April 22/ECB raises ELA by 1.5 billion euros to 75.5 billion/ECB contemplating raises collateral haircut to the Greek banks/would be death knell to Greece/Saudi Arabia resumes bombing in Yemen/Flash crash trader arrested in the UK will fight extradition/no changes in gold and silver inventory at GLD/SLV


Good evening Ladies and Gentlemen:



Here are the following closes for gold and silver today:


Gold:  $1186.90 down $16.00 (comex closing time)

Silver: $15.79 down 21 cents (comex closing time)


In the access market 5:15 pm

Gold $1187.16

Silver: $15.79



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:


At the gold comex today,  we surprisingly had a good delivery day, registering 54 notices served for 5400 oz.  Silver comex filed with 150 notices for 750,000  oz .


Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 246.107 tonnes for a loss of 57 tonnes over that period. Lately the removals  have been rising!




In silver, the open interest rose by another 2926 contracts as Tuesday’s silver price was up by 12 cents. The total silver OI continues to remain extremely high with today’s reading at 182,633 contracts rising to multi-year record highs. The front April month has an OI of 173 contracts for a gain of 1 contract. We are now at 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 150 notices served upon for 750,000 oz.



In gold,  the total comex gold OI rests tonight at 397,379 for a loss of 1139 contracts with gold up by $9.40 yesterday. We had 54 notices served upon for 5400 oz.



Today, we had no changes in  gold inventory at the GLD/  Gold Inventory rests at 742.35  tonnes


Looks to me like London is out of gold.


In silver, /  /we had a huge addition of 1.434 million oz in silver inventory at the SLV/ and thus the inventory tonight is 326.334 million oz


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


1. Today we had the open interest in silver rise by another huge 2926, contracts with the rise in price on Tuesday (14 cents). Not only that but the OI for the front month of May fell by only 3,826 contracts as we have only 6 trading days left before first day notice.  The OI for gold fell by 1,139 contracts down to 397,379 contracts as  price of gold rose by $9.40 on Tuesday.

(report Harvey)


2,Many important commentaries on Greece

i.The ECB is threatening Greece that they will cut off his emergency life-line: its ELA, as more citizens remove Euros from the banking system.

ii) Today the ECB increased the ELA by a huge 1.5 billion euros, up to 75.5 billion euros, as more depositors flee the Greek banking system.  Also rumours that the ECB will have to increase the haircut on collateral already supplied as ELA to 50% would be a death knell to Greece. Remember that Greek banks have a huge amount of non performing loans and as euros leave, there is nothing backing those loans.


(Bloomberg, zero hedge)


3. Saudi Arabia after announcing yesterday the end of bombing in Yemen, resumed bombing today

zero hedge)

4. Oil inventories rise again

(zero hedge)

5. Yesterday we reported on the arrest of a single trader who acted alone on that famous flash crash in May of 2010.  This trader resides in England.  Today the farce continues as the trader will fight the extradition as he cites that many others are doing the same thing.

Zero hedge writes an open letter to the CFTC

(zero hedge)


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 1,139 contracts from 398,518 down to 397,379 with gold up by $9.40 yesterday (at the comex close). We are now in the active delivery month of April and here the OI fell by 661 contracts down to 525. We had 659 contracts filed upon on on Tuesday so lost 200 gold ounces or 2 contracts that will not stand for delivery in April. The next non active delivery month is May and here the OI rose by 4 contracts up to 454.  The next big active delivery contract month is June and here the OI fell by 3434 contracts down to 261,646. June is the second biggest delivery month on the comex gold calendar. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 64,249. The confirmed volume yesterday ( which includes the volume during regular business hours + access market sales the previous day) was poor at 112,946 contracts. Today we had 54 notices filed for 5400 oz.

And now for the wild silver comex results.  Silver OI rose by another 2926 contracts from 179,707 up to 182,633 as the price of  silver was up by 12 cents, with respect to Tuesday’s trading. Somebody big is willing to take on JPMorgan.  We are now in the non active delivery month of April and here the OI rose by 1 contract up to  173.  We had 0 notices filed yesterday so we gained 1 contract or an additional 5,000 oz will stand  in this delivery month of April. The next big active delivery month is May and here the OI fell by only 3826 contracts down to 63,469.  We have a little more than 1 week before first day notice on Thursday, April 30.2015. The estimated volume today was poor at 26,320 contracts (just comex sales during regular business hours. The confirmed volume yesterday (regular plus access market) came in at 81,216 contracts which is excellent in volume. We had 150 notices filed for 750,000 oz today. The fact that very little silver contracts are leaving the May delivery month arena must scare the living daylights out of our banker friends.



April initial standings

April 22.2015



Withdrawals from Dealers Inventory in oz  nil
Withdrawals from Customer Inventory in oz 100.31 oz (Scotia)
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 141,031.351 oz (HSBC,JPM)
No of oz served (contracts) today 54 contracts (5400 oz)
No of oz to be served (notices)  471 contracts(47,100) oz
Total monthly oz gold served (contracts) so far this month 2361 contracts(236,100 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   oz

Total accumulative withdrawal of gold from the Customer inventory this month

  396,283.8 oz

Today, we had 0 dealer transaction

total Dealer withdrawals: nil oz


we had 0 dealer deposits


total dealer deposit: nil oz

we had 1 customer withdrawals

i) Out of Scotia: 100.31 oz



total customer withdrawal: 100.31 oz


we had 2 customer deposit:

i) Into HSBC:  132,322.563 oz ( a monstrous 4.11 tonnes)

ii) Into JPMorgan; 8708.788 oz

total customer deposit: 141,031.351 oz


We had 0 adjustments:



Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 246.107 tonnes for a loss of 57 tonnes over that period. Lately the removals  have been rising!


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 54 contracts of which 26 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 (2361) x 100 oz  or  236,100 oz , to which we add the difference between the open interest for the front month of April (525) and the number of notices served upon today (54) x 100 oz equals the number of ounces standing.

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

No of notices served so far (2361) x 100 oz  or ounces + {OI for the front month (525) – the number of  notices served upon today (54) x 100 oz which equal 283,200 oz or 8.808 tonnes of gold.



we lost 200 gold ounces that will not stand in this April contract month.


This has been the lowest amount of gold ounces standing in an active month in quite some time.





Total dealer inventory: 567,927.751 or 17.66 tonnes

Total gold inventory (dealer and customer) = 7,912,357.942  oz. (246.107) tonnes)






And now for silver


April silver initial standings

April 22 2015:



Withdrawals from Dealers Inventory nil oz
Withdrawals from Customer Inventory 555,071.85 oz (Delaware,JPMorgan,CNT,Scotia)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory 631,802.155 oz (CNT,HSBC)
No of oz served (contracts) 150 contracts  (750,000 oz)
No of oz to be served (notices) 23 contracts(115,000 oz)
Total monthly oz silver served (contracts) 493 contracts (2,465,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month  884,245.2 oz
Total accumulative withdrawal  of silver from the Customer inventory this month  11,123,108.9 oz


Today, we had 0 deposits into the dealer account:

total dealer deposit: nil   oz


we had 0 dealer withdrawal:


total dealer withdrawal: nil oz


We had 2 customer deposits:

i) Into CNT: 7999.800 oz

ii) Into HSBC:  623,802.355 oz


total customer deposits: 631,802.155  oz


We had 4 customer withdrawals:


i) Out of Scotia; 60,653.600 oz

ii) Out of CNT: 203,746.600 oz

iii) Out of Delaware; 2941.95 oz

iv) Out of JPMorgan: 287,729.700 oz


total withdrawals;  555,071.85 oz


we had 0 adjustments:



Total dealer inventory: 62.635 million oz

Total of all silver inventory (dealer and customer) 175.238 million oz


The total number of notices filed today is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in April, we take the total number of notices filed for the month so far at (493) x 5,000 oz    = 2,465,000 oz to which we add the difference between the open interest for the front month of April (173) and the number of notices served upon today (150) x 5000 oz equals the number of ounces standing.

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

493 (notices served so far) + { OI for front month of April(173) -number of notices served upon today (150} x 5000 oz =  2,580,000 oz standing for the April contract month.


we  gained 5,000  silver ounces standing in this delivery month of  April  .


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

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




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

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

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

i) demand from paper gold shareholders

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

vs no sellers of GLD paper.


And now the Gold inventory at the GLD:

April 22. no changes in gold inventory at the GLD/inventory at 742.35 tonnes

April 21.2015: a huge addition of 3.26 tonnes of gold inventory at the GLD/Inventory rests at 742.35 tonnes

April 20.2015: no change in gold inventory at the GLD/Inventory rests at 739.06 tonnes

April 17.2015/ we had a huge addition of 3.01 tonnes of gold inventory at the GLD.  It looks like the raids at the GLD have stopped.

April 16.2015: no change in inventory at the GLD/total inventory at 736.08 tonnes

April 15/ a huge addition of 1.79 tonnes of gold inventory added to the GLD/ Inventory tonight at 736.08 tonnes

April 14/ no change in gold inventory at the GLD/Inventory rests at 734.29 tonnes

April 13.2015: we had a withdrawal of 1.75 tonnes of GLD/Inventory at 734.29 tonnes

April 10/we had no change in inventory at the GLD/Inventory at 736.04 tonnes

April 9.2015 we have a huge addition of 2.98 tonnes of gold inventory/GLD inventory tonight stands at 736.04 tonnes

April 8.2015:no changes in the GLD/Inventory 733.06 tonnes


April 7. we had another withdrawal of 4.18 tonnes of gold at the GLD/Inventory rests at 733.06 tonnes


April 22/2015 /  we had no changes in gold inventory at the GLD/Inventory stands at 742.35 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 : 742.35 tonnes.




And now for silver (SLV): April 22/no changes in silver inventory at the SLV/326.334 million oz of inventory

April 21.2015/we had another huge addition of 1.434 million oz of silver into the SLV

April 20/ no change in silver inventory tonight/SLV 324.900 million oz.

April 17.2015: no change in silver inventory tonight at the SLV.324.900 million oz

April 16.2015: no change in silver inventory tonight at the SLV/324.900 million oz

April 15.2015: no change in silver inventory tonight at the SLV/324.900 million oz is the inventory tonight.

April 14. we had another addition of .67 million oz of silver at the SLV/Inventory rests at 324.900 million oz

April 13.2015: a huge addition of 2.391 million oz of silver at the SLV/Inventory rests at 324.230 million oz

April 10/ no changes in silver inventory at the SLV/Inventory rests at 321.839 million oz

April 9/2015 no changes in inventory at the SLV/Inventory rests at 321.839 million oz/

April 8.2015: no changes in inventory at the SLV/Inventory rests tonight at 321.839 million oz

April 7.2015: no changes in inventory at the SLV/Inventory rests tonight at 321.839 million oz



April 22/2015 we had no change in inventory at the SLV / inventory rests at 326.334 million oz





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


Central fund of Canada data not available today/

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

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

1. Central Fund of Canada: traded at Negative 9.0% percent to NAV in usa funds and Negative 9.1% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.7%

Percentage of fund in silver:37.80%

cash .5%

( April 22/2015)



Sprott gold fund finally rising in NAV

2. Sprott silver fund (PSLV): Premium to NAV rises to + 1.07%!!!!! NAV (April 22/2015)

3. Sprott gold fund (PHYS): premium to NAV falls to -.37% to NAV(April 22/2015

Note: Sprott silver trust back  into positive territory at +1.07%.

Sprott physical gold trust is back into negative territory at -.37%

Central fund of Canada’s is still in jail.





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


Gold and silver trading early this morning


(courtesy Goldcore/Mark O’Byrne)


China’s Stealth Gold Reserves To Quadruple as IMF Seek Answers

– Enter the Dragon – China Stealthily Accumulated Massive Gold Hoard
– IMF Seek Answers On China’s Mysterious Gold Reserves according to Bloomberg
– Major demand issue and bullish support for gold rarely covered in mainstream
– China may disclose its gold reserves by October in a bid to have the Yuan included in SDR currency-basket
– China has not made its gold holdings public since 2009
– Bloomberg estimates that reserves may be as high as 3510 tonnes, 2nd largest in the world

Image of Gold Hoard and Dragon’s Eye from ‘Desolation of Smaug’

Enter the Dragon. China’s push to challenge U.S. dominance as the global economic superpower and to challenge the dollar as a global reserve currency involves gold – “a lot of gold.”

China may soon make public that it has quietly accumulated a massive hoard of gold in recent years. This was done in order to bolster their bid to have the yuan included in the basket of currencies that make up the IMF’s Special Drawing Rights (SDRs) according to an article by Bloomberg.

This is something Jim Rickards, ourselves and many analysts in the gold sector have said would happen for some time. The People’s Bank of China’s (PBOC) quiet ongoing accumulation of gold is something we frequently cover as we believe it is an important demand factor in the market that is largely ignored by most analysts and in most coverage of the gold market.

Officially Reported Gold Holdings (Not Including People’s Bank of China) – Wikipedia

Currently the SDR is composed of dollars, euros, yen and sterling. It is further testimony to the new emerging order that the yuan is under consideration even as it establishes the AIIB which looks set to rival the IMF and World Bank.

China has not publicised its gold holdings since April 2009 when their holdings doubled to 1,054 metric tonnes. The announcement surprised most market participants at the time and was likely a factor in the higher gold price seen in 2009.

Bloomberg speculates that the PBOC may have increased its gold reserves three-fold since that time to over 3,000 metric tonnes.

“The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, to 3,510 metric tons”, says Bloomberg Intelligence, based on trade data, domestic output and China Gold Association figures.

China would therefore have the third largest gold reserves in the world – second only to the U.S. and Germany.

It is worth noting that the U.S. refuses to allow their gold reserves to be publicly audited and the Bundesbank is having difficulty repatriating much of its gold stored with the Federal Reserve. This has led many analysts to speculate that the U.S.’s gold reserves have been leased out or sold or are encumbered as part of an ongoing effort to manipulate gold prices.

Analysts who closely follow the gold market, believe that Chinese reserve holdings may be much higher. Shanghai and the SGE has superseded Hong Kong to become a major hub for trading in physical gold not just in Asia but globally.

It seems likely that the Chinese government have been accumulating gold by stealth using proxies in Shanghai.

China’s ambition to make the yuan a dominant, if not the dominant reserve currency is now beyond dispute. However, they have a long way to go yet. The IMF estimates that the dollar and the euro together currently make up 85% of global reserves.

If their IMF ambitions do force them to disclose their gold holdings it does not follow that they will make public their entire reserves unless they deem it politically expedient to do so.

So Bloomberg Intelligence estimates of China’s reserves may be accurate but they may be significantly understated.

This is unlikely, however. The secrecy with which China operates with regards to gold demonstrates the strategic importance that they, like Russia, place on gold.

Bloomberg reports,”In a rare comment on gold, Yi Gang, the central bank’s deputy governor, said in March 2013 that the country could only invest as much as 2 percent of its foreign-exchange holdings in gold because the market was too small.”

Elsewhere, Bloomberg reports that China’s foreign reserves “have surged more than fivefold in a decade and are the biggest in the world.”

Central banks globally are expected to add another 400 tonnes to their reserves this year indicating a degree of distrust in the current monetary order by the very entities that issue fiat currencies.

The Dragon’s Gold Hoard

It is almost certain that the People’s Bank of China (PBOC) is accumulating more gold than they are declaring publicly and indeed officially to the IMF.

It is interesting as the PBOC is the only major central bank that has not been transparent with regard to gold reserves, even Russia has declared their gold purchases.

(As a side, one should note that there is little reason why Russia may not adopt the Chinese practice of not being transparent in this regard in the coming years given the deterioration in relations with the West.)

The Chinese government have been surreptitiously accumulating vast quantities of the precious metal in recent years and there is no reason to believe this buying will end in the coming months as geopolitical and monetary risks remain.

And yet this buying and the presence of the PBOC in the gold market is notably absent from most analysis about gold.

Figures from the Shanghai Gold Exchange (SGE) – which has overtaken Hong Kong as China’s main gold hub and which only deals in physical gold – suggest that some of the very high withdrawals may be going to the PBOC’s gold hoard.

This year has seen very high volumes passing through the SGE again. Last quarter alone, SGE withdrawals were a new record high at 623 metric tonnes.

It is likely that the PBOC accumulated some of these sizeable withdrawals.

It is worth noting that the PBOC’s gold reserves remain small when compared to those of the U.S. and indebted European nations. They are miniscule when compared with China’s massive foreign exchange reserves of more than $3 trillion.

The PBOC is almost certainly continuing to quietly accumulate gold bullion reserves. As was the case previously, they will not announce their gold bullion purchases to the market in order to ensure they accumulate sizeable reserves at more competitive prices.

They also do not wish to create a run on the dollar – thereby devaluing their sizeable reserves.

Based on the huge gold withdrawals seen on the SGE in recent years, we would not be surprised to see an announcement from the PBOC, sometime later in 2015 or in 2016, that they have more than quadrupled their reserves to over 4,000 metric tonnes.


However, speculation regarding the amount of an increase is far less important than the salient fact that there is a large ongoing buyer of gold in the market that is unacknowledged and most participants are aware of.

Total official central bank demand continues at roughly 100 tonnes every single quarter.

However, this does not include the ongoing clandestine and undeclared purchases by the PBOC. Conservative estimates put PBOC demand at 100 tonnes a quarter or at over 400 tonnes for the year. More radical projections are of demand of over 1,000 tonnes from the PBOC in recent years.

Only time will tell but awareness of this demand and the announcement itself are an important reason that we remain unashamedly bullish on gold.

Breaking Gold News and ResearchHere


Today’s AM LBMA Gold Price was USD 1,202.40, EUR 1,113.44 and GBP 799.19 per ounce.
Yesterday’s AM LBMA Gold Price was USD  1,197.70, EUR 1,120.26 and GBP 804.58 per ounce.

Gold climbed 0.49 percent or $5.90 and closed at $1,201.80 an ounce yesterday, while silver rose 0.13 percent or $0.02 closing at $16.01 an ounce.


Spot gold in Singapore was relatively unchanged at $1,203.11 an ounce. Gold broke through the $1,200 an ounce barrier in London trading today on dollar weakness and continues to consolidate at the 1,200 level.

It is hoped that Greece will agree to the bailout structure by the end of the month. Meetings are set in Riga on Friday and the possibility of a Grexit is still on the cards which should support gold.

Mixed signals are abound as ECB vice president, Vitor Constancio, suggested that Greece might not be forced to leave the eurozone just because it defaults on its debt.

On Monday in a Wall Street Journal article Constancio said that he is convinced that Greece will remain in the eurozone, attempting to dampen concerns of a Grexit. “I am convinced” that there won’t be a Greek exit, from the eurozone, Vitor Constancio said in remarks to European parliamentarians in Brussels. “The treaty doesn’t foresee that a country can be formally legally expelled from the euro,” he said.

It brings to mind the old adage to “never believe anything until it is officially denied”.

In Japan equity markets are surging to a 15 year high on corporate earnings which have been reasonably good and cheap money.

Gold purchases in India began slow but increased momentum during the Akshaya Tritiya festival, usually one of the busiest gold buying days, industry officials said. Indians are the world’s number two buyer of gold, after China, and Akshaya Tritiya celebrated yesterday is one of the most auspicious times to buy gold along with Diwali and Dhanteras. Gold imports doubled in March to 125 tonnes from only 60 tonnes a year before.

Even though sales increased during the festival, Indian demand risks falling slightly for a second straight year in 2015. The reason for a potential drop is that unseasonable rain and low commodity prices have hurt rural buyers. It is these buyers that account for almost 60 percent of the country’s total demand.

Spot gold near noon in European trading is up 0.06 percent or $1,202.44 an ounce. Silver is up 0.15 percent at $16.05 an ounce while platinum is trading down 0.49 percent at  $1,143.30 an ounce.

Looks like Dr Jordan  (Switzerland’s head of SNB) is having his hands full with the rising Swiss Franc.  Today he reduced the number of exemptions from negative interest rates.  Basically now everybody is included and must pay to have a deposit in a Swiss bank account.
(courtesy GATA/Reuters)

Swiss central bank reduces exemptions from negative interest rates


By Alice Baghdjian and Joshua Franklin
Wednesday, April 22, 2015

ZURICH, Switzerland — The Swiss National Bank said today it was considerably reducing the number of institutions exempt from negative rates on their cash deposits held at the central bank.

The SNB charges 0.75 percent on some Swiss franc deposits to try to deter speculative flows into the currency. This measure has also hit Swiss savers and the 673 billion Swiss franc ($700 billion) pension fund industry, which is subject to fees on its franc deposits.

At the bank’s March policy meeting, Chairman Thomas Jordan said exceptions to charges on franc deposits are not in the central bank’s interest because it undermines the effectiveness of monetary policy.

Negative interest will now also apply to the so-called sight deposit accounts held at the bank by enterprises associated with the Confederation, the Federal Pension Fund, and the SNB’s pension fund, the central bank said in a statement. …

… For the remainder of the report:





(courtesy  Chris Powell/GATA)

BIS president in 1981: We’ve got to start rigging the gold market

Those who follow GATA may recall that Zijlstra, who was president of the Netherlands Central Bank simultaneously with his holding office at the BIS, wrote in his memoirs in 1992 that the price of gold long had been held down by central banks at the behest of the United States, which sought to minimize competition for the dollar as the international reserve currency:


In his speech at the IMF in 1981, Ziljstra said: “I feel that it is necessary for us, within the Group of Ten and Switzerland, to consider ways to regulate the price of gold, admittedly within fairly broad limits, so as to create conditions permitting gold sales and purchases between central banks as an instrument for a more rational management and deployment of their reserves.”

Ziljstra added: “On the occasion of the annual meeting of the IMF in Belgrade in 1979 this was brought up, but regrettably, insufficient agreement could be reached to make even a modest start with regulating the gold price in the free market. It is my conviction that relatively small-scale interventions, though not forestalling the subsequent explosion in the gold price, would at least have reduced it to more manageable proportions. Now that the turbulent emotions seem to have quieted down, we would be wise to reflect anew and without prejudice on these subjects.”

Western central banks seem to have heeded Zijlstra’s advice, as the BIS now functions largely as their gold broker, buying and selling not only gold but gold futures, options, and other derivatives on their behalf nearly every day for purposes never revealed to the public —


— but explained among themselves as “interventions” designed “to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful”:



Zijlstra’s speech is also notable for its candid wish that central bankers should be allowed to run the world without the interference of mere elected officials. Having served in the Netherlands parliament and even five months as the country’s prime minister before heading its central bank and the BIS, Zijlstra surely found central banking a lot easier than democracy.

His speech to the IMF is posted at the Internet site of the Per Jacobsson Foundation here —


— and at GATA’s Internet site here:


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


1:26p ET Wednesday, April 22, 2015

Dear Friend of GATA and Gold:

“Regulating the gold price in the free market” was recommended to central banks by the president of the Bank for International Settlements,” Jelle Zijlstra, in a speech at International Monetary Fund headquarters in Washington in September 1981.

The speech, located this week by gold researcher and GATA consultant Ronan Manly, was given as a lecture memorializing the former managing director of the IMF, Per Jacobsson.




Bill Holter lays out perfectly what is going on with respect to Greece:

(courtesy Bill Holter/Miles Franklin)


Greecing the world!

Soon to be front page news again will be Greece and their insolvency.  The question will remain (for a time) whether or not they stay in the Eurozone, leave by choice or get “kicked out”.  I am not even sure if being forced out is a legal option, we may see.

  The latest pieces of news has been a claim that Greece will be funded with a monthly credit card payment of 5 billion euros by Russia …then denied by Russia.  The other news was “federal Greece”, after raiding pension plans is now confiscating local reserves for the “good of the nation”.  The populace is getting very antsy as demonstrations and violence have begun to erupt.
  Let’s look at the second piece of news first as it was most predictable as was the reaction.  Of course “confiscation” of balances were going to occur sooner or later.  History is strewn with precedent where bankrupt governments scratch and claw at anything they can get their hands on, did anyone not expect this?  Greece is mathematically broke and in the same boat as a homeowner who lost a job.  They are digging into retirement balances, the credit cards are all maxed out, they have already borrowed from relatives and are in the process of selling their furniture and anything else not nailed down.  They are broke, any monies lent to them might as well have been placed on a bonfire for the heat value because they will not be paid back.
  Which leads us to the 5 billion euros Russia allegedly will “forward” or lend to Greece.  If this is true, it’s another masterful move by Mr. Putin!  NATO sanctions will run out within the next 60 days and must be renewed (voted on) in order to be renewed.  NATO participants must vote unanimously to renew the sanctions, Mr. Putin may have pulled a page right out of American politics …just buy a vote and go on down the road?  I suspected this would happen, if true, even though it buys a little time (maybe a month or two), it does not change the big picture at all.  Greece is broke, they cannot nor will they ever pay back what has been borrowed (especially post 2012 debt).  They will default one way or the other and sooner rather than later.
  So why does tiny Greece matter to anything in the grand scheme.  Going back to my last article “The Mother of All Margin Calls” is at the root of it.  Greek debt even to this day when everyone knows Greece will not ever make good on their debt, is carried on the books of bank portfolios at 100%.  It doesn’t matter that trades are done at less than 50% of par or much less, Greek debt is used as “tier one” capital …and HERE LIES THE PROBLEM! 
  Let’s look at this from two different angles.  First from a “carrying” standpoint and then from “lending” standpoint.  They both arrive at the same ugly destination but via different routes.  French and German bank portfolios are stocked full with Greek sovereign debt, if they marked these even close to reality the losses will be staggering.  Remember, this is “tier one” capital considered as “good as gold”.  How will they replace the holes punched into their collateral structure?  I would also remind you,  The ECB itself hold 100 billion euros worth of Greek debt, how does the issuer of the currency account for a 50% haircut?  Or even a complete wipeout?  Where will the new capital come from?  Remember, “margins” are already razor thin and in some cases undercapitalization exists even WITH this fake accounting!
  Looking at this from another angle, since the Greek debt is tier one capital, banks can, and already have lent amounts up to ten times value …OFF of the Greek debt!  The problem is not just the “writedown” and need to raise new capital, much of what has been lent out and levered off of the Greek debt will need to be “called in”.  What does this do to the markets and the real economy?  Obviously forced sales of financial instruments will occur as well as real businesses being closed as their funding structure is called in and pulled out from under them.  A death spiral is caused both financially and economically which will not be stopped and will only spread like a wildfire!
  There is one more angle to look at and that angle is the derivatives created off of the Greek debt.  Looking at credit default swaps, there is no doubt “someone” will have to pay when the “insurance” is claimed.  CDS in many instances happens to be 10 times the underlying debt itself so these 350 billion euros may very well have insurance outstanding of 3.5 trillion euros.  Who has this kind of money to pay up?  In many cases (think Deutsche bank?), banks actually holding Greek debt in their portfolio are also issuers of CDS, this is called a “Texas hedge” with double or more exposure!
  Going full circle, we looked at the Fed’s reverse repo agreements spiking in volume, this can only be explained by the need for “collateral” from the financial system.  What will a Greek default do?  Create the need for even more collateral, and LOTS OF IT to keep the façade of solvency intact.  Though Greece is not a big player, think of them as a minor repair for the car of the couple who have maxed out all avenues of credit.  Even a small hiccup is enough to upset this margined cart because of insufficient capital, Greece fits the description!  They are by no means all by themselves, the entire financial system is Greece to one extent or another.  Greece is only the canary that will expose and impose margin calls across the globe.  I would like to mention one more canary in this coal mine, bookies are no longer taking bets on Greece’s default and exit from the Eurozone …it is now that obvious!
Regards, Bill Holter
Early morning trading from Asia and Europe last night:

1. Stocks all higher on major Chinese bourses as bubblemania is the name of the game in Shanghai and Hong Kong  /Japan bourse higher /yen rises to 119.43/Shanghai to allow short selling to stop their bubble/China then cuts RRR by 1% and Chinese authorities sooth fears that they want to prick that huge bubble.  Yesterday a huge electrical company’s bonds default.  This could spell trouble as this company is a subsidiary of a state owned company

1b Chinese yuan vs USA dollar/yuan strengthens to 6.1947

2 Nikkei up by 224.81  or 1.13%

3. Europe stocks all down/USA dollar index down to 97.53/Euro rises to 1.0781

3b Japan 10 year bond yield .32% (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.43/

3c Nikkei still  above 20,000

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

3e WTI  56.25  Brent 61.81

3f Gold up/Yen up

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to 10 basis points. German bunds in negative yields from 9 years out.

Except Greece which sees its 2 year rate falls a bit to 27.95%/Greek stocks up .17%/ still expect continual bank runs on Greek banks.

3j  Greek 10 year bond yield:  13.54% (up 6 in basis point in yield)

3k Gold at 1203.30 dollars/silver $16.06

3l USA vs Russian rouble;  (Russian rouble up 1/4  rouble/dollar in value) 53.25 , the rouble is still the best acting currency this year!!

3m oil into the 56 dollar handle for WTI and 61 handle for Brent/Saudi Arabia increases production to drive out competition.

3n Higher foreign deposits out of China sees huge 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!! (on Monday they lowered its RRR it is effectively doing QE)

30  SNB (Swiss National Bank) still intervening again in the markets driving down the SF.  It is not working:  USA/SF this morning 95.46 as the Swiss Franc is rising against most currencies.  Euro vs SF is 1.0278 well below the floor set by the Swiss Finance Minister.

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

3r the 9 year German bund now enters negative territory with the 10 year close to negativity at +.10/no doubt the ECB will have trouble meeting its quota of purchases and thus European QE will be a total failure.

3s Last week the ECB increased the ELA to Greece  by another  large 800 million euros.  The new maximum is 74.0 billion euros.  The ELA is used to replace depositors fleeing the Greek banking system.  The bank runs are increasing exponentially. Yesterday, the ECB is contemplating cutting off the ELA which would be a death sentence to Greece. Today they are considering a 50% haircut to all Greek sovereign collateral which will totally wipe out the entire Gr. banking and financial sector.


3t Greece informally asked the IMF to delay its payment for May 1 and they refused.

3 u. With the big meeting in Riga this Friday, there is no new developments on Greece to provide new reforms/thus do not expect anything to develop by Friday.  However Greece’s cash is running out.

If the ECB cuts off Greece’s ELA they would have very little money left to function.

4.  USA 10 year treasury bond at 1.89% early this morning. Thirty year rate well below 3% at 2.57%/yield curve flatten/foreshadowing recession.


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



(courtesy zero hedge/Jim Reid Deutsche bank)


Asian Euphoria Sends Nikkei Above 20,000, Fizzles In Europe On More Greek Fears; US Futures Down

Whether it is in sympathy with the now relentless surge in the Shanghai Composite which tacked on another 2.44% overnight to close at a fresh multi-year high just shy of 4400, well more than double from a year ago, or because Mrs Watanabe was unable to read the latest Japan trade data whose first trade surplus in 3 years hinted that there will be no new easing by the BOJ any time soon, but overnight the Nikkei closed above 20,000 for the first time in 15 years, with “makers of chocolate, mayonnaise, potato chips and household appliances” helping lift the Tokyo market according to the WSJ.

The now daily Asian euphoria however did not last long in the European session, and after opening higher, the Stoxx Europe 600 slipped into negative territory just an hour into trading, and was down 0.4% by midmorning, lead by a near 1% decline on Athens’ mains stock index, which has since recouped losses stemming from the overnight report that the ECB is considering an up to 50% haircut on Greek bank collateral, a move that would wipe out the Greek financial sector with ease.

As the WSJ notes, Greek Prime Minister Alexis Tsipras is expected to meet with German Chancellor Angela Merkel at a summit in Brussels on Thursday, before eurozone finance ministers meet in Riga, Latvia, on Friday. However, a deal on fresh aid – having been delayed for weeks and weeks – will be delayed once more, and is unlikely to be agreed before the Eurogroup meeting on May 11, a day before Greece must pay €780 million ($838 million) due to the International Monetary Fund.

“Given no discernible reform progress at technical or political levels, we expect both of these occasions to be nonevents that mark another missed opportunity for Greece to avoid a descent into financial oblivion, ” said Emily Nicol, economist at Daiwa Capital Markets.

A closer look at the overnight trading session reveals that the FTSE 100 (-0.5%) underperforms its European counterparts (Eurostoxx50 -0.3%) with negative sentiment emanating in UK stocks as Goldman Sachs said a Labour victory in the election will spark a sell-off in the market. Furthermore, utilities are the laggard sector in the FTSE (and Europe) as Labour leader Ed Miliband is expected to implement policies which will have negative implications on the sector.

Although Greek assets appear relatively unfazed this morning, sources overnight suggested ECB are to demand that the value of Greek banks’ collateral held at the Greek central bank to secure emergency loans be cut by as much as 50% which has offered support to both the Bund and UST’s which trade marginally firmer. However, since then, additional ECB sources have denied these reports. Elsewhere, there is little supply from the Eurozone this week, however next week there are sizeable redemptions from the Eurozone expected at approximately EUR 65bln.

In FX, the only major release this morning was the BoE Minutes which showed that the weaker GBP could result in a faster pickup in inflation and maintained a slightly hawkish tone by communicating that the next move will be upwards, which buoyed GBP/USD to touch session highs above 1.50. Elsewhere, the USD-index has taken a turn into negative territory with AUD/USD the notable outperformer after it snapped it recent declines in the wake of a buoyant Australian Q1 CPI report, prompting investors to trim their May rate cut expectations Elsewhere, EUR/USD is also seen stronger after tripping stops above yesterday’s high of 1.0780 as the USD continues to edge lower, while there are 3 yards of expiries in the pair at 1.0800 due to roll off at the 1500BST NY cut.

WTI and Brent crude futures initially extended on yesterday’s losses after the API crude inventories showed a bigger than prev. build in oil stockpiles at 5.5mln vs. Prev. 2.6mln. Analysts are forecasting the DoE crude inventories to log a higher build of 3.2mln (Prev. 1.29mln). Nonetheless, the recent bout of weakness in the USD has helped provide some reprieve for prices. The USD-weakness has also helped spot gold move back above USD 1,200/oz, with price action otherwise subdued.

In summary: European shares remain close to intraday lows with the construction and retail sectors underperforming and tech, basic resources outperforming. Varoufakis sees differences narrowing in Greece’s creditor talks. Nikkei closes above 20,000 for first time since April 2000. Tesco reverses early gains after FY results, takes GBP7b one-off charges. A minority of Bank of England policy makers said the decision to keep interest rates at a record-low in April was “finely balanced”. The Spanish and German markets are the worst-performing larger bourses, the Dutch the best. The euro is stronger against the dollar. German 10yr bond yields fall; French yields decline. Commodities decline, with WTI crude, Brent crude underperforming and zinc outperforming. U.S. mortgage applications, FHFA house price index, existing home sales due later.

Market Wrap

  • S&P 500 futures down 0.4% to 2083.5
  • Stoxx 600 down 0.6% to 406.6
  • US 10Yr yield down 1bps to 1.89%
  • German 10Yr yield down 1bps to 0.09%
  • MSCI Asia Pacific up 0.7% to 155.1
  • Gold spot up 0.1% to $1203.9/oz
  • 14.5% of Stoxx 600 members gain, 85% decline
  • Eurostoxx 50 -0.7%, FTSE 100 -0.7%, CAC 40 -0.7%, DAX -0.9%, IBEX -1.1%, FTSEMIB -0.3%, SMI -0.2%
  • Asian stocks rise with the Shanghai Composite outperforming and the ASX underperforming.
  • MSCI Asia Pacific up 0.7% to 155.1; Nikkei 225 up 1.1%, Hang Seng up 0.3%, Kospi down 0%, Shanghai Composite up 2.4%, ASX down 0.6%, Sensex up 0.8%
  • Euro up 0.52% to $1.0792
  • Dollar Index down 0.54% to 97.48
  • Italian 10Yr yield down 3bps to 1.42%
  • Spanish 10Yr yield down 4bps to 1.41%
  • French 10Yr yield down 2bps to 0.35%
  • S&P GSCI Index down 0.4% to 424.5
  • Brent Futures down 0.6% to $61.7/bbl, WTI Futures down 0.8% to $56.2/bbl
  • LME 3m Copper down 0% to $5943/MT
  • LME 3m Nickel up 0.2% to $12700/MT
  • Wheat futures up 0.3% to 501.8 USd/bu

Bulletin Headline Summary From Bloomberg and RanSquawk

  • European equities enter the North American crossover lower in a move led by the FTSE, while concerns over Greece continue to linger
  • The latest BoE minutes were slightly more hawkish than expected, seeing GBP/USD reclaim 1.5000 and the USD lose ground to its major counterparts
  • Looking ahead, today sees the release of US existing home sales, DoE inventories and a slew of large cap earnings including Facebook, Coca Cola, AT&T, Qualcomm, Boeing and McDonalds
  • Treasuries gain within recent ranges as markets wait for Fed meeting and 2Y/5Y/7Y auction cycle next week.
  • Greece and its creditors are narrowing their differences as officials on both sides recognize that the best chance for success is an accord that leaves them all somewhat unsatisfied, Finance Minister Yanis Varoufakis said
  • Germany’s government expects the economy to expand 1.8% this year as consumers spend more, an increase over the 1.5% growth forecast in January
  • A minority of Bank of England policy makers said the decision to keep interest rates at a record low was “finely balanced” amid a risk that inflation would pick up faster than expected
  • Japanese government debt twice the size of the economy will make exiting stimulus a nightmare for central bank Governor Kuroda, according to the nation’s former top currency official
  • Weak growth in Chinese consumer and producer prices provides sufficient room for additional cuts in reserve-requirement ratios, PBOC adviser Chen Yulu says on State Council website
  • JPMorgan increased the yuan’s weighting in its foreign-exchange indexes while lowering the dollar’s, to reflect China’s surging share in global trade
  • Australia’s core consumer prices matched economists’ forecasts in the first three months of the year, providing scope for the central bank to reduce interest rates
  • OAO Gazprom was accused by the EU  of abusing its market power to raise gas prices as EU antitrust regulators escalated a probe that’s been attacked by Vladimir Putin
  • The Saudi-led coalition struck Yemen’s Houthis amid clashes between the group and forces loyal to the exiled president, hours after the kingdom said it would restrict its use of force to preventing the rebels from gaining ground
  • Sovereign bond yields mostly lower. Asian stocks gain, European stocks, U.S. equity-index futures mostly lower. Crude oil, copper lower; gold little changed


DB’s Jim Reid concludes the overnight recap


We’re kicking off in Asia this morning where equity bourses are enjoying a strong start. The Nikkei (+0.91%), Hang Seng (+0.28%), Shanghai Comp (+1.78%) and Kospi (+0.59%) are all higher as we go to print and credit markets are around a basis point tighter. The Nikkei in particular has struck a fresh record 15-year high as data in Japan shows that the economy has registered its first trade surplus since June 2012. Export growth of +8.5% yoy was in line, while imports declined more than expected (-14.5% yoy vs. -12.6% expected).

Interestingly, following on from the default of Kaisa on Monday, the Chinese power manufacturer Baoding Tianwei yesterday became the first Chinese SOE to default in the onshore bond market having failed to pay interest on a RMB bond. Up until then, only private sector companies had defaulted in the domestic market, despite the vast majority of debt being issued by SOE’s according to Bloomberg. The default raises a potentially interesting change in dynamic in credit markets in China. With the current Chinese government looking to be more willing to let market forces dictate, government support may perhaps be less of a perceived assumption for SOE’s compared to before, particularly for those in non-strategic sectors which in turn could potentially open the door to further defaults in the future.

Back to markets yesterday, with earnings season in the US now kicking into gear and a lack of data releases for markets to react to, the micro rather than the macro is providing most of the direction for now, although Oil and Greece are continuing to have their say. Indeed, yesterday saw both the S&P 500 (-0.15%) and Dow (-0.47%) close down, although the NASDAQ (+0.39%) had a better day supported by M&A news around Mylan after the company received a takeover offer from Teva.

Having initially opened nearly half a percent higher, a batch of mixed earnings reports and a decline in energy stocks in particular helped dragged US equities lower. Starting with earnings, thematically it was a case of corporates reporting better than expected profits but disappointing at the revenue line with the stronger Dollar theme a case throughout. Amongst others, yesterday we saw Dupont, United Technologies, Under Armour, Amgen and Stryker suggest that the stronger Dollar has either impacted current earnings or will negatively impact full year earnings. Looking across earnings so far for S&P 500 companies, of the 102 companies to have reported, 82 have reported better than expected EPS, however just 48 have reported better than expected sales, which is unsurprising given the stronger Dollar theme. We’ll review the day ahead at the end but with Boeing, McDonalds and Facebook due to report today, expect markets to remain focused on the earnings story.

In terms of oil, energy stocks (-1.01%) led yesterday’s declines as both WTI (-2.19%) and Brent (-2.16%) fell. With the supply story still determining much of the price action, news yesterday that Saudi Arabia is calling a halt to airstrikes against rebels in Yemen may have also played a part. According to the BBC, the month long operation to target Houthi rebels had largely failed to halt their advance and instead, a new operation focusing on a political solution and reviving talks will start. On the subject of oil, yesterday we got the US state employment data and there was some clear oil-related weakness in certain areas of the country. Texas and Oklahoma in particular were the hardest hit, losing 25k and 13k jobs respectively last month, while North Dakota lost 3k jobs – significant for a small state.

Elsewhere, there was little change in the Dollar yesterday as the DXY closed +0.06%. Treasuries were a touch weaker however, with 10y yields closing 1.9bps higher at 1.909%. In reality though 10y Treasuries have been stuck in a relatively tight range since Mid-March now, trading from 1.85%-2% having been a lot more volatile earlier in the year.

Greece continues to be the other headline generator at the moment and yesterday we heard that the ECB is looking at proposing an increase to haircuts banks take on the collateral that they post when borrowing from the Bank of Greece in a bid to tighten pressure on ELA funding. Greek press Ekathimerini reported that while the measure has not been formally discussed by the Governing Council, it may be considered should Greece’s leaders fail to convince Euro-area leaders on reforms. Meanwhile, there are various headlines suggesting that the proposed decree forcing local governments to transfer reserves to the Bank of Greece could keep the country afloat until the end of May, although pressure appears to be mounting politically with opposition from various local government officials. With Tsipras due to meet Merkel tomorrow and the Eurogroup meeting scheduled for Friday, a senior euro zone official was quoted on Reuters saying that no deadline will be set for Greece to come up with reforms as doing so leads to brinkmanship in negotiations, suggesting that the uncertainty may well drag on for a while longer. Deadline aside, the next two scheduled Eurogroup meetings this Friday and on May 11th will be the key events upcoming, while the €750m IMF repayment on May 12th is the next significant hurdle.

Despite the weakness in US equity markets, European equities had a better day yesterday as the Stoxx 600 (+0.55%), DAX (+0.40%) and CAC (+0.10%) all closed higher. Greek equities (-3.33%) were unsurprisingly the underperformer while Greek 3y yields (+118bps) continue to widen. Data was focused on the German ZEW survey which made for slightly mixed reading. Despite a 1.5pt rise in the expectations survey to 55.3 (vs. 53.3 expected), the current situation print was a notable miss to the downside (56.5 vs. 70.2 expected). Elsewhere, bond markets were a tad mixed. 10y Bund yields widened for the first time since last Monday, closing 2.6bps wider at 0.101%. In the peripherals meanwhile, similar maturity Italy (-3.1bps) and Spain (-1.4bps) bonds closed tighter. On the subject of the periphery, yesterday DB’s Abhishek Singhania published a report looking at trying to understand the recent sell off in the periphery. He notes that 10y peripheral bond yields are lower now than before the ECB announcement on 22nd January, but that the 10y spread vs. Bunds is wider for most of the periphery compared to pre-announcement. Abhishek points out that this weakness could be a reflection of a few factors. The increasing use of BTP futures as a hedge instrument could be one reason, while the rise in yield and spread volatility during sell-offs may have reduced the attractiveness of peripherals from a technical point in the SR. The supply response from the various treasuries which has resulted in increased maturity of issuance and usual front-loading of issuance in Q1 has likely also offset the positive ECB QE impact. The correlation to Greece which has picked up over the past couple of weeks also cannot be ignored, which is further detracting from the overall constructive backdrop for the periphery which should be less affected by any adverse outcome in Greece.

Looking at the day ahead, the data calendar remains relatively light with just Italian industrial orders, the Euro-area flash consumer confidence reading and the UK Bank of England minutes due out. Over in the US, data releases include March existing home sales and also the FHFA house price index print. Earnings will likely determine much of today’s price action however with 34 S&P 500 companies due to report.




If this is proven to be true, then the entire Greek banking system will vaporize:


(courtesy zero hedge)

ECB Prepares To Sacrifice Greek Banks With 50% Collateral Haircut

In what seems like a coincidental retaliation for Greece’s pivot to Russia (and following Greece’s initiation of capital controls), the supposedly independent European Central Bank has decided suddenly that – after dishing out €74 billion of emergency liquidity to the Greek National Bank to fund its banks – as The NY Times reports, the value of the collateral that Greek banks post at their own central bank to secure these loans be reduced by as much as 50%, and the haircut scould increase if negotiations with Europe remain at an impasse. As we detailed earlier, this is about as worst-case-scenario for Greece as is ‘diplomatically’ possible currently, and highlights an increasingly hard line by The ECB toward The Greeks as the move will leave banks hard-pressed to survive.

As we laid out earlier, according to Bloomberg, the ECB staff proposal lays out three options to reduce central-bank risk: “the scenarios envisage returning haircuts to the level before late last year, when the ECB eased its collateral requirements for Greece; to set them at 75 percent; or to set them at 90 percent. The latter two options could be applied if Greece is in an “orderly default” under a formal ECB program or a “disorderly default,” CNBC said, without further elaborating on those terms.

Any reduction in ELA availability would be devastating to Greece, where depositors continue to pull cash from banks accounts to the tune of several hundred million euro every week, and the central bank “seeks to match the outflow with ELA. The Bank of Greece keeps a buffer of around 3 billion euros of ELA allowance in reserve, to give it time to react to a possible bank run, one of the officials said.”


Any reduction in this buffer would lead to a self-fulfilling bank run prophecy and accelerate the deposit flight to the point where the local banks are forced to halt operations, and Greece is forced to replace the “soft” capital controls already rolled out with “hard” ones.

To restrict or veto ELA funding, which is provided at the Greek central bank’s own risk with consent from Frankfurt, a two-thirds majority of the Governing Council is necessary. A growing minority is opposed to continuing to provide the assistance indefinitely, one of the people said.

*  *  *

And so, as The NY Times reports this evening, despite no ECB governing council meeting until May 6th and the above plans, The ECB went further;

The European Central Bank is now demanding that the value of the collateral that Greek banks post at their own central bank to secure these loans be reduced by as much as 50 percent,according to people who have been briefed on these discussions but who were not authorized to discuss them publicly.

And, these people say, if the Greek government and Europe remain at an impasse on an agreement about austerity measures, these so-called haircuts could increase further.

With the value of the collateral being reduced so significantly, banks will be hard pressed to obtain the money they need to survive.

For more than three months, Greece’s largest banks have been forced to borrow short-term, higher-interest money from their central bank — a process called emergency liquidity assistance — because the E.C.B. deemed it too risky to extend credit to the banks itself.

The banks, in turn, have to provide adequate collateral to obtain these loans, which now stand at 74 billion euros, $79.7 billion, or more than half the amount of Greek domestic deposits.

But with deposits fleeing the banking system and with nonperforming loans – which had stabilized before the radical Syriza government came to power early this year — increasing again, it has been difficult for Greek banks to come up with acceptable assets to underpin borrowing.

Controversially, Greek banks have even begun to issue bonds to themselves and, after securing a government guarantee, have used the securities to secure short-term financing — a practice that was excoriated by Yanis Varoufakis before he became the Greek finance minister.

Which means one thing only…

These haircuts exceed those imposed on Greek banks in June 2012, when emergency loans had soared to €125 billion on worries that Greece would be forced to leave the eurozone. As The NY Times explains, The ECB won’t be fooled again…

Under E.C.B. rules, the central bank of Greece assumes full responsibility for the credit risk when it issues these emergency loans.

But the E.C.B. carefully monitors them, setting limits and scrutinizing the collateral.

During the Cyprus crisis, Jens Weidmann, the powerful German member of the E.C.B.’s governing council, bluntly criticized the head of the Cyprus central bank for inflating the value of collateral to allow desperate Cypriot banks to borrow more money.

By requiring such large discounts, the E.C.B. is making sure that the same thing does not happen in Greece.

*  *  *
The bottom line – it’s over! Absent Russian ‘loans’ or Chinese infrastructure deals, the “Cyprus”-ing will begin shortly which perhaps Greek depositors will front-run better than the Cypriots.




Then late this afternoon: The ECB increase the ELA by 1.5 billion euros as more  depositors flee Greek banks. The key question now is the quality of collateral supplied by the Greek banks to the Bank of Greece.

(courtesy Bloomberg)

Greek Banks Win More Emergency Cash as Talks Loom

The European Central Bank almost doubled an increase in emergency funding to Greek banks from last week before political talks shift to Brussels and Latvia over the country’s bailout review.

The European Central Bank’s Governing Council raised the cap on Emergency Liquidity Assistance by about 1.5 billion euros ($1.6 billion) to 75.5 billion euros on Wednesday, people familiar with the decision said. ELA is funding provided by national central banks at their own risk and is extended against lower-quality collateral than the ECB accepts.

“The ceiling increase shows that deposit outflows from Greek lenders continue,” said Andreas Koutras, an analyst at In Touch Capital Markets Ltd. in London. “The question now is when will the collateral against ELA be exhausted — in other words how much time is left?”

Euro-area finance ministers will meet in Riga, Latvia, on Friday in their latest attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel are due to meet on the sidelines of a European Union immigration summit in Brussels on Thursday, according to a Greek government official.

Greek stocks and bonds rose Wednesday after Finance Minister Yanis Varoufakis saw a “convergence” of views and ECB Executive Board member Benoit Coeure said progress was being made.

‘Tangible Progress’

“In recent days, there has been tangible progress in the quality of the discussions,” Coeure said in an interview with the Athens-based newspaper Kathimerini. “Significant differences on substance remain.”

There are signs Greece’s creditors are curbing demands for far-reaching reforms as part of current talks, focusing on a number of key actions instead, Medley Global Advisors said in a client report on Wednesday. The softening stance comes on condition Greece stays co-operative on fiscal targets, according to Medley.

The Athens Stock Exchange General Index rose about 2 percent at the close on Wednesday, led higher by a 13 percent jump in the FTSE/Athex Banks Index. Greek bonds also rose, pushing the three-year yield down 196 basis points, or 1.96 percentage point, to 27.62 percent.

Merkel Insistence

Merkel signaled on Wednesday that she won’t back off on Germany’s insistence on “reforms in combination with solid finances” in the euro area. Germany “will continue to call for this course of action, even though we sometimes face considerable pressure internationally,” she said at an event in Berlin, without mentioning Greece.

Earlier this week, Tsipras ordered local governments to move their funds to the central bank. The move will help him meet end-of-month salary and pension payments, though it will also further drain commercial banks of their deposits.

“If it can’t go on like this, it won’t,” said Holger Schmieding, chief economist at Berenberg Bank in London, who sees a 30 percent chance Greece will default and exit the euro. Tsipras should “make the right choice -– and better do it fast,” he said.

Greek lenders have a buffer of 2.9 billion euros in cash after the increase in ELA, one of the people said. Weekly ELA injections are intended to match deposit outflows, and liquidity buffers are kept at about 3 billion euros to give the Bank of Greece and the ECB time to react in an emergency. An ECB spokesman declined to comment.

Collateral Rules

Euro-area finance ministry officials expressed doubts during a Wednesday call about whether Greece’s incremental progress would be enough to unlock emergency loans, according to two people familiar with the matter. Greece’s refusal to privatize state assets, change its pension system and deregulate the labor market were the main stumbling blocs, one of the people said.

The persons asked not to be identified because the content of Euro Working Group discussions isn’t public.

The ECB is studying measures to rein in ELA funding to reduce the risks should political talks falter, according to people with knowledge of the matter. Staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece. Adjustments to the so-called haircuts haven’t yet been formally discussed by the Governing Council.

Varoufakis told reporters late on Tuesday that the Latvian meeting is probably too soon to seal an agreement. The best chance for success is an accord that leaves all parties somewhat unsatisfied, as a failure would be “catastrophic,” he said in Athens.

The anti-austerity coalition government has repeatedly expressed confidence that a deal to unlock bailout payments was imminent, only to be refuted by euro-area officials seeking concrete steps.




Copper Crash Continues – Hits 1-Month Lows

Copper prices are now down almost 6% from the top 2 days ago on China’s RRR cut. As 266.40, this is the lowest price for the perhaps-economically-sensitive commodity in over a month. Not exactly the picture of ‘stimulus’ the PBOC was hoping for…

5 week lows for copper…

Close up, not pretty…

Charts: bloomberg




Yesterday, Saudi Arabia announced an end to Operation Decisive Storm where bombing had ended.  Well that decision did not last long!!

(courtesy zero hedge)


Mission Dis-Accomplished? Saudis Resume Bombing Yemen

Less than 24 hours after Yemen announced an end to Operation Decisive Storm and its airstrikes on Yemen – in hopes of initiating Operation New Hope aimed at resuming a political process – The NY Times reports,warplanes from a Saudi-led military coalition conducted airstrikes in the southwestern Yemeni city of Taiz on Wednesday. Mission Dis-accomplished or Operation ‘Empire Strikes Back’?

As NY Times reports,

Warplanes from a Saudi-led military coalition conducted airstrikes in the southwestern Yemeni city of Taiz on Wednesday, hours after Saudi officials had announced they were halting their nearly monthlong bombing campaign against the Houthi rebel movement.

The warplanes bombed Houthi positions during heavy clashes in Taiz on Wednesday morning, according to a local official in the city. The new airstrikes, combined with reports of continued fighting in other parts of the country, including the southern port city of Aden, dampened hopes that the Saudi announcement would quickly result in a broader cease-fire.

A Yemeni man checked a house in Sana after a bombing that killed at least 25 people.Sana has been bombed almost daily for more than three weeks, damaging factories, gas stations and residential neighborhoods.

The warplanes struck the Houthis in the morning. “There are many deaths on both sides,” Mr. Haj said.

In Aden, where weeks of urban warfare have destroyed neighborhoods and killed hundreds of people, there were exchanges of tank fire between the Houthis and their adversaries, mainly local fighters who favor an independent, southern state, residents said.

“The Houthis are still bombing and still sniping people,” said one local fighter. “They have not started moving away from Aden.”

In a statement quoted by Reuters, former President Ali Abdullah Saleh, an ally of the Houthis, had welcomed the Saudis’ announcement of a halt to bombing.

“We hope that everybody will return to dialogue to solve and treat all the issues,” the news agency quoted him as saying.

*  *  *

The bombing will continue until morale improves… or there’s nothing left to bomb like in Donetsk.




Today, it is API’s turn to report and again we see inventories rise for the 15th straight week even though production drops. Cushing OK storage rose again but a slower pace.  Remember zero hedge’s commentary that by June, Cushing Oklahoma will run out of storage space.


(courtesy zero hedge)


Crude Inventories Rise For Record 15th Straight Week, Production Drops

DOE Inventory data confirmed API data overnight with a 5.3mm bbl build (notably better than expectations of 3.2mm and significantly higher than last week’s 1.29mm build). Cushing saw a build that was the 2nd lowest since November 2014 (even though at +738k the build was well above expectations of +550k). Crude prices appear to jumping higher on the fact that production was a 2nd consecutive production cut (albeit very modest) even though we have seen such short-term drops before (and it was only Alaska that saw a drop -3.4% – lower 48 was flat 0.0%).

Inventories rose more than expected…


But production fell modestly for the 2nd week in a row…


Driven only by Alaska… lower 48 was flat…


Which appears to be the catalyst for the pump in crude…




Your more important currency crosses early Wednesday morning:


Euro/USA 1.0781 up .0042

USA/JAPAN YEN 119.43 down .226

GBP/USA 1.5037 up .0109

USA/CAN 1.2225 down .0045

This morning in Europe, the Euro rose again by 42 basis points, trading now well above the 1.07  level at 1.0781; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, crumbling bourses  and the ramifications of a default at the Austrian Hypo bank, 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 up again in Japan by 23 basis points and trading well below the 120 level to 119.43 yen to the dollar.

The pound was well up this morning as it now trades well above the 1.50 level at 1.5037  ( still 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 up by 45 basis points at 1.2225 to the dollar

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). Swiss franc is now 1.0280 to the Euro, trading well above the floor 1.05.  This will continue to create havoc with the 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: Tuesday morning : up by 224.81  points or 1.13%

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

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

Gold very early morning trading: $1203.30



Early Wednesday morning USA 10 year bond yield: 1.89% !!!  down 1  in basis points from Monday night/

USA dollar index early Wednesday morning: 97.53 down 46 cents from Monday’s close. (Resistance will be at a DXY of 100)


This ends the early morning numbers, Wednesday morning


And now for your closing numbers for Wednesday:


Closing Portuguese 10 year bond yield: 2.01% down 9 in basis points from Tuesday


Closing Japanese 10 year bond yield: .31% !!! down 1 in basis points from Tuesday


Your closing Spanish 10 year government bond,  Tuesday, down 8 in basis points in yield from Tuesday night.


Spanish 10 year bond yield: 1.37% !!!!!!


Your Wednesday closing Italian 10 year bond yield: 1.39% down 6  in basis points from Tuesday:

trading 2 basis points above Spain.





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


Euro/USA: 1.0724 down .0014  ( Euro down 14 basis points)

USA/Japan: 119.92 up .269  ( yen down 27 basis points)

Great Britain/USA: 1.5035 up .0105   (Pound up 105 basis points)

USA/Canada: 1.2230 down .0041 (Can dollar up 41 basis points)


The euro fell again stopping any further gains even though the uSA dollar fell against most other currencies today.   It settled down 14 basis points against the euro to 1.0733. The yen was down 27 basis points points and closing well above the 119 cross at 119.92. The British pound gained considerable  ground today, 105 basis points, closing at 1.5035. The Canadian dollar gained a lot of ground to the USA dollar, up 41 basis points closing at 1.2230.

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





Your closing 10 yr USA bond yield: 1.98% up 7 in basis points from Tuesday



Your closing USA dollar index:

98.04 up 5 cents on the day.


European and Dow Jones stock index closes:


England FTSE down 34.69 or 0.49%

Paris CAC up 18.45 or 0.36%

German Dax down 72.21 or 0.60%

Spain’s Ibex down 23.10 or 0.20%

Italian FTSE-MIM up 75.14 or 0.32%


The Dow: up 88.68 or 0.49%

Nasdaq; up 20.80 or 0.41%


OIL: WTI 56.26 !!!!!!!

Brent: 62.86!!!!


Closing USA/Russian rouble cross: 52.16 up 1 1/4 rouble per dollar






And now your important USA stories:


NYSE trading for today.

Dow Swings 750 Points In SloMo Meltup; Bonds, Bullion Battered

Fears over ECB crackdowns on Greek banks started the turmoiling. Denials carried it on, then good housing data was bad news until it was good news… With moar HFT algos driving today’s manic volatility (and Sarao in court), we thought this apropos…


Dow Futures swung over 750 points intraday…


And futures show the volatility was widespread…


But cash indices all closed higher, led by Trannies (small caps lagged) – Mission Accomplished: NKY > 20,000; Dow >18,00; Nasdaq > 5,000; and S&P > 2,100


On the week that leaves Trannies in charge and small caps lagging…


Notice we reversed lower towards the close as S&P Futs tagged yesterday’s openiung highs – just another stop run!


Everything today appeared to pivot around the Housing data…


Treasuries were clubbed like baby seals… leaving 30Y yield up 14.5bps on the week (8.5bps today) in a major steepening post housing data. 10Y Yields hit 1.99%

Worst day for the long-bond in 7 weeks pushed yields to 5-week highs.

3rd day in a row that Treasuries have been sold in the US session


The Dollar ended the day very modestly higher thanks to USD buying duringh the US session (which is unusual)…Swissy was baumgartnered…


Despite the dollar’s quietness, commodities all lost ground with gold and silver monkey-hammered… and copper continuing its slide (and hitting contango)


Crude prices spiked on the smallest of production cuts but then humans realized that in fact it was Alaska that had cut.. and prcies tumbled back to red on the day…


But that didn’t stop energy stocks from rallying to new high valuations…


Charts: Bloomberg



Yesterday we brought you the story of the arrest of a UK Flash trader. Many (except of course the poor guy who got arrested) thought that this was quite humourous given the fact that this goes on day after day in USA and foreign markets. Today the UK flash crasher refuses to be a scapegoat and will fight extradition.


(courtesy zero hedge)


(courtesy zero hedge)

is responsible for the May 2010 flash crash.

The implication being that the perpetrator has been caught and now confidence in broken markets can be restored, however what the CFTC has in effect done is further undermine faith in a market, which apparently is so defenseless it has absolutely no countermeasures to the simplest of predatory trading strategies, namely spoofing: spoofing which takes place millions of times every single day across all global markets (as we showed back in 2013 in Watch The Banned HFT Spoofing Algo In Action).

The CFTC’s inadvertent humor, however, is no laughing matter to the person implicated in the latest despeate attempt to scapegoat a non-US institution for the flash crash (just ahead of the statue of limitations running out no less): not only is Navinder Singh Sarao, a British national, facing decades in prison in the worst case as reported earlier, but moments ago he had to pay a massive 5 million pound bail to stay out of jail for the duration of his case: an amount that is usually reserved for Class A felons, those who have caused grievous bodily injury and suffering, or worse, instead of merely a BTFD opportunity.

Curiously, there have been precious few actual glimpses of the infamous flash crash mastermind who has seemingly kept a very low public profile, but moments ago the first sketch emerged of him during his court appearance.

As the NYT reports, “appearing in court in London dressed in a canary yellow sweatshirt and white track suit pants, the trader, Navinder Singh Sarao, a British national, sat behind a glass wall looking dazed by the proceedings around him.” We, too would be dazed by the stupidity of the CFTC, if faced with the same ridiculous charge.

His defense lawyer, Joel Smith, said that the arrest had come as a “bolt out of the blue” and that he had struggled to connect with any of his client’s family or friends. He eventually contacted Mr. Sarao’s father, but said he could not deduce much from the patchy conversation. Mr. Sarao lives with his parents and down the road from his brother. He was born and educated in Britain and attended Brunel University London.

The NYT also adds that “Mr. Sarao appeared to lack the bravado woven through the criminal complaint. At one point, Mr. Sarao told his broker that when the Chicago Mercantile Exchange contacted him to inquire into his suspicious orders, he told them to “kiss my ass.” He is alleged to have made $40 million in profits.”

This is the sketch:

And moments ago, the Telegraph ran the first actual photo of the “criminal mastermind.”

More from the Telegraph:

A former school friend, who asked not to be named told The Telegraph: “Navinder was really bright and was in the top set for all his subjects. He was a bit of a cheeky chap but was popular.

“He was a bit of a geek but was funny also. He studied Maths and Science at A’Level. He was a bit of a prankster but never got caught.”

In his school year book his teacher wrote that he was still late almost every day.

Mr Sarao is the youngest of three sons. Raj, the oldest, lives with his wife and two children opposite his parents.

Anil Puri, 41, who works in web design, grew up round the corner from Navinder and went to primary school with him and his brothers. He said “We used to play football, badminton and athletics in the street when we were young. There were no computers in those days.

“He (Navinder) was very bright, a loud, chirpy chap, a friendly guy. He was the youngest of the three but he was the most confident. His nickname was Brooks but I can’t remember where that came from. “He was definitely an ambitious guy, definitely clued up, street wise.”

Mahmood Atif, 36, who lives down the road from Mr Sarao’s parents said: “They are a nice family. The family will be upset. It’s a shock.” Brinder Bedi, 39, another schoolfriend, said: “They were very close, all the boys. They all used to wear their football gear. Nav was sporty, he seemed to be a normal kid.”

A man believed to be Mr Sarao’s 67-year-old father Nachhattar Singh Sarao, arrived in a cab at the family home wearing a Nike baseball cap and sunglasses. He would only say: “This is private property. Get out.”

So with the Sarao “flash crash” mystery solved, we eagerly look forward to the CFTC exposing the daytrading teenager operating out of a hut in Thailand who was responsible for the October 15, 2014 Treasury flash crash, followed promptly by the Russian grandma in Vladivostok whose trigger happy FXat finger resulted to the US Dollar flash crash from March 18.

Because clearly without “confidence” that the market is fixed, no self-respecting retail investor will buy everything that hedge funds, prop desks, and ultimately central banks are so desperate to sell at these all time high prices.



Zero hedge sends this letter to the CFTC:

(courtesy zero hedge)

Dear CFTC: This Is The Market Manipulating “Spoofing” Taking Place In The E-Mini Just Today

Dear CFTC:

Thank you!

Thank you, because 6 years after we warned about the dangers from predatory HFT including such parasitic “strategies” as spoofing (or layering, which together with the DOJ you have now confirmed is illegal), quote stuffing, flash trades, momentum ignition, sub-pennying, ISOs, and countless others, you have confirmed everything we have said.

So we have decided to return the favor.

Just because we know how serious you are in your quest to root out all market rigging, or as you put it in your charge against Navinder Sarao “manipulation or attempt to manipulate the price of the intra-day contract price for the near month of the E-mini S&P,” we have decided together with Nanex to once again give you a helping hand, and point out all the spoofing that has taken place in the E-mini or ES.

Just today.

The chart below shows a contract count of just the buy orders added/canceled/executed in the 1 hour interval between 11 and 12pm in the ES:

To remind you, this is what irritated you in the Sarao document:

… Defendants used the Layering Algorithm to place hundreds of orders for tens of thousands of contracts that were modified thousands of times and eventually canceled over 99% without ever resulting in a trade.

As you can see the vast, vast majority of ES contracts just before lunch today was cancelled without ever resulting in a single trade.

And, we are confident, since Mr. Sarao is currently either in custody or on bail, without access to the internet, one can’t blame today’s massive E-mini spoofing on the flash crashing mastermind.

Since we are confident you intend to root out this evil market scourge at the root, we are also providing you with examples of spoofing in oil, in US Treasurys, and in gold.

Finally, since like you we are confident the investing public’s faith in the broken market must be restored at all costs, we will make this article into a daily feature showing every single day the hundreds of thousands of spoofed ES contracts, openly “manipulating” (in your own words), the so-called market.

We will stop once you, dear CFTC, have rooted out all the spoofing, all the momentum ignition, all the sub-pennying, all the quote stuffing. In short – the endless manipulation.

Now, go get ’em!

P.S. if you are unsure who the spoofer is, call us – we will be delighted to tell you: we don’t even want the whistleblower award.




And now Mark Spitznagel responds to the CFTC on the arrest and on the real culprit of the May 2010 flash crash

(courtesy Mark Spitznagel/zero hedge)


Exposed: The Real Market Manipulator Behind The Flash Crash

Having been among the first scapegoats fingered for causing the May 2010 Flash Crash, Universa’s Mark Spitznagel has some harsh words for the latest farce that the regulators are trying to pull (telling CNBC):

The Federal Reserve remains the largest market manipulator ever, and the desperate yield-chasing, hair-trigger markets that it created were the primary cause of that crash and the inevitable ones yet to come.

While the CFTC head says the delay in finding Sarao is because “it takes a long time to put this together,” it just makes him seem even more of a Luddite… and as Spitznagel wrote previously, “To find the real source of the system’s excessive fragility, the regulators will need to look much closer to home.”

Via The Wall Street Journal,

Regulators have been busy searching for the cause of the May 6 “flash crash” when the market dropped by 9.3% and then recovered within minutes. I think it’s a good bet no cause will be found; there is still no consensus on what triggered the one-day 20% stock market crash of 1987. But even if there was no trigger, market conditions created by the Federal Reserve’s easy money policy definitely made the crash more likely.

The market is a critical system. To illustrate, let’s consider another fragile system: the earth’s crust. Imagine geologists scouring through the debris of a big earthquake in search of its trigger—as in, “Let’s investigate anyone jack hammering in the minutes leading up to the quake.” It is intuitively obvious that earthquakes don’t have identifiable triggers. We know that big earthquakes, which happen very rarely, are nothing more than many little earthquakes piled on top of each other due to stresses built up within intricate networks of faults.These little fissures cascade into enormous ruptures. The more correlated the fissures, the more delicate the system.

Back to markets. Think of every investor holding a risky position. Then think of all of these investors together in a big herd. Each member of the herd focuses on what the others will do next, since the only reason anyone takes a position is because others are initiating like-minded ones.

When imitative behavior starts happening in markets en masse, expect funny things to happen to liquidity. All you need to know about market dynamics—as I learned as a Chicago pit trader—is that market prices always adjust to the level where market-makers see balanced two-way order flow between buyers and sellers. All market-makers want to do is buy at the bid price, sell at the offer price, and at the end of the day go home unscathed. When there are only buy orders, for instance, expect market-makers to be unwilling to sell to those buyers until the price has adjusted to the point where they see roughly equal buyers and sellers again. To expect them to do anything else is to imagine them as charities.

So when you combine imitative behavior with noncharitable market-makers, there will be seismic waves from time to time. What makes our current system particularly prone to global ruptures is that hair-trigger traders have crowded into exceedingly risky bets. Why would that be, with the crash of 2008 so fresh in traders’ minds?

This type of alignment among investors in risky positions is precisely what the central economic planners at the Federal Reserve intended when, in response to the historic credit collapse, they commanded interest rates to zero and signaled that they would prop up all risky assets.

The profitability of an investment is simply its return on capital beyond the cost of that capital. It is against this spread that investors must assess risk. So when the Fed distorted the cost of capital following the 2008 collapse by lowering it for many by roughly 2% (to about 0% for banks), it had the same effect as the 2% higher aggregate dividend yield for stocks or higher credit spreads for investment grade bonds. Suddenly what was toxic looked cheap.

The Fed lured everyone to buy everything and anything that was risky—and did so itself with outright purchases of risky assets like mortgage-backed bonds. Anyone eager for easy profits fell right in line, bidding up dangerous assets like clockwork. Sensing safety in numbers, the herd quickly followed, and in no time the market had consumed the Fed’s gifted 2% profit spread and then some.

All in all, it seemed like an impressively engineered recovery. In reality, it was an ephemeral illusion caused by distorting investors’ assessment of risk.Despite what zero interest rates were signaling, savers flush with cash weren’t flooding the capital markets and credit wasn’t expanding.

The Fed has managed to align every little market fault right with each other such that they all succumb to the very same stresses at the very same time. Meanwhile—no surprise—the world remains a very seismically active place. What’s extraordinary is that the Fed continues this intentional deception about the real cost of credit, even as we’ve repeatedly witnessed the consequences of this policy.

Left alone, the market works naturally, with waves of buy-order ruptures and waves of sell-order ruptures. Sometimes mini-ruptures coincide to form much larger ones, such as on May 6. But searching for a discrete trigger for such events is futile. To find the real source of the system’s excessive fragility, the regulators will need to look much closer to home.



McDonald’s is such a good Bellwether on the global economy.  It reported disturbing results today

(courtesy zero hedge)



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