%
  • Asian stocks fall with the Shanghai Composite outperforming and the Sensex underperforming.
  • MSCI Asia Pacific down 0.8% to 148; Nikkei 225 down 1.4%, Hang Seng down 0.1%, Kospi down 1%, Shanghai Composite up 0.6%, ASX down 1.6%, Sensex down 1.7%
  • Euro up 0.55% to $1.103
  • Dollar Index down 0.7% to 96.3
  • Italian 10Yr yield up 1bps to 1.35%
  • Spanish 10Yr yield little changed at 1.29%
  • French 10Yr yield down 1bps to 0.49%
  • S&P GSCI Index up 2.4% to 414.6
  • Brent Futures up 4% to $58.7/bbl, WTI Futures up 4.3% to $51.4/bbl
  • LME 3m Copper up 1.8% to $6237.5/MT
  • LME 3m Nickel up 0.9% to $13805/MT
  • Wheat futures up 1.2% to 525.3 USd/bu


Bulletin Headline Summary from Bloomberg and RanSquawk

  • Developments in Yemen overnight unsettle markets as Saudi intervene, leading to significant gains in oil overnight and European equities falling over 1%
  • WTI crude futures trade higher by over USD 2.00 after rallying overnight and this morning, and heads for its biggest 5 day gain since 2011
  • Treasuries rally overnight as Saudi Arabia launches air strikes in Yemen while U.S. aids Iraqi forces attacking Tikrit; week’s auctions conclude with $29b 7Y, yield 1.71% in WI trading vs. 1.83% award in February.
  • Saudia Arabia considering ground troops in Yemen, according to Saudi state TV, citing a person it didn’t identify
  • Oil headed for its biggest five-day gain since 2009, while gold rallied with the yen; global stocks retreated with U.S. equity-index futures
  • Negotiators aim to conclude a political framework on Iran’s nuclear work by March 29, according to three diplomats with direct knowledge of the talks taking place in Switzerland this week
  • China plans to push for the yuan to take prominence in projects under the Asian Infrastructure Investment Bank and the Silk Road Fund as it seeks broader global use of its currency, said people familiar with the matter
  • U.K. retail sales rose 0.7% in February, more than economists forecast, amid declining inflation
  • Sovereign 10Y yields mixed, Greek 10Y steady. Asian stocks drop, European stocks decline, U.S. equity-index futures fall. Crude, gold and copper rise


DB’s Jim Reid completes the overnight event recap



the US equity market is stalling like my unloved car at the moment. The S&P 500 (-1.46%), Dow (-1.62%) and NASDAQ (-2.37%) all fell – the latter having its largest single daily decline since April last year as weakness in tech stocks in particular dragged bourses down. Our base case remains that the post-QE environment will be a challenge for US equities and although the S&P 500 is still +0.10% YTD, its being left behind by most other developed markets. It’s now back to levels first crossed back on November 21st – only a few weeks after QE finally ended. Bloomberg also extended the analysis we included yesterday that states that the S&P 500 hasn’t been this long without back to back gains (26 days now) since 1994. Quite a stat.

Soft US data helped support the generally weaker sentiment. The February reading for durable goods orders was a notable miss at -1.4% mom (vs. +0.2% expected) and was down significantly from the +2.0% print last month. The ex-transport reading fared little better with the -0.4% mom reading below expectations of +0.2%. Data for core capex orders meanwhile was also weak with the non-defense ex-aircraft (-1.4% mom vs. +0.3% expected) reading below market. The reading has now declined for six consecutive months. With US economic data surprises continuing to come in below consensus and extending the recent 6-year lows, the Atlanta Fed GDPNow tracking forecast was yesterday downgraded to +0.2% SAAR for Q1 of this year, having previously been running at +0.3%. With a raft of weak data prints of late, the forecast has in fact been lowered from an initial +1.9% back in early February. The Q4 reading is due this Friday, but it’ll be interesting to see where the market places Q1 growth forecasts following the data we’ve seen thus far.

There was plenty of chatter out of the Fed yesterday as well. Comments from the Chicago Fed’s Evans in particular were interesting, who noted that there is ‘no compelling reason’ to raise rates until the Fed is confident that inflation is moving back towards its 2% target. Specifically, Evans noted that lift-off in 2016 would be more appropriate, citing in particular the disinflationary effects of the Dollar putting pressure on US import prices. The Fed’s Lockhart, on the other hand, said that whilst he’s not ‘100% confident’ that the Fed will raise rates in June, July or September, ‘it’s quite likely’ (NY Times) it’ll be one of those months. Lockhart did however highlight that any reason for a move to come post-September would be due to a disappointment in the data. Elsewhere, Treasury yields were higher with the benchmark 10y yield finishing +5.2bps at 1.925% while Dollar weakness was a theme again, with the broader DXY closing -0.22%. Interestingly, Energy (+1.22%) was the one sector that had a better day yesterday as WTI (+3.58%) and Brent (+2.49%) rose. Overnight Oil is dominating the headlines with both WTI (+3.45%) and Brent (+2.80%) firmer again – both markets at one point trading over 5% higher intraday. Bloomberg is reporting that Oil has seen the biggest 5-day rally since 2011. Saudi Arabia’s (and its allies) bombing of Shiite rebels in Yemen is seemingly to blame as tensions with Iran build.

Refreshing our screens elsewhere this morning, it’s a fairly mixed reaction in equity markets on the back of moves in Oil and weakness in the US overnight. The Nikkei (-1.40%) and Kospi (-0.95%) have both declined while the Hang Seng (+0.11%) and Shanghai Comp (+0.66%) are both trading higher. Credit markets are a touch softer while the Dollar has extended declines with the DXY -0.27%.

It was a similar story to the US in Europe yesterday, as a weaker day for tech stocks dragged equity markets lower. Indeed, the Stoxx 600 (-1.13%) had its largest one-day decline since January 14th, while the DAX (-1.17%) and CAC (-1.32%) both closed lower. Bond markets were more mixed however. 10y Bunds closed 1.6bps lower at 0.218% while 10y yields in Spain (-0.5bps), Italy (+0.8bps) and Portugal (+2.3bps) traded more mixed. Despite the generally weaker sentiment, data was in fact supportive on the whole yesterday. Specifically, the March IFO reading for Germany provided further evidence of positive momentum for the economy. The index rose 1.1pts to 107.9 and ahead of expectations of 107.3. The reading was in fact the highest since July last year. Both the current assessment (112.0 vs. 111.3 previously) and expectations (103.9 vs. 102.5 previously) readings bounced. Our colleagues in Europe noted that the breakdown by sector pointed to fairly broad based growth and believe that the reading, along with generally solid prints thus far for the economy, support upside risks for their +0.5% qoq GDP forecast for Q1.

In Greece the pressure on the government to push through its reform proposals by Monday will only have heightened yesterday after we learned that the Eurogroup rejected Greece’s claim for the return of €1.2bn in funds the government believes it is owed at the EFSF. The hopes that reform proposals will soon be provided to the Eurogroup have led to some more conciliatory comments of late, backed up again by the EC President Juncker who said that he believes that a successful conclusion for both Greece and the EU will soon be realized. The fragile situation persists in the near term however. Yesterday we also learned that the ECB increased the ceiling on the ELA to €71.3bn, from €69.8bn previously – highlighting further stress in deposit outflows at Greek banks. Equity markets in Greece were closed yesterday for a public holiday.

Elsewhere yesterday, following comments from the Bank of England’s Haldane last week that a rate cut might be needed, a fellow MPC member, David Miles, yesterday said that he expected the next move in rates to likely be up, specifically saying that ‘I can certainly imagine a situation where inflation is under the target level perhaps by a significant amount and the right strategy would be gradually to start a process of normalization and edging (rates) up’ (FT). Miles highlighted that so far he hasn’t seen any persistent underlying deflationary pressures in the economy and believes that prices should rise towards the end of the year.

Turning to today’s calendar, we kick off this morning in Europe with German consumer confidence data, followed closely by French GDP data and money supply readings for the Euro-area. Retail sales and CBI data out of the UK are also due this morning. This afternoon in the US employment indicators are highlighted by the initial jobless claims print while the composite and services PMI’s and Kansas City Fed manufacturing activity reading are also due.







The proxy war in the middle east commenced last night



(courtesy zero hedge)


Another Middle East War Breaks Out: Saudis Begin Bombing Yemen, US Military Taking Action




John McCain & Lindsay Graham explain Obama’s move…

U.S. Senators John McCain (R-AZ) and Lindsey Graham (R-SC) today released the following statement on Saudi Arabia leading an international coalition conducting air strikes against Iranian-backed separatists in Yemen:


Saudi Arabia and our Arab partners deserve our support as they seek to restore order in Yemen, which has collapsed into civil war.


We understand why our Saudi and other Arab partners felt compelled to take action. The prospect of radical groups like Al-Qaeda, as well as Iranian-backed militants, finding safe haven on the border of Saudi Arabia was more than our Arab partners could withstand. Their action also stems from their perception of America’s disengagement from the region and absence of U.S. leadership.


A country that President Obama recently praised as a model for U.S. counterterrorism has now become a sectarian conflict and a regional proxy war that threatens to engulf the Middle East. What’s worse, while our Arab partners conduct air strikes to halt the offensive of Iranian proxies in Yemen, the United States is conducting air strikes to support the offensive of Iranian proxies in Tikrit. This is as bizarre as it is misguided – another tragic case of leading from behind.

*  *  *

Earlier today we reported that, on very short notice, Saudi Arabia had moved heavy military equipment including artillery to areas near its border with Yemen, “raising the risk that the Middle East’s top oil power will be drawn into the worsening Yemeni conflict.” In other words, Saudi Arabia was preparing for war.

Shortly thereafter, but before Yemen’s presidentbravely fled the country over fears of the Houthi rebel advance, Yemen’s foreign minister called for Arab military intervention against advancing Shiite rebels.

As we explicitly warned, “the conflict risked spiraling into a proxy war with Shi’ite Iran backing the Houthis, whose leaders adhere Shi’ite Islam, and Saudi Arabia and the other regional Sunni Muslim monarchies backing Hadi.”

Moments ago all these warnings were borne out when Al-Arabiya reported that the latest middle-east war is now official after Saudi Arabia and Arab Gulf States had launched a bombing campaign against Yemen.

More details:

This is just the beginning:

and now the US is involved:

And tanks are crossing the border:

From Al-Arabiya:

Saudi Arabia’s Royal Air Force bombed the positions of Yemen’s Houthi militia, Al Arabiya News Channel reported early on Thursday. 


Arab Gulf states had announced that they have decided to “repel Houthi aggression” in neighboring Yemen, following a request from the country’s President Abedrabbo Mansour Hadi.


In their joint statement Saudi Arabia, UAE, Bahrain, Qatar and Kuwait said they “decided to repel Houthi militias, al-Qaeda and ISIS [Islamic State of Iraq and Syria] in the country.”


The Gulf states warned that the Houthi coup in Yemen represented a “major threat” to the region’s stability.


It also accused the Iranian-backed militia of conducting military drills on the border of Saudi Arabia, a leading member of the GCC, with “heavy weapons.”


In an apparent reference to Iran, the statement said the “Houthi militia is backed by regional powers in order for it be their base of influence.”


The Gulf states said they had monitored the situation and the Houthi coup in Yemen with “great pain” and accused the Shiite militia of failing to respond to warnings from the United Nations Security Council as well as the GCC.


The statement stressed that the Arab states had sought over the previous period to restore stability in Yemen, noting the last initiative to host peace talks under the auspices of the Gulf Cooperation Council.

As reported this morning, in a letter sent the U.N. Security Council and seen by Al Arabiya News, Hadi requested “immediate support for the legitimate authority with all means and necessary measures to protect Yemen and repel the aggression of the Houthi militia that is expected at any time on the city of Aden and the province of Taiz, Marib, al-Jouf [and] an-Baidah.”

In his letter Hadi said such support was also needed to control “the missile capability that was looted” by the Houthi militias.


Hadi also told the Council that he had requested from the Arab Gulf states and the Arab League “immediate support with all means and necessary measures, including the military intervention to protect Yemen and its people from the ongoing Houthi aggression.”

To summarize: Saudi Arabia is now bombing a rebel force that has been armed by the US and is backed by Iran, even as the US is bombing an enemy of Iran in Iraq with the blessing of Saudi Arabia.

All in a day’s work in the Middle East.

As for oil’s reaction: after the algos initially appeared not to get the memo, they woke up…


As The Crude Curve flattens dramatically

*  *  *

The action has begun…

* * *




Then this blockbuster:
(courtesy zero hedge)

Saudi Arabia Imposes Naval Blockade On Red Sea Strait, Deploys 150,000 Troops As Iran Condemns Military Action

As noted earlier, the biggest significance of any Yemen conflict has little to do with its own domestic oil production, which at 133,000 bpd is negligible, but due to its location, which not only shares a border with Saudi Arabia, but more importantly due to the Bab el-Mandeb strait which connects the Red Sea with the Gulf of Aden: it is the fourth-biggest shipping chokepoint in the world by volume (3.8 million barrels a day of oil and petroleum products flowed through it in 2013) and is just 18 miles wide at its narrowest point. It’s located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea.


And since to Saudi Arabia preserving the logistics of oil supply is critical, it is hardly surprising that as Egypt’s Ahram Gate reported earlier, the Saudi-led Firmness Storm coalition imposed a naval blockade on Bab El-Mandab strait earlier today. The Saudi navy’s western fleet has also secured Yemen’s main ports including Aden and Midi.


It is not just Saudi Arabia: moments ago Reuters reportedthat four Egyptian naval vessels have crossed the Suez Canal en route to Yemen to secure the Gulf of Aden, maritime sources at the Suez Canal said on Thursday. The sources said they expected the vessels to reach the Red Sea by Thursday evening.

The naval blockade is just part of what so far has been mostly an air-based proxy war. As Al Arabia reported previously, as part of the “Decisive Storm” coalition against the Yemen rebels, Saudi Arabia has deployed at least 150,000 soldiers in preparation for what appears to be a land assault next, an assault that already has the preemptive blessing of the US. As a reminder, Saudi Arabia will be fighting US-armed rebels, but that’s a different story.

Just as importantly, and since as we reported first yesterday the Yemen conflict is merely a proxy war between the Saudis and Iran, we also now have reports that Iran has condemned Saudi Arabia’s intervention, is demanding an immediate halt to the military action, and has warned that a war on Yemen won’t be contained in one area.

From Reuters:

Iran demanded an immediate halt to Saudi-led military operations in Yemen on Thursday and said it would make all necessary efforts to control the crisis there, Iranian news agencies reported.


“The Saudi-led air strikes should stop immediately and it is against Yemen’s sovereignty,” the Students News Agency quoted Iranian Foreign Minister Mohammad Javad Zarif as saying. “We will make all efforts to control the crisis in Yemen,” Zarif said, according to the agency’s report from the Swiss city of Lausanne where he is negotiating with six world powers to resolve a years-old dispute over Tehran’s nuclear ambitions.


Earlier on Thursday, the Foreign Ministry in Tehran called for an end to the military operation.


“Iran wants an immediate halt to all military aggressions and air strikes against Yemen and its people,” Fars quoted Foreign Ministry spokeswoman Marzieh Afkham as saying.


“Military actions in Yemen, which faces a domestic crisis, … will further complicate the situation … and will hinder efforts to resolve the crisis through peaceful ways.”

Prior to that, Bloomberg cited the head of the Iranian parliament’s national security and foreign policy committee, who told Iran’s Fars News Agency that Saudi Arabia’s strikes on Yemen will haunt the kingdom as war won’t be contained,

So as the proxy war snags more and more countries, threatens to become less proxy, more war and much more global, keep an eye on Russia which is caught in that “other” proxy war from 2014 and which is also going nowhere fast. Because if and when Russia and China pick sides and get involved, that’s when it may be a good time to take a vacation far away from any major metropolitan areas.





This afternoon, an expected ground invasion by Saudi and Egyptians troops is imminent:


(courtesy zero hedge)



Yemen Ground Invasion By Saudi, Egyptian Troops Imminent


As reported first thing today, while the initial phase of the military campaign against Yemen has been taking place for the past 18 hours and been exclusively one of airborne assaults by forces of the “Decisive Storm” coalition, Saudi hinted at what is coming next following reports that it had built up a massive 150,000 troop deployment on the border with Yemen.

And as expected, moments ago AP reported that Egyptian military and security officials told The Associated Press that the military intervention will go further, with a ground assault into Yemen by Egyptian, Saudi and other forces, planned once airstrikes have weakened the capabilities of the rebels.

Will this invasion mean that Yemen as we know it will no longer exist and become annexed by Saudi Arabia? According to coalition military sources, the answer is no, but that remains to be seen:

Three Egyptian military and security officials told The Associated Press that a coalition of countries led by Egypt and Saudi Arabia will conduct a ground invasion into Yemen once the airstrikes have sufficiently diminished the Houthis and Saleh’s forces. They said the assault will be by ground from Saudi Arabia and by landings on Yemen’s Red and Arabian Sea coasts.


The aim is not to occupy Yemen but to weaken the Houthis and their allies until they enter negotiations for power-sharing, the officials said.


They said three to five Egyptian troop carriers are stationed off Yemen’s coasts. They would not specify the numbers of troops or when the operation would begin. They spoke on condition of anonymity because they were not authorized to talk about the plans with the press.

Egypt’s leadership role in the next stage of the campaign has come as somewhat of a surprise to observers. Egypt’s presidency said in a statement Thursday that its naval and air forces were participating in the coalition campaign already. Egypt is “prepared for participation with naval, air and ground forces if necessary,” Foreign Minister Sameh Shukri said at a gathering of Arab foreign ministers preparing for a weekend Arab summit in the Egyptian resort of Sharm el-Sheikh.

This may be just the beginning:

The Arab Summit starting Saturday is expected to approve the creation of a new joint Arab military force to intervene in regional crises. The Egyptian security and military officials said the force is planned to include some 40,000 men backed by jet fighters, warships and light armor. Hadi is expected to attend the summit.

The locals do not sound much enthused about the prospect of allowing foreign troops to enter their country uncontested, and as AP notes, support for the Houthis is far from universal in Yemen – but foreign intervention risks bringing a backlash.

On Thursday, thousands gathered outside Sanaa’s old city in the Houthi-organized protest, chanting against Saudi Arabia and the United States.


Khaled al-Madani, a Houthi activist, told the crowd that “God was on the side of Yemen.” He blasted Saudi Arabia saying it is “buying mercenaries with money to attack Yemen. But Yemen will, God willing, will be their tomb.”


Anger against the strikes was already brewing – particularly after airstrikes targeting an air base near Sanaa’s airport flattening half a dozen homes in an impoverished neighborhood and killing at least 18 civilians, according to the health ministry.

For now Yemeni anger is focused on Saudi Arabia:

TV stations affiliated with the rebels and Saleh showed the aftermath of the strikes Thursday. Yemen Today, a TV station affiliated with Saleh, showed hundreds of residents congregating around the rubbles, some chanting “Death to Al-Saud”, in reference to the kingdom’s royal family. The civilians were sifting through the rubble, pulling out mattresses, bricks and shrapnel.


Ahmed al-Sumaini said an entire alley close to the airport was wiped out in the strikes overnight. He said people ran out from their homes in the middle of the night, many jolted out of bed to run into the streets.“These people have nothing to do with the Houthis or with Hadi. This is destructive. These random acts will push people toward Houthis,” he said, as he waved shrapnel from the strikes.


Strikes also hit in the southern province Lahj and the stronghold of Houthis in the northern Saada province. In Sanaa, they also hit the camp of U.S.-trained Yemeni special forces, which is controlled by generals loyal to Saleh, and a missile base held by the Houthis.

But that will soon change, as it is a virtual certainty that the US will intervene at a point in the near future, with its own military assets. So while we await to see just where US troops make landfall, here is the most updated map showing the locations of US naval assets around the globe in general, and in proximity to Yemen in particular. Keep a very close eye on the LHD-7 Iwo Jima amphibious assault ship (which carries some 2,000 marines of the 24th Marine Expeditionary Unit), currently located just off the coast of Yemen.

Dave Kranzler comments on today’s events in the Middle East:
(courtesy Dave Kranzler IRD)

Most Americans Will Miss The Start Of World War Three

The start of what could be a major military conflict in the Middle East began yesterday when Saudi Arabia began bombing Yemen last night. But if you get your news from or CNN or Fox, the only big news to which you would be exposed is the German commercial airliner crash, which occurred nearly three days ago.

Just for grins – in order to see what kind of pig vomit the major cable news networks are feeding to the masses who even make an attempt to stay current on news that doesn’t relate to the Kardashians or The Voice, I like to surf between Fox News and CNN in the morning. I can say with conviction that had I not known about the Saudi/Yemen war escalation through the althernative internet-based media, I might think that the only real world event this weeks has been the 3-day old plane crash.  The front page of this morning does not have one reference to the Saudi bombing.

However, aside from the ongoing global economic collapse, the developing military conflict in the Middle East has the potential to profoundly affect life in this country as we know it. The plane crash? Bad for the people who died and their families – a non-event for the cable news tv junkies.

But the Mid-East situation, at the root, is the escalation of an ongoing political and economic conflict between the Saudis and Iran. The Saudis are the driving force behind the U.S. insistence that Iran give up its nuclear program (and yet, there’s Israel sitting in the middle of it with enough nuclear firepower to incinerate the globe). I’m sure less than 1% of the U.S. population realizes this, but Yemen is now to a agree controlled by Iran (link).

We know that the U.S. and Saudi Arabia in bed together.   But guess who is implicitly allied with Iran?   Russia and China both have strong economic ties with Iran and it is my belief that is why the U.S. has been backing down from it’s original stance regarding Iran’s nuclear program.

But if Iran and Saudi engage in a war by proxy with Yemen as the battle ground, it could well draw in a military engagement between Russia/China and the U.S.  In fact, the Nobel Peace Prize-toting Obama has already authorized military support for Saudi Arabia – LINK.   I would not be surprised, just as happened in Syria, if Putin flexes his muscles at some point if this situation escalates further in support of Iran.

The U.S. is inciting chaos and military activity all over the globe now.   It is highly reminiscent of the period of time leading up to the collapse of Rome…but hey, someone has to profit from war.  The American defense companies are smiling all the way to the bank.  And the big multi-national oil companies are jumping with joy as oil is now $8 above it’s recent lows, having gapped up about $5 in the last 2 days in response to the Saudi/Yemen developments…(Q:  “how can you shoot women and children?”  A: Easy, ya just don’t lead ‘em so much…AIN’T WAR HELL? )







As promised to you last month, where I warned you to expect many dead bodies to surface with the failure of Austria’s Hypo bank. The ECB is quietly asking all the banks to detail their exposure:


(courtesy zero hedge)




One Month After Austria’s Black Swan Shocker, The ECB Quietly Asks Banks to “Detail Their Exposure”




Nearly a month after the Hype Alpe Adria bad bank Heta Asset Resolution “unexpectedly” imploded under a house of non-GAAP and misreported cards, and which led to only the second European creditor bail-in after Cyprus in what until then was considered the safest European nation, unleashing a herd of black swans which will result in not only the insolvency of one of Austria’s provinces, Carinthia, but a week ago led to its first foreign casualty, German Duesseldorfer Hypothekenbank AG which had to be bailed out by the German FDIC-equivalent, the ECB has finally realized it may have a major problem at hand.

So, doing what it does best, a month after the fact and long after the black swans have left the stable so to speak, Mario Draghi’s ECB has asked Eurozone banks “to detail their exposure to Austria and provisions they plan to make after the country halted debt repayments by a “bad bank” winding down defunct lender Hypo Alpe Adria,” financial sources told Reuters.

From Reuters:

The questionnaire sent to banks and a video conference to discuss the potential fallout underscore the sensitivity of Austria’s path-breaking move to invoke new European rules on ensuring creditors, not just taxpayers, fund bailouts.


They are taking this seriously,” one senior executive said of the ECB on the condition he not be identified. The ECB declined to comment.


Bankers say Austria’s credibility is on the line after the second move in two years to impose losses on creditors of Hypo, many of whom assumed they had iron-clad backing from the state.

Odd how these things happen: first EURCHF longs “assumed” iron-clad backing from the SNB… until it was yanked from under their feet. Then, creditors in what many saw as the safest European nation “assumed” they would never suffer losses and would be bailed out for ever… until they saw 50% losses in a matter of minutes.

And if you can’t trust an Aaa/AA+ rated country, just who can you trust? One can see why the confidence in a system in which risk until recently was illegal, is starting to crack.

For now, however, one can still keep kicking the can, as the creditor losses haven’t been fully digested yet.

The debt moratorium gives the FMA time to work out a plan that ensures equal treatment of creditors. It has given no details on what size “haircut” bondholders might expect and has not ruled out sending Heta into insolvency.


The moratorium on more than 11 billion euros in Heta debt has sent shock waves beyond Austria.


Germany’s Bundesbank central bank said German banks have around 5.5 billion euros in Heta exposure. Germany’s deposit protection fund had to take over property lender Duesseldorfer Hypothekenbank AG after it ran aground over Heta exposure.


The Heta move comes after Austria entered uncharted waters for debt markets last year by wiping out via a special law holders of nearly 900 million euros worth of Hypo subordinated debt despite guarantees from its home province of Carinthia. That triggered lawsuits that the country’s Constitutional Court is set to rule on by October.


Some creditors have said they are looking into taking legal steps over the Heta decision, and the FMA is preparing itself for legal action against its decisions.

And hell hath no fury like a bondholder who assumed par recovery is 100% assured, scorned.

Our only question now is that as the flock of Austrian black swans gets tired and prepares to land, just which “assumed” safe financial institution is about to lead to even more creditor scorn.







This will be fun. I have pointed out to you on several occasions that Putin loaned the Ukraine 3 billion USA.  The note is due this December. However, it has a stipulation:  if the Ukraine’s debt to GDP exceeds 60% then Russia can call on that note.  Right now the Debt to GDP has already exceeded 60%.

Russia is in no mood to take a haircut on its debt in order to give the west an orderly default. Europe still needs Russia for its oil. Will Putin just ask for the 3 billion usa now and put the Ukraine into a disorderly bankruptcy and throw billions of dollars in credit default swaps into the wind????


Popcorn anyone???


(courtesy zero hedge)



Putin Is Becoming A “Vulture” Bond Investor


With Washington throwing its full faith and credit behind a new Ukrainian bond issue, it appears it’s time for Moscow to play spoiler to current debt restructuring talks between Kiev and its creditors. Russia is the country’s second-largest creditor after buying $3 billion in bonds back in the days of Viktor Yanukovych (who was once the victim of an attempted assassination by egg and who famously fled the country amid widespread protests last year) and now the Kremlin wants its money and isn’t likely to be amenable to any haircuts imposed on private creditors. Here’s more from Bloomberg:

Ukraine, after gaining a lifeline from the International Monetary Fund, included Russia’s bond among the 29 securities and enterprise loans it seeks to renegotiate with creditors before June. Finance Minister Natalie Jaresko has promised not to give any creditor special treatment. The revamp will include a reduction in the coupon, an extension in maturities as well as a cut in the face value, she said.


Russian Deputy Finance Minister Sergey Storchak said March 17 that the nation isn’t taking part in the debt negotiations because it’s an “official” creditor, not a private bondholder.

Should Russia decide to stick with a hardline stance on the negotiations (and it’s likely they will) it could not only embolden other prospective holdouts, but may indeed force Ukraine into a default:

Holding out can lead to two outcomes: Russia gets paid back in full after the notes mature in December, or Ukraine defaults. The former option is politically unacceptable in Kiev, according to Tim Ash, chief emerging-market economist at Standard Bank Group Plc, while the latter would likely start litigation and delay the borrower’s return to foreign capital markets, which Jaresko expects in 2017.


“Russia will be holdouts, to try and force a messy restructuring,” Ash said by e-mail on March 19.


If Russia holds out and litigates, there is a “real threat” that Ukraine will deem the Eurobond an odious debt, Lutz Roehmeyer, a money manager at Landesbank Berlin Investment GmbH, said by e-mail on March 23. This refers to a legal theory that a nation shouldn’t be forced to repay international obligations if they don’t serve the best interests of the country and its citizens.

Clearly, this is an opportunity for Russia to turn the restructuring talks into political leverage as it wrangles with Washington and the West over the fate of Eastern Ukraine. This is set against a particularly contentious situation in Eastern Europe that’s recently been characterized by a show of NATO force along the Russian border and the usual sabre-rattling out of Moscow (with the latter getting much louder this morning). As a reminder, just yesterday Vladimir Putin’s Security Council condemned what it called an “anti-Russian” US security strategy that it says is aimed at Russian containment by way of military posturing and the use of puppet governments. As far as Putin’s stance on Ukraine’s debt is concerned, well, he can always go the “nuclear route”:

The Russian bond has a covenant allowing the holder to call it if Ukraine’s public debt tops 60 percent of economic output, which the IMF said took place last year.


“It’s a kind of nuclear option, evaporating their leverage,” Rogge’s Ganske said. “If Russia accelerates, then Ukraine has to pay or default on it — i.e. game over.”


More from Moody’s on the restructuring:

The key driver of Moody’s decision to downgrade Ukraine’s long-term government debt and issuer ratings to Ca is the government’s plan to restructure the majority of its outstanding Eurobonds as well as other public sector external debt and the rating agency’s expectation that private creditors will incur substantial economic losses as a result of the restructuring. The debt operation is intended to provide $15.3 billion of the four-year, $40 billion external financing package agreed with the IMF and other multilateral and bilateral creditors. The package was approved by the IMF Executive Board on March 11.

Although negotiations over the specific details of the restructuring are only now getting underway, Moody’s believes that the likelihood of a distressed exchange, and hence a default on government debt taking place, is virtually 100%. The bonds’ recovery value will be determined by the terms of the debt exchange and is currently being discussed with creditors. The terms could include a grace period on principal repayments during the term of the IMF program, a reduction in the existing bonds’ current coupons, which now average 7.1%, and a haircut on the outstanding principal.





You will recall that the USA house voted hugely in favour of sending in lethal and non lethal weapons to the Ukraine.  Putin is not a happy camper today, ratcheting up the rhetoric as he voiced this:



(courtesy zero hedge)




Putin Says Attempts To Tip Nuclear Balance Don’t Scare Russia, Moscow Will Uncover “Schemes”


Russia is once again ratcheting up the rhetoric, this time to a fever pitch. Just a day after Putin’s Security Councilposted a remarkably accurate and amusingly concise assessment of US foreign policy aims on its website, a spokesman for the Russian Foreign Ministry as well as President Putin himself are out with strong condemnations of both the NATO presence in Eastern Europe as well as US plans to arm Kiev.

The comments come on the heels of a House vote which showed overwhelming support for the provision of lethal aid to Kiev and just a day after the first batch of American humvees received a warm welcome from President Petro Poroshenko. As a reminder, here’s what both sides had to say about Congress’s willingness to maybe start an all out proxy war in the Baltics:

The prepackaged spin is already ready: “sending weapons to the Kiev government would not mean involvement in a new war for America”, claimed the abovementioned Eliot Engel who sponsored the document. “The people of Ukraine are not looking for American troops,” Engel said. “They are just looking for the weapons.”


So the only question is how Russia will responds to this escalation: according to RT,“Washington’s decision to supply Ukraine with ammunition and weapons would “explode the whole situation” in eastern Ukraine and Russia would be forced to respond “appropriately,” Russia’s Deputy Foreign Minister Sergey Ryabkov said at the end of February.

While it’s not immediately clear what constitutes an “appropriate” response, and while the Russian Foreign Ministry’s Alexander Lukashevich contends that an outright military confrontation between the West and Russia “isn’t something anyone wants,” that’s where the ambiguity and niceties end. Here’s more via Bloomberg:

NATO drills in Europe are buildup of U.S. forces.


Russia says NATO members on Russian border planning to deploy planes capable of carrying nuclear weapons.


Airforce drills in Estonia are buildup of U.S. presence; U.S. jets may reach St Petersburg from Estonia w/in mins.


U.S. is heavily deploying weaponry in eastern Europe.


U.S. arms supplies to Ukraine are threat to Russia, won’t scare Russia.

The Estonia reference refers to the “bilateral training” being conducted by the Estonian air force and 14 F-16s from the US. As The Aviationist notes, “the purpose of the deployment is to enhance interoperability with a NATO ally and with other regional air arms however, the deployment is above all, another step in the U.S. Air Force’s ‘Forward-Ready-Now!’ posture in the European theater where the Pentagon has already strengthened its presence.”

In case the Foreign Ministry’s words weren’t clear enough, Putin himself had a few choice words for the US and its allies:


But even as Putin assures the West that the Kremlin fears no man and even though Moscow thinks that perhaps the US may be trying to undermine the global nuclear balance by making mutually assured destruction not so mutual, the Russian President is willing to talk about these things:


Meanwhile, the Kremlin seems to believe that certain intricate plots are in the offing designed not only to destabilize Russia’s highly democratic political processes, but to undermine its thriving financial markets as well. Here’s more via Bloomberg:

Western intelligence services are planning operations to discredit, destabilize Russia, including for elections in 2016-18, Interfax reports, citing President Vladimir Putin comments to Federal Security Service meeting.


Putin tells FSB to uncover schemes on securities, currency markets.

*  *  *

So to summarize, Moscow will not be intimidated by NATO because it’s impossible to scare a Russian, Vladimir Putin is open to talking with the opposition but he does not appreciate the implicit attempt to tip the nuclear power balance, nor does the Kremlin approve of the US scrambling F-16s to the Baltics, and “schemes” of any kind will be ferreted out by the FSB.

But other than that, tensions seem to be abating.








With respect to the Chinese initiative, the AIIB, Ambrose Evans Pritchard strongly believes that the USA  made an epic blunder by treating China as a mortal economic enemy: (This commentary parallels Bill Holter’s piece above)




(courtesy Ambrose Evans Pritchard/UKTelegraph)



US risks epic blunder by treating China as an economic enemy

Botched diplomacy by the Obama Administration is forcing Britain and other close allies to choose between the US and China

China's national flag is raised during the opening ceremony of the Beijing 2008 Olympic Games at the National Stadium, August 8, 2008.

US move to block China’s world bank is “misguided at every level”. Photo: Reuters


The United States has handled its economic diplomacy with shocking myopia.

The US Treasury’s attempt to cripple the Asian Infrastructure Investment Bank (AIIB) before it gets off the ground is clearly intended to head off China’s ascendancy as a rival financial superpower, whatever the faux-pieties from Washington about standards of “governance”.

Such a policy is misguided at every level, evidence of what can go wrong when a lame-duck president defers to posturing amateurs in Congress on delicate matters of global geostrategy.

Washington has enraged Britain by trying to browbeat Downing Street into boycotting the project. It has forced allies and friendly countries across the Far East to make a fatal choice between the US and China that none wished to make, and has ended up losing almost everybody. Germany, France, and Italy are joining. Australia and South Korea may follow soon.

The AIIB is exactly what the world needs. China must recycle its trade surpluses and its $3.8 trillion reserves by one means or another. It can buy US Treasuries, Bunds, or Gilts, perpetuating a global bond bubble. It can make surgical investments abroad to acquire technology for its champions and pursue a narrow national interest.

Or it can recycle the money in concert with other members of the AIIB – with a start-up capital of $50bn – for sewage projects, clean energy, ports, roads, and railways in Asia, helping to plug a $700bn shortfall in infrastructure investment that the World Bank is too small to cover and which is of collective benefit to the world.

Britain recycled its surpluses in the 19th Century by building the world’s railways. America did so in the 1950s through the Marshall Plan. China must do likewise, and it is hard to see why the AIIB is considered such a villainous variant.

American officials castigated Britain for breaking ranks and embracing the project, as if it were kowtowing to an enemy. “We are wary about a trend of constant accommodation of China, which is not the best way to engage a rising power,” one US official told the Financial Times.

One is left breathless at the historical folly of such a view in any case. As Henry Kissinger told Caixin magazine this week, the greater danger is that the US fails to accommodate the rise of China in an enlightened fashion, repeating errors made by the status quo powers faced with a prickly Germany before the First World War.

There are echoes of the Korean War in this Atlantic spat, though thankfully the stakes are less violent today. Britain tried to restrain General Douglas MacArthur and Washington’s hawks as they sent US forces charging through North Korea to the Yalu River and the Manchurian border in 1950, warning that it would force China to respond.

MacArthur’s contemptuous riposte was to liken British reflexes to the betrayal of Czechoslovakia at Munich, of “desiring to appease the Chinese Communists by giving them a strip of Northern Korea.” The British experts were right. China threw four armies across the Yalu. America had arrogantly stumbled into a shooting war with the Chinese revolution, a cataclysmic mistake.

General MacArthur misjudged China disastrously

There is no doubt that the AIIB is a direct challenge to the World Bank, just as the new ‘BRICS bank’ takes aim at the International Monetary Fund. The two China-led bodies are intended to break Western control over global finance through the Bretton Woods institutions.

Yet whose fault is that? Under the Bretton Woods carve-up over the last seventy years, World Bank chiefs are always American by droit de seigneur, and all IMF chiefs are European. The US clings steadfastly to its IMF veto. Capitol Hill has yet to ratify a reform of the IMF quota system that currently gives the US four times as much power as China, or approve a badly-needed expansion of IMF funding.

Jacob Lew, the US Treasury Secretary, admits that this foot-dragging has been costly. “It’s not an accident that emerging economies are looking at other places because they are frustrated that the US has stalled a very mild and reasonable set of reforms in the IMF,” he said.

As for the Europeans, they hijacked the IMF for an internal rescue of four eurozone countries, even though EMU is amply rich enough to sort out its own self-created mess. Every emerging market member of the IMF board opposed the original Troika plan for Greece in 2010 on the grounds that it was a rescue for North European banks and for the euro, not a rescue for Greece. They complained that Greece needed immediate debt relief rather than bail-out loans and therefore more debt, and events have proved them entirely right.


It would be a miracle if China were meekly to accept this outdated mockery of world financial governance, and nobody has yet paired the word meek with president Xi Jinping. The most powerful Chinese leader since Mao Zedong – described this week by one party survivor as a “needle wrapped in silk” – will have his way.

Those in Washington who think that China can be pushed around on such matters seem blind to the shifting strategic landscape, as if they still cling to Bush-era illusions of hegemonic power. Mr Obama knows better. It is a mystery why he has wasted so much capital on a debacle.

The only hope for the world in the 21st Century is for the US and China to govern together in G2 condominium. The West must pick its quarrels with care, always going with the grain of its Asian alliance system.

There was pervasive alarm across the Pacific Rim three years ago when China began to flex its muscles: over the Diaoyu/Senkaku islands in the East China Sea, and the Spratlys in the South China Sea. The US was fully justified in acting to stiffen a ring of states from Vietnam, to the Philippines, Japan and South Korea, even if this inevitably had a whiff of military encirclement.

But blocking everything reflexively because it threatens US dominance is stale statecraft, damaging the nexus of alliances on which all else depends.

It is possible that the AIIB will fizzle. China’s economy has come off the boil, struggling by an incipient debt crisis. The work force is contracting by three million a year. Productivity growth has failed to keep pace with rising wages. Capital outflows are eating into foreign reserves. The central bank has become a net seller of bonds. The Asian Development Bank said this week that the yuan is now “overvalued”.

David Shambaugh, a veteran sinologist at George Washington University, says the Communist Party is in danger of disintegrating. Riddled with corruption, it is relying on naked repression and systemic purges to make up for lost legitimacy. He has even begun to talk of a coup against President Xi.

Mr Shambaugh’s warnings have set off a particular storm among China-watchers, since he is not habitually a member of China’s doom brigade. He is probably wrong, but authoritarian regimes are brittle, and inherently non-linear.

Robert Kahn from the US Council on Foreign Relations says the White House would be well-advised to stop trying to sabotage the AIIB, allow any country to joins if it wishes, and let the bank “rise or fall on its own merits.”

Or Washington might heed the proper lesson from the Florentines. We all know about Niccolo Macchiaveli’s compulsive urge to pre-empt all possible threats. He deemed people immutably wicked by nature and therefore prone to be hostile, a bias that brought his princes endless grief.

Less remembered is his peer, Francesco Guicciardini, a man more willing to discern virtue. He regarded such dark views as bad counsel. Most threats fade away of their own accord, or turn out to be harmless. Guicciardini advised “discrezione”. Much wiser.


Your more important currency crosses early Thursday morning:




Euro/USA 1.1003 up .0039

USA/JAPAN YEN 118.70 down .807

GBP/USA 1.4935 up .0059

USA/CAN 1.2434 down .0094

This morning in Europe, the Euro continued on its upward movement, rising by 39 basis points, trading now just above the 1.10 level at 1.1003; Europe is still reacting to deflation, announcements of massive stimulation,crumbling bourses, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, and a possible default of Greece.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen continues to trade in yoyo fashion as this morning it settled up again in Japan by 81 basis points and trading well below the 120 level to 118.70 yen to the dollar. (and again causing havoc to our yen carry traders)

The pound was up this morning as it now trades well above the 1.49 level at 1.4935  (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 up by 94 basis points at 1.2435 to the dollar trading in total sympathy to the higher 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 rise in the dollar against all paper currencies

2, the Nikkei average vs gold carry trade (still ongoing)

3. Short Swiss franc/long assets (European housing/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 at debt saturation already) 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 275.08 points or 1.39%

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

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

Gold very early morning trading: $1208.00




Early Thursday morning USA 10 year bond yield: 1.91% !!! down 1 in basis points from Wednesday night/

USA dollar index early Thursday morning: 96.50  down 42 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: 1.79% down 2 in basis points from Wednesday


Closing Japanese 10 year bond yield: .33% !!! par in basis points from Wednesday


Your closing Spanish 10 year government bond,  Thursday down 1 in basis points in yield from Wednesday night.(despite QE)

Spanish 10 year bond yield: 1.28% !!!!!!


Your Thursday closing Italian 10 year bond yield: 1.33% down 1 in basis points from Wednesday: (despite QE)

trading 5 basis points higher than  Spain.






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

Euro/USA: 1.0882 down .0081  (down 81 basis points)

USA/Japan: 119.24 down .277  ( yen up 28 basis points and killing more of our yen carry traders)

Great Britain/USA: 1.4848 down .0029  (down 29 basis points)

USA/Canada: 1.2474 up .0053 (Can dollar up 53 basis points)

The euro fell quite a bit today to the tune of 81 basis points down to 1.0882. The yen was down in the afternoon, but it was still up by closing to the tune of 28 basis points and closing well below the 120 cross at 119.24. The British pound lost more  ground, 29 basis points, closing at 1.4848. The Canadian dollar was up today against the dollar. It closed at 1.2474 to the USA dollar responding in kind to the higher oil price.

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: 2.00 up 8 in basis points from Wednesday (poor auction this afternoon)


Your closing USA dollar index:

97.34 up 41 cents   on the day.



European and Dow Jones stock index closes:

England FTSE  down 95.64 points or 1.37%

Paris CAC down 14.64 or 0.29%

German Dax down 21.64 or 0.18%

Spain’s Ibex down 10.90 or 0.10%

Italian FTSE-MIB down 244.83 or 1.06%



The Dow: down 40.31 or 0.23%

Nasdaq; down 13.16 or 0.27%



OIL: WTI 51.33 !!!!!!!

Brent: 59.04!!!!



Closing USA/Russian rouble cross: 57.37 par rouble per dollar on the day despite the higher oil price.








And now your important USA stories:



First New York trading today:


Bonds Shaken, Stocks Stirred; Oil & Dollar Will Die Another Day



Diamonds maybe, but Biotechs aren’t forever…


Stocks tried valiantly to suggest everything is awesome today… but failed…


From Monday’s open (post Quad Witching), things are not pretty…


As Biotechs bounce did not last…


Leaving the S&P unable to close green YTD…


And the world’s largest stock index in the red post-QE3…


Bonds were monkey-hammered as the dollar strengthened. 30Y yields soared 13bps off today’s lows… and 30Y back to unch from the FOMC.


As Bonds and Stocks recouple post-FOMC…


Swissy was unceremoniously dumped in a wonderfully linear manner…


As The Dollar V-Shape Recovered off early losses…


Gold, copper, and silver clung to gains on the day despite the resurging dollar and oil prices hald overnight Yemen gains…


Crude close up…


And USO (the Oil ETF) was all over the place with some seriously broken markets…

For the anchors on CNBC – “Off The Lows” Is the new “Killing It”

All you need to know…


Charts: Bloomberg

Bonus Chart: “Distraction”


This morning, if you believe the figures, initial jobless claims drop back below the 300,000 level;


(courtesy BLS/zero hedge)


Initial Jobless Claims Drop Back Below Dreaded “300k” Level


After last week’s initial jobless claims drop – which nevertheless held the 4-wk average above 300k – this week saw the number drop once more. Against expectations of 290k, claims printed 282k, leaving the 4-week average at 297k, conveniently below the 300k mark. Continuing claims continues to flatline at an elevated level. This means that since the end of QE3, initial jobless claims are unchanged as the trend of improvement has clearly stalled.



Trend change… in initial claims


And continuing claims…







Today, it was the Kansas City Fed to report on manufacturing in their area.  It’s index plunged to a 2 year low:


(courtesy Kansas City Fed/zero hedge)






Kansas Fed Plunges To 2-Year Lows, New Orders Crash: “Economy Not As Strong As Media Portrays”


How can it be? Services PMI was at 6-month highs. The Kansas City Fed Index tumbled to -4 in March (against expectations of +1) and was last below this level in Feb 2013. KC Fed has now missed for 6 of the last 8 months and the report is a disaster across the board.New orders plunged to -20 (2nd lowest print since Lehman), order backlogs imploded, average workweek collapsed to -17 (lowest since Lehman), and future capex expectations fell to a five-year low. As one respondent noted, “we do not see the economy as being as strong as a portrayed in the national media reports.”






As for Capex, stick a fork in it: worst expectations in 5 years.


Ugliest… Selected Comments.

  • “We continue to produce to fill orders we have in house but invoicing is down because customers are delaying shipments due to the large amount of snow in their yards. All of the suppliers have sent notices of a raw material increase. If those are implemented our projections will come to a grinding halt.
  • “The drop in oil prices is negatively impacting our business levels. We do not see the economy as being as strong as a portrayed in the national media reports.”
  • “Due to the port disruption, we are diverting as many containers to east coast ports as possible.”
  • “We are still hiring and operating at full capacity butthe flow of new orders for delivery in 2016 has significantly slowed. Hopefully, this trend will improve as the oil & gas producers deal with their excess production issues.”
  • The low price for oil is taking its toll on the demand and price for energy related products we offer. Momentum we experienced earlier this year has left and we are again cost cutting and becoming lean. Our capital expenditures are focused on removing labor content in our processes and products due to the high cost and risk added by regulation and administrative action.”
  • With the strong dollar, we keep continuing to see flood of low prices imports thereby reducing our margins.
  • “Because of the West Coast port disruption, parts are tied up in transit that are several weeks late. Production lines have been shut down for days at a time and we have had customers cancel orders. We will not regain that business when the raw materials come in and in fact have lost some customers.”

But apart from that… everything is awesome.


Charts: Bloomberg






California continues its dry spell!


It’s The End Of March And 99.85% Of California Is Abnormally Dry Already


With NASA scientists warning about California only having one year of water left, it appears The Kardashians and March Madness continue to distract Americans from the ugly looming reality of water shortages. With summer around the corner, the US Drought Minitoring service reports today that a stunning 99.85% of California is “abnormally dry,” and 98.11% of the state is in drought conditions leaving over 37 million people in harm’s way.



As we concluded previously,

Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year mega-drought), except, apparently, staying in emergency mode and praying for rain.

In short, we have no paddle to navigate this crisis.

Several steps need be taken right now.

First, immediate mandatory water rationing should be authorized across all of the state’s water sectors, from domestic and municipal through agricultural and industrial. The Metropolitan Water District of Southern California is already considering water rationing by the summer unless conditions improve. There is no need for the rest of the state to hesitate. The public is ready. A recent Field Poll showed that 94% of Californians surveyed believe that the drought is serious, and that one-third support mandatory rationing.


Second, the implementation of the Sustainable Groundwater Management Act of 2014 should be accelerated. The law requires the formation of numerous, regional groundwater sustainability agencies by 2017. Then each agency must adopt a plan by 2022 and “achieve sustainability” 20 years after that. At that pace, it will be nearly 30 years before we even know what is working. By then, there may be no groundwater left to sustain.


Third, the state needs a task force of thought leaders that starts, right now, brainstorming to lay the groundwork for long-term water management strategies.Although several state task forces have been formed in response to the drought, none is focused on solving the long-term needs of a drought-prone, perennially water-stressed California.

Our state’s water management is complex, but the technology and expertise exist to handle this harrowing future. It will require major changes in policy and infrastructure that could take decades to identify and act upon. Today, not tomorrow, is the time to begin.

Finally, the public must take ownership of this issue. This crisis belongs to all of us — not just to a handful of decision-makers. Water is our most important, commonly owned resource, but the public remains detached from discussions and decisions.

This process works just fine when water is in abundance. In times of crisis, however, we must demand that planning for California’s water security be an honest, transparent and forward-looking process.Most important, we must make sure that there is in fact a plan.

Call me old-fashioned, but I’d like to live in a state that has a paddle so that it might also still have a creek.





Michael Snyder…


The Price Of Ground Beef Has Doubled Since The Last Financial Crisis

By Michael Snyder of The Economic Collapse
Wednesday, March 25, 2015 9:05 PM EDT

Burger And Fries - Photo by Ewan MunroSince the depths of the last recession, the price of ground beef in the United States hasdoubled.  Has your paycheck doubled since then?  Even though the Federal Reserve insists that we are in a “low inflation” environment, the government’s own numbers show that the price of ground beef has been on an unprecedented run over the past six years.  In early 2009, the average price of a pound of ground beef was hovering near 2 dollars.  In February, it hit a brand new all-time record high of $4.238 per pound.  Even just 12 months ago, the price of ground beef was sitting at $3.555 per pound.  So we are talking about a huge increase.  And this hits American families where they really live.  Each year, the average American consumes approximately 270 pounds of meat.  The only nation in the world that eats more meat than we do is Luxembourg.  If the paychecks of American workers were going up fast enough to deal with this increase, it wouldn’t be that big of a deal.  But of course that is not happening.  In an article just last week, I showed that real median household income is a couple thousand dollars lower now than it was during the depths of the last recession.  The middle class is being squeezed, and we are rapidly getting to the point where burgers are going to be considered a “luxury” item.

The following chart was posted by the Economic Policy Journal on Wednesday, and it incorporates the latest data from the Bureau of Labor Statistics.  When I first saw it, I was rather stunned.  I knew that the price of ground beef had become rather outrageous in my local grocery stores, but I had no idea just how much damage had been done over the past six years…

Beef Price - Economic Policy Journal

The biggest reason why the price of ground beef has been going up is the fact that the U.S. cattle herd has been shrinking.  It shrunk seven years in a row, and on January 1st, 2014 it was the smallest that it had been since 1951.


The good news is that the decline appears to have stopped, at least for the moment.  According tothe Wall Street Journal, the size of the U.S. cattle herd actually increased by 1 percent last year…

The U.S. cattle herd expanded in 2014 for the first time in eight years, offering hope to consumers that beef prices could start to subside after soaring to a series of records.

The nation’s cattle supply increased 1% in the year through Jan. 1 to 89.8 million head, according to data released Friday by the U.S. Agriculture Department, reversing a steady decline fueled by prolonged drought in the southern U.S. Great Plains and industry consolidation that encouraged many ranchers to thin herds.

But an increase of 1 percent is just barely going to keep up with the official population growth rate.  If you factor in illegal immigration, we are still losing ground.

And if we have another major drought in cattle country this summer, the cattle herd is going to start shrinking again.

In addition, the price of food overall has been steadily rising for years.  Here is a chart that I sharedthe other day

Presentation Food Inflation

It boggles the mind that the Federal Reserve can claim that we are in a “low inflation” environment.  Anyone that goes grocery shopping feels the pain of these rising prices every time that they go to the store.

In the list that I put together yesterday, I included the following statistic…

Almost half of all Americans (47 percent) do not put a single penny out of their paychecks into savings.

One of the primary reasons why so many Americans are not saving any money is because many families simply cannot save any money.  Their paychecks are stagnant while the cost of living just keeps going up and up.

There simply are not enough “good jobs” out there anymore.  Our economy continues to bleed middle class jobs and the competition for the jobs that remain is quite intense.


Do you know what the two most common occupations in America today are?

According to the Bureau of Labor Statistics, they are “retail sales clerk” and “cashier”.

And of course neither of those “occupations” pays even close to what is required to support a middle class family.

On average, a retail sales clerk makes $24,020 a year, and a cashier makes $20,670 a year.

Because the quality of our jobs has declined so much, there are millions of American families today in which both the mother and the father are working multiple jobs in a desperate attempt to make ends meet each month.

But don’t worry, the Federal Reserve says that we are nearly at “full employment“, and Barack Obama says that everything is going to be just fine.

Actually, the truth is that things are about to get a lot worse.  At this point, we are even getting pessimistic numbers out of the Federal Reserve.  Just this week we learned that the Fed is now projecting that economic growth for the first quarter of 2015 will be barely above zero

From almost 2.5% GDP growth expectations in February, The Atlanta Fed’s GDPNow model has now collapsed its estimates of Q1 GDP growth to just 0.2%plunging from +1.4% just 2 weeks ago. The reality of plunging capex and no decoupling is starting to rear its ugly head in the hard data and as the sun warms things up, weather will start to lose its ability to sway sentiment.

We are at a turning point.  The bubble of false stability that we have been living in is rapidly coming to an end, and when people start to realize that another great economic crisis is coming there is going to be a lot of panic.

And as far as food prices go, they are just going to keep taking a bigger chunk out of all of our wallets.

As high as prices are already, the truth is that your food dollars are never going to go farther than they do right now.

So let us hope for the best, but let us also get prepared for the worst.








Let’s close with this great piece from David Stockman


(courtesy David Stockman/Contra Corner Blog)


Thank You, Fed – Warren And Jorge Are Thrilled By Another Play Day In The Casino


Submitted by David Stockman via Contra Corner blog,

Kraft shareholders woke up $12 billion richer this week and for that they should thank their lucky stars—–or at least send a case of Cristal to Janet and her merry band of money printers. Having passed-out free money to carry traders for 75 months running and after inserting a liquidity and verbal “put” under every market dip since March 2009, the money printers had generated downright giddiness (as of Tuesday night!) in the Wall Street casino.

And when it came to the shares of Kraft, the casino was indeed giddy even before the deal was announced. A few months ago when it was trading about $55/share, the company was already valued at 31X its $1.75 per share of net income for the year then ending.

So now those fast money traders who somehow “got wind” of the deal early are just plain tickled pink. At $83 per share they are up 50% on their cash position and several hundred percent on their call options. That’s quite the pay day, amounting to about 47X last year’s earnings on Jell-O, Kool-Aid, Lunchables, Maxwell House, Oscar Mayer, Philadelphia cream cheese, Planters peanuts and Velveeta spreads.

Setting aside the Kool-Aid, you might wonder how hot dogs, peanuts and sliced cheese are really worth such a snappy valuation multiple. Actually, however, that’s not the complete wonder of it. In the year just ended, Kraft posted an hardly impressive $2.9 billion of adjusted EBITDA less CapEx. Yet the casino is now pegging its total enterprise value (TEV) at $58 billion—-including about $9 billion of net debt.

Can you say 20X free cash flow? Well, Warren Buffet can. Gushing away in a statement accompanying the deal, the Oracle of Omaha said:

“I am delighted to play a part in bringing these two winning companies and their iconic brands together. This is my kind of transaction, uniting two world-class organizations and delivering shareholder value. I’m excited by the opportunities for what this new combined organization will achieve.”

We will get to Jorge (Jorge Paulo Lemann of 3G Capital) next, but here’s where the Fed and its casino come in. Kraft is a dead in the water financial engineering plaything of Wall Street. It was spun-off from its parent company in 2012 purportedly to unlock hidden value, but the only thing it has unlocked is a torrent of cash payments to its shareholders.

That started with a $7.2 billion “goodbye” dividend gifted to its parent company (Mondelez International) in conjunction with the spin-off. Including dividends and share repurchases since then, Kraft has distributed a total of $10.4 billion in cash to shareholders over its brief three-year life.

And where did it get the $10 billion? Not surprisingly, it wasn’t out of free cash flow from operations——-which amounted to $3 billion during the period. Thank you, Janet, the $7 billion difference was borrowed, including a sale leaseback of the corporate headquarters. All in, Kraft’s $10 billion of debt costs just 3.0% on an after-tax basis.

Needless to say, while its executives and Wall Street advisors were furiously stripping the cash and loading its balance sheet with cheap debt, Kraft’s tired, over-priced grocery store brands were not going anywhere—- notwithstanding all the promises that the spin-off would catalyse a new era of growth.

To wit, net sales of $18.2 billion in 2014 were just a tad above the $17.8 billion recorded in 2010, meaning that its four year growth rate amounted to, well, 0.5%.  Likewise, operating income last year of $3.0 billion was actually identical to the figure  back in 2010. In short, not the stuff of a 47X PE multiple.

To be sure, the Wall Street hucksters claim the deal multiple is much more reasonable because 2014 results were marred by large “non-recurring” pension charge. Yes, and the year before that the company’s results were pumped higher by the same accounting shenanigans. So in the analysis above we just took Kraft’s three-year average of operating free cash (EBITDA less CapEx) adjusted for its footballing of pension charges.

As indicated, the average number for this flat-lining collection of long-in-the-tooth brands is $2.9 billion. In short, the “lumpy” accounting doesn’t matter—–the casino is valuing a zero-growth enterprise at 20X operating free cash flow.

But wait. When you combine Kraft with some stuff that is even more yesteryear—-Heinz’s  ketchup, sauces, soups, beans, pasta and Ore-Ida potatoes——there comes an explosion of synergies. Why, the companies said so themselves:

……. they estimated they could find savings of$1.7 billion annually by the end of 2017 through cost reductions and efficiencies of scale.

Right. Both Kraft and Heinz have been harvesting merger synergies and announcing cost-cutting campaigns for the last 30 years——billions and billions worth. So only in today’s Wall Street casino can it plausibly be claimed that another $1.7 billion of earnings will be plucked out of the same cost wells. No Sweat.

As a practical matter, virtually all of Kraft’s $3 billion of operating free cash flow is generated by its US and Canada operations.  By contrast, 62% of Heinz’s $11 billion sales are generated outside of the North America. Indeed, Heinz has only $2.9 billion of cash costs in all of North America. So good luck with eliminating two-thirds of those dollars in a brutally competitive, drastically over-supplied industry of flagging mid-market grocery brands. To make that work will take more than Kool-Aid—–even the kind dispensed from the Eccles Building.

For the moment, however, the latter kind is just what Warren Buffet and Jorge Paulo Lemann are so thrilled about. The combined operation is claimed to be worth $70 billion today and going up from there:

Kraft will hold a nearly 50 percent stake in a company worth more than $70 billion. Because Heinz is private, its equity value is not publicly known, but people briefed on the matter said the combined company is expected to be worth as much as $100 billion by 2017.

Let’s see. Heinz’s 2014 net income was $650 million and that was down from about $1 billion prior to what amounted to an LBO sponsored by Berkshire-Hathaway and 3G Capital. Even after adjusting for the pension “one-timer”, Kraft’s net income was barely $1.9 billion. So call it $2.5 billion of net income on a post-merger basis.

Needless to say, at the hoped for $100 billion of equity value—– that’s a 40X multiple or one humungous pile of synergies. Indeed, the combined company’s entire worldwide payroll is only 46,000, which computes out to a total compensation expense of $3.5 billion, at best. Maybe Warren and Jorge plan to eliminate the whole thing.

In fact, the merger makes no business sense. Spread all over struggling but highly diverse consumer economies in Brazil, Europe and North America there are likely to be as many diseconomies of scale as there are synergy savings. Besides, there is nothing special about putting Heinz ketchup on Kraft Macaroni & Cheese, and certainly not 40X type of special.

But at the end of the day, Warren and Jorge are not counting on synergies and savings. They are counting on Janet and Mario to keep the cheap debt flowing and the casino smoking.

That’s been working for them for years. Thus, 3G Capital did not roll-up the Anheuser-Busch InBev global beer behemoth by scraping together nickels and dimes of new equity. In fact, in the process of buying up beer brands on three continents, the company’s debt grew from $5 billion in 2005 to $50 billion at present. Nor has St. Warren been loath to borrow against Berkshires trove of assets, either. During the last decade its debt has risen from $14 billion to $80 billion.

Any why not. Thanks to the 12 money printers domiciled in the Eccles Building, whom Buffet never stops praising for bailing out Wall Street and Berkshire’s enormous mountain of derivatives in 2008, the after-tax cost of capital is close to free.

Once upon a time that kind of blatant central bank distortion of capital markets would have been viewed as beyond the pale. Indeed, Jay Gould, Andrew Carnegie and JP Morgan were no saints, but they didn’t have a free money central bank financing their empire building, either.

Nor did their riches grow from strip-mining the cash out of already long-in-the-tooth/no-growth empires of beer, cheese, nuts and burgers. They actually built companies and invested massively in new technologies and new productive assets.

So what has transpired is another day and another play in the casino. This ketchup and mac merger could not be more emblematic of how the Fed’s destruction of honest financial markets has fatally deformed American capitalism.

Warren and Jorge are understandably singing Janet’s praise. Everyone else should be getting out the torches and pitchforks.







  1. Ben Campbell · · Reply


    I was amused to see that they say that the average American eats 250 pounds of meat a year. I am a meat eater and I keep records. I eat precisely one quarter of the American average, but I eat as much as I want and my waste line still needs trimming a lot. Perhaps that is the problem, not only are ground beef supplies doubling in price but consumption is absurd. In fact if one thinks about all the poor and hungry of the world, the idea of Americans gorging on four times dietitians recommended meat intake is quite obscene, especially as we know it is all financed by a ruddy fraud. Surely it is not so bad in Canada? I live in rural England, even here my butcher laughs at my 100g (0.22 lbs) portions for the freezer. In England, good fresh vegetables are a much larger home budget item than meat. In fact I regard (staple) meat as almost free at today’s price.

    I plan to manage on 33 lbs of fresh meat a year during any real financial crisis. I actually know the farmers who I am going to buy from and have pre-agreed emergency prices in silver. Eight pounds of beef per ounce. What are Americans (who have any silver) going to do on one eighth of their usual load? I guess the average conceals much worse news. I think about 60% of Americans are in good shape and keep fit on dietitians recommendations. So if we take the vegetarians, very elderly, very young and the fit majority out the equation, there must remain about 60 million Americans (slobs) who eat 800 lbs of meat per year. Very good news for the economy, especially the undertakers.


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