March 27/Chinese demand this week: 53 tonnes/gold and silver fall as LBMA options expire today/Austria may have another black swan as Pfandbriefbank looks to be in serious trouble/ expect more dominoes to fall if they fail/








Good evening Ladies and Gentlemen:



Here are the following closes for gold and silver today:



Gold:  $1199.80 down $5.30 (comex closing time)

Silver: $17.05 down 7 cents (comex closing time)



In the access market 5:15 pm



Gold $1198.60

Silver: $16.96



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 43 notices served for 4300 oz.  Silver comex registered 68 notices for 340,000 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 629 contracts, due to short covering, as Thursday’s silver price was up by 14 cents. The total silver OI continues to remain extremely high with today’s reading at 171,441 contracts. The front month of March fell by 66 contracts to 146 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 398,579 for a whopping loss 17,813 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 for London’s LMBA gold and silver. On Tuesday we have the final options expiry and that is the OTC market. We had 43 notice served upon for 4300 oz.




Today, we had no changes in gold inventory   at the GLD/  Gold Inventory rests at 737.24  tonnes


In silver, /SLV  we had a huge withdrawal of 1.439 million oz of silver inventory leave  the SLV/Inventory, at 323.888 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 629 contracts.  Gold OI fell by a whopping 17,813 contracts.

(report Harvey)


2. Koos Jansen reports that Chinese demand for the week ending March 20 totaled 53 tonnes.  This excludes Chinese sovereign purchases. Koos also comments that he believes that gold inventory of sovereign China will finally be revealed once they are included in the new SDR calculations.


3. Pater Tenenbrarum notes in his latest commentary that Euro basis swaps in the future (against dollars) is negative suggesting problems that will be forthcoming in the markets. He suggests two major problems:


i. The Greek debt problems with its associated credit default swaps and interest rates swaps


ii. The oversized short USA dollar short position held by the emerging nations and others.

He is extremely worried about a total collapse on both of these.


(Peter Tenenbraum)


4. Yesterday I reported to you the following: “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.  ”  Today Raul Meijer gives a great presentation on this and concludes that Ukraine will default and Russia will not mind if it is messy.  However they do want their money back.

(Raul Meijer)


5. It looks like Austria has another potential bank problem with respect to the failure of Hypo bank. It is Pfandbriefbank and this is another black swan that can cause dominoes to fall.



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 17,813 contracts from 416,312 down to 398,579 despite the fact that gold was up by $7.80 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 43 for a loss of 49 contracts. We had 1 notice filed upon on yesterday so we lost 48 gold contracts or an additional 4,800 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 44,303 contracts down to 67,395.  We have 2 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 fair at 165,235.  (Where on earth are the high frequency boys?). The confirmed volume on yesterday ( which includes the volume during regular business hours + access market sales the previous day) was good at 372,636 contracts. Today we had 43 notice filed for 4300 oz.

And now for the wild silver comex results.  Silver OI fell by 629 contracts from 172,070 down to 171,441 despite the fact that silver was up 14 cents, with respect to yesterday’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 66 contracts falling to 146. We had 129 contracts served upon yesterday. Thus we gained 63 contracts or an additional 315,000 oz will stand in this March delivery month. The estimated volume today was poor at 21,180 contracts  (just comex sales during regular business hours.  The confirmed volume yesterday  (regular plus access market) came in at 52,580 contracts which is excellent in volume. We had 68 notices filed for 340,000 oz today.



March initial standings

March 27.2015



Withdrawals from Dealers Inventory in oz  nil
Withdrawals from Customer Inventory in oz  64.30 oz (2 kilobars)(MANFRA)
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz nil
No of oz served (contracts) today 43 contracts (4300 oz)
No of oz to be served (notices)  0 contracts  (nil oz)
Total monthly oz gold served (contracts) so far this month 52 contracts(5200 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

 656,754.2 oz

Today, we had 0 dealer transaction

total Dealer withdrawals: nil oz



we had 0 dealer deposit

total dealer deposit: nil



we had 1 customer withdrawals

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


total customer withdrawal: 64.30 oz



we had 0 customer deposits:


total customer deposit:  nilo oz


We had 0 adjustments


Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 43 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 (52) x 100 oz  or  5200 oz , to which we add the difference between the open interest for the front month of March (43) and the number of notices served upon today (43) 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 (52) x 100 oz  or ounces + {OI for the front month (43) – the number of  notices served upon today (43) x 100 oz} =  5,200 oz or  .1617 tonnes


we lost a huge 48 contracts or 4800 oz will not stand for delivery.



Total dealer inventory: 658,833.604 oz or 20.49 tonnes

Total gold inventory (dealer and customer) = 7,981,901.474  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 27 2015:



Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 60,775.500 oz (Scotia)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory  1,358,254.11 oz (Scotia, Brinks)
No of oz served (contracts) 68 contracts  (340,000 oz)
No of oz to be served (notices) 78 contracts (390,000)
Total monthly oz silver served (contracts) 2500 contracts (12,500,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal  of silver from the Customer inventory this month  7,477.613.1 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 2 customer deposits:

i) Into Scotia:   1,158,021.41 oz

ii) Into Brinks: 200,232.700 oz

total customer deposit: 1,358,254.110  oz



We had 1 customer withdrawals:

i) Out of Scotia:  60,775.500 oz

total withdrawals;  60,775.500 oz



we had 0 adjustments:



Total dealer inventory: 70.574 million oz

Total of all silver inventory (dealer and customer) 176.477 million oz


The total number of notices filed today is represented by 68 contracts for 340,000 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 (2500) x 5,000 oz    = 12,500,000 oz to which we add the difference between the open interest for the front month of March (146) and the number of notices served upon today (68) x 5000 oz equals the number of ounces standing.


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



2500 (notices served so far) + { OI for front month of March(146) -number of notices served upon today (68} x 5000 oz =  12,890,000 oz standing for the March contract month.

we gained 315,000 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 27/no changes in gold inventory at the GLD/Inventory at 737.24 tonnes


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 27/2015 /  we had no changes in  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 27. we had a huge withdrawal of 1.439 million oz leave the SLV/Inventory rests this weekend at 323.888 million oz

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 27/2015 we had a huge withdrawal of 1.439 million oz of silver leave the SLV/inventory rests at 323.888 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 8.8% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 60.3%

Percentage of fund in silver:39.3%

cash .4%


( March 27/2015)


Sprott gold fund finally rising in NAV

2. Sprott silver fund (PSLV): Premium to NAV rises to + 1.53%!!!!! NAV (March 26/2015)

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

Note: Sprott silver trust back  into positive territory at +1.53%.

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

Central fund of Canada’s is still in jail.





At 3:30 pm est we receive the COT report which purportedly gives position levels on our major players.


Let us head over to the gold COT;:




Gold COT Report – Futures
Large Speculators Commercial Total
Long Short Spreading Long Short Long Short
168,234 113,953 52,190 178,058 230,983 398,482 397,126
Change from Prior Reporting Period
5,966 4,778 5,630 -2,406 -5,971 9,190 4,437
138 103 84 54 54 231 208
Small Speculators  
Long Short Open Interest  
35,285 36,641 433,767  
-5,161 -408 4,029  
non reportable positions Change from the previous reporting period
COT Gold Report – Positions as of Tuesday, March 24, 2015

(remember this report ends on Tues March 24.2015 and before the liquidation of comex contracts)


Our large specs:

Those large specs that have been long in gold added 6090 contracts to their long side.

Those large specs that have been short in gold surprisingly still thought it necessary to add to their short side to the tune of 1,633 contracts.




Those commercials that have been long in gold pitched 5856 contracts from their long side.

Those commercials that have been short in gold continue to cover to the tune of 6,304 contracts and thus the commercials went again net long for the week.


Our small specs;

Those small specs that have been long in gold pitched a gigantic 6040 contracts from their long side  ??? makes no sense

Those small specs that have been short in gold covered 1135 contracts from their short side.



And now for silver:



Silver COT Report: Futures
Large Speculators Commercial
Long Short Spreading Long Short
62,332 30,209 22,797 67,276 106,518
683 -7,029 -834 -4,926 4,106
91 48 45 42 49
Small Speculators Open Interest Total
Long Short 172,659 Long Short
20,254 13,135 152,405 159,524
-788 -2,108 -5,865 -5,077 -3,757
non reportable positions Positions as of: 152 128
Tuesday, March 24, 2015


Our large specs;

Those large specs that have been long in silver added 700 contracts to their long side and that was to be expected.


Those large specs that have been short in silver covered a monstrous 7109 contracts from their short side as they saw the light.


Our commercials

Those commercials that have been long in silver pitched a rather large 6974 contracts from their long side as silver  was rising.


Those commercials that have been short in silver added another 1940 contracts to their short side as silver was rising. Commercials go net short by 8914 contracts with silver rising.


Our small specs:

Those small specs that have been long in silver pitched a tiny 810 contracts from their long side

Those small specs that have been short in silver covered 1915 contracts from their short position.





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


Gold and silver trading early this morning


(courtesy Goldcore/Mark O’Byrne)


Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed

– World sleep walking from ‘Cold War’ to ‘Hot War’ and new World War
– U.S. resolution to supply Ukraine with lethal weaponry passed
– Russia warns such moves would “explode the whole situation”
– Minsk agreement remains intact – little justification for escalation and ignoring EU allies
– US continues to act as only global superpower despite powerful Russia and China and new multi-polar world
– Hubris could lead to a new World War

Geopolitical risk has escalated sharply this week after the Saudi bombing of Yemen and the U.S. House of Representatives voting overwhelmingly for the President to provide offensive weaponry to the Ukrainian army.

Both are likely to result in sharp escalation in tensions between NATO and Russia and see an intensification of war in Eastern Europe and the possibility of a regional war in the Middle East.

The move is concerning as European countries  who have a real interest in maintaining stability in Ukraine – Germany and France, who are Europe’s de facto leadership, and Russia – have already restored a degree of stability through the Minsk agreement. Germany and France pointedly excluded the U.S. from the process.

The resolution comes despite Russia’s Deputy Foreign Minister Sergey Ryabkov having previously warned in February that such a move would be a “major blow” to the Minsk agreements and would “explode the whole situation.”

The second Minsk Agreement – brokered between Germany, France, Russia and Ukraine last month – has remained largely intact. The head of the reasonably independent Organisation for Security and Co-operation in Europe said earlier this month the the ceasefire in Ukraine was holding. The OSCE confirmed, yesterday, that the withdrawal of heavy arms by both sides of the conflict was “ongoing” according to the Kyiv Post.

Therefore, there would appear to be little justification for the U.S. to send high tech arms to Ukraine at this time especially on the pretext of restoring stability.

The passing of such a resolution highlights the insulated nature of U.S. politics. U.S. policy makers continue to labour under the delusion that the U.S. is still the only global superpower.

The reality is that the U.S. grows more isolated by the day. While the rising superpowers of the East work tirelessly to forge international ties through trade and development agreements, the U.S. continues to act unilaterally and forcefully – as it has since the collapse of the Soviet Union.

The Eastern block does not need war. Its economic influence grows daily – as demonstrated most recently by a whole swathe of European allies joining the new Chinese-led Asian Infrastructure Investment Bank despite pressure from the U.S. not to do so.

On the other hand, it would seem that many U.S. policy makers regard war as an opportunity to re-exert their declining influence.

The U.S. may or not remain a superpower. It has the population, landmass and resources. It has friendly neighbours and is practically impenetrable to attack. However imperial overstretch has bankrupted many an Empire.

It needs to come to terms with the fact that there is a new world order emerging – and not necessarily the one that was envisioned following the collapse of the Soviet Union.


Until its politicians overcome their hubris the world will continue to  grow more and more unstable as it lurches closer to another World War. What the catalyst will be which triggers another World War is difficult to tell. There are many options to choose from.

Gold is a safe haven asset and an essential store of value that has protected people from war and economic uncertainty throughout history. It remains prudent for investors and savers to have an allocation to physical, allocated gold.



– Gold looks set for second consecutive week of gains
Japan’s QE fails – Returns to zero inflation
‘Master of the universe’ central bank speeches today
– ETF and COMEX holdings fall as gold flows East
– JP Morgan to be part of new gold ‘fix’
– Greeks pull €8 billion from banks
– “No one knows how to solve the situation in Greece
– Bundesbank warns debt in euro zone has entered “danger zone”
– UK and Irish house prices are falling … again

Today’s AM fix was USD 1,198.00, EUR 1,106.70 and GBP 805.32 per ounce.
Yesterday’s AM fix was USD 1,209.40, EUR 1,097.26 and GBP 809.23per ounce.

Gold climbed 0.65 percent or $7.80 and closed at $1,203.40 an ounce yesterday, while silver rose 0.47 percent or $0.08 at $17.05 an ounce.

Gold in U.S. Dollars - 1 Week

In the end of day trading in Singapore, gold prices climbed 0.3 percent to $1,199.95 an ounce after reaching a high on Thursday of  $1,219.40. Gold surged  after news of the bombing in Yemen but prices were capped at the $1,220 level prior to a retracement of much of the initial gains.

Oil prices jumped over 6 percent at one stage and stock markets worldwide slumped yesterday after Saudi Arabia and allies carried out air strikes, which fueled worries internationally that global energy shipments may be put at risk.

The U.S. claims that Saudi Arabia kept some key details of its military action in Yemen from Washington until the last moment. Saudi Arabia’s more aggressive role is said to be in order to compensate for perceived U.S. disengagement.  U.S. President Obama’s Middle East policy increasingly relies on proxies rather than direct U.S. military involvement. He is training Syrian rebels to take on the government of President Bashar Assad and this week launched air strikes to back up Iraqi forces trying to retain the city of Tikrit.

All of this has the real potential for ‘blowback’ in the classic sense and risks leading to a hot war involving Russia.

Gold pulled back today as traders took profits after a seven-day rally in the yellow metal. In spite of the price dip gold is expected to rack up a weekly gain of around 1.5 percent. Gold looked overvalued after the 7 days of price gains and the final rally to over $1,219/oz. The last winning streak of 7 consecutive days in a row was in August 2012. Gold appeared overbought and was due a correction.

As tends to happen, gold is now testing previous resistance at $1,200/oz which may become support.

Gold may have a second week of gains today and if this happens we would be constructive on further price gains next week. Momentum is a powerful force in markets and the recent gains could see technical traders pile in the long side pushing prices higher next week.

Gold in GBP - 1 Week

However, a lower weekly cose today could lead to sharp selling on futures markets near the close today and at the open in Asia which could push prices lower.

The question is whether the recent rally is another flash in the pan for gold or the start of a more meaningful rally in prices. We believe it is too soon to tell. However, we are confident that gold is in the process of bottoming prior to further gains in the coming months.

Japan has returned to zero inflation after recently emerging from recession, once again highlighting how ineffective QE has been at creating a real, sustainable economic recovery.

It’s a day of ‘master of the universe,’ central bank speeches as both Bank of England governor Mark Carney and Fed chief Janet Yellen preach their ultra loose policies and certain market participants lap up the ‘Gospel according to Mark’ … and Janet. Central bank believers will be watching for indications of their position on rate rise timings and their crystal ball view on the economies of the UK and US respectively.

U.S. GDP estimates for the fourth quarter are forecast for an upward revision from 2.2 per cent to 2.4 per cent on the back of an increase in consumer spending.

Yesterday saw a huge withdrawal of 5.97 tonnes from the world’s largest gold ETF, New York-listed SPDR Gold Shares. The nearly 6 tonne fall to 737.24 tonnes on Thursday, its lowest level since January.This month’s outflow from the SPDR has totalled just over 34 tonnes so far, the largest of any month since December 2013.

Over on the COMEX withdrawals continue. Earlier this year, the COMEX had 303 tonnes of total gold inventories. Yesterday the total inventory fell to 248.27 tonnes. This is a loss of 55 tonnes over that period and lately the withdrawals have been intensifying. Gold continues to flow from the West to East.

JPMorgan will be one of seven participants in the LBMA gold price according to ICE as reported by Eddie van der Walt in Bloomberg.

JPMorgan is to be among seven companies able to participate in LBMA Gold Price benchmark, ICE said today in statement published online. Other participating banks are Barclays, Goldman Sachs, HSBC, Bank of Nova Scotia, SocGen and UBS.

The new LBMA gold price has all the hallmarks of the old fix with just a few banks taking part in it and little participation from large players in the industry – miners, mints and refiners. Also it is noteworthy that there is no non Western banks taking part in the new gold fix. None from Africa, South America or Asia and none from China where there has been speculation of involvement in the new fix.

The crisis in Greece looks set to escalate in the coming days. Greek bank deposits plunged to an almost 10 year low in February as some €8 billion ($8.7 billion) were withdrawn from lenders, amid rising political uncertainty and worries over the country’s possible exit from the eurozone.

Total deposits fell to €152.4 billion euros in February, down from €160.3 billion in January, data from Greek central bank showed yesterday. This is the lowest level since June 2005.

Greece is hurrying to compile a list of economic overhauls that satisfies its creditors and secures desperately needed euros, as it runs increasingly low on cash and debt payments loom.

Officials in Greece’s new government, led by the leftist Syriza party, aim to submit a list of overhauls by Monday at the latest, officials have said. Greece hopes that eurozone finance ministers can meet and approve the country’s overhaul programme by next Wednesday.

Austria’s Finance Minister Hans-Joerg Schelling admitted today that “no one knows how to solve the situation in Greece”.

“We have a crisis of trust with Greece. Every day something is agreed upon and the next day it’s invalid,” Mr Schelling said speaking to the Klub der Wirtschaftspublizisten, a group of financial journalists in Vienna.

The head of Germany’s Bundesbank has warned debt in the euro zone had entered the “danger zone” and called for banks’ exposure to the debt of individual countries to be capped.

Gold in Euros - 1 Week

He is opposed to more emergency funding for Greece, accusing Athens of gambling away “a lot of trust”.

Speaking to the weekly Focus magazine Jens Weidmann said: “Until the autumn, an improvement in the economy had been discernible. But the new government has gambled away a lot of trust.”

“I am opposed to an increase in the emergency loans,” Mr Weidmann, who also sits on the European Central Bank’s decision-making governing council, said.

UK and Irish house prices are falling. The UK’s Nationwide house price index has revealed a seventh consecutive month of a slowdown in the UK property market. House price falls in central London have start to spread out across the capital to South West London.

In Ireland, property prices fell again in February. Residential property prices fell by 0.4 per cent nationally last month, with the decline in Dublin rising to 0.7 per cent, according to latest official figures. Results show more than 2 per cent has been wiped off the value of homes in the capital since the beginning of the year.

In London in late morning trading gold is at $1,201.73 or down 0.30 percent. Silver is at $17.24, up 0.23 percent and platinum is $1,142.70 down 0.72 percent.





Another monstrous gold demand coming from China:  53 tonnes.

Normally they slow down after their new year. I guess they threw that out the window. Please remember that this demand is Chinese citizen demand (equals Shanghai GE outflows) and does not include any sovereign purchases. So far this year without sovereign China, gold imports between China and India amount of 640 tonnes for a little less than 3 months.


Finally, Koos believes that gold inventories will be finally updated by China once they are included in the SDR calculations. The SDR calculation may also include gold as one of the currencies…


(courtesy Koos Jansen)





Posted on 27 Mar 2015 by

When Will China Disclose Its True Official Gold Reserves And How Much Is It?

Things are heating up in the Chinese gold market

First let’s go through the latest Shanghai Gold Exchange data and then we’ll continue to discuss the most recent developments regarding Chinese official gold reserves.

Friday the Shanghai Gold Exchange (SGE) released its trade report of week 11, 2015 (March 16 – 20). Withdrawals from the vaults, which equal Chinese wholesale demand, accounted for 53 tonnes, up 3.91 % from the prior week.

Screen Shot 2015-03-27 at 10.33.53 AM
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

Year to date total withdrawals have reached a staggering 561 tonnes, up 7.3 % from 2014, up 33 % from 2013.When using the basic equation for the Chinese gold market to estimate import, we learn that up until March 20 China has net imported 412 tonnes. Add to this India has net imported about 230 tonnes over the same period, that’s 642 tonnes combined. I wonder how long the Chinese can keep up this pace of importing before physical supply from Western vaults runs dry.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 11 dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2015 week 11

Trading volume on the Shanghai International Gold Exchange (SGEI) has been 32 tonnes in week 11, which could have distort SGE withdrawals by 0.8 tonnes. (Read SGE Withdrawals In Perspective for more information on the relation between SGEI trading volume and SGE withdrawals)

When Will China Disclose Its True Official Gold Reserves And How Much Is It?

As most readers who are interested in gold will know, China’s official gold reserves are small in proportion to the size of their economy and their foreign exchange reserves. This disproportionate position has been difficult for China to escape from. Any slight move from their immense stock of US dollars into gold could disrupt the gold market, and thus the US dollar, spoiling the party for everybody.

China is forced to buy in secret. The latest update on the size of their official gold pile was in April 2009, when they disclosed to have 1,054 tonnes, up 454 tonnes from 600 tonnes, which they claimed to have since 2003. Common sense indicates the PBOC did not buy 454 tonnes in a few months; most likely they bought this amount in secret spread over six years (2003 – 2009). More common sense suggests they continued to buy in secret since 2009 and they hold at least twice the weight they currently claim.

Last week I reported it’s very likely the renminbi will be adopted into the SDR basket this year and before inclusion China will announce their true gold reserves. All arrows point in the same direction, IMF chief Lagarde stated:

China’s yuan [renminbi] at some point would be incorporated in the International Monetary Fund’s Special Drawing Right (SDR) currency basket, IMF Managing Director Christine Lagarde said, …”It’s not a question of if, it’s a question of when,”

The SDR basket is reconsidered every five years, in 2010 there was no adjustment made, as the renminbi was not considered eligible at the time. But the renminbi has made significant developments since then; this year will be appropriate for adoption.

Next to what Lagarde and the IMF have stated, more “official” channels are hinting at changes to come regarding China in the international monetary system. Roland Wang, China managing director at World Gold Council, told Reuters on March 26: 

China currently holds about 1.6 percent of its foreign exchange reserves in gold, which is relatively low compared with developed countries and some developing countries, WGC China managing director Roland Wang said. 

“The ideal amount should be at least 5 percent of its total forex reserves,” Wang told Reuters in an interview in Hong Kong.

The latest IMF data points out China’s total foreign exchange reserves, excluding gold, on December 1, 2014, were valued at 3.859 trillion US dollars. 1,054 tonnes at the price of gold on December 1, 2014 (37,600 US dollar for 1 Kg), was a little over 1 % of total reserves.

If China would announce on Monday they hold 5 % of total reserves in gold, this would translate into roughly 5,000 tonnes.  

Remarkably, the exact same day Reuters published Wang’s statement, Chinese newswire Caixin published a detailed story on gold in China’s monetary history and its potential function in the present and future economy, written by Hedge Fund manager Li Sheng:

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

Li mentions the exact same numbers as Wang from the World Gold Council: 1.6 % and 5 % of total reserves. Coincidence?

I think that if China will update us on their gold reserves, the total will be less than 5,000 tonnes. For clarity, I have little hard evidence on the amount of gold the PBOC or its proxies hold in reserve. However, the reason I think it will be less is because of what Song Xin, Party Secretary and President of the China Gold Association, wrote at Sina Financeon July 30, 2014:

Gold Will Support Renminbi As It Moves To Join World

…For China, the strategic mission of gold lies in the support of RMB internationalization, and so let China become a world economic power and make sure that the “China Dream” is realized. 

…Though China is already the world’s second largest economy, there is still a long way to go to become an economic powerhouse. The most critical part to this is that we don’t have enough say in matters such as international finance and matters regarding the monetary system, the most obvious of which is the fact that the RMB hasn’t fully internationalized.

Gold is a monetary asset that transcends national sovereignty, is very powerful to settle obligations when everything else fails, hence it’s exactly the basis of a currency moving up in the international arena. When the British Pound and the USD became international currencies, their gold reserve as a share of total world gold reserves was 50% and 60% respectively; when the Euro was introduced, the combined gold reserves of the member countries was more than 10,000 tonnes, more than the US had. If the RMB wants to achieve international status, it must have popular acceptance and a stable value. To this end, other than having assurance from the issuing nation, it is very important to have enough gold as the foundation, raising the ‘gold content’ of the RMB. Therefore, to China, the meaning and mission of gold is to support the RMB to become an internationally accepted currency and make China an economic powerhouse.

That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

According to Song step one is to reach the 4,000 tonnes mark to surpass Germany and become the second largest holder in the world, which would be in line with being the second largest economy (in terms of GDP). We can also read China’s aspirations in international finance that is currently, among other deveopments, to be established through the inclusion in the SDR basket. Bear in mind, Song is a Party Secretary, he wrote this with permission, or on behalf of the Communist Party of China (CPC).

Chinese party
Emblem Communist Party of China

Song’s statements makes me think if China will increase its official gold reserves it will be more than Germany’s reserves; something north of 3,384 tonnes. Of course I could be wrong and it will be less – perhaps because they have less, perhaps because the international monetary system “can’t handle” and increase of more than 100%, perhaps because China has more than they see fit to disclose on the grand chessboard.

To finish please read the last bit of the article from Caixin, a must read and it has similarities with Song’s article:

Yuan and Gold: Old Enemies Should Finally Become Friends

…Since the global financial crisis that started in 2008, there has been consensus that an excessive issuance of U.S. dollars, driven by the U.S. Federal Reserve’s need to protect the U.S. economy, was partially to blame for causing havoc. Since the Bretton Woods system collapsed in 1971, the United States has been freed from having to restrict its money supply to the size of the gold reserve its central bank holds.

What does that say about the attitude China should take toward gold?

The boom years for gold between 2008 and 2012 were, of course, driven to a large extent by the United States’ easy monetary policy and an economic recovery in many countries. Yet, China played a part in it as well.

Its push since 2010 to promote the use of the yuan globally and diversify its foreign exchange investment away from U.S. Treasury bonds and U.S. dollar-denominated assets has made investors expect the demand for gold to rise because the Chinese central bank will need a greater reserve to support its currency.

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

The price of gold started plummeting in early 2013 as the U.S. economy became stronger and the market expected the Federal Reserve to stop its policy of so-called quantitative easing. Meanwhile, China’s demand for gold soared. In the first half of 2014, imports skyrocketed, prompting speculation that the central bank was secretly beefing up its gold reserve.

Buying more gold seems to be a good choice for both the government and individual investors, given the new domestic and international circumstances. The yuan has been relatively stable throughout the most troubled times of the financial crisis, but its peg to the U.S. dollar means it will always fluctuate in sync with the latter, depending on the Fed’s moves.

That is why it is extremely important that we have an “anchor” ourselves.

Gold is a currency that supersedes sovereignty issues, is politically neutral, and is not easily manipulated by monetary policy. Gold may not be able to compete with the currencies of the world’s major powers, but it can certainly be used as an anchor.

In the past year or two, enormous changes have occurred to the structure of China’s economic growth, to the degree of social wealth accumulation, and to the investment and wealth management habits of ordinary people. It is important and urgent that we revisit certain issues, including the relationship between the yuan and gold, under these new circumstances.

The party came to power not only because it won the war but also, and more importantly, because it represented the right thing to do economically and financially. The relative advantages of its monetary system back then have been fully demonstrated, but it will not be long before they turn into obstacles to progress if the authorities reject reform and refuse to evolve along changing times.

The emphasis on material goods over gold and silver in the yuan system may have been superior in wartime and when supplies were insufficient, but it has increasingly become incompatible with today’s needs.

If it was necessary to use all means necessary to secure enough supplies of goods in the old days, today’s priority should be how to fairly distribute them. The emphasis should be on developing a fair market and protecting the ownership of private assets.

In a 1966 essay, former Fed chairman Alan Greenspan wrote that gold is “a protector of property rights.” This is true, but only in times of peace and in an open environment. The old wisdom of hoarding gold in troubled times is applicable only to eras of strife and war. In China in the 1960s, in Nazi-controlled Europe and in the Soviet Union under Stalin, gold could not buy one food, let alone protect property.

So instead of trying to peg the yuan somehow to gold to increase its credibility internationally, the government might as well work to establish rule of law and create a system where private property ownership is respected and the public believes in the strength of the monetary system. Confidence is more important than gold.

But that does not mean the yuan system does not need gold. It can be an anchor that stabilizes the yuan and increases people’s confidence in it. It can also serve as a check to the power of any one major currency.

Increasing private savings and investments of gold, or – as the Chinese government likes to call it – “storing gold with the people,” is not only about the diversification of investment channels. It is also an inevitable path that the yuan must take from being a currency supported by reserves of material goods to one based more on credit.

The government should be pleased to see this trend gaining momentum. Increasing its gold reserves at the same time can also strengthen the public’s confidence in the yuan and promote its use globally.

Koos Jansen
E-mail Koos Jansen on:






We are tickled pink with this story:


(courtesy Lawrence Williams/Mineweb)





Red rag to gold bulls – JPMorgan added to LBMA Gold Price banks

Lawrence Williams | 27 March 2015 16:58

A visit today to the website of ICE Benchmark Administration (IBA), which now runs the new London gold benchmarking process on behalf of the LBMA, confirms there are now seven Direct Participants in the LBMA Gold Price with JP Morgan now joining Barclays, Goldman Sachs, HSBC, Scotiabank, SocGen, and UBS in the setting of the twice daily gold benchmark. Talk about ‘The Usual Suspects’!

If any bank selection could be guaranteed to inflame those within the gold bull community who preach gold price manipulation, it would be the addition of JP Morgan, following that of Goldman Sachs and UBS, over the original four members of the old London Gold Fixing panel. A cynic might suggest the LBMA and ICE might have made the selection of the participants to deliberately rile GATA and its supporters as all the above banks are those widely reckoned by the gold price manipulation theorists to be controlling the gold price for their own ends and for those of some allied central banks. Manna for the conspiracy theorists!

And still there are no Chinese banks involved. Will there ever be? Until the benchmarking process participants are widened to include entities from outside the Western banking elite, the process will remain suspect in the eyes of those who feel that there are no level playing fields in the global financial markets – if indeed there ever were!



Hinde capital talks with former BIS official Bill White who in 2005 talked about gold suppression.


(courtesy Hinde capital/GATA)


Former BIS official who admitted gold price suppression comes out for free markets


4:30p PHT Friday, March 27, 2015

Dear Friend of GATA and Gold:

Hinde Capital in London, in cooperation with the free-market advocates of the Cobden Centre, this week published the first part of an interview with former Bank for International Settlements official William R. White, who in a speech in June 2005 to a BIS conference confessed on behalf of the bank to the international central bank gold price suppression scheme:

White is now chairman of the Economic and Development Review Committee of the Organization for Economic Cooperation and Development, and in the Cobden Centre interview he expresses skepticism about “quantitative easing,” contends that the biggest problem of the world financial system is excessive debt, argues that much of this debt will have to default and be written off, and laments that free markets are being impaired by central bank interest rate-suppression policies that are propping up uneconomic businesses.

Of course gold price suppression is a prerequisite of interest rate suppression and is just as antithetical to free markets, so it would have been nice if White was questioned about that, especially since his former employer, the BIS, remains the broker for surreptitious central bank interventions in the gold market:

Well, maybe it will happen in Part 2 of the interview.

Part 1 is accessible at the bottom of this page at the Hinde Capital Internet site:…

You’ll have to register your e-mail address for a free subscription to the HindeSight letter but they often have good stuff and you can always opt out later.

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






Greg Hunter interviews Alasdair Macleod


a must view


(courtesy Greg Hunter/USAWatchdog/Alasdair Macleod)




USAWatchdog’s Greg Hunter interviews GoldMoney’s Alasdair Macleod


4:40p PHT Friday, March 27, 2015

Dear Friend of GATA and Gold:

USAWatchdog’s Greg Hunter this week interviewed GoldMoney research director Alasdair Macleod about the dangers of the worldwide credit bubble and the stealthy but steady and determined pursuit of gold by the government of China. The interview is headlined “We Are All Trapped” and can be heard at USAWatchdog here:

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





And now for the important paper stories for today:

Early Friday morning trading from Europe/Asia


1. Stocks generally mixed on major Chinese bourses ( Japan and Hang Seng lower )/yen falls to 119.32

1b Chinese yuan vs USA dollar/yuan slightly weakens to 6.2164

2 Nikkei down by 185.49 or 0.95%

3. Europe stocks mixed/USA dollar index up to 97.51/Euro falls to 1.0844

3b Japan 10 year bond yield .38% (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.32/Huge rise in Japanese 10 yr bond yield/Japan losing control over their huge bubble of a bond market/(see below zero hedge article)

3c Nikkei still above 19,000

3d USA/Yen rate now below the 120 barrier this morning

3e WTI  50.69  Brent 58.41

3f Gold down/Yen down

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

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt.  Fifty percent of Japanese budget financed with debt.

3h  Oil down for WTI and down for Brent this morning as a proxy civil war breaks out in Yemen

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 20.43%/Greek stocks down by .49% today/ still expect continual bank runs on Greek banks.

3j  Greek 10 year bond yield:  11.05% (up  by 10 basis point in yield)

3k Gold at 1208.00 dollars/silver $17.16

3l USA vs Russian rouble;  (Russian rouble down  1/10 rouble/dollar in value) 57.50 , falling with the lower brent oil price

3m oil into the 50 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 1.99% early this morning. Thirty year rate well below 3% at 2.58%/yield curve flatten/foreshadowing recession.

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



(courtesy zero hedge/Jim Reid Deutsche bank)


Futures Wipe Out Early Gains In Volatile Session As Dollar Resumes Climb; Oil Slides



After a few days of dollar weakness due to concerns that the Fed’s rate hike intentions have been derailed following some undisputedly ugly economic data (perhaps the Fed should just make it clear there will never be rate hikes during the winter ever again) the USD has resumed its rise, and as a result risk assets, after surging early in the overnight session driven by the Nikkei225 and the Emini, the “strong dollar is bad for risk” trade has re-emerged, with the Nikkei dropping almost 500 points off its intraday highs, with US equity futures poised to open lower once more, sliding nearly 20 points in the overnight session, and surprising the BTFDers who have not seen five consecutive days of “risk-off” in a long time.

Not helping the risk case is oil, which having soared this week on geopolitical concerns and fears the Yemen conflict may spread and closing higher for five consecutive days rebounding 13% off last Thursday’s levels with the five-day streak the highest since February 2014, has realized that  there still is no excess demand, and inventory keeps building, as a result WTI has slid and is eyeing $50 support once more. According to Bloomberg, Brent, WTI fall ~$1 during early trading as fears over impact of Yemen conflict ease on low trading volume. Today we get another Baker Hughes U.S. oil rig count update, which may show the recent slowdown in rig shutterings has picked up. “Yesterday’s price rise was a knee-jerk reaction to events in Yemen and mkt participants are now making a more sober assessment of the situation,” says Commerzbank commodity strategist Carsten Fritsch. “The risk of a supply disruption resulting from Saudi-led bombing in Yemen is very small.”

An extension of the USD’s gains this morning caused another slide in EUR/USD, which first caused stops to be taken out at 1.0850 before a test of 1.0800 and EUR/GBP to fall below 0.7300. Some noted that further EUR selling could be seen into month-end as investors maintain hedge ratios for European assets that they hold, and the fall in the EUR caused a temporary lift for European stocks however the indices have drifted lower given a distinct lack of news this morning. Crude futures have seen selling overnight and into the European open as concerns over the situation in Yemen dissipate and a stronger USD caused further selling across the commodity complex, leading to a break below USD 1,200 in spot gold. This commodity selling has caused the FTSE to underperform its European peers and is the only major index in European to trade in the red.

Although Europe has been quiet with no tier 1 data releases, there will be tier 1 releases from the US with the 3rd reading of Q4 GDP due for release and is expected to be revised up to around 2.5%. Fed’s Yellen is also due on the docket and markets will be looking out for any reaction to recent speeches made by her Fed colleagues.

Asian stocks traded mixed following a lacklustre Wall Street close which saw the S&P 500 fall for a fourth consecutive session. The Nikkei 225 (-1.2%) saw some selling late on in the session as JPY strengthened for a third consecutive day, although this was not fully sustained. This also followed tame Japanese CPI data, which when discounted from last year’s sales-tax hike, printed flat for the first time since May 2013 (Y/Y 2.0% vs. Exp. 2.1% (Prev. 2.2%). Elsewhere, both the Hang Seng (-0.03%) and Shanghai Comp (+0.6%) rose after shrugging off poor earnings from PetroChina and ICBC, the latter reporting its first Q/Q profit decrease since 2011.

Gilts are seen underperforming once again this morning as focus remains firmly fixed on May’s general election but also as profit taking into the weekend is noted, and ahead of today’s March future expiry. Given the recent comments from several BoE members ahead of their self-imposed election blackout period from March 30th, and comments this morning from Governor Carney who supported the idea that the next rate move will likely to higher, short-term rates have seen a small lift. Bunds have seen no direction this morning after a quiet Asian session which saw light flows particularly ahead of the Japanese fiscal year-end.

WTI and Brent futures saw selling overnight in a pull back from yesterday’s strong rally and as concerns over the situation in Yemen begin to dissipate a little. A rally in the USD this morning has also led to selling in precious metals, leading to a break below USD 1,200/oz in spot gold and USD 17/oz in spot silver. It is worth noting there are several expiries this morning:

  • Palladium March’15 Futures Expiry (1700GMT/1200CDT)
  • Platinum March’15 Futures Expiry (1705GMT/1205CDT)
  • Copper March’15 Futures Expiry (1720GMT/1220CDT)
  • Silver March’15 Futures Expiry (1725GMT/1225CDT)
  • Gold March’15 Futures Expiry (1730GMT/1230CDT)
  • Henry Hub Natural Gas April’15 Futures Expiry (1830GMT/1330CDT)

In summary: European shares rise with the health care and travel & leisure sectors outperforming and basic resources, oil & gas underperforming. European shrs trade higher as euro weakens for 3rd day this week. U.K. house-price growth eased for 7th month; oil pares  surge from earlier this week. The Swiss and French markets are the best-performing larger bourses, Dutch the worst. The euro is weaker against the dollar. Japanese 10yr bond yields rise; German yields increase. Commodities decline, with nickel, WTI crude underperforming and wheat outperforming.U.S. Michigan confidence, GDP, personal consumption, core PCE due later.

Market Wrap:

  • S&P 500 futures down 0.2% to 2043.9
  • Stoxx 600 up 0.5% to 396.4
  • US 10Yr yield little changed at 1.99%
  • German 10Yr yield up 1bps to 0.22%
  • MSCI Asia Pacific down 0.6% to 146.6
  • Gold spot down 0.5% to $1198.3/oz
  • 42.8% of Stoxx 600 members gain, 55% decline
  • Eurostoxx 50 little changed, FTSE 100 -0.5%, CAC 40 +0.3%, DAX +0.1%, IBEX -0.1%, FTSEMIB -0.3%, SMI +0.5%
  • Asian stocks fall with the ASX outperforming and the Nikkei underperforming.
  • MSCI Asia Pacific down 0.6% to 146.6
  • Nikkei 225 down 1%, Hang Seng little changed, Kospi down 0.1%, Shanghai Composite up 0.2%, ASX up 0.7%, Sensex little changed
  • RBS Sells Coutts International to UBP in Swiss Retreat
  • Chevron Seeks Over $3.6 Billion for Caltex Australia Stake
  • TeliaSonera Expects Extended EU Probe of Danish Phone Merger
  • Euro down 0.6% to $1.0819
  • Dollar Index up 0.3% to 97.73
  • Italian 10Yr yield little changed at 1.31%
  • Spanish 10Yr yield up 1bps to 1.27%
  • French 10Yr yield up 1bps to 0.5%
  • S&P GSCI Index down 0.9% to 409.7
  • Brent Futures down 1.2% to $58.5/bbl, WTI Futures down 1.8% to $50.5/bbl
  • LME 3m Copper down 0.9% to $6117/MT
  • LME 3m Nickel down 2.1% to $13415/MT
  • Wheat futures up 0.4% to 501.3 USd/bu


Bulletin Headline Summary From RanSquawk and Bloomberg:



  • European markets trade in quiet conditions but strength in the USD leads to selling pressure in the EUR and a slide in commodities prices
  • Recent comments from BoE’s Carney, who said that that he thinks it is likely for the next move in rates is likely to be higher, has led to strength in GBP against other major currencies
  • Treasuries higher overnight, headed for weekly decline amid weak 5Y and 7Y auctions; market’s focus on Yellen speech at 3:35pm ET today, ISM Manufacturing and payrolls reports next week.
  • Saudi-led coalition forces struck an air force base near an oil field east of Yemen’s capital on Friday, destroying a radar station as the offensive against Shiite rebels in the country entered its second day
  • China’s biggest banks are accelerating cuts to their dividend payouts as bad debts pile up from struggling exporters in the Pearl River Delta, coal companies in the nation’s west and manufacturers in the Bohai Rim near Beijing
  • China’s second-largest loan-guarantee company has halted operations and replaced its chairman as managers probe past deals for evidence that it took on too much financial risk, said people familiar with the matter
  • ECB Governing Council member Jens Weidmann says in speech in Frankfurt that “sovereign debt needs to be backed by capital, and exposure to a single sovereign must be capped, just as is the case for any private debtor”
  • The Fed is now focusing on the $25t shadow banking system as tighter bank regs prompts more borrowers to seek funding through  money-market mutual funds, hedge funds, brokerages and other entities that face fewer restrictions
  • BOJ’s key inflation gauge ground to a halt as consumer spending slumped, highlighting weakness in the nation’s recovery from recession
  • Longer-dated JGBs slid after demand to sell the securities to the central bank strengthened on Friday, driving 30Y yields toward their steepest jump in two months
  • The U.S. Senate adopted a fiscal 2016 budget that calls for $5.1 trillion in spending cuts to achieve balance in 10 years, while avoiding proposals to partially privatize Medicare as many Republicans brace for re-election
  • Investigators are focusing on whether a “personal life crisis” led a Germanwings pilot to intentionally crash a plane into the French Alps on Tuesday, Bild Zeitung reported, citing unidentified security officials
  • Sovereign 10Y yields higher. Asian, European stocks mostly lower, U.S. equity-index futures decline. Crude, gold and copper rise


DB’s Jim Reid completes the overnight event recap




Just as the market seems to be pushing back on themes that have worked in 2015 so far prompting a difficult few days for markets, geopolitical developments over the last 36 hours have added to the confusion. Indeed yesterday’s headlines have brought the oil market back into the headlights, as air strikes in Yemen has caused a surge in oil prices over the last two days. Starting with the price action, WTI (+4.51%) and Brent (+4.80%) yesterday rallied to $51.43/bbl and $59.19/bbl respectively. WTI in particular has now closed higher for five consecutive days and has rebounded 13% off last Thursday’s levels with the five-day streak the highest since February 2014. The streak hasn’t been enough to push WTI (-3.72%) back into positive territory YTD just yet, however yesterday’s move did help Brent move +3.24% for the year so far. A Saudi-Arabia led coalition had launched the attacks against Shiite Houthi rebels in the Yemen capital Sanaa, which have come in response to a request from the Yemen President Hadi. Yemen’s foreign minister, Yassin, was reported as saying that the airstrikes were welcome in comments on Saudi TV, while the Houthi rebels have since responded by releasing rockets into Saudi territory (Bloomberg). The BBC has since reported that President Hadi has fled to Saudi Arabia.

Despite being a relatively small oil producer by global standards (39th largest producer according to Bloomberg), the country is geographically located next to the Bab el-Mandeb straight which attracts a more significant number of oil shipments, with the FT reporting that almost 7% of global oil maritime trade passes through the Strait. Concern in the market is emanating from worries of disruption in oil movement along the Strait, however news that the US is providing logistical and intelligence support is leading to hopes that the route will be secured (Bloomberg). Clearly, however, geopolitical tensions are rising in the area and will likely stay elevated in the near term.

US equities were choppy yesterday as the S&P 500 closed 0.24% lower, having crossed between gains and losses 20 times during the session. The fourth consecutive day of losses meanwhile takes the index back into negative territory YTD (-0.13%). Despite the rally in oil markets, energy stocks (-0.20%) were little moved. Treasury weakness was also a theme yesterday, supported in part by a particularly weak auction. 10y benchmark yields closed 6.4bps higher yesterday at 1.989% while 30y yields closed up 7.2bps. Yesterday’s $29bn sale of 7y notes meanwhile attracted the lowest demand since May 2009. This in fact follows a weak 5y auction on Wednesday with similar low levels of demand. The Dollar closed firmer yesterday, with the broader DXY 0.47% higher.

It was a better day data wise in the US yesterday. Employment indicators continue to impress, with initial jobless claims falling 9k in the week ending 21st March to 282k (vs. 290k expected). This lowered the 4-week average to 297k. The March services PMI reading was also impressive, rising 1.5pts from last month’s print to 58.6 (vs. 57.0 expected) to the highest level since September last year. The Kansas City Fed manufacturing index was the one disappointment however, with the March print of -4 falling 5pts from the previous reading and coming in below consensus. The Fed’s Lockhart followed on from his comments earlier this week by saying that the US economy is currently in a solid shape to deal with a tightening in monetary policy.

Before all this, data in the UK attracted a decent amount of attention yesterday, lending further support to the hawks in particular. Better than expected retail sales generated the headlines. The ex-auto reading of +5.1% yoy was well ahead of the +4.2% expected for February, while the headline print of +5.7% yoy was a full percentage point ahead of consensus. The result was a selloff in Gilts, as 5y (+9.4bps), 10y (+10.2bps) and 30y (+7.3bps) yields all climbed. Equities weakened also with the FTSE 100 closing -1.37%. Meanwhile, with one eye also on the upcoming elections in the UK, following last night’s televised debate between PM Cameron and Labour leader Miliband, an ICM poll conducted shortly afterwards for the Guardian newspaper said that 54% believed Cameron performed the stronger of the two. I stayed up late (for me) to watch it and the main conclusion I have is that I’m very tired now!

With one eye on the tensions in the Middle East, equity markets elsewhere in Europe closed softer yesterday. The Stoxx 600 (-0.86%), DAX (-0.18%) and CAC (-0.29%) all finished lower. Bond markets were firmer however bucking the big moves in the US and the UK as 10y Bunds finished 0.5bps lower while yields in the periphery were 2-4bps tighter. Data in the region offered few surprises. German consumer confidence (10.0 vs. 9.8 expected) printed a touch above market while the final Q4 GDP reading in France was unchanged at +0.2% yoy. Money supply data for the Euro-area meanwhile was softer than expected (+4.0% yoy vs. 4.3% expected).

Elsewhere, ECB President Draghi said yesterday that he’s confident that the QE programme is on target to reach its €60bn target in the first month of implementation, whilst also reiterating that so far ‘monetary policy is reinforcing the cyclical recovery’ (Reuters). Meanwhile, over in Greece the latest data out of the Bank of Greece underlined the stress in the domestic banking sector of late. Data provided until the end of February showed that bank deposits fell to their lowest in 10 years, with 5% withdrawn in February alone. In the three months ending February, 15% of deposits have been withdrawn. Given that the ECB has continued to raise the ceiling on the ELA facility in March, it’s likely that bank deposits have continued to remain under similar outflow pressure.

Turning to Asia, focus this morning has been on Japan where the latest inflation numbers are out. Headline CPI of +2.2% yoy for February was marginally below expectations of +2.3% while the core (ex. fresh food) and core-core (ex. food and energy) also both came in one-tenth of a percent below consensus at +2.0% each. Excluding the effect of the consumption tax hike, headline CPI was flat yoy, core was -0.1% yoy and core-core was +0.3% yoy. Our colleagues in Japan noted after the release that they remain skeptical that the fall in prices triggers additional easing for multiple reasons including the already sizeable QE programme in place, the temporary effect of falling energy prices, continuing economic expansion and the BoJ’s emphasis on a rise in purchasing power from the falling oil prices and on continuation of the virtuous cycle. The Nikkei (-1.67%) has reversed earlier gains on the back of the data, while the Hang Seng (-0.06%) and Shanghai Comp (+0.72%) are mixed. Credit markets generally across Asia are a couple of basis points firmer.

It’s a quiet calendar in Europe this morning with just the February import price index for Germany due, along with March house price data in the UK and French consumer confidence data. Attention will be on the US this afternoon however. The third reading of the Q4 GDP print for the economy is due, with the market expecting a +2.4% SAAR print while the associated personal consumption and core PCE will also be released. We round the week off with the final March reading for the University of Michigan consumer sentiment index.





During the night, Japanese government bonds crashed and at one point had a yield of .41%, a jump of 10 basis points which is huge.  We will be watching this to see if the Japanese government is losing control over their bond market:



(courtesy zero hedge)



Japanese Government Bonds Are Crashing – Biggest Surge in Yields In 2 Years

Whether due to contagion from the surge in US Treasury yields or a double whammy of weak household spending and Retail Trade data indicating that Abenomics is an utter failure is unclear, but yields across the entire JGB complex are spiking by the most in over 2 years. 10Y yields are up almost 9bps (not much you say) except that is from 32bps to 41bps!! 2Y and 5Y JGB yields have roundtripped from last week’s Fed-driven plunge. Is the BoJ/GPIF losing control of the largest and now most illiquid bond market in the world?



This is the biggest yield spike since the Taper Tantrum…


And stocks are spiking…


As the Nikkei has gained 4000 more points that the Dow in the last 6 months…


Chart: Bloomberg







An extremely important commentary written by Meijer concerning the 3 billion USA bond issued by the Ukraine in late 2013 in favour of Russia.  Meijer correctly states that Russia will never take a voluntary haircut especially when they know that the money will be used against Russian speaking Eastern Ukrainians.  Make no mistake on this one:  either Russia is paid in full (which is not in the interest of the West) or default.  As I have stated:  get your popcorn out and watch in earnest:


(courtesy Raul Meijer/Automatic Earth Blog)



Default Risk Soars After Ukraine’s ‘American’ FinMin Suggests Severe Haircuts For Creditors (Including Russia)



Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

When money managers talk outside their narrow field, nonsense is guaranteed to ensue. No better example than this Bloomberg piece on Ukraine’s ‘debt restructuring’ plans, which are as much a political tool as they are anything else at all. Ukraine’s American Finance Minister has announced a broad restructuring plan with a wide range of severe haircuts for creditors, and she – well, obviously – wishes to include Russia in the group of creditors who are about to get their heads shaved.

And despite all obvious angles to the issue that are not purely economical, Bloomberg presents a whole array of finance professionals who are free to spout their entirely irrelevant opinions on the topic. If you didn’t know any better, you’d be inclined to think that perhaps Russia is indeed just another creditor to Kiev.

Putin Plays Wildcard as Ukraine Bond Restructuring Talks Begin

As Ukraine begins bond-restructuring talks, it finds itself face-to-face with a familiar foe: Russia. President Vladimir Putin bought $3 billion of Ukrainian bonds in late 2013. The cash was meant to support an ally, then-President Yanukovych.

That is, for starters, a far too narrow way of putting it. Russia simply wanted to make sure Ukraine would remain a stable nation, both politically and economically, because A) it didn’t want a failed state on its borders and B) it wanted to ensure a smooth transfer of its gas sales to Europe through the Ukraine pipeline systems. Whether that would be achieved through Yanukovych or someone else was a secondary issue. Putin was never a big fan of the former president, but at least he kept the gas flowing.

While his government fell just two months later, Russia was left with the securities. Now, those holdings take on an added importance as Putin’s stance on the debt talks could affect the terms that all other bondholders get in the restructuring. Russia, which is Ukraine’s second-biggest bondholder, has maintained that it won’t take part in any restructuring deal. Here are the three most likely tacks – as seen by money managers and analysts – that Putin’s government could pursue.

Here’s the biggest issue here, one which Bloomberg conveniently omits. Not only was Russia left with the securities after the Maidan coup (or revolution if you must), but the money provided through them to Ukraine began to be used to organize and fund various battalions and other groups, thrown together into a Kiev ‘army’, that started aiming for and at the Russian speaking population in East Ukraine. 6000 of them did not survive this.

The same would have happened in Crimea (Moscow is convinced of this) had not Putin made it part of Russia before that could happen. Do note that one of the very first decrees issued by US installed PM Yatsenyuk and his ‘cabinet’ was one that banned Russian to be used as an official language by millions of people who speak only Russian. That Yats withdrew the decree within a week didn’t matter anymore, the game was on right then and there.

Ukraine, after gaining a lifeline from the IMF, 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. If the Kremlin maintains this view, it would be “negative” for private bondholders as “other investors will be more tempted to hold out as well,” according to Marco Ruijer at ING. He predicts a 45% chance of a hold out, while Michael Ganske at Rogge in London says it’s 70%.

Here’s where we get into la-la land, with money managers speaking out on things they don’t know anything about. Which can then be used to lead up to a goal-seeked conclusion, as we will see. Because of the situation I painted above, Russia cannot and will not take part in the ‘debt negotiations’ the west tries to shove down its throat through Jaresko’s restructuring plans.

If only because as soon as the restructuring has given Kiev some financial breathing space, is will use it to reinforce its troops and go after its Russian speaking compatriots again. It’s a not a finance issue at all, it’s life and death, and that makes percentages thrown around by money guys behind desks in high rises not just futile, but positively inane.

There is little precedence of sovereigns and private bondholders taking part in the same talks, given that a nation’s debt considerations include a “foreign-policy dimension,” according to Matthias Goldmann at the Max Planck Institute in Heidelberg, Germany. Ukraine and Russia may need to find an “appropriate forum,” such as the Paris Club, for separate negotiations, he said.


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 at Standard Bank, 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.

No, Russia is not interested in a ‘messy restructuring’.


It will simply refuse to throw Kiev’s aggression against its own people a lifeline, and it will insist on finding that “appropriate forum”, instead of the one Jaresko tries to force it into. Russia will demand to be paid in full, and if that means a Ukraine default, it is fine with that. Don’t forget that the $3 billion in bonds is by no means the only debt Ukraine owes Moscow. There are many billions in unpaid gas purchases, and undoubtedly many other bills.

If Russia holds out and litigates, there is a “real threat” that Ukraine will deem the Eurobond an odious debt, Lutz Roehmeyer at Landesbank Berlin said.


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.

Nice theory. Why don’t we have Greece use it too? Russia would obviously never accept this. At the very minimum, gas would stop flowing through Ukraine to Europe.

The chance of Russia joining the talks is about 10%, according to ING’s Ruijer and Rogge’s Ganske. If Russia joins it would be “somewhat positive as all investors will be treated equally, and then it can be resolved quicker,” Ruijer said.

These guys really have no idea what’s going on. They see the planet exclusively in dollar terms. And they have no idea why they said 10%, might as well have been 5% or 25%. Hot air.

Bank of America said in a note last week that Ukraine will seek a principal reduction of about 35% in its opening salvo, which may be rejected by creditors. It said that bond valuations around 40 cents on the dollar, indicate a probability of a 20% reduction in principal as well as a reduction in interest rates.


Ukraine’s benchmark 2017 dollar notes traded at 37.8 cents on the dollar on Thursday.

Sounds like things in the real world are already much worse than in BoA notes.

“By participating in the talks, Russia would have a better chance of getting a deal it wants,” Liza Ermolenko at Capital Economics, said. “However, it seems that politics, rather than economics, will be behind whatever Russia decides to do.”

No kidding, Liza.

There is no collective-agreement clause which could make any deal binding for Russia, Anna Gelpern, a Georgetown law professor, said.

And there we get to the core of the matter. If Jaresko wants to force anything on Russia, she’ll have to move outside of the law. Which I’m sure she, and the US cabal that rules Kiev, would be more than willing to do, but it would mean a default no matter what happens, simply because time is of the essence, and the issue would drag on for a long time.

The restructuring of each bond must be agreed to by a majority of its holders, according to Olena Zubchenko, a lawyer at Lavrynovych & Partners, a legal adviser to Ukraine during the bond issue to Russia in December 2013. The Eurobonds are governed by English law and traded on the Dublin Exchange. The Russian bond has a covenant allowing the holder to call it if Ukraine’s public debt tops 60% of economic output, which the IMF said took place last year.

Another noteworthy detail: Russia could have called the bonds quite a while ago, but has so far decided against that. They could still do it at any moment, though. And since the IMF has approved another loan to Ukraine recently, and Capitol Hill has agreed to send deadly offensive weapons to Kiev, they have good reason to do it. The Jaresko idea of ‘we will saddle you with losses, so we can go kill more Russian speaking people’ will certainly not appeal to Moscow, not will it be condoned.

“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.”

This bond issue is of course just one of many ways in which the west seeks to aggravate Russia. If and/or when the US starts shipping arms to Kiev, and the internal civil war restarts, Russia will have to take measures. Which is exactly what the west has been trying to provoke it to do for at least a full year now. It is therefore Russia’s task to find those measures that take ‘the other side’ by surprise and leaves it scrambling for answers.

Over the past year and change, after the Kiev putsch and the subsequent aggression on the side of the newly installed ‘government’ against its own citizens in East Ukraine, Russia has always insisted on talking about the EU and US as its ‘partners’, even as the language thrown at it deteriorated at a rapid clip. It must already be about a year ago that Hillary Clinton first referred to Putin as Hitler. As for the anti-Moscow utterances by the Kiev ‘government’, let’s not even go there.

The Russians have shown recently that they understand very well what the intentions are behind the NATO build-up and all the hollow accusations and innuendo in the western media. They have also made clear that they are ready and prepared to activate any and all defense systems, including nuclear, at their disposal.

Russia sees the world as one in which multiple major powers can govern together. The US sees Russia as a power that must be defeated by any means necessary, and subdued. One of these worldviews must prevail in the end. Perhaps we won’t know which one that will be until the third power, China, raises its voice. What we do know is that Russia will back down only so far, and then it will no more.







(courtesy Politnavigator/from Ukraine Newspapers/translated by Kristina Rus and special thanks to Robert H for sending this to us)



arch 27, 2015
Translated by Kristina RusThe Pension fund of Ukraine is bankrupt and exists only through subsidies from the state budget. This was declared by the Minister of Labor and Social Policy of Ukraine, Pavel Rozenko on “First National” channel.According to him, the situation with the fund is catastrophic.”80 billion UAH is a subsidy to the Pension fund of Ukraine, which will not even suffice for the payment of all pensions. I want to say that this is a catastrophic situation for any country, when the Pension fund does not have enough money not even to raise pensions, but in order to timely and fully pay the minimum, which we have today in our country. The Pension fund today is bankrupt and without the help of the state, it would cease to exist,” –  said Rozenko.



And now for our other focal point which could cause disastrous problems for the Euro, and all of the banks, Greece: Will Greece ask for a referendum on whether to remain in the Euro and enjoy more austerity or leave for the drachma?



(courtesy zero hedge)





Will Greece Call A Referendum On Euro Membership?




The rumor mill was alive Friday morning with reports that the resignation of Greek FinMin Yanis Varoufakis was imminent. Unsurprisingly, the Greek government is out calling the reports “unfounded”: 

Via Bloomberg:

  • Speculation a long way from reality: Sakellaridis

Although we don’t know exactly what that means, what we do know is that Bundesbank chief Jens Weidmann isn’t buying what the Greek government is selling, isn’t enthusiastic about perpetuating the charade by allowing for more room under the ELA cap, and suggested that a “disorderly insolvency” may be a foregone conclusion. Here’s more (again, via Bloomberg):

Weidmann ‘doesn’t buy’ argument Greek debt insurmountable.


Bundesbank President Jens Weidmann says he’s against expanding emergency liquidity for Greece, Focus magazine reported, citing an intv. 


“When a member country of a currency union decides not to meet its obligations and stops payment to creditors, then a disorderly insolvency can’t be avoided”


New Greek government has “squandered a lot of trust”


There’s “not much time left” to reach solution on Greece


“Greek interest burden relative to economic performance in the current year is lower than Italy, Portugal or Ireland”

Meanwhile, the Germans note that they have no idea what Syriza is likely to come up with:

German govt doesn’t have any information about expected Greek proposals for economic reforms, Finance Ministry spokeswoman Marianne Kothe tells reporters in Berlin.


Impact of Greek proposals will have to be “quantifiable,” in line with euro-area agreements: Kothe.

And it now appears as though the reforms list is indeed ready for review:


So that’s where the situation stands. For their part, UBS isn’t optimistic. “The negotiations between the Greek government and its international partners on the long-stalled Troika review have not progressed well,” the bank notes dryly. UBS goes on to discuss why April is likely to be the toughest month yet for Athens as the government races to find a solution ahead of looming debt payments in July. Here’s more:

Although the government has pledged to present a reform list early next week, we expect negotiations to remain protracted, and given substantial debt service in the coming weeks, we think market sentiment might turn a lot more nervous again in April. This could also trigger further deposit outflows from the Greek banking sector, which is heavily reliant on the Eurosystem’s Emergency Liquidity Assistance (ELA)…


The government’s budget position looks increasingly stretched, and sharply lower tax revenues have triggered a steep year-on-year decline in Greece’s primary surplus. This has forced the government to resort to increasingly desperate measures to fend off cash shortages…


Given the complicated nature of Greece’s fiscal situation and the highly controversial discussions around structural reforms, we would not rule out the list falling short of the Troika’s demands and the negotiations proceeding only very slowly. And to keep the pressure on the Syriza government, Greece’s European partners are unlikely to grant quick financial relief…


Here’s what the government is up against in terms of financial obligations in the coming days:

At the end of March it will have to mobilize an estimated €1.7bn for salary and pension payments. On 9 April, it faces IMF repayments of SDR360.45m/€457.8m. On 14 and 17 April, respectively, it must roll over T-bills worth €1.4bn and €1.0bn. Most of these are held by Greek banks, but a proportion is reportedly owned by foreign investors, who might not want to stay involved in the T-bill trade; this could make the rolling-over more difficult.

The cash situation does not look good:

And neither does the timing of repayment obligations:

In the end, UBS suggests that the government might well put the whole thing to a popular vote and should Greeks opt to remain in the currency bloc, Syriza could use that as leverage when it comes to securing popular support (or at least acquiescence) for tougher economic reforms:

One of the potential options Syriza might eventually consider could be a popular referendum on Eurozone membership – a step that would obviously involve great risks and uncertainties. But if, presumably, a majority of Greek voters were to endorse Greece’s ongoing membership in the monetary union, Syriza could then argue that this will require the government to make unpopular concessions to the “institutions”. If this scenario were to materialize, we believe a referendum might be called in late April or early May, once the end-April deadline nears or expires.




The Greek deputy Finance Minister confirms that Athens is quite prepared for a rift with Europe:
(courtesy zero hedge)

Greek Deputy FinMin Confirms Athens Is “Prepared For Rift” With Europe

Just days after Greek FinMin Yanis Varoufakis’ comments about hoping the Greek people will continue to back the government “after the rift,” were played down by Syriza; ekathimerini reports that Alternate Finance Minister Euclid Tsakalotos on Friday made waves by seeming to confirm that the Greek government was “always prepared for a rift” with its European creditors“If you don’t entertain the possibility of a rift in the back of your mind then obviously the creditors will pass the same measures as they did with the previous [government],” (which perhaps explains why default risks are soaring back to post-crisis highs).


As ekathimerini reports, alternate Finance Minister Euclid Tsakalotos on Friday made waves by saying that the Greek government was “always prepared for a rift.”

Tsakalotos, who is the ministry’s key official for international economic relations, made the comment during an interview on Star television channel, prompting a flurry of reactions and criticism on social media.


Tsakalotos was speaking just two days after Finance Minister Yanis Varoufakis was caught on camera during a visit to Crete on the occasion of Greece’s Independence Day telling a citizen that he hoped Greeks would continue to back the government “after the rift.”


Varoufakis’ comment was subsequently played down by SYRIZA commentators who said he might have been referring to a possible rift with vested interests in Greece rather than with the country’s creditors.


Apparently in the same vein, Tsakalotos said on Friday, “If you don’t entertain the possibility of a rift in the back of your mind then obviously the creditors will pass the same measures as they did with the previous [government].” “We are creating ambiguity with the creditors intentionally because they have to know that we are prepared for a rift, otherwise you can’t negotiate,” he said.


He added that the new government is intent on backing “those who lost a lot in the crisis, and that we are prepared, if things do not go well, for a rift.”


Prior to his comments, Tsakalotos took part in a meeting with Varoufakis and Prime Minister Alexis Tsipras.

*  *  *

So is the plan to bleed the EU for as much as possible for as long as possible… then pull the Grexit “rift” card, pivot to Russia/China? Time is ticking loudly…







Another extremely important commentary from Pater Tenenbraum. Pater notes that

Euro basis swaps (against dollars) are negative.  Generally when this happens the boat is loaded on the dollar side and something sinister is going to happen to the euro and euro denominated assets.


He asks is it:


1. Greece?

2. the huge dollar short with the emerging markets.?

3. or something else?


a must must read.


(courtesy Pater Tenenbrarum/Acting Man Blog)




Euro Basis Swaps Keep Diving



Submitted by Pater Tenebrarum via Acting-Man blog,

An Accelerating Trend

While the euro itself has recovered a bit from its worst levels in recent sessions, euro basis swaps have fallen deeper into negative territory. In order to bring the current move into perspective, we show a long term chart below that includes the epic nosedive of 2011. We are not quite sure what the move means this time around, since there is no obvious crisis situation – not yet, anyway.

A negative FX basis usually indicates some sort of concern over the banking system’s creditworthiness and has historically been associated with euro area banks experiencing problems in obtaining dollar funding. This time, the move in basis swaps is happening “quietly”, as there are no reports in the media indicating that anything might be amiss. Still, something is apparently amiss:

Party like it’s 2011: Three month, one year, three year and five year euro basis swaps – click to enlarge.

Worries About Greece?

It is possible that concerns over Greece find expression in this rather obscure market – apart from the Greek government bond market itself that is. The Greek yield curve remains steeply inverted, with 2 year notes yielding 20.14%, 5 year notes yielding 15.47% and 10 year bonds yielding 11.19%. Such steep yield curve inversions have been a typical feature of sovereign debt crisis conditions in the past. Greece’s bond yields are actually slightly below recent peaks, as the Tsipras/Merkel meeting has briefly rekindled hopes.

However, the Greek government is indeed running out of money – it has adopted all sorts of stop-gap measures to keep the ship afloat, as a result of which it is now running out of those as well. The ECB meanwhile has tightened the screws by making a drip-feed operation out of ELA and telling Greek commercial banks that they are no longer allowed to increase their holdings of Greek government bills.

EU officials are reportedly discussing the possibility of Greece being forced to impose capital controls (similar to what happened in Cyprus) if the government misses any upcoming debt repayments. The ECB’s recent decisions have been justified by a) the prohibition of direct central bank financing of governments and b) its need to limit its exposure because it appears as though Greece may not come to an agreement with its creditors after all.

Time to pry further aid tranches from the wallets of its creditors is running short for the Greek government. It will very soon have to present a reform plan that pleases the EU, something it has not been very adept at so far. Bondholders have every reason to be worried. 5 year CDS spreads on Greek sovereign debt have recently jumped to 1,840 basis points, moving up by 110.50 bps in a single day yesterday. This implies a very high default probability (CPD: 78.95%). By comparison, 5 year CDS spreads on Cypriot government debt stand only slightly above 500 bps at present.


2-Greece 5-Year Bond Yield(Daily)

Greece, 5 year government bond yield – short term volatility is largely driven by news flow, but the larger trend looks definitely ominous – click to enlarge.

If Greece were to exit from the euro, the euro area could well emerge stronger, as its weakest link would be gone. The problem is only that the often repeated assertions about the euro’s “irreversibility” would no longer be credible, since a Greek exit would ipso facto prove that euro membership can indeed be reversed.

However, European banks have scarcely any exposure to Greek government debt anymore, which has by now been largely shifted to assorted tax payers. They may still have to write off some loans to the private sector though and could fall victim to whatever fallout ensues if a Greek default actually occurs. Another potential problem are dollar-denominated loans extended by euro area banks to emerging market borrowers, as many EM currencies have plummeted relative to the dollar.

Many of these assets are therefore likely on shaky ground. Consider the case of the Swiss franc: In Austria, Hypo Alpe Adria Bank’s successor Heta (a “bad bank” that is tasked with winding Hypo’s assets down) just wrote off 85% (!) of its outstanding CHF loans, as a result of the SNB ditching the minimum exchange rate. This leads us to suspect that dollar loans extended by euro area banks to EM borrowers with plunging local currencies could prospectively be in far worse shape than is generally assumed.


Speculation in Euro Futures

Speculators meanwhile are holding a massive net short position in euro futures. Although the standardized futures market is small relative to the size of the total FX market, it definitely tells us something about overall sentiment and positioning. It can be seen as akin to a poll; although it is a comparatively small market, the information conveyed by its structure is nevertheless statistically significant.

Below is a chart of the net commercial hedger position in euro futures, which is the inverse of the net speculative position (big and small speculators combined).

3-euro hedgers
Speculators continue to bet heavily against the euro. Their net short position (the other side of the net long position of hedgers shown in the chart) remains close to its previous all time highs, which were reached when talk of the euro’s imminent demise was rife everywhere – click to enlarge.

This large bet against the euro is potentially vulnerable. For one thing, the Greek problem may yet be resolved by a resumption of the giant “troika” (sorry, “institutions”) extend & pretend scheme. For another, euro area macro-economic data have strengthened of late, while US macro-data have weakened rather noticeably. So far this development has been ignored by FX traders, but that doesn’t necessarily mean they will keep ignoring it. If perceptions about the likely duration of the current central bank policy divergence were to change, a great many well laid plans would stand to be revised quite suddenly.

On the other hand, the Greek situation evidently represents a sizable event risk for the euro, though we hasten to add that the currency’s reaction to a “Grexit” is not set in stone. It could well become a “sell the rumor, buy the fact” situation. Incidentally, the event has recently been renamed “Graccident”, i.e., “Grexit” by means of misfortune dispensed by the Fates. Under this new terminology, it would no longer be anyone’s fault; obviously a blessing in disguise from the perspective of the politicians/bureaucrats involved.



Among the three Fates, Atropos is currently the most dangerous to Greece, on account of the Fates’ division of labor: Clotho spins the thread, Lachesis measures it, and Atropos cuts it.


Something is odd about the recent move in euro basis swaps. Last time a a similar move occurred, there was a palpable sense of panic in the markets, with European bank stocks plunging, bond yields in peripheral euro area countries soaring and gold rising to almost $2,000/oz. The only similarity this time is the weakness of the euro (which is even more pronounced than in 2011/2012). Other than that, the markets don’t seem very concerned, given that yields in e.g. Spain and Italy are sitting at record lows and European stock markets are strong.

There are certainly concerns about Greece, but they seem strangely subdued and isolated (Greek stocks and bonds are obviously doing badly). We can be fairly certain though that the soaring dollar represents a problem for a great many borrowers, many of whom happen to be clients of European banks. We plan to continue to keep an eye on this and will post updates if anything momentous seems to happen.


4-Euro, daily

The euro has a small bounce – quite possibly of the dead cat variety. However, the large speculative short position remains vulnerable to a change in perceptions – click to enlarge.


And now for our third focal point:  the continuing saga inside the Austrian banking sector. It certainly looks like Pfandbriefbank is the next victim to fall:
(courtesy zero hedge)

Black Swan 2: This Is “The Next Critical Chapter In The Austrian Banking System Story”

When it comes to the sweeping of (trillions of) toxic assets until such time as the ECB starts purchasing not only government bonds but equities, bank loans and really anything else that in a normal world would have some “mark to market” value, Europe had a ready answer: bad banks. A tradition which started with Switzerland and the semi-bailout of UBS during the great financial crisis, “bad banks” have been proposed every time there are a few hundred billion in bad assets that need to be swept away or otherwise removed from the the public eye.

In fact, it was just a few hours ago that Spain’s economy minister praised the usefulness of bad banks, which have certainly seen their fair share of use in Spain over the past 5 years.


Yes, useful. Until you have a massive blow up like in Austria when several years of avoiding reality exploded in everyone’s face when the Bad Bank meant to fix the mess left after the collapse of Hypo Alpe Adria itself became insolvent, after the horrendous state of its balance sheet could no longer be masked, and creditors were shocked to learn they would foot the bail out, or rather bail in costs thanks to massive debt writedowns.

And since there is never just one cockroach when it comes to hiding Europe’s biggest financial problem, namely trillions in non-performing loans, the question always is: which cockroach is next?

For now the answer, thanks to the ECB’s relentless intervention in all capital markets is hiding, but one proposal comes from Daiwa Capital Markets which suggests to take a long hard look at Austria’s Pfandbriefbank Oesterreich AG.

Here is what Daiwa’s Jakub Lichwa thinks:

  • A relatively low-profile entity in Austria – Pfandbriefbank Oesterreich AG (Pfandbriefbank) – is becoming the next critical chapter in the Austrian banking system story.
  • This all started with the capital shortfall disclosure by Heta Asset Resolution AG (Heta), which prompted the Austrian Financial Market Authority (FMA) to announce on 1 March 2015 a moratorium on Heta’s debt securities, including €10.2bn of senior unsecured bonds guaranteed by the State of Carinthia. Carinthia has indicated that it does not have either the resources or will to honour these guarantees, which should be activated upon the bail-in or insolvency of Heta. This has sparked investor uncertainty about the broader guarantee framework in Austria.
  • Given Pfandbriefbank’s exposure to Heta, that moratorium has a direct effect on Pfandbriefbank’s standalone ability to repay nearly €600mn of bonds due in June 2015. As things currently stand, these can only be repaid if Pfandbriefbank’s own guarantees are invoked. If they are not, that will further undermine guarantee mechanisms in Austria, and possibly beyond.
  • The Austrian regional mortgage banks have publicly announced their commitment on 4 March 2015 to adhere to these guarantees, although the current trading level of senior unsecured bonds (PFBKOS 2.875 07/17) does not imply investor confidence in these assurances.
  • Nevertheless, the PFBKOS 2.875 07/17 bond is currently quoted at around 95 (z-spread of 583bps), a significant discount from the 108 (z-spread of 2bps) level seen prior to the announcement of the Heta moratorium, reflecting investors’ increasing doubts about Austria’s guarantee mechanisms.
  • The reaction from the rating agencies to the Heta moratorium has been more sanguine, suggesting that they believe that Pfandbriefbank’s own guarantees will be honoured. S&P sees no immediate effect of the recent events on the two related Austrian entities it rates, while Moody’s placed Pfandbriefbank’s A2 rating on review earlier in March, but did not downgrade it.

Daiwa’s conclusion, ironically, after correctly calculating where the next major capital shortfall will be, reverts to the logic of the original Heta Asset Resolution bondholders, and assumes that all shall be well, and thatthis time, the government will not let the bank fail because the downstream effects will reverberate even louder and with far more dire consequences. To wit:

We are inclined to agree with the rating agencies that these guarantees will ultimately be honoured.

Fine, but keep in mind: there are those FX carry traders who were inclined to agree that the SNB would never drop its EURCHF peg, and were promptly carted out feet first when it did. And then there were those bondholders who also thought they would never be bailed-in to rescue Austria’s Bad Bank. They too lost at least half of their investment.

In fact, the number of cases where investors go all in on a bet that some official public authority will not let them down, appear to be spreading very fast in the past few months. Which is why for any bondholders still long Pfandbriefbank bonds, the time to exit the dance-off is be now. Because when another shock announcement follows and sleepy Pfandbriefbank announces it is the next casualty of Austria’s completely unexpected black swan, you will have nobody to blame but yourselves.

Full Daiwa Note:

Pfandbriefbank – Not Another Heta?

DetailPfandbriefbank is an issuing vehicle for its member banks (including Heta – the wind up entity for Hypo Alpe Adria Bank), with total assets of €5.6bn as of end-FY14, and very limited equity, given its business profile. The funds raised by the entity are channeled to its members and therefore Pfandbriefbank relies on the payment of these claims to service its own liabilities.

This reliance is strengthened by the Pfandbriefstelle-Act and Article 92 of the Austrian Banking Act, according to which members of Pfandbriefbank and their respective liable public authorities (Gewährsträger) are jointly and severally liable for all obligations of Pfandbriefbank. In an event of default, recourse against any or all of the member institutes and their respective liable public authorities is possible.

The members include: Hypo Noe Gruppe Bank AG (-/A/-, by Moody’s/S&P/Fitch), Hypo NOE Landesbank AG (-/A/-), Vorarlberger Landes- und Hypothekenbank AG (A2 RuRd/-/-), Hypo Tirol Bank AG (Baa2 RuRd/-/-), Landes-Hypothekenbank Steiermark AG (-/-/-), Salzburger Landes-Hypothekenbank AG (-/-/-), Hypo-Bank Burgenland AG (-/-/-), Austrian Anadi-Bank AG (-/-/-), and Heta Asset Resolution AG (Ca/-/-).

Pfandbriefbank has funded its activities via the wholesale markets, although it has not issued any bonds since 2007.

Pfandbriefbank’s bonds came into focus at the beginning of March following the announcement of the moratorium on Heta’s liabilities, whereby the Austrian Financial Market Authority suspended the interest or principal payments on some of Heta’s liabilities until 31 May 2016, with a view to drawing up a resolution strategy by then. The moratorium included €10.2bn of senior unsecured bonds guaranteed by the Province of Carinthia. Carinthia has indicated that it does not have either the resources or will to honour these guarantees.

Pfandbriefbank carries €1.24bn of exposure to Heta, of which nearly €600mn will come due in June 2015. By this date, the guaranteeing member states will need to agree and extend liquidity support to Pfandbriefbank AG or €5.6bn of its liabilities could come due immediately.

The Austrian regional mortgage banks have publicly announced their commitment on 4 March 2015 to adhere to these guarantees, although the current trading level of senior unsecured bonds (PFBKOS 2.875 07/17) does not imply investor confidence in these assurances.

In recently published research, Moody’s stated that “honouring of the guarantee obligations for Pfandbriefbank has limited impact on the federal states’ risk-bearing capacity”. This suggests that what is in doubt is the willingness of the guarantors to act in line with their statement of 4 March, rather than the financial capacity of the guarantors to honour their commitments.

To our mind, therefore, there is a fundamental difference between the case of Heta, where Carinthia’s guarantee obligations threatened to sink the state financially, and Pfandbriefbank, where the guarantee obligations for the states are much less onerous.

Given this, and the potential contagion impact on trust in other guarantee structures if these obligations were also reneged on, it would appear more likely than not that that the guarantees provided to Pfandbriefbank will indeed be honoured. The current price of Pfandbriefbank’s bonds does not reflect that.

* * *

Until it does of course.







Bill Holter has been talking about this for quite some time, the fact that the central banks by buying their own bonds are creating collateral shortages and thus putting a huge dent in the shadow banking industry.  Today we see damage already down in Europe as collateral disappears after only 2 weeks of  European central bank buying:


this is long but very important


(courtesy zero hedge)





Treasury Collateral Shortage Crosses The Atlantic, Makes European Landfall


In “How The ECB Is Distorting Euro Money Markets” we summarized Barclays take on the effects of ECB QE as follows: “short-end core paper will trade below -0.20%, extreme supply/demand imbalances will cause general collateral rates to trade through the depo rate, money market fund yields will turn decisively negative testing investor patience, and central banks had better make good on promises to make some of their inventory available for lending or risk impairing the functioning of the repo market (never a good idea).” A little over two weeks into the PSPP and sure enough, signs are already beginning to show that the ECB is effectively breaking the market. Last week, we got this via Reuters:

The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB’s asset-purchase scheme, which analysts say could clog up Europe’s financial system.


Uncertainty over how the European Central Bank will counter the scarcity of top-rated debt could further shrink repo markets — a source of funding that is essential to the smooth running of bond markets…


One broker said every German government bond eligible for ECB purchase was now trading ‘special’,meaning exceptional demand had made it more expensive to borrow for three months than general collateral.

Then today, this from Mizuho’s Peter Chatwell via Bloomberg:

Some bonds in German market are trading special in repo, Peter Chatwell, strategist at Mizuho, writes in client note.


Picture for relative-value trades has deteriorated, with the number of bonds that trade rich vs fitted curve becoming even richer.


As list of DBR specials grows, relative value in Germany may become dysfunctional until Eurosystem lends out bond holdings under QE.


Recall that we’ve seen a similar dynamic in the US of late with the two-year trading negative in repo. To demonstrate the dramatic effect PSPP purchases are having on the market (and by extension, how important it is for the ECB to get the securities lending operation right), consider the following from JPM (this is from one week into the program):

The first issue of collateral shortage can be seen in the collapse of GC repo rates to negative territory since the beginning of last week for terms of greater than 3 months. 1yr Germany has been trading at close to -30bp; i.e. one can currently fund purchases of Bunds via the term repo market and achieve positive carry by even buying Bunds with yields between -20bp to -30bp. We note that this expensiveness in term repos shows how unwilling Bund holders are to depart from their collateral for more than a few days or weeks.

And in terms of liquidity — and remember here that liquidity means the degree to which you can trade without impacting prices too much, or as Howard Marks recently put it, “the key criterion isn’t “can you sell it?”, it’s “can you sell it at a price equal or close to the last price?” — the ECB pretty clearly had a rather outsized negative effect very early on. Here’s JPM again:

…by the sharp decrease in Bund liquidity as our market depth metric; i.e. the ability to transact in size without impacting market prices too much, collapsed this week . We measure market depth by averaging the size of the three best bids and offers each day for key markets. Figure 2 shows two such measures, for 10-year cash Treasuries (market depth measured in $mn) and German Bund futures (market depth measured in number of contracts). While both UST and Bund market depth have been trending lower in recent months and while the former moved recently below the Oct 15th low, what was striking this week was the divergence between a modest increase in UST market depth vs. an abrupt decline in Bund market depth. We note this development effectively challenges the market neutrality condition of the ECB from the first week of purchases already! 

JPM goes on to explain — as they have before — that QE really just replaces one form of collateral with another and “shortage” isn’t really the appropriate term but rather “scarcity,” as “scarcity” implies that one form of collateral (in this case EGBs) has simply been made more expensive vis-à-vis another form of collateral (in this case cash). However, because cash isn’t as efficient as a form of collateral as the bonds it’s replacing, the ECB has in fact engineered a shortage:

However, this assessment is complicated by reduced usage and efficiency of cash collateral in recent years. In particular, usage of government bond collateral has increased at the expense of cash collateral by both banks and investors… 


Banks are responding positively to reduced appetite for cash collateral by the buy side as this also helps banks to increase the efficiency of their own collateral management processes via re -hypothecation of security collateral and via consolidating and optimizing collateral across OTC derivatives, securities lending and repos to meet more onerous regulatory requirements. Re -hypothecation or re -use rate of security collateral has decreased post the Lehman crisis , but at around x2 currently it makes bond collateral more efficient than cash collateral…

…and so…

In a way an argument can be made … that the ECB not only creates scarcity of one form of collateral vs . another but that it also creates shortage of collateral by replacing high efficiency collateral with low efficiency collateral. 

Here’s Barclays summing it all up:

Importantly, the shortage of government bonds would reduce the liquidity of the repo as well as cash markets. In the legal act of its public sector purchase programme (PSPP) theECB stated that securities purchased under the PSPP are eligible for securities lending activity, including repos. This will be very important, in our view, to mitigate any negative implications of QE purchases on the repo market’s functioning. 

And here’s Soc Gen citing liquidity as a possible reason for EU EGB relative underperformance (sans-bunds) vis-a-vis SSAs :

Our conclusion is that, once again, the market is responding positively to aggressive monetary policy but remains somewhat distorted due to the lack of structural adjustments. The underperformance of EU bonds – unchanged since the start of PSPP, while other issuers’ curves have flattened – may be partly explained by the lack of liquidity.

Soc Gen sees large scale asset purchases effectively limiting euro issuance in the SSA space and squeezing investors into higher-yielding issues:

Some issuers have advanced their programmes to well above 25%… However, what is very significant is the much smaller share of EUR issuance…The slowdown in the pace of new EUR issuance could therefore be the result of a pause after the strong start to the year, in combination with the shift to foreign currencies. However, the lack of interest from EUR-denominated accounts is no doubt linked to the implementation of the PSPP. By squeezing spreads so much, the ECB is crowding investors out of the sector.

Moving now to corporate credit and going a bit further in an effort to put the pieces together and paint a comprehensive picture, consider the effects all of the above are having outside of the market for EGBs and SSAs. From Barclays:

The ECB QE has caused a dramatic flattening of government bond curves and caused Bunds to trade with negative yields past the 7y maturity. There is now €1.9trn of negative-yielding government debt in Europe (almost 20% of the outstanding bonds) and this has a profound impact on investor behaviour. In fact, there is strong evidence that EGB investors are already heavily involved in short-end, highly rated corporate bond markets. From June 2014 to February 2015, short-dated, highly rated paper outperformed.We believe this reflects the investment constraints of bank treasury desks, which have responded to a lack of positive yielding collateral by taking more credit risk and more rates duration risk, but are unlikely to hold long-dated credit. This will lead to a persistent bid for this area of credit, capping shorter-dated, higher-rated credit in Europe. 


The implications of lower government bond yields generally and the influx of displaced EGB investors are already being felt in credit markets, with 95% of the IG-rated market (excluding subordinated debt) trading below 1.5% yield.

Given that, we now need to consider everything we’ve said about illiquidity in the secondary market for corporate credit lately. Recall that reduced dealer inventories (as a result of new regulations) combined with high issuance (due to corporates looking to take advantage of record low borrowing costs) and in conjunction with investors’ hunt for yield (due to misguided monetary policies), have the potential to coalesce into a nightmare scenario, or, as we put itrecently:

Thanks to new regulations ostensibly designed to, among other things, bolster capital cushions and keep the market safe from the perceived perils of prop trading, banks are more reluctant to facilitate trading. This comes at the absolute worst possible time. Borrowing costs are so low that the Fed is basically daring companies not to take advantage, so while issuance is high, secondary market liquidity is non-existent meaning, effectively, that the door to the theatre is getting smaller and smaller and if someone yells “fire,” getting out is going to prove decisively difficult.  

Here’s Barclays again, with their riff on the same narrative:

What is unique to Europe is the influx of non-traditional credit investors directly into €IG (not via ETF or the like) and their behaviour.Where the motivation is primarily to ‘hide away’ from negative bund yields, anecdotal evidence suggests the focus is on buying bonds of ’large, stable’ companies, with little discrimination between issuers of that kind. The risk is that we have what could be called a ‘Tesco moment’ where one of these ‘large, stable’ companies runs into negative headlines. Significant selling from non-traditional credit investors could ensue, which could spread into other credits owned by this segment. With reduced dealer balance sheet, there could be few buyers of such paper (in particular given tight valuations) and the spread widening could be disproportionate. 

…and Howard Marks simplifying things:

Usually, just as a holder’s desire to sell an asset increases (because he has become afraid to hold it), his ability to sell it decreases (because everyone else has also become afraid to hold it). Thus (a) things tend to be liquid when you don’t need liquidity, and (b) just when you need liquidity most, it tends not to be there. 

*  *  *

Coming full circle, we can see that some of the strain here could be alleviated if the ECB is able to implement an effective securities lending program so that €1 trillion of in-demand collateral isn’t locked away where the repo market can’t access it. JPM’s suggestion is for euro area NCBs to utilize existing relationships with dealers to facilitate this, and for dealers to then relax collateral standards “to ease the pressure on one country’s GC repo levels,” and to allow cash for collateral, in effect reversing the effect of the ECB’s low efficiency for high efficiency swap.







this sums up USA foreign policy with respect to the Middle East perfectly:


(courtesy zero hedge)











Syria welcomes Russian presence in both Syria and the rest of the middle east.  That is when things get explosive:


(courtesy zero hedge)





Syria “Welcomes” Larger Russia Presence


Following Vladimir Putin’s demands for an “immediate cessation of military activities” in Yemen, AFP reports Syrian President Bashar al-Assad’s comment during a recent interview that “with complete confidence that we welcome any widening of the Russian presence in the eastern Mediterranean and on Syrian coasts and ports,” including the port of Tartus. Amid the Western-backed opposition National Coalition’s planned boycott of talks, Assad pointedly remarked, “the negotiating parties must be independent and must reflect what the Syrian people want… people would not accept that their future, their fate, or their rules are decided from outside.”


Syria would welcome an increased Russian military presence at its sea ports, President Bashar al-Assad said in an interview with Russian news channelspublished Friday. As AFP reports,

“I can say with complete confidence that we welcome any widening of the Russian presence in the eastern Mediterranean and on Syrian coasts and ports,” including the port of Tartus, Assad said.


“For us, the larger this presence in our neighbourhood, the better it is for stability in this region,” he told journalists.

Russia operates a naval base in Tartus along Syria’s western shores that includes warships, barracks and warehouses.

Set up under a 1971 security agreement,Moscow has called its Tartus presence “a supply and technical point for the Russian navy”.


Assad told the reporters of eight news channels that Russian military support to Syria “has continued” throughout the past four years of war in his country.


He also welcomed Russia’s role in hosting a second round of peace talks but said the negotiating parties must not be influenced by external players.

The Western-backed opposition National Coalition which insists on Assad’s ouster has announced it will boycott the April 6-9 talks.

“For the success of these talks, the negotiating parties must be independent and must reflect what the Syrian people, with all of their different political views, want,” Assad said.


“Today, people would not accept that their future, their fate, or their rules are decided from outside,” he said.


“A solution to the Syrian crisis is not impossible — if the Syrian people sit with each other and discuss, then we’ll get results,” he said.


Assad said Western countries, including the US, France, and Britain, “don’t want a political solution” in Syria and were being “hypocritical”.


“To them, a political solution means changing the state, the fall of the state and replacing it with a state that works for them,” he said.

More than 215,000 people have been killed since Syria’s conflict began, nearly a third of them civilians, according to the Syrian Observatory for Human Rights monitoring group. In his extensive interview, Assad also said he hoped for a closer relationship with Egypt.

“We hope we will soon see a Syrian-Egyptian rapprochement,” he said, although there was as yet no “real relationship” between the two Arab states.

*  *  *





And now oil related stories:


Oil slides as the rise in inventories is placing a great havoc on the industry than the Iran Yemen/Saudi influence.


(courtesy zero hedge)



Oil Slides As Inventories Trump Iran-Yemen Push-Pull




Crude oil prices have rallied sharply this week on headlines that a coalition of Sunni-ruled nations initiated airstrikes on Yemen against Shiite Houthi rebels. Goldman’s Damian Courvalin notes that this rally reversed the sell-off that occurred in part on the rising odds of a deal with Iran being reached. Courvalin expects both events to have negligible near-term supply impacts, with the build in crude inventories set to continue in 2Q15. Longer term, a deal with Iran could lead to greater OPEC supplies although the timing of the sanction relief remains uncertain. It appears today’s weakness indicates a dawning realization that there’s still too much…


Big roundtrip in crude but supply will build…


YEMEN: While Yemen is a small producer (145 kb/d in 2014), the price rally is driven by fears of potential escalation and the proximity of the Bab el-Mandeb strait. While the conflict points to worsening Shiite-Sunni relations in the region, the near-term potential impact on oil production is limited, with the conflict far from Saudi’s oil fields and limited to targeting the Houthi rebels. While closure of the strait could impact 3.8 mb/d of crude and product flows (2013 EIA estimate), the strait is a transit point rather than a chokepoint. Its closure would keep tankers departing the Persian Gulf from reaching the Suez Canal and the SUMED Pipeline, diverting them around Africa, for an additional 10 to 15 days transit time.

IRAN: Reports of progress in the negotiations to lift the Iran sanctions increase the odds that a deal may be reached by month end. The pace of relief from US sanctions seems to remain the key unresolved issue given the need for US Congress to vote to permanently lift them. If a deal is reached, a tentative timeline for it to be finalized would be the end-of-June deadline and the lift of sanctions would likely be progressive, contingent on observed progress in implementing the deal. As a result, the impact of any sanctions relief on Iran’s production could potentially not occur until 2H15 or later and could initially be limited to Iran drawing down its floating storage of c. 30 mb if the EU crude import ban and shipping insurance restriction get lifted.

While sanctions relief could lead Iran production to increase by a few thousand barrels per day initially, a sustainable increase in Iranian production would however only occur gradually given (1) the required investment to reverse the field output restrictions and decline rates, (2) the need for more favorable contracts and signs that sanctions relief are sustainable to attract foreign investment. As a result, we don’t see a deal as dramatically impacting the global oil cost curve but instead contributing to our expectation for gradually rising OPEC production in the New Oil Order. Independently of the sanctions, we expect Iran exports to ramp up in April once India starts its new fiscal year, contributing to the 2Q stock build.

* * *

It appears the reality of accelerating production and static storage capacity is starting to overwhelm geopolitical events.





Very little risk to production so WTI retreats back into the 48 dollar handle:



(courtesy zero hedge)



Yemen “Gulf Intervention” Premium Erased, WTI Tumbles Back Below $49


Well that was a quick geopolitical event. On the heels of what was set to be Crude’s best week since July 2013, Stratfor clarifying little risk of disruption to crude supplies, Goldman confirming neglible impact from Yemen and more to Iran, and reports from Saudi Arabia that “this [Yemen] operation will not go on for long, I think it will be days,” WTI crude has tumbled back to the $48 handle and erased all the “gulf intervention” premium – refocusing on domestic storage concerns.



As Reuters reports,

The Arab military campaign against Yemen’s Houthi militia is likely to last days rather than weeks, Yemeni Foreign Minister Riyadh Yaseen told Saudi-owned al-Arabiya television on Friday.


In answer to a question about whether he thought the Saudi-led operation, which began on Thursday, would last days or weeks or more, Yaseen replied: “I expect that this operation will not go on for long, I think it will be days.”



*  *  *





Rig counts continue to decline despite rising crude production from the already drilled shale wells in the uSA:


(courtesy zero hedge)


Rig Count Decline Reaches 16 Weeks, Pace Of Decline Drops Dramatically



In 2008/9, the rig count decline 18 weeks straight (dropping 57% overall over a 41 week period). Today’s mere 21 rig decline to 1048 marks the 16th straight week of drops and is the smallest drop in 11 weeks. Crude is not reacting significatntly yet but it appears the limits of efficiency gains before production takes a hit.




Not good!!


(courtesy zero hedge)


Turkey Devolves Into A Full Police State: Law Grants Unlimited Powers To Weaponized Police Force



While a source of much schadenfreude by its neighbors and casual onlookers, Turkey has become a glaring example of what happens to a formerly respectable nation as it devolves entirely into a banana republic with not only authoritarian overtones but a police state to boot. And earlier today, Turkey’s conversion to a full blown police state was complete when, after weeks of heated debates and brawls in parliament, Turkey’s government passed a security package expanding police powers, along with an online surveillance law and a discretionary fund for President Recep Tayyip Erdogan to fund covert operations.

In other words, president Erdogan has just voted himself quasi-dictatorial powers with a private police force to defend him.

As Bloomberg details, the parliament voted to approve security laws that allow police to conduct searches and arrests without immediate court orders and use firearms against militants. The law separatelyempowered government-appointed governors to order police or paramilitary forces to conduct searches and detain suspects for up to 48 hours without immediate court orders, state-run Anadolu Agency said.

Furthermore, protesters are banned from carrying fire crackers, firebombs, iron pellets and slingshots, along with covering faces during demonstrations.

Taking a cue from the US, whose NSA continues to enjoy 4th amendment-busting privileges despite all the Snowden revelations, Turkey’s online surveillance law will allow police to keep wiretapping or monitoring online activities of suspects without court orders for 48 hours. At least in Turkey it’s legally mandated: in the US at last check it was still unconstitutional.

Bloomberg further reports that Turkey’s main opposition Republican People’s Party, or CHP, vowed to seek cancellation of the law by the country’s constitutional court before June 7 parliamentary elections, Anadolu reported. Good luck with that.

CHP and another opposition party, the Nationalist Movement Party, or MHP, also criticized the surveillance law and a special fund for spending by Erdogan on state affairs, including covert operations “related to the state’s national security and interests,” Anadolu said today.

Meanwhile, Erdogan continues to push for an authoritarian state in which the power of the people has been voided, and only his decisions matter, and is seeking to replace the parliamentary system with a presidential one that expands his powers at the expense of Prime Minister Ahmet Davutoglu’s government. Davutoglu, Erdogan’s hand-picked successor as prime minister and leader of the ruling AK Party, has not clarified his views on a transition to a presidential system.

Again: none of this is unique, and is merely indicative of the various “evolutionary” stages of a small banana republic as its grows into a full-blown banana plantation. And as the much needed money runs out to keep any democracy afloat (see Greece) what happens in Turkey today, will happen in a country near you tomorrow or in the immediate future.





Your more important currency crosses early Friday morning:



Euro/USA 1.0844 down .0041

USA/JAPAN YEN 119.32 up .120

GBP/USA 1.4900 up .0046

USA/CAN 1.2493 up .0014

This morning in Europe, the Euro continued on its downward movement, falling by 41 basis points, trading now just above the 1.08 level at 1.0844; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, and a possible default of Greece and the Ukraine.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen continues to trade in yoyo fashion as this morning it settled down again in Japan by 12 basis points and trading well below the 120 level to 119.32 yen to the dollar. (and again causing havoc to our yen carry traders)

The pound was up this morning as it now trades at the 1.49 level at 1.4900  (very worried about the health of Barclay’s Bank and the FX/precious metals criminal investigation/Dec 12 a new separate criminal investigation on gold, silver and oil manipulation).

The Canadian dollar is also down by 14 basis points at 1.2493 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: Friday morning : down 185.49 points or 0.95%

Trading from Europe and Asia:
1. Europe stocks mixed

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

Gold very early morning trading: $1200.00




Early Friday morning USA 10 year bond yield: 1.99% !!! down 1 in basis points from Thursday night/

USA dollar index early Friday morning: 97.51 up 10 cents from Thursday’s close. (Resistance will be at a DXY of 100)




This ends the early morning numbers, Friday morning




And now for your closing numbers for Friday:



Closing Portuguese 10 year bond yield: 1.76% down 3 in basis points from Thursday


Closing Japanese 10 year bond yield: .38% !!! up 5 in basis points from Thursday


Your closing Spanish 10 year government bond,  Friday up 4 in basis points in yield from Thursday night.(despite QE)

Spanish 10 year bond yield: 1.32% !!!!!!


Your Friday closing Italian 10 year bond yield: 1.35% up 2 in basis points from Thursday: (despite QE)

trading 3 basis points higher than  Spain.






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

Euro/USA: 1.0895 up .0008  (up 8 basis points)

USA/Japan: 119.17 down .300  ( yen up 30 basis points and killing more of our yen carry traders)

Great Britain/USA: 1.4884 up .0028  (down 28 basis points)

USA/Canada: 1.2610 up .0132 (Can dollar down 132 basis points)

The euro rose quite a bit this afternoon after falling in the morning. It settled up 9 basis points to 1.0895. The yen was up in the afternoon, and it was still up by closing to the tune of 30 basis points and closing well below the 120 cross at 119.17. The British pound gained back some  ground, 28 basis points, closing at 1.4884. The Canadian dollar was well down today against the dollar. It closed at 1.2610 to the USA dollar responding in kind to the lower 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: 1.96% down 4 in basis points from Thursday


Your closing USA dollar index:

97.30 down 11 cents   on the day.



European and Dow Jones stock index closes:




England FTSE  down 40.31 points or 0.58%

Paris CAC up 27.71 or 0.55%

German Dax up 24.65 or 0.21%

Spain’s Ibex down 26.40 or 0.23%

Italian FTSE-MIB up 83.96 or 0.37%



The Dow: up 34.43 or 0.19%

Nasdaq; up 27.86 or 0.57%



OIL: WTI 48.32 !!!!!!!

Brent: 56.08!!!!



Closing USA/Russian rouble cross: 57.80 down 1/2 rouble per dollar on the day with the lower oil price.








And now your important USA stories:



First New York trading today:



Crude Carnage & Hawkish Yellen Leave Dow In The Red For 2015

After all the exuberance last week following Janet Yellen’s utter confusion, stocks suffered their worst week in months… even with th epanic buying on INTC news and in anticpation of Yellen…


Very quiet last two days… with some excitmenmt from Intel and Yellen at the close…


But futures show the reality of the volatility…


As The S&P 500 was pinned at unchanged YTD (Dow red in 2015)


Energy stocks outperformed (though closed red on the week) but Financials were the worst sector this week, down over 3% – the worst week for financials in 11 months

Biotechs dropped over 6% on the week (with highest volume ever) – the biggest drop since early Oct 2014 (but the swing from last week’s highs to this week’s lows of over 15% was the biggest in 11 months)

Trannies were worst this week, and suffered their biggest weekly drop in almost 6 months – Trannies are now down since the end of QE3


All down post-FOMC…

This was on course to be the best week for crude since July 2013 until prices collapsed in the last hour or so… ending up 4% – still the best since early Feb.


After 5 straight weeks up… AAPL is down 4 of last 5 weeks


Intel did its best to drag The Dow into the green YTD…


Treasury yields ended the week very modestly higher, rallying all day today…not 5 days in a row of USD selling during EU day session

The US Dollar ended the week lower by around 0.4% led by EUR and Swissy strength…


but Silver and The Russian Ruble remain the best performers against the USD year-to-date…


Copper lost ground as China growth fears spread but PMs rose on weaker dollar and war fears… oil did its crazy thing…


Charts: Bloomberg





The University of Michigan consumer sentiment drops for the 2nd month in a row.  Remember that the consumer is 70% of GDP;


(courtesy U of Michigan/consumer sentiment/zero hedge0


UMich Consumer Sentiment Drops For 2nd Month In A Row, First Time Since Oct 2013


For the first time since October 2013, UMich Consumer Sentiment dropped for consecutive months (printing a final 93.0 for March down from 95.4 in Feb, but above the flash print earlier in the month). Under the surface there are concerns with an increasing number of respondents noting that household finance are worse than 5 years ago, and an increasing number of people seeing now as a “bad time to buy” a house or car.



Charts: bloomberg






We now have the final 4th quarter GDP revealed and it came in at 2.2% below expectations as corporate profits tumble.


Final Q4 GDP Unchanged At 2.2%, Below Expectations; Corporate Profits Tumble


So much for the “self-sustaining”, “escape-velocity” recovery. Again.

After rising at an annualized pace of 4.6% and 5.0% in Q2 and Q3, the final Q4 GDP estimate (a number which will still be revised at least 3-4 times in the coming years), slid more than half to 2.2%, the same as the second estimate from a month ago, and below the consensus Wall Street estimate of 2.4%.

There were few changes underneath the surface (as can be expected with the bottom line number not changing) however most notable was the increase in Personal Consumption which increase from 2.83% to 2.98%, with this increase more than offset by a drop in Inventories from a 0.12% contribution to a -0.10% detraction from Q4 annualized growth. Net trade ended up subtracting -1.03% from Q4 growth, compared to -1.16% previously. Finally, fixed investment and government spending were virtually unchanged.


But the worst news was the following:

For the year 2014, profits from current production decreased $17.1 billion, in contrast to an
increase of $84.1 billion in 2013
. Profits of domestic financial corporations decreased, and profits of

domestic nonfinancial corporations increased. The rest-of-the-world component of profits decreased
$9.0 billion in 2014, in contrast to an increase of $1.3 billion in 2013.

While this has to do a lot with the CCAdj and IVA adjustments we profiled previously…

According to the measure of profits before tax with inventory valuation adjustment, profits of domestic financial corporations decreased $13.0 billion in the fourth quarter, in contrast to an increase of $16.2 billion in the third. Profits of domestic nonfinancial corporations increased $14.7 billion, compared with an increase of $31.1 billion. The fourth-quarter increase in profits of nonfinancial corporations primarily reflected increases in retail trade, in “other” nonfinancial industries, and in manufacturing that were partly offset by decreases in utilities and in transportation and warehousing.


Profits after tax with IVA and CCAdj decreased $135.4 billion, in contrast to an increase of $64.6 billion. Dividends decreased $54.5 billion, in contrast to an increase of $102.5 billion. Undistributed profits decreased $80.9 billion, compared with a decrease of $37.9 billion.

… the fact that profits are now declining is not what those advocating EPS growth would like to see.

In short: a number which confirms the US economy is once again slowing down, and will hit the breaks when in one month the BEA reports that Q1 GDP was at or below 1.0%, with snow in the winter getting the bulk of the ridiculous blame once again.








My goodness!! Obama tries to bully their allies into accepting the Iranian nuclear deal!!



(courtesy zero hedge)




Obama Administration Bullies Allies Over Iran Nuke Deal Dissent



President Obama is “blowing up our alliances to secure a deal that paves Iran’s way to a bomb,”according to European sources close to the negotiations, and as Washington Free Beacon reports, efforts by the Obama administration to stem criticism of its diplomacy with Iran have included threats to nations involved in the talks, including U.S. allies. France has borne the brunt of Obama’s wrath as one source in Europe close to the ongoing diplomacy said the US has begun to adopt a “harsh” stance toward its allies in Paris because“the clarifications expose just how weak the Americans’ deal is shaping up to be.”


As The Washington Free Beacon reports,

A series of conversations between top American and French officials, including between President Obama and French President Francois Hollande, have seen Americans engage in behavior described as bullying by sources who spoke to the Washington Free Beacon.


The disagreement over France’s cautious position in regard to Iran threatens to erode U.S. relations with Paris, sources said.


Tension between Washington and Paris comes amid frustration by other U.S. allies, such as Saudi Arabia and Israel. The White House responded to this criticism by engaging in public campaigns analysts worry will endanger American interests.


Western policy analysts who spoke to the Free Beacon, including some with close ties to the French political establishment, weredismayed over what they saw as the White House’s willingness to sacrifice its relationship with Paris as talks with Iran reach their final stages.


A recent phone call between Obama and Hollande was reported as tense as the leaders disagreed over the White House’s accommodation of Iranian red lines.


“The French want a deal, but they see no rush and repeat that Iranians need a deal more than we do, and that we shouldn’t fix artificial deadlines that put more pressure on us than Iran.”


One source in Europe close to the ongoing diplomacy said the United States has begun to adopt a “harsh” stance toward its allies in Paris.


“There have been very harsh expressions of displeasure by the Americans toward French officials for raising substantive concerns about key elements of what the White House and State Department negotiators are willing to concede to Iran,” said the source, who spoke on condition of anonymity. “That is because the clarifications expose just how weak the Americans’ deal is shaping up to be.”

Another Western source familiar with the talks said the White House is sacrificing longstanding alliances to cement a contentious deal with Iran before Obama’s term in office ends.

“The President could be hammering out the best deal in the history of diplomacy, and it still wouldn’t be worth sacrificing our alliances with France, Israel, and Saudi Arabia—key partners in Europe, the eastern Mediterranean, and the Gulf,” the source said.“But he’s blowing up our alliances to secure a deal that paves Iran’s way to a bomb.”


A State Department spokesperson declined to comment on the issue.

*  *  *

How to make friends and influence people… perhaps this is yet another glimpse into why so many “allies” are sidling up to China’s new non-hegemonic Yuan liberalization push…







Let us close the week, with this wrap up with Greg Hunter of USA Watchdog


(courtesy Greg Hunter/USA Watchdog)


WNW 183-War in Yemen, Crazy Middle East US Policy, Iran Nuke Deal


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