May 13/Poor retail USA sales sends gold and silver northbound/Atlanta Fed cuts 2nd Quarter GDP down to only .7%/Greece heading to a Plan B/Spain’s economy now mirrors the USA in the growth of part timers/China rattles the USA/Bill Holter again addresses the huge rise in yields on sovereign bonds (bunds)/

Good evening Ladies and Gentlemen:

 

 

Here are the following closes for gold and silver today:

Gold:  $1218.40 up $25.80 (comex closing time)

Silver $17.21 up 70 cents (comex closing time)

 

In the access market 5:15 pm

Gold $1214.85

Silver: $17.12

 

 

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

The bankers rarely allow gold to rise after a big day.  So expect the crooks to contain gold and silver tomorrow.

 

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

 

At the gold comex today, we had a poor delivery day, registering 1 notice serviced for 100 oz.  Silver comex filed with 5 notices for 25,000 oz

 

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 242.14 tonnes for a loss of 61 tonnes over that period. Looks to me like the comex is bleeding profusely!!

 

In silver, the open interest fell by 2171 contracts despite the fact that Tuesday’s silver price was up by 21 cents  The total silver OI continues to remain extremely high with today’s reading at 174,919 contracts maintaining itself near multi-year highs 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.

 

In silver we had 5 notices served upon for 25,000 oz.

 

In gold,  the total comex gold OI rests tonight at 405,612 for a gain of 4,132 contracts as gold was up by $9.40 yesterday. We had 1 notice served upon for 100 oz.

 

Today, we had no changes in  gold Inventory, at the GLD.  It rests tonight at 728.32  tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Yesterday Koos Jansen informed me that last week 38 tonnes of gold was demanded by Chinese citizenry (equals withdrawals from SGE). This demand is for one week.

 

In silver, /   no changes with respect to silver inventory at the SLV/ and thus the inventory tonight remains at 322.662 million oz

 

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

 

1. Today we had the open interest in silver fall by 2177  contracts as  silver was up in price yesterday by 21 cents.  The OI for gold rose by 4132 contracts up to 405,612 contracts as the price of gold was up  by $9.40 yesterday. GLD had no change and SLV, no changes  with respect to the inventory levels.

(report Harvey)

2,Today we had 3 major commentaries on Greece today:

(zero hedge/ Raul Meijer)

 3.  Bill Holter further provides commentary on the huge rise in yields from sovereign bonds and how this is blowing up our major underwriting banks who engaged in these massive derivatives.

(Bill Holter)

4. Spain’s economic recovery is just not there.  They learned from the USA as all of their gains in employment has come from part timers

(zero hedge)

5. Goldcore discusses the huge Ted Butler paper released yesterday

/(Goldcore)

6. Yesterday we reported that  USA may use military in its confrontation with China in the South China sea.  Today China responded in very unfriendly terms.

(zero hedge)

7. The city of Chicago has reduced to junk status by the rating agencies as soon as they lost a supreme court decision that they could not change pension benefits already promised. They will no doubt head towards bankruptcy like Detroit but it will be worse.

(zero hedge)

8. The big story of the day which propelled gold/silver northbound:  retail sales were totally flat, ie. no gain even though they expected a .2% rise. The consumer is 70% of GDP and that was enough to send our precious metals up.

9. The Atlanta Fed reported that they now expect second quarter GDP to rise only to .7% instead of .8%.  As soon as June rolls around, this will probably fall into the negative category just like Q1 GDP

(Atlanta Fed, 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 rose by 4132 contracts from 401,480 up to 405,612, as  gold was up by $9.40 yesterday (at the comex close).  We are in our next non active delivery month of May and here the OI fell by 1 contract falling to 148. We had 1 notice filed upon yesterday.  Thus we neither lost nor gained any  gold contract standing for gold in May. The next big active delivery contract month is June and here the OI fell by 9,544 contracts down to 198,488. 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 118,543. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day) was fair at 171,513 contracts. Today we had 1 notice filed for 100 oz.

 

And now for the wild silver comex results.  Silver OI fell by 2,177 contracts from 177,096 down to 174,919 despite the fact that the price of silver was up  in price by 21 cents, with respect to yesterday’s trading. We must have had considerable short covering yesterday. We are into the active delivery month of May where the OI fell by 165 contracts down to 409. We had 166 contracts filed upon with respect yesterday’s trading.  So we gained 1 contract or an additional 5,000 oz will stand for delivery in this May delivery month. The estimated volume today was extremely good at 41,032 contracts (just comex sales during regular business hours. The confirmed volume on yesterday (regular plus access market) came in at 44,129 contracts which is also good  in volume. We had 5 notices filed for 25,000 oz today.

 

May initial standings

May 13.2015

Gold

Ounces

Withdrawals from Dealers Inventory in oz    nil
Withdrawals from Customer Inventory in oz  16,170.34 oz Scotia
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 2,101.45 oz (Scotia, HSBC)
No of oz served (contracts) today 1 contracts (100 oz)
No of oz to be served (notices)  147 contracts(14,700) oz
Total monthly oz gold served (contracts) so far this month 3 contracts(300 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month 164,151.8 oz
Total accumulative withdrawal of gold from the Customer inventory this month  52,539.9 oz

 

Today, we had 0 dealer transactions

 

 

total Dealer withdrawals: nil oz

 

we had 0 dealer deposit

total dealer deposit: nil oz
we had 1 customer withdrawal

 

i) Out of Scotia; 16,170.34 oz

 

 

total customer withdrawal: 16,170.34  oz

 

We had 2 customer deposits:

i) Into HSBC: 2,000.000  oz ?????

ii) Into Scotia: 101.45 oz

total customer deposit: 2101.45  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 1 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account

To calculate the total number of gold ounces standing for the May contract month, we take the total number of notices filed so far for the month (3) x 100 oz  or 100 oz , to which we add the difference between the open interest for the front month of May (148) and the number of notices served upon today (1) x 100 oz equals the number of ounces standing.

 

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

 

No of notices served so far (3) x 100 oz  or ounces + {OI for the front month (148) – the number of  notices served upon today (1) x 100 oz which equals 15,000 oz standing so far in this month of May. (.466 tonnes of gold)

we neither lost nor gained any gold ounces standing for delivery.

 

Total dealer inventory: 372,738.572 or 11.59 tonnes

Total gold inventory (dealer and customer) = 7,784,927.15. (242.14) tonnes)

Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 242.14 tonnes for a loss of 61 tonnes over that period. Lately the removals  have been rising!

 

end

 

 

And now for silver

 

May silver initial standings

May 13 2015:

Silver

Ounces

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 38,356.306 oz (Brinks, Scotia)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory  nil
No of oz served (contracts) 5 contracts  (25,000 oz)
No of oz to be served (notices) 404 contracts (2,020,000 oz)
Total monthly oz silver served (contracts) 2501 contracts (12,505,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month  126,359.680 oz
Total accumulative withdrawal  of silver from the Customer inventory this month 2,891,423.9  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 0 customer deposits:

total customer deposits;  nil oz

 

We had 2 customer withdrawals:

 

 

i) Out of Scotia:  30,015.56 oz

ii) Out of CNT:  8,340.74 oz

 

total withdrawals;  38,356.306 oz

 

we had 0 adjustment

 

Total dealer inventory: 60.117 million oz

Total of all silver inventory (dealer and customer) 177.685 million oz

 

The total number of notices filed today is represented by 5 contracts for 25,000 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 (2501) x 5,000 oz  = 12,505,000 oz to which we add the difference between the open interest for the front month of April (409) and the number of notices served upon today (5) x 5000 oz equals the number of ounces standing.

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

2501 (notices served so far) + { OI for front month of April (409) -number of notices served upon today (5} x 5000 oz = 14,525,000 oz of silver standing for the May contract month.

we gained 1 contract or an additional 5,000 oz will  stand for delivery.

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

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

 

end

 

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:

 

May 13.2015: no change in inventory at the GLD/Inventory rests at 728.32 tonnes

May 12/no change in inventory at the GLD/inventory rests at 728.32 tonnes

May 11/ no changes at the GLD/Inventory rests at 728.32 tonnes

May 8/ they should call in the Serious Fraud squad as the owners of the GLD just saw 13.43 tonnes of gold leave its vaults heading for China:

Inventory tonight:  728.32 tonnes

May 7. no change in gold inventory at the GLD/741.75 tonnes

May 6/no change in gold inventory at the GLD/741.75 tonnes

may 5/no change in gold inventory at the GLD/741.75 tonnes

may 4/no change in gold inventory at the GLD./741.75 tonnes

May 1/ we had a huge addition of 2.69 tonnes of gold into the GLD/Inventory rests tonight at 741.75 tonnes

April 30/ no change in gold inventory/739.06 tonnes of gold at the GLD

April 29/no change in gold inventory/739.06 tonnes of gold at the GLD

 

 

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).

 

May 13 GLD : 728.32  tonnes.

 

end

 

And now for silver (SLV)

May 13.2015: no changes at the SLV/Inventory rests at 322.662 million oz

May 12/no changes at the SLV/Inventory rests at 322.662 million oz

May 11/no changes at the SLV/Inventory rest at 322.662 million oz

May 8/ today we lost a huge 2.87 million oz of silver from the SLV/Inventory 322.662

 

May 7/no change in silver inventory/325.53 million oz

May 6/we had a huge withdrawal of 2.143 million oz of silver from the SLV/325.53 million oz

May 5/no change in silver inventory at the SLV/327.673 million oz

May 4/ no change in silver inventory at the SLV/327.673 million oz

May 1/no change in silver inventory at the SLV/327.673 million oz

April 30/no change in silver inventory at the SLV/327.673 million oz

April 29/ we lost 2.963 million oz of silver inventory from the SLV/inventory tonight 327.673 million oz

 

 

May 13/2015  no changes at the SLV / inventory rests at 322.662 million oz

 

end

 

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 6.6% percent to NAV in usa funds and Negative 6.6% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.3%

Percentage of fund in silver:38.3%

cash .4%

( May 13/2015)

2. Sprott silver fund (PSLV): Premium to NAV falls to-0.63%!!!!! NAV (May 13/2015)

3. Sprott gold fund (PHYS): premium to NAV rises to -.28% to NAV(May 12/2015

Note: Sprott silver trust back  into negative territory at -0.63%.

Sprott physical gold trust is back into negative territory at -.28%

Central fund of Canada’s is still in jail.

 

end

 

Early morning trading from Asia and Europe last night:

 

Gold and silver trading from Europe overnight/and important physical

stories

 

(courtesy Mark O’Byrne/Goldcore)

 

This was brought to your attention yesterday.  Goldcore’s Mark O’Byrne also thought it worthy:

 

Ted Butler: The Biggest Silver Haul In History

 

As I’ve mention previously JPMorgan is still stopping (taking) silver deliveries in its own house account. In the May COMEX futures contract, they’ve taken over three million ounces so far. It still looks like JPM will take another million ounces or so before the delivery period is over. This is in addition to the 7.5 million ounces the bank took in the March delivery period.

Another standout development in recent weeks has been the withdrawal of 5 million ounces from the big silver ETF, SLV. This large withdrawal would appear to be a big buyer converting shares into metal for the purpose of acquiring physical silver and avoiding the 5% ownership reporting requirement. I believe this is the work of JPMorgan and represents the mechanism by which the bank has amassed the bulk of the 350 million ounces I claim it has acquired over the past four years.

The U.S. Mint sold 783,500 Silver Eagles in just two days after going 4 or 5 days with no sales. Then the Mint reported a scant 50,000 additional coins sold over the next two days. This is precisely the erratic level of sales that indicates the presence of a big buyer. I can’t certify that the big buyer is JPMorgan, but everything I look at points to them.

The Canadian Royal Mint reported sales last week its 2014 sales of Silver Maple Leafs and the same pattern that has characterized the U.S. Mint was clearly revealed. Sales of silver coins hit a new record, with more than 29 million Silver Maple Leafs sold. The big buyer of Silver Eagles has also been accumulating Silver Maple Leafs. Over the past four years the big buyer has bought, at least 30 million ounces of Canadian Maple Leafs and 75 million U.S. Silver Eagles totaling more than 100 million ounces of silver in bullion coin sales alone. I’m convinced JPMorgan is the big buyer.

How in the world can JPMorgan eventually sell hundreds of millions of ounces of silver without flooding the market and causing prices to crash? This is what JPMorgan does as a regular part of their business – accumulate and then liquidate massive market positions before most people get out of bed every morning. It is second nature to them. In my opinion, this silver will be sold before most people realize they bought it in the first place. Buying 350 million ounces of silver was the hard part, selling it will be a snap.

The big buyer is exploiting a loophole in the law that requires the Mint to produce to whatever the demand might be. So JPMorgan artificially depresses prices via short sales on the COMEX and then requests that the US Mint sell it all the Silver Eagles it can produce. It doesn’t care if it is paying $2 over the spot price, JPM wants all the silver it can get its hands on. But what about selling the coins I claim JPMorgan has acquired? The coins will not be sold as coins, but melted into 1,000 ounces bars. In fact, some of the 100 million+ ounces of coins may have already been melted and cast into good delivery bars. Considering that the coins are the same purity as 1,000 ounces bars, melting is a simple and a low cost process.

At the end of 2007, when the price of silver was less than $15, but close to the highest price it had been in 25 years Bear Stearns, assumed the role of the biggest silver and gold short when these positions were transferred from AIG. From the end of 2007 to March 2008, the price of silver rose to $21 and gold rose from $800 to $1,000. Based upon the size of the short positions that Bear Stearns held the investment bank had to come up with more than $2 billion in margin money. Bear was unable to do so and the U.S. Government arranged for JPMorgan to take over Bear Stearns and its massive COMEX short positions in silver and gold.

With the cooperation from the federal government, JPMorgan was able to turn silver (and gold) prices sharply lower into year end 2008 and made well over one billion dollars as a result of falling metals prices. Thus, they were able to greatly reduce the short positions inherited from Bear Stearns. JPMorgan then repeated the process of selling short great additional quantities of COMEX short contracts on metals price rallies buying back those short positions when prices fell. JPMorgan’s profits from the short side of COMEX silver and gold, amounted to hundreds of millions and even billions.

This process was repeated by JPMorgan in COMEX silver until the fall of 2010, when silver began to rise in earnest due to a developing physical shortage that drove prices to nearly $50 by the end of April 2011. On the run up, it must have become clear to JPMorgan that a physical silver shortage was developing and for the bank to try to fight it with additional paper short sales would be futile. Therefore, two decisions were made; one, it would be necessary to create such a large break in silver prices so as to crush the momentum of the price rise and two, the developing physical shortage proved that silver was destined to blow sky high in time and JPMorgan should position itself accordingly. The big break in prices started on May 1, 2011 and broke the back of the silver price. Less visible is the evidence that JPMorgan began to acquire the biggest physical silver stockpile in history.

  1. In little more than a month, as a result of the big break in silver prices staring on May 1, 2011, some 60 million ounces were liquidated from the big silver ETF, SLV, as a result of plain vanilla selling by investors who sold their shares in reaction to plunging prices. When net selling occurs in SLV, metal is automatically redeemed from the trust on a mechanical basis. The shares were sold and the metal was withdrawn from the trust as prescribed by the prospectus. That doesn’t mean the metal was dumped on the streets of London or ceased to exist. The metal fell into the ownership of someone and the most likely candidate was the entity that arranged for the selloff in the first place. The entity which stood to gain the most by the selloff was JPMorgan. They picked up their first 50-60 million ounces as a result of the May 2011 silver smack down.
  2. Pressed for space to store the silver it planned to acquire, JPM opened its own COMEX warehouse in April 2011 and from zero ounces in 2011, that warehouse has turned into the biggest COMEX silver warehouse of all with nearly 55 million ounces on deposit. The start date proves intent by JPMorgan to acquire silver.
  3. In 2012, JPMorgan physically transferred 100 million ounces of silver from its own custodial warehouse for SLV to the Brinks warehouse in London, leaving ample space in the former SLV warehouse to store 100 to 200 million ounces of silver that would come to be owned by JPMorgan and that would never require public disclosure. This is the most plausible explanation for why JPMorgan would move the silver to the Brinks warehouse. All the movements of metal out of SLV over the years, reeks of JPMorgan converting SLV shares to metal to be stored in its own warehouse in London on an undisclosed basis. An easy 200 million ounces can be accounted for in this manner.
  4. The unusual and unprecedented turnover of physical silver in the COMEX-approved silver warehouses that began in April 2011 suggests to me that JPMorgan has been causing the movement in its quest to acquire physical silver. An easy 100 million ounces acquired by JPMorgan can be deduced from the more than 750 million ounces turned over in the COMEX warehouses over the past four years. How hard would it be for JPMorgan to “skim” 100 million ounces off a turnover of 750 million ounces?
  5. The recent acceptance of more than 10 million ounces on COMEX futures deliveries and the physical movement of most of that metal into the JPM COMEX warehouse is a mere fraction of the total amount of silver JPMorgan has acquired over the past four years, but it is clearly the most transparent and may point to JPMorgan reaching the maximum amount of physical silver it intends to acquire, indicating we may be close to when the bank decides to let silver prices rise.

I’m using the number of 350 million ounces as what JPMorgan has acquired, but the real amount may be in excess of 500 million ounces. I’m being somewhat conservative in saying 350 million ounces because I’m worried that those who deny that JPM has acquired any physical silver heads might explode if the number is closer to half a billion ounces. I’m not looking for anyone to lose their minds, but to understand what these facts mean.

Ted Butler

end

Gold is a market ‘like all others’? What nonsense!

Section:

10:49p ET Tuesday, May 12, 2015

Dear Friend of GATA and Gold:

More sneers seem to come toward GATA tonight from Bob Moriarty over at 321Gold. His new commentary —

http://www.321gold.com/editorials/moriarty/moriarty051215.html

— begins this way:

“The gold ‘permabulls’ have cost their followers a lot of money over the past 15 years. We all know who they are. Gold is supposed to go up every single day or it’s ‘proof’ of a conspiracy of the evil bullion banks that manipulate gold at every turn. … Gold, silver, and resource stocks are markets like all others.”

— “We all know who they are”? Really? Then why not identify them so they may know that they have been accused and have a fair chance at rebuttal? Why, if not cowardice, hide behind insinuation?

— “Gold is supposed to go up every single day or it’s ‘proof’ of a conspiracy of the evil bullion banks that manipulate gold at every turn” is not GATA’s position.

Instead, GATA’s position is that central banks are in the gold market surreptitiously every day, often acting through intermediaries like bullion banks, for the traditional purposes of central bank policy — to control and defeat a dangerously competitive currency that, if ever traded freely, would make deadly trouble for government currencies, government bonds, and interest rates generally — and that this intervention distorts and ultimately defeats all markets and even democracy itself. Yes, if central banks were not constantly intervening against gold, the monetary metal’s price would be a lot higher. But no one contends that in a free market gold would “go up every single day.”

— “Gold, silver, and resource stocks,” Moriarty writes. “are markets like all others.” What nonsense! While there are indications that central banks are trading most commodities — futures exchange operator CME Group actually offers discounts to central banks for their secret trading of all CME Group commodity and financial futures contracts — there is no proof that central banks are intervening in, say, soybeans and pork bellies. But documentation of the longstanding and surreptitious intervention by central banks in the gold market abounds, from the records of the Bank for International Settlements, the Bank of England, the Federal Reserve, and the International Monetary Fund to the recent and historical comments and memoirs of central bankers themselves. No, gold is a market powerfully unlike all others. Indeed, gold is unique for the threat it poses to an essentially totalitarian system that seeks to control the valuation of all capital, labor, goods, and services in the world.

All this is summarized with links to the major documents and admissions here:

http://www.gata.org/node/14839

Of course GATA aspires to defeat this system; doing so would change the world, liberate it. Enough publicity just might accomplish this. But far from being a “permabull” for gold, GATA tells investors in the monetary metals what they’re up against: an ever-intensifying phenomenon that even some central bankers call “financial repression.” Thus GATA is very bad for the business of mere stock touting — which may explain Moriarty’s sneering misrepresentation.

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

 

end

 

A new operation where things are paid for by using gold:

(courtesy Koven/Toronto National Post/GATA)

BitGold begins trading on TSXV as gold transaction platform builds momentum

Section:

By Peter Koven
National Post, Toronto
Tuesday, May 12, 2015

http://business.financialpost.com/investing/bitgold-begins-trading-on-ts…

Roy Sebag and Josh Crumb started their business with one simple guiding principle.

“We wanted to be able to go into Tim Horton’s and buy a coffee with gold, with our credit card or debit card,” Sebag said in an interview. “It went from being a hobby of how to do that to this whole company.”

Investors will start to get a better look at their vision on Wednesday, as shares of BitGold Inc. begin trading on the TSX Venture Exchange. It is the culmination of several years of hard work by the founders, and is being backed by George Soros, Sprott Inc., and other big-name financiers. The company has a valuation of more than $30 million.

BitGold is the first serious financial services platform ever built around gold. The online service allows users to buy gold, store gold, and pay for goods and services around the world using gold as the currency. The service has been active for less than a week but has already signed up thousands of users.

As its name implies, BitGold takes inspiration from Bitcoin. But there are a lot of questions about the intrinsic value of bitcoins. While gold has plenty of non-believers, the metal has been a medium of exchange for thousands of years.

Sebag and Crumb, who are 29 and 35 respectively, got the idea for BitGold shortly after the financial crisis in 2008. Sebag was a hedge fund manager at that time, and the collapse of Lehman Brothers made him alarmed about counterparty risk. He talked to some mentors about his concerns and they piqued his interest in gold, which has no counterparty risk.

He never embraced the end-of-the-world ideology so beloved by gold bugs. But he saw the value of using gold as a currency, and he was surprised there was no bank fully backed by gold. He teamed up with Crumb (who has a mining background) around this time, and they got to work creating a financial platform that would make gold more accessible and an easy medium for transactions.

Other people have tried to do something like this in the past, but they were never able to overcome the legal and technical impediments. Sebag and Crumb worked with lawyers and politicians to offer this service under Canadian bailment law. They got the world’s largest bullion banks to connect to their platform, and got Brink’s Co., a leading storage and security company, to serve as clearing house for trades. Through Brink’s, BitGold can track whenever gold owned by its customers moves in and out of vaults.

“It is a complicated (structure). But for the user — and this is the main thing — it’s just Paypal with gold. It’s a nice, clean interface,” Crumb said.

After users go through an extensive sign-up process at bitgold.com, they are able to deposit funds and obtain gold stored in vaults in six different cities around the world. After that they can pay for goods using that gold or redeem physical gold in 10-gram cubes (worth about US$400). Brink’s handles the transfer of the gold between the two parties. In the next month or two BitGold plans to launch a debit card that can be used at any ATM or retail location. That will allow users to buy that Tim Horton’s coffee with gold, just as its founders dreamed.

BitGold has a 1 percent fee to buy gold and a 1 percent fee to redeem it. Storage is free. The founders argued this is a far more attractive fee structure than the popular gold exchange-traded funds, which have annual fees.

Sebag, the chief executive, has been telling the Street that he has a target of 50,000 customers for BitGold. But his hopes are an order of magnitude higher than that. Based on the rapid take-up of the platform in the first few days, he said, it appears to be far more than a niche product for a small group of users. He noted that hardcore gold bugs make up less than 10 percent of the user base so far.

“I’m seeing friends who signed up sending payments to each other,” Sebag said. “I know they bet on football, and now they’re paying each other.”

 

end

 

Why China is taking full control over the physical gold market and pricing:

 

(courtesy Epoch Times / Schmid and special thanks to Robert H for sending this to us)

 

Why China Is Taking Control of Physical Gold Pricing

The Chinese have always been in love with gold. And this year especially China is taking several steps to rattle gold markets.

The country is currently lobbying to be included in the International Monetary Fund’s reserve currency and gold has a lot to do with that process. Estimates say China has amassed thousands of tons of gold reserves that could rival the United States in the future.

“It is the Chinese view that all great currencies have gained prominence in some measure because of the hard asset reserves the government standing behind the currency holds. Gold reserves both from the government and reserves held by the population are a key factor for economic security for them,” says Simon Mikhailovich, managing director at Tocqueville Bullion Reserve

In its quest to increase both private and public holdings, the country has overtaken South Africa as the world’s largest gold producer, and by 2013 has become the world’s biggest private market for gold, according to the World Gold Council.

Investors and consumers bought 259 tonnes of gold in 2013 as mines produced 430 tonnes. But that is not enough: According to chairman of the Shanghai Gold Exchange (SGE) Xu Luode, China also imported 1,540 tonnes through Hong Kong.

The paper market doesn’t count here. It knocks the market down.

— Victor Sperandeo, EAM Partners

It is the very same Shanghai Gold Exchange which is now taking another step toward controlling the gold market. According to Reuters, China plans to establish a new standard gold price for physical metal, a so called “fixing” for the 1 kilogram bars (32.15 troy ounces) it trades on its futures exchange. 

New Market

Both Chinese and Western banks have been involved in the fixing, which has not yet been publicized. However, it is a logical step in China’s quest to gain more influence.

Dissatisfied with the current gold price fixing conducted by member banks of the London Bullion Market Association (LBMA), China can achieve several goals by starting its own mechanism.

“I think the Chinese have a problem. The LBMA auction price is achieved by a group of banks. Price for physical gold is determined in markets where you don’t have to have physical gold to affect the price. You don’t even have to want it, you can just do it through financial operations,” says Mikhailovich. Setting prices this way lacks transparency and leads to distortions in the market.

The Chinese gold market. (World Gold Council)

The Chinese gold market. (World Gold Council)

He refers to the fact that “paper” derivative contracts far exceed the amount of physical gold available for trading. According to a report by the Reserve Bank of India, paper claims on physical gold were 92:1 in 2010.

At this moment, there are two fixings for the price of physical gold, at 10:30 a.m. and 3 p.m. GMT in London. The member banks set a price, which settles delivery contracts among themselves through a secret conference call.

This price then acts as a signal for pretty much all gold derivative contracts such as futures and options throughout the world. The current participants of the fixing are Barclays, HSBC, Scotia-Mocatta, and Societe Generale.

In addition, there is evidence this “paper” gold price has been manipulated downward. “There is no transparency and there has been evidence of tactical manipulation. Who says there is not strategic manipulation?” asks Mikhailovich.

This was beneficial for China for some time, as it enabled it to accumulate gold at discounted prices. But not anymore.

As part of its bid to gain more influence at the International Monetary Fund, China will likely come out with an updated number of its gold reserves, which stood at a paltry 1054 tonnes as of 2009.

“I am convinced they will announce the new number in the summer, prior to the decision of the IMF regarding the SDR. We have always seen that gold is a very important factor when it comes to trust in a currency. I think a gold backing of the yuan would substantially increase the international acceptance,” says Ronald Ströfele, managing director at European asset manager Incrementum.

Higher Price

What is even better than just showing a higher number of tonnes in reserve, is also showing a higher price.

“I think what the Chinese are trying to do is creating a real market that reflects supply and demand for physical gold,” says Mikhailovich. Because of the skewed relationship between paper and physical, this will very likely also lead to higher prices for physical, bypassing the futures trading on the New York Futures Exchange Comex and the obscure price setting mechanism at the LBMA.

“Both gold and silver are very actively traded in the derivatives market. Every other asset that doesn’t have a derivative, has gone up in price,” he says and makes reference to collectibles, such as paintings and antiques.

Indeed, after the gold price topped out at the end of 2011, an index of global art compiled by artprice.com has risen 9 percent until August of 2014.

Having a vibrant physical market would also help from a technical perspective as the exchange would hold the physical inventory while it goes up in price, rather than paper gold, according to Victor Sperandeo of EAM Partners LLC.

“The paper market doesn’t count here. It knocks the market down. If China wants to participate in the physical market, it helps their portfolio and they will be long inventory all the time.”

end

The following is extremely important. We now have had 2 huge runnups in rate rises on sovereign bunds (bonds) and both times, central bank interventions brought them down.  Bill Holter wrote the following piece last night and yet today, again yields rose again as the German 10 year bund finished at a yield of .72%.  Derivatives held by our major underwriting banks (Deutsche Bank, JPMorgan, Bank of America, Citibank, Morgan Stanley, Goldman Sachs) will have considerable losses

(courtesy Bill Holter/JSMineset)

A foundation of BAD credit is no foundation at all!
That didn’t take long did it?  I of course am speaking of the second overnight and global meltdown of the credit markets …in the last four business days!  Before getting into this topic which I believe will soon be seen in retrospect and by historians far into the future as “THE” trigger event.  The second piece I sent out yesterday “I bet you didn’t even notice it” was written over the weekend, I planned to send it out forTuesday’s reading.  After sending it to Jim Sinclair to see what he thought, he strongly urged me to get that piece out for Monday.  Had I not followed his advice, yesterday’s piece would have been a day late, and old news by the time it went public.  So, I am eating a bit of humble pie here, the first fruit has already fallen from the seed of our partnership!
  Just as we saw last Wed. night/Thurs. wee hours, credit markets again melted down overnight.  The following charts clearly illustrate this.
Bonds…
 Charts: Bloomberg
  …But wait, just as last Thursday, credit again reversed so, …no harm no foul?

   It is so important you understand “what” is happening and have an idea of “why”.  Let me tackle the what part first,  We are witnessing sovereign bonds and their yields move in wider standard deviations than most commodities ever do.  When you hear the word “commodity” you should think “risky risky” because they have wild moves limit up and limit down, it’s the way the game is played and should be expected.
  Sovereign notes and bonds are (were) the opposite.  They are THE bedrock of the entire financial system.  They are “supposed to be safe”.  They are supposed to be for widows and orphans.  Sovereign credits are THE core to nearly all retirement funds on the planet.  If everything else fails, it is this sector, government bonds, which should stand tall and stave off the failure of retirement plans.  The action over the last week is anything but bedrock or “stable”, in fact, it is volatility in the bond markets that are endangering everything financial, suffice it to say “a foundation of BAD credit is not foundation at all”!
  The next question is “why”.  For laughs I guess I should point out the explanation of a guest moron on CNBC.  He claims that yields on European bonds are rising because their economy is turning up.  He went on to actually say these spikes in yields (drop in prices) are actually a very good thing because they provide “proof” of future growth.  Never mind all of this debt is held as collateral for everything else, lower bond prices are “good” when too much debt is the problem in the first place?
  I would ask if he has even heard of a little country named Greece?  Is it even possible that eurobonds are being sold because fear of a Greek default?  Is the fear of a default cascade the reason bonds are being dumped in wholesale batches?  I have heard the explanation that “net issuance” has again gone positive as the reason for these air pockets.  Maybe this is true, I do not think so but if it is then there is a very real problem!  If this is true, it means the market cannot absorb the issuance and yields are going higher not by design but because there are simply not enough buyers, an “uh oh moment” so to speak.
  I have a little different theory which if not so now, or “yet”, it will be soon!  I believe much of the bond market weakness is being caused (and saved) by OTC derivatives.  I believe and have said multiple time before, “someone(s) out there is already dead”.  I believe that “bankrupts” are strewn all over the place and have been hidden with overnight loans… but there is a new problem.  The recent volatility has created more and more losers …which creates more and more FORCED SALES!  (Please don’t scoff at this as there are a handful of “choice” firms who have not had a single day of trading losses in over four years, with a whole string of losers in their wake? )
  You see, for all intents and purposes we have lived through a global bull market in bonds since 1982.  This has culminated in negative interest rates and we ended up with everyone on the same side of the boat with no one left to “buy”.  Of course you could ask the question “why would anyone buy?” with zero or even negative interest rates.  Only a few of the “sane ones” out there have asked this question until now, it seems maybe a few of the insane may be regaining at least some sense of sanity!?
  As I did yesterday, I will repeat “why” all of this is important.  “Credit” is what our entire system is based upon.  It has become the basis for all paper wealth and the lubricant for all real economic activity.  Should credit collapse (it will), everything we have come to believe in (been fooled by) will change.  Credit has come to be viewed as “wealth”, it is considered an “asset”… with just one problem, it is neither!  Credit is only an asset and can be considered wealth as long as the borrower “can pay”.  And herein lies the rub, Greece cannot pay which means the holders of Greek debt (along with issuers of CDS) cannot pay and so on.  It is not just Greece of course, it is the entire Western world, it just happens that Greece is first because they lied the most with the help of Goldman Sachs and other “benefactors”.  If counterparty risk did not matter, there would be no problem.  The reality is this, the whole show from single dollar bills to trillions in derivatives will be engulfed in this “counterparty risk”!
  Derivatives are a $1 quadrillion ticking time bomb, soaked in gasoline and sprinkled with gunpowder.  The volatility we are now seeing are the matches!  While we have had two “saves” where the central banks have stepped in and bought debt to steady the markets, the day will come when it does not work.  This game has gone on for a very long time and resulted in a mania where most all of the players are “long”.  The only potential new longs left are the central banks themselves who can only buy more debt with money created by debt.  The day will come when the ability to “save” is overcome.  Along with it will come the freedom of prices created by Mother Nature herself.  Stocks, bonds, currencies, commodities and yes, even silver and gold will finally break the chains of “algo mania”.
  Finally, this you must understand, “power” is currently debt.  The control of debt is also the power of prices.  Once debt breaks loose and trades out of the control of central banks, these central banks will also lose the control to price everything else.  We have come very close twice in the last four trading days of the credit market control being broken.  Will loss of control be on the next convulsion?  Or the next?  I nor anyone else knows this answer, I do know the greatest margin call in all of history will be issued … and it cannot be met!  Regards,  Bill Holter
end

And now overnight trading in stocks and currency in Europe and Asia

 

1 Chinese yuan vs USA dollar/yuan strengthens to 6.2052/Shanghai bourse down and Hang Sang down

2 Nikkei closed up by 139.88 points or .71%

3. Europe stocks all up/USA dollar index down to 94.49/Euro rises to 1.1227/

3b Japan 10 year bond yield:  rise to .47% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.77/Japan losing control over their bond market

3c Nikkei still just above 20,000

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

3e WTI 61.21 Brent 67.17

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. Last night Japan refused to increase it’s QE

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to 66 basis points. German bunds in negative yields from 5 years out.

Except Greece which sees its 2 year rate falls slightly to 21.07%/Greek stocks up 1.37%/ still expect continual bank runs on Greek banks.

3j Greek 10 year bond yield rises to: 10.96%

3k Gold at 1194.20 dollars/silver $16.67

3l USA vs Russian rouble; (Russian rouble up 1.2 rouble/dollar in value) 49.65 , the rouble is still the best acting currency this year!!

3m oil into the 61 dollar handle for WTI and 67 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 can 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. It is not working: USA/SF this morning 92.75 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0422 well below the floor set by the Swiss Finance Minister.

3p Britain’s serious fraud squad investigating the Bank of England/

3r the 5 year German bund remains in negative territory with the 10 year moving further away from negativity at +.66/the ECB losing control over the bond market.

3s Last week the ECB increased the ELA to Greece by another large 2.0 billion euros. At that point the new maximum was 78.9 billion euros. The ELA is used to replace depositors fleeing the Greek banking system. The bank runs are increasing exponentially. The ECB is contemplating cutting off the ELA which would be a death sentence to Greece and they are as well considering a 50% haircut to all Greek sovereign collateral which will totally wipe out the entire Gr. banking and financial sector.

Today the ECB raised the new maximum to 80 billion euros or an increase of 1.1 billion euros.

3t Greece paid the 200 million euros owed to the IMF as interest payment on Wednesday. They did  pay the 700 million plus payment to the IMF yesterday but with IMF reserve funds.  It must be paid back in 30 days.

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

4. USA 10 year treasury bond at 2.22% early this morning. Thirty year rate well below 3% at 2.98% / yield curve flatten/foreshadowing recession.

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

 

(courtesy zero hedge/Jim Reid Deutsche bank)

 

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

 

(courtesy zero hedge/Jim Reid Deutsche bank)

Return Of Bond Market Stability Pushes Equity Futures Higher

Following yesterday’s turbulent bond trading session, where the volatility after the worst Bid to Cover in a Japanese bond auction since 2009 spread to Europe and sent Bund yields soaring again, in the process “turmoiling” equities, today’s session has been a peaceful slumber barely interrupted by “better than expected” Italian and a German Bund auction, both of which concluded without a hitch, and without the now traditional “technical” failure when selling German paper. Perhaps that was to be expected considering the surge in the closing yield from 0.13% to 0.65%. Not hurting the bid for 10Y US Treasury was yesterday’s report that Japan had bought a whopping $23 billion in US Treasurys in March, the most in 4 years so to all those shorting Tsys – you are now once again fighting the Bank of Japan.

On the economic front we got some poor news out of China, where both industrial production and retail sales mixed (this is bullish because it means more easing may be coming), while in Europe Q1 GDP came in line as expected at 0.4% (up from 0.3%), which is also bullish because it means easing is working. Let’s just ignore the rather substantial drop in Eurozone industrial production in March, which slid 0.3% on expectations of an unchanged print and down from last month’s 1.1%. Just chalk it up to spring weather or something.

The overnight session started with Asian equity markets trading mixed following a tepid Wall Street close, with energy outperforming on the back of gains in crude prices. ASX 200 (+0.4%) after Australia lowered taxes for small businesses in the budget which sparked hopes of a spending spree. Nikkei 225 fluctuated between gains and losses with telecoms underperforming, following a miss on earnings from index heavyweight KDDI (-3%). Chinese markets saw subdued trade with market participants tentative ahead of the release of Chinese industrial production and retail sales data which fell short of expectations (see below).

  • Chinese Retail Sales (Apr) Y/Y 10.0% vs. Exp. 10.4% (Prev. 10.2%), YTD (Apr) Y/Y 10.4% vs. Exp. 10.5% (Prev. 10.6%)
  • Chinese Industrial Production (Apr) Y/Y 5.9% vs. Exp. 6.0% (Prev. 5.6%), YTD (Apr) Y/Y 6.2% vs. Exp. 6.3% (Prev. 6.4%)

European equities (Eurostoxx50 +0.9%) recovered from yesterday’s losses to reside in positive territory, with the energy sector outperforming following the drawdown in the API crude inventory (-2.1mln vs. Prev. -1.5mln) release yesterday, which subsequently supported oil prices. Meanwhile, Bunds (+76 ticks) have been buoyed by German GDP SA (Q/Q 0.3% vs Exp. 0.5%) which came in short of expectations, combined with profit taking in German paper following yesterday’s sharp declines. The upside seen in Bunds is also a continuation from gains seen in UST’s (+8 ticks) due to short covering from dealers and real money demand, coupled with the strong 3Y treasury auction.

BoE QIR said CPI is in line with returning to the 2% target in 2 years however cut CPI forecast for 2016 to 1.6%, cut 2015 and 2016 GDP forecast and sees downside risk to near term inflation which prompted GBP/USD to fall from fresh YTD highs to reverse all of its earlier gains from positive jobs data (UK Jobless Claims Change (Apr) M/M -12.6k vs Exp. -20.0k) (UK Average Weekly Earnings 3M/Y (Mar) 1.9% vs. Exp. 1.7%) which also showed a pick-up in wages. The report from the BoE was largely less hawkish than the market has previously expected. Meanwhile, EUR/USD is slightly lower after lacklustre Eurozone Industrial Production data (M/M -0.3% vs Exp. 0.0%), while Eurozone GDP came in-line with expectations 0.4%.

WTI (USD +0.57) and Brent (USD +0.48%) crude futures have been supported after API crude inventories showed a drawdown of 2.1mln vs. Prev. -1.5mln, while today’s DoE crude inventories are expected at -250K. The monthly IEA report showed that the IEA says OPEC April oil production rose by 160,000bpd to 31.2mln bpd in April, the highest since September 2012 and left their forecast for global demand unchanged. Elsewhere spot gold (unch) has traded within a tight range sitting USD 5.00 shy of the USD 1,200 despite the softer greenback.

In summary: European shares remain higher though off intraday highs, with the real estate and media sectors outperforming and financial services, health care underperforming. Euro-area 1Q GDP growth in line with ests., German 1Q growth below estimates, Italian, French growth ahead. BOE cuts U.K. growth forecasts through 2017, sees inflation at goal in 2 years. China April industrial output, retail sales below estimates. The French and Italian markets are the best-performing larger bourses, Swiss the worst. The euro is stronger against the dollar. French 10yr bond yields fall;  German yields decline. Commodities gain, with nickel, corn underperforming and WTI crude outperforming. U.S. mortgage applications, retail sales, import price index, business inventories,  due later.

Market Wrap

  • S&P 500 futures up 0.3% to 2102.3
  • Stoxx 600 up 0.8% to 399.1
  • US 10Yr yield down 2bps to 2.23%
  • German 10Yr yield down 5bps to 0.62%
  • MSCI Asia Pacific up 0.4% to 152.1
  • Gold spot down 0.1% to $1193.1/oz
  • Eurostoxx 50 +0.9%, FTSE 100 +0.6%, CAC 40 +1.2%, DAX +0.7%, IBEX +0.8%, FTSEMIB +1.1%, SMI +0.3%
  • Asian stocks rise with the Sensex outperforming and the Shanghai Composite underperforming.
  • MSCI Asia Pacific up 0.4% to 152.1; Nikkei 225 up 0.7%, Hang Seng down 0.6%, Kospi up 0.8%, Shanghai Composite down 0.6%, ASX up 0.7%, Sensex up 1.5%
  • 8 out of 10 sectors rise with energy, staples outperforming and telcos, utilities underperforming
  • Euro up 0.12% to $1.1226
  • Dollar Index down 0.06% to 94.48
  • Italian 10Yr yield down 8bps to 1.77%
  • Spanish 10Yr yield down 9bps to 1.74%
  • French 10Yr yield down 8bps to 0.89%
  • S&P GSCI Index up 0.5% to 453.1
  • Brent Futures up 0.7% to $67.3/bbl, WTI Futures up 1% to $61.3/bbl
  • LME 3m Copper down 0.4% to $6416.5/MT
  • LME 3m Nickel down 1.7% to $14100/MT
  • Wheat futures up 0.4% to 482.3 USd/bu

Bulletin headline summary

  • European equities (Eurostoxx50 +0.9%) recovered from yesterday’s losses to reside in positive territory with
    outperformance seen in the energy sector
  • The Bank of England’s QIR showed a downward revision to their inflation and GDP forecast for 2015/2016 which
    prompted GBP/USD to give back all of its earlier gains
  • Looking ahead sees the release of US Retail Sales, DoE inventories, US 10Y 24bln note auction and earnings from
    Macy’s scheduled at 1300BST/0700CDT
  • Treasuries gain for a second day before U.S. sells $24b 10Y notes in quarterly refunding; WI yield 2.22%, highest since November, after drawing 1.925% in April.
  • In EGB auctions today, Germany got bids exceeding its EU3b goal at a bund sale while Italy matched its maximum target in a separate offering of EU7b of bonds due between 2018 and 2046
  • The U.S. Justice Department is set to rip up its agreement not to prosecute UBS Group AG for rigging benchmark interest  rates, according to a person familiar with the matter, taking a new step to hold banks accountable for repeat offenses
  • Mark Dearlove, a Barclays Plc executive who was involved in the manipulation of Libor, was named as the U.K. lender’s head of markets for Asia-Pacific
  • China’s broadest measure of new credit rose less than economists forecast in April, underscoring the case for monetary policy easing in the world’s second-largest economy
  • China cleared the way for more than 1.7t yuan ($274 billion) of muni bond sales this year, allowing the notes’ use as collateral for central bank loans and releasing details of a previously announced debt-swap plan
  • The Bank of England cut its growth forecasts through 2017 and endorsed investors’ view for gradual interest-rate increases that may not start until the middle of next year
  • Euro-area growth rose 0.4% in 1Q; Germany rose 0.3% from 4Q’s 0.7% growth, while France expanded 0.6%, fastest pace in almost two years
  • Greece’s economy went back into recession, contracting 0.2%, as a standoff with its creditors renewed doubts about its place in the euro area
  • Democrats’ revolt led to defeat of Obama’s trade bill and his hopes to close and submit the Trans-Pacific Partnership to Congress for an up or down vote without amendments
  • Loss was a rebuke for Obama, who in recent weeks has been in meetings, on the telephone and in personal appeals scratching for every Democratic vote
  • Chicago may have to pay banks as much as $2.2 billion after Moody’s dropped its credit rating to junk, deepening the fiscal crisis in the third-largest U.S. city.
  • North Korean leader Kim Jong Un has purged his defense minister for dozing off at a rally in the latest removal of a senior official under his rule, a South Korean lawmaker said
  • Sovereign bond yields fall.  Asian stocks mostly higher, European stocks, U.S. equity-index futures decline. Crude oil higher, gold little changed,  gold, copper higher

 

DB’s Jim Reid concludes the overnight summary

 

Once again the overriding focus continues to be on the volatility in the bond market although this time we saw US Treasuries pare most of the intraday weakness as the 10y closed 3.1bps tighter on the day at 2.249%, having at one stage traded as much as 8bps higher in yield intraday at 2.364%. You’d have to go back to the middle of November to find the last time 10y yields finished that high. A strong 3-year auction appears to be the reason for the bounce back in the Treasury market yesterday with the auction drawing the highest demand since 2009. There was no such rebound in European bond markets however. 10y Bunds opened at 0.610%, hit an intraday high of 0.736% around lunchtime, before then closing out at 0.673%, still +6.5bps higher in yield on the day. Amazingly, 10y Bunds have now closed higher in yield 14 times in the last 16 sessions. Again the weakness wasn’t just in Bunds though as other developed and peripheral markets suffered similar such moves. We highlighted yesterday the issue with the lack of liquidity in the market at present having an influence on the volatility in bond markets. It’s also probably no coincidence that the moves higher in bond yields are coming at a time where oil markets appear to be making a decent recovery. Yesterday WTI (+2.53%) and Brent (+3.00%) closed higher at $60.75/bbl and $66.86/bbl respectively to finish more or less at their 5-month highs.

With bond market volatility appearing to show few signs of abating, it’ll be interesting to see how markets digest the various GDP indicators out of Europe this morning as well as the final April CPI print for Germany and whether or not these act as a potential catalyst for a change in sentiment.

Before we get there though, bond markets in Asia are certainly trading with a better tone this morning. 10y yields in Hong Kong (-2.1bps), Singapore (-2.7bps), South Korea (-2.0bps) and Australia (-5.2bps) are all tighter as we type. 10y Treasuries (+0.6bps) are relatively unchanged. Outside of China, equity markets are trading with a slightly better tone also. The Nikkei (+0.50%), Hang Seng (+0.15%) and Kospi (+0.63%) are all higher. The former paring back losses after Japan printed its largest current account surplus (¥2.8tn vs. €2.1tn expected) in seven years, fueled by a lower Yen. In China the CSI 300 (-0.20%) and Shanghai Comp (-0.15%) are both slightly lower as we type. It’s likely that these levels will swing around however by the time this lands in readers emails with China retail sales, industrial production and fixed asset investment data due at 6.30am GMT.

Yesterday’s continued volatility in bond markets appeared to help ignite a weaker day for equities generally. The S&P 500 (-0.29%) and Dow (-0.20%) closed lower for the second consecutive day despite energy stocks (+0.44%) taking a leg up from the rise in oil markets. The Dollar was softer meanwhile with the DXY closing -0.50%. Interestingly with all the volatility in Treasuries and with the 10y around 22bps higher in yield month-to-date so far, the Dollar has actually been relatively subdued with the DXY down just 0.07% over the same time period. The S&P 500 is +0.65% month to date with the intraday high (May 4th) to low (May 6th) range no more than 2.5%, so clearly the volatility has been isolated in bonds thus far.

Moving on, there wasn’t too much to take away from yesterday’s data. The April NFIB small business optimism survey rose +1.7pts to 96.9 (vs. 96.0 expected) while the March JOLTS job opening report was a tad below market (4.99bn vs. 5.11bn expected) and declined from 5.14bn the previous month. In the details, the hiring rate was unchanged at 3.6% while the quits rate edged up one-tenth of a percent to 2.0%, matching January’s 7-year high. Meanwhile the April Monthly Budget Statement showed that the US had a surplus of $156.7bn, up from $106.8bn in March and more or less in line with market expectations ($155.0bn).

There was some more chatter out of the San Francisco Fed’s Williams yesterday, who again reiterated the dependency on data for a first rate move but did note that ‘I see a safer course in a gradual increase, and that calls for starting a bit earlier’. Williams also suggested that the Fed’s ability to delay a rate hike is ‘more limited’ before adding that he’s now ‘reasonably confident’ that inflation will move back to 2%. Meanwhile, the NY Fed’s Dudley took a more cautionary stance saying that he was unsure on the timeframe for liftoff. Dudley did however acknowledge that ‘lift off will signal a regime shift even though policy would only be slightly less accommodative after lift-off than it is before’, then going on to warn that ‘I expect that this will have implications for global capital flows, foreign exchange valuation and financial asset prices even if it is mostly anticipated when it occurs’.

European risk assets certainly had a softer day yesterday as the Stoxx 600 (-1.31%), DAX (-1.72%) and CAC (-1.06%) fell. Credit markets were also weaker as Crossover closed +11bps wider. As mentioned the weakness appears to be more of a spillover effect from the bond market than anything else after what was a very quiet day data wise. French business sentiment for April printed in line at 98 while in the UK both industrial (+0.5% mom vs. 0.0% expected) and manufacturing (+0.4% mom vs. +0.3% expected) production came in above market.

Aside from the news that the ECB has approved a further €1.1bn in ELA funding for Greek banks (with no apparent changes to haircuts on collateral), there wasn’t a whole lot of new information following Monday’s Eurogroup meeting for Greece. With the €750m IMF repayment now also out of the way – which the FT reported was funded via a tap of its IMF Special Drawing Rights – talks are set to continue this week with PM Tsipras yesterday briefing his cabinet on the state of talks where he told ministers that the government will continue to stick to its ‘red lines’ before then going on to say that it’s now time for Greece’s creditors to ‘make the necessary steps in order for them to prove in practice their respect towards the democratic mandate’.

According to Bloomberg, one other situation which looks set to drag on is the Ukraine debt restructuring talks. With a June deadline set for the restructuring of $23bn of Ukrainian bonds, Ukraine’s finance ministry yesterday issued a statement implying their creditors of a ‘lack of willingness to engage in negotiations’. The apparent disagreement appears to lie in the details of the restructuring with Ukraine finance minister Jaresko saying that a combination of principal and coupon cuts, as well as maturity extensions are needed to meet IMF targets, while Ukraine’s creditors are looking for just a maturity extension.

Before we take a look at today’s calendar, upgraded global oil demand forecasts out of both OPEC and the EIA yesterday appears to have given some support to oil prices. OPEC now expects global demand to grow by 1.18m barrels a day for 2015 which is slightly up from 1.17m previously. The EIA has also raised its forecasts suggesting that demand will grow by 1.2m barrels a day this year and 1.3m barrels next year.

It’s a busy calendar data-wise for the market to digest today. The aforementioned Q1 GDP reports out of the Euro-area and regionally in Germany, France and Italy will be important while the final April CPI reading for Germany will be closely watched. We also get CPI for France, Italy and Spain as well as industrial production for the Euro area. In the UK meanwhile, we get employment indicators including the unemployment rate and average weekly earnings. The Bank of England inflation report will also be of some interest. In the US this afternoon, April retail sales is the primary release while the import price index and business inventories round off the prints.

end

 

 

On Saturday, there was no such thing as a Plan B. Guess again, the EU is planning to give Greece a bankruptcy loan in the event of the Grexit.

However the damage created by the GREXIT will be so huge!

 

(courtesy zero hedge)

 

Europe Preparing Greek Bankruptcy Loan “In Event Of Grexit”

Earlier today, we learned that, contrary to what Greek government officials had been implying for the better part of a week, Athens did not have enough money to make a €750 million payment to the IMF on Tuesday. Instead, Greece borrowed most of the money (€650 million according to unnamed officials) from its IMF SDR reserves. This money must be paid back within 30 days. This effectively means that the IMF paid itself and it sets up a hilariously absurd scenario wherein assuming Greece manages to convince creditors to disburse a €7.2 billion tranche of aid later this month, the IMF will send money to Greece, who will send it right back to the IMF to replenish an IMF fund, which was drawn down by the IMF to pay itself back for money it loaned to Greece a long time ago. Put simply: Greece has taken circular funding schemes to a whole new level.

Meanwhile, the IMF is understandably fed up and according to El Mundo, the Fund will not participate in a new program for the Greeks, something which German FinMin Wolfgang Schaeuble indicated may be a dealbreaker when it comes to structuring another bailout for Athens.

The takeaway: it’s likely over. Greece lacks the cash to keep up the facade and the IMF lacks the political will to perpetuate the farce any further.This suggests that both Greece and the creditors formerly known as the “Troika” will need to resort to Plan B. There’s a problem with that however — namely that EU officials have gone out of their way to make it clear that there is no Plan B, because to admit that such a plan existed would be to admit that the euro is in fact dissoluble after all, something which is taboo in polite discussions among European politicians. Here is but one example, via Reuters:

A top EU official urged Athens and its creditors to make progress in their talks on a cash-for-reform deal on Monday, warning there was no “Plan B” in the event of a Greek default.

“What we now need is real progress,” Frans Timmermans, first vice president of the European Commission, told German newspaper Welt am Sonntag.

When asked whether there was a “Plan B” for the case of Athens defaulting, Timmermans replied: “No, there is no ‘Plan B’ for Greece.”

That’s from Saturday. Here we are just three days later and as it turns out, Plan B does indeed exist and it is essentially a farewell package to the Greeks. here’sBloomberg with more:

Euro-area governments are considering putting together an aid package for Greece to cushion the country’s economy if it was forced out of the euro, according to two people familiar with the discussions.

The Greek government doesn’t expect to need that help. Prime Minister Alexis Tsipras says he’s not considering leaving the currency bloc and is focused on getting the aid he needs to avoid a default.

Even so, European officials are considering mechanisms to ring fence Greece both politically and economically in the event of a euro breakup, in order to shield the rest of the currency bloc from the fallout, one of the people said.

“There is always a plan B,” Filippo Taddei, an economic adviser to Italian Prime Minister Matteo Renzi, said in an interview in Rome on Tuesday, without referring to the aid package specifically. “But you have to ask yourself who has the ability to step in, in that event. And I think if you start making up a list you realize very quickly that that list is very short.”

While euro-area finance ministers welcomed the progress Greece has made toward qualifying for more financial aid at a meeting in Brussels on Monday, policy makers are still concerned Tsipras may not be prepared to swallow the concessions necessary for a disbursement.

So on Saturday Plan B was unthinkable but on Tuesday there’s “always a Plan B,” which reminds us of the time when Mario Draghi told Zero Hedge that there’s no such thing as Plan B when it comes to insolvent periphery debtor nations getting cut off from ELA and crashing out of the currency bloc. As a reminder, here is what Draghi said: “If the Euro breaks down, and if a country leaves the Euro, it’s not like a sliding door. It’s a very important thing. It’s a project in the European Union. That’s why you have a very hard time asking people like me “what would happened if. No Plan B.”

Call it plan “B” or plan “C” or plan “contain this trainwreck so redenomination risk doesn’t start creeping into the minds of Spanish and Italian depositors“, but what it amounts to is a DIP loan and the very fact that it’s being mentioned in the media likely means the plan has been hatched. The only remaining question is what the EU’s farewell package to the Greeks will look like.

end
Amazing:  we are having a huge bank run in Greece but the citizens are not putting their money in their mattresses.  They are purchasing cars with their euros as they are afraid of capital controls:
(courtesy zero hedge)

Forget Mattresses, Greeks Are Stashing Their Cash In Cars

As Greek empty their bank accounts at a record pace, waiting for the capital-controlling, bank-holiday-based ‘other shoe’ to drop on Grexit, devaluation, and drachmatization; they are not stashing their cash in the proverbial mattress. Instead, as The Telegraph reports,there is a slightly surprising sign that Greece is in the classic throes of a bank run (as we saw in Russia last year): car sales jumped by 47% in April.

As we noted when Russia was in the middle of its currency collapse(something that is ‘hidden’ from view in Greece since there is no way – aside from implications from Sovereign CDS and bond yields – to see the devaluation)

The dramatic collapse in the rouble in recent days has not triggered outright panic, but it has prompted a rush to change currency and to stock up on durable goods such as furniture, cars and jewellery before they become even more expensive.

And so it is that, as The Telegraph reports,for the last 20 months, car registrations of new and used vehicles has risen…

People living in a country gripped by financial turmoil often worry about the security of their money. If it’s in a bank, it can be caught up in capital controls or lost through insolvency. Better, then, to spend it. And the purchase of choice is often a car.

This makes motor vehicle sales a decent proxy for financial turmoil (under some circumstances).

Ordinary Greeks, many of whom are not wealthy enough to hold bank accounts outside of the country, are taking their money of the financial system and spending it on “hard” assets.

In December, when snap elections were called in Greece, monthly car registrations soared by nearly 70pc. Since then, bank desposits have shrunk by nearly 15pc of their total value. Another €7bn left the country in April alone.

During Cyprus’s banking crisis in 2013, car registrations increased by nearly a third in 10 months. Many Cypriots rightly feared their unsecured deposits would be at risk from the “bail-ins” of the country’s biggest banks.

Cypriot consumers also chose to make their purchases in cash, rather than be tied to financing or hire-purchase deals.

Despite depreciating in value quite quickly, cars are still a handy asset to own because they can be put to productive use – especially if the alternative is just stashing your money under a mattress.

As The Telegraph concludes, there is some cruel irony here also…

German industry is perversely one of the main beneficiaries of the country’s banking collapse.


Greek consumers, like many of their fellow Europeans, buy German cars more than any other brand.

end
A great article on the situation in Greece where the author states correctly that the situation is a political issue.  The Ukraine is in far worse financial shape and these guys are receiving funds from the iMF
(courtesy Meijer)

Greece Is Now Just A Political Issue

 

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

Greece paid off the IMF yesterday with its IMF reserves. Is that a big deal? Whatever you may want to read into this, it’s been obvious for years that Greece needs major debt restructuring if it wants to move forward and have a future as a country -let alone a member of the eurozone-.Instead, the EU/troika anno 2010 decided to bail out German and French and Wall Street banks (I know there’s an overlap)- instead of restructuring the debts they incurred with insane bets on Greece and its EU membership- and put the costs squarely on the shoulders of the Greek population.

This, as I said many times before, was not an economic decision; it was always entirely political. It’s also, by the way, therefore a decision the ECB should have fiercely protested, since it’s independent and a-political and it can’t afford to be dragged into such situations. But the ECB didn’t protest. And ever since the deed was done, Brussels presents it as if it were as unavoidable as Noah building the Ark. It’s not. It’s still just another decision to put banks before people.

And in this case the people have come out on the very short end of a very long stick. That’s what the Greek discussions have been about ever since Syriza was elected, with a substantial majority, to be the government in Athens. And no matter how many times how many people may claim Greece lived above its means for years, it’s obvious that the unemployed and the hungry children and the elderly without health care did not.

The troika says they bailed out the Greek people. The Greek people say only 8-9% of that bailout ever went to them, with the rest going to cover the losses of international systemic banks, and to the utterly corrupt previous Greek political and economic elites, which, coincidentally, the troika was only too happy to strike deals with, so much so that on the eve of the election Greeks were urged to vote the same elites into power once more, even if they were demonstrably to blame for the downfall of the Greek economy.

The troika wants the Syriza government to execute things that run counter to their election promises.No matter how many people point out the failures of austerity measures as they are currently being implemented in various countries, the troika insists on more austerity. Even as they know full well Syriza can’t give them that because of its mandate. Let alone its morals.

It’s a power game. It’s a political game. It always was. But still it has invariably been presented by both the international-press and the troika as an economic problem. Which has us wondering why this statement by ECB member and Austrian central bank head Ewald Nowotny yesterday, hasn’t invited more attention and scrutiny:

ECB’s Nowotny: Greece’s problem isn’t economic

The Greek problem is more a political question than an economic one, a member of the European Central Bank said Monday. Discussions with political parties such as Greece’s left-wing Syriza and Spain’s Podemos may be refreshing by bringing in new ideas, “but at the end of the day, they must [end in] results,” ECB member Ewald Nowotny said, adding discussions are “not about playing games.”

 

The central banker declined to speculate on how to solve Greece’s financial problem saying the issue “is much more a political question than an economic question.” Mr. Nowotny also doesn’t see the ECB’s role as creating a federalized financial government inside the euro zone. “We cannot substitute the political sphere,” he said.

That seems, from where we’re located, to change the discussion quite a bit. Starting with the role of the ECB itself. Because, for one thing, and this doesn’t seem to be clear yet, if the Greek problem is all politics, as the central bank member himself says, there is no role for a central bank in the discussions. If Greece is a political question, the ECB should take its hands off the whole Greek issue, because as a central bank, it’s independent and that means it’s a-political.

The ECB should provide money for Greece when it asks for it, since there is no other central bank to provide the lender of last resort function for the country. Until perhaps Brussels calls a stop to this, but that in itself is problematic because it would be a political decision forced on an independent central bank once again. It would be better if the ‘union’, i.e. the other members, would make available what Greece needs, but they -seem to- think they’re just not that much of a union.

In their view, they’re a union only when times are good. And/or when all major banks have been bailed out; the people can then fight over the leftover scraps.

The IMF has stated they don’t want to be part of a third Greek bailout. Hardly anyone seems to notice anymore, but that makes the IMF a party to political decisions too. Lagarde et al claim they can’t loan to countries that don’t take the ‘right’ measures, but who decides which measures are the right ones? What’s more, how does the IMF, in that vein, explain the recent loans to Ukraine? Is Kiev doing better than Athens from an economic point of view? Or is this just us sinking into a deepening political quagmire?

Moreover, if we take Mr. Nowotny on his word, why are there still finance ministers and economists involved in the Greek issue negotiations? Doesn’t that only simply lead to confusion and delay? Every single news outlet in the world has taken over German FinMin Schäuble’s comment that Greece should have a referendum if they want, and that maybe that would clarify matters.

But that is not something for Schäuble to comment on, no more than it would be for Greek FinMin Varoufakis to suggest a referendum in Germany.While everyone would consider the latter preposterous, the same everyone takes the former serious. That’s power politics for you, and a press that’s lost track of its position in the world. A press that’s turned into a propaganda mechanism for whoever’s in charge at any given moment in time.

If the Greek issue is now, or perhaps has always been, an overwhelmingly political one, as Nowotny suggests, why do we still have Varoufakis and Dijsselbloem (who only has a degree in agricultural economics, whatever that may be) and former German secret service head Schäuble, discussing matters? After all, why would you leave political issues up to your finance ministers to discuss? That’s not their field.

If it’s all political, shouldn’t it be the political leaders, Merkel and Juncker and Tsipras, talking instead? Something tells us that might not be such a bad idea in any case. Certainly by now. If the ECB itself already says it’s not about money…

 

end

Spain has learned from the master  (USA) as to how to fabricate a recovery.  Most of the new jobs created in Spain is part timers:

(courtesy zero hedge)

Presenting Spain’s “Part-Time” Recovery

Spain’s economic data lost all credibility once the local bureau of economics, statistics and other goalseeked numbers decided to arbitrarily start adding what itestimated was the “contribution” from not only local drug dealers but also hookers. No surprise then that the government has proudly declared quarter after quarter that Spain is one of Europe’s most boom economies. And yet, while the GDP data was clearly fabricated, Spain’s job numbers did seem impressive. And then we looked at the following chart of full-time versus part-time Spanish workers, and it all quickly fell into place.

Courtesy of Stratfor, here is how Spain is desperately seeking to recreate America’s part-time recovery, although unlike the US which has Obamacare to thank that 8 years after the start of the depression, full-time jobs still have to surpass their prior peak, it is not quite clear why Spain which boast almost daily of the strength of its economy is stuck in the same “part-time” rut.

From Stratfor, the Rise in Part-Time Positions Will Hinder Recovery in Spain


Six years into the economic crisis, the Spanish economy is finally seeing some decent growth. During the first quarter of the year, Spain’s gross domestic product grew by 0.9 percent and, as Madrid recently said, it expects annual growth to be close to 3 percent. The country has also seen a drop in its unemployment rate, with Eurostat reporting 25.1 percent a year ago and 23 percent in March. Although the next government in Madrid will be met with a slightly improved macroeconomic situation, abnormally high unemployment rates and a rise in part-time and temporary positions will continue to threaten the country’s economic recovery, and decision-making will become more complex as the year progresses.

Many Spaniards are afflicted by precarious and temporary employment. According to official figures, only one in 10 work contracts signed in March were for permanent positions. The number of temporary contracts is growing twice as fast as permanent contracts. During the first quarter of 2015, the number of people working on temporary contracts grew 5.42 percent year-on-year, while the number of permanent contracts grew only 2.71 percent.

Spain is also experiencing a rise in part-time jobs. During the first quarter, the number of people working full-time jobs grew 2.91 percent year-on-year, while the number of people working part-time jobs grew 3.83 percent. Almost two in 10 workers in Spain work less than 35 hours a week. This is not unusual in Europe, with countries such as the Netherlands having higher part-time work rates. However, the situation in Spain is not by choice, and most part-time workers would prefer a full-time position.

Statistics from Spain’s Ministry of Employment also reveal the three most common jobs held in the first quarter of 2015 were agricultural laborers, waiters and cleaners. In April, the month tourism season begins in Spain, almost half the new jobs were in hotels — mostly contractual positions set to end later in the year.

 

end

 

We brought this to your attention yesterday.  It seems that China is not a happy camper with respect to the USA actions:

 

(courtesy zero hedge)

 

China Lashes Out At US: “Refrain From Provocative Action”

Yesterday, in a stunning admission that already frigid relations between China and the US (because according to the lying White House it is Russia that is “isolated”, even as Putin was sitting next to China’s president on May 9) are getting worse, if not outright hostile, by the day we learned that US Defense Secretary Ash Carter has asked his staff to look at military options to rebuke Chinese ambitions in the South China Sea area around the Spratly Islands, which has recently become a topic of contention between China and most of its neighbors, especially the Philippines and Vietnam.

And while apparently the US does not have its hands full already with orchestrating (and profiting from) two proxy regional wars, one in Ukraine and one in the Middle East, and feels compelled (by shareholders of US “defense” companies) to prove to the world it has long since lost its globocop status when China roundly ignores American threats, China wasted no time to do just that andovernight Beijing strongly condemned a proposed U.S. military plan to send aircraft and Navy ships near disputed South China Sea islands to contest Chinese territorial claims over the area.

As cited by the WSJ, China Foreign Ministry spokeswoman Hua Chunying said that “we are severely concerned about relevant remarks made by the American side. We believe the American side needs to make clarification on that.”

One can hope. Then again, the US State Department may just dispatch some potatoes to China courtesy of John Kerry and that may be the end of it.

China however will demand more than just vegetables: the unusually strong comments came after U.S. officials said Defense Secretary Ash Carter had asked his staff to look at options to counter China’s increasingly assertive claims over disputed islets in the South China Sea. Those options, officials said, include flying Navy surveillance aircraft over islands and sending U.S. Navy ships within 12 nautical miles of reefs that have been built up in recent months around the Spratly Islands.

“We always uphold the freedom of navigation in the South China Sea,” Ms. Hua said. “But the freedom of navigation definitely does not mean the military vessel or aircraft of a foreign country can willfully enter the territorial waters or airspace of another country. The Chinese side firmly upholds national sovereignty and security.”

But the biggest slap in the face of the US yet, came when China explicitly told the US not to meddle in China’s own affairs, especially since it didnt even call it by name.

Ms. Hua said Beijing urged “relevant countries to refrain from taking risky and provocative action.”

The proposed U.S. military maneuvers and China’s swift response have raised the stakes in an already tense regional showdown over who controls the disputed waters. Six governments–China, Vietnam, Brunei, Malaysia, Taiwan and the Philippines—claim the South China Sea waters, islands, reefs and atolls in whole or in part.

And while China’s immediate neighbors who stand to lose the most once China begins flexing its territorial expansion muscle quickly gravitated toward the US outburst which will now cost the US dearly if it is unwilling or unable to further escalate with China, the biggest loser is Australia which is between a rock, i.e., its biggest trading partner China, and a hard case, i.e., the US which demands that Australia remain in its sphere of diplomatic influence:

Australian Foreign Minister Julie Bishop told The Wall Street Journal that Canberra doesn’t take sides on competing territorial claims in the South China Sea, but is in close contact with the U.S. on regional tensions.

“We are concerned that land reclamation activity by China and other claimants could raise tensions in the region,” Ms. Bishop said.

The expansion of South China Sea shoals has put Canberra in an uncomfortable position between Washington, its longstanding security ally, and China, its largest trade partner. Defense Minister Kevin Andrews is expected to discuss regional tensions with his U.S. counterpart, Mr. Carter, in Singapore in a few weeks.

What makes it even worse for Australia is that the US is forcing it to decide: U.S. military commanders have in recent months urged Australia to consider joining multinational patrols in international waters north of Indonesia, while also increasing the frequency of U.S. warship and aircraft visits through Australian bases on the periphery of regional tensions.

At this rate China will simply take matters into its own hands and outsource all Australian exports to some other nation, in the process leading to a depression for Australia which will at least have cordial relations with what is perhaps the most incompetent US State Department in history.

But the biggest wildcard is Japan: “Security experts are closely watching whether Japan will start sending surveillance planes and naval vessels to the contentious waters of the South China Sea to aid the U.S.’s efforts to patrol the region.”

Japan, as a reminder, was in a comparable state of utter economic catastrophe a little over 70 years ago when it had little to lose and potentially much to gain when it entered World War II against the US in the process dragging America into the global conflict.

According to many Japan is the same loose cannon now, and with its inevitable demographic disaster, an economy that will implode the second the BOJ loses control over the Nikkei, and production that is no longer competitive on the global arena absent massive currency devaluation every month, if there is anyone who could and would see to provoke another global conflict, it is Tokyo yet again.

As for the US, we doubt the US State Department is dumb enough to engage China openly as this would inevitably lead to another world war, although one has learned to never bet against the stupidity of US government workers, especially when there is an unlimited amount of neocon blood money urging them on to an outcome that would lead to the death of hundreds of millions of innocent people or, as it is better known in the US military industrial complex, record profits.

Meanwhile, those curious to see if the US will indeed engage China and resort to anything more than a mere war of words, here is the latest naval update. If US ships find themselves in the vicinity of the Spratlys, then indeed human stupidity – and greed – is unlimited. 


 end
Oil related stories:

Crude Pumps & Dumps After Inventory Draw Slows & Production Rises

Following API’s data lastnight, DOE reported a 2.19 million barrel draw (more than expected) this week, crude oil prices immediately extended gains. However, that ramp quickly faded once it set in that the draw was actually notably lower than last week’s. For some context, this leaves the total inventory still a near record 30% above average for this time of year. Prices were also not helped as total crude production rose modestly WoW.

 

2nd weekly draw in a row but it’s slowing…

 

Some context…

 

And production rose WoW…

 

Oil prices spiked then dumped on priduction news…

 

Charts: bloomberg

end

 

Your more important currency crosses early Wednesday morning:

 

Euro/USA 1.1227 up .0004

USA/JAPAN YEN 119.77 down .074

GBP/USA 1.5680 up .0012

USA/CAN 1.1988 down .0028

This morning in Europe, the Euro rose by a tiny 4 basis points, trading now well above the 1.12 level at 1.1227; 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, a possible default of Greece and the Ukraine, rising peripheral bond yields .

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 7 basis points and trading just below the 120 level to 119.77 yen to the dollar.

The pound was well up this morning as it now trades just above the 1.56 level at 1.5680,still celebrating a conservative victory but 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 well up by 28 basis points at 1.1977 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: this morning : up 139.38 points or 0.71%

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

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

Gold very early morning trading: $1194.20

silver:$16.68

Early Tuesday morning USA 10 year bond yield: 2.22% !!! down 3 in basis points from Monday night and it broke through resistance at 2.27-2.32%. This is trouble!!!

USA dollar index early Tuesday morning: 94.49 down 7 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:2.45 up 4 in basis points from Tuesday (continual central bank intervention/and failing today)

 

Closing Japanese 10 year bond yield: .46% !!! up 1 in basis points from Tuesday/Japanese government losing control over their bond market.

 

Your closing Spanish 10 year government bond, Wednesday, up 5 points in yield (massive central bank intervention/failed again)

 

Spanish 10 year bond yield: 1.88% !!!!!!

 

Your Wednesday closing Italian 10 year bond yield: 1.89% up 4 in basis points from Tuesday: (massive central bank intervention/failed again)

trading 1 basis point higher than Spain.

 

IMPORTANT CURRENCY CLOSES FOR TODAY

 

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

 

Euro/USA: 1.1342 up .0124 ( Euro up 124 basis points)

USA/Japan: 119.17 down .675 ( yen up 68 basis points)

Great Britain/USA: 1.5732 up .0065 (Pound up 65 basis points) Conservative win in election last Thursday and thus big demand for pounds.

USA/Canada: 1.1966 down .0040 (Can dollar up 40 basis points)

The euro rose again today sharply. It settled up 124 basis points against the dollar to 1.1342 as the dollar fell badly again on most fronts  following massive central bank intervention to save the financial scene. The yen was up 68 basis points and closing well below the 120 cross at 119.17. The British pound gained huge ground today, 65 basis points, closing at 1.5732, as Britain is celebrating their conservative election majority. The Canadian dollar gained considerable ground to the USA dollar, 40 basis points closing at 1.1966.

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

 

Your closing 10 yr USA bond yield: 2.29% up 4 in basis points from Tuesday (right at  the resistance level of 2.27-2.32%) Today’s rescue courtesy of the central banks seems to have failed.

 

Your closing USA dollar index:

93.72 down 84 cents on the day.

 

European and Dow Jones stock index closes:

 

England FTSE up 15.83 points or 0.23%

Paris CAC down 12.79 points or 0.26%

German Dax down 120.95 points or 1.05%

Spain’s Ibex up 2.00 points or 0.02%

Italian FTSE-MIB  up 106.10 or 0.46%

 

The Dow down 7.74 or 0.04%

Nasdaq; up 5.50 or 0.11%

 

OIL: WTI 60.15 !!!!!!!

Brent: 66.53!!!!

Closing USA/Russian rouble cross: 49.36 up 7/10 rouble per dollar on the day.

 

end

 

And now your important USA stories:

 

NYSE trading for today.

 

Less ‘Goldilocks’, More ‘Three Bears’: Bullion Bid As Stocks & Bonds Skid

The correlation between stocks and bond yields continues to have regime-shifted to approach -1 (not 1 – as is more ‘normal’) confounding asset allocators and risk parity funds across the market…

This seemed appropriate…

If that analogy didn’t help, maybe this will clear things up…

Gold and Silver were the big movers today… Gold’s highest close in 3 months (3rd biggest day of the year), Silver highest close in 6 weeks (3rd biggest day of the year)

But stocks and bonds continue to be sold…

Leaving Trannies ugly for the week…

After decoupling today once again…hugging the flatline from shjortly after the open…

Futures show the real volatility took place before the open…

On the week, Treasury yields are dramatically higher (thioug below yesterday’s peaks) though we note the significant title in the curve with 2Y -2bps, and 30Y +6bps…

Which sent curves soaring…

The USDollar legged notably lower on the poor retail sales data extending its losses to over 1.1% for the week… (worst day for the USD since 3/20)

JPY had its strongest day (carry unwinds continue) in 2 months…

Here’s why… (via none other than Gartman)

To end our discussion of the forex markets, we think it is time to return to an old friend:long of the English speaking currencies/short of the Yen and we shall do so en masse this morning, buying the US, the Canadian, the Aussie and the Kiwi dollars against the Yen upon receipt of this commentary. We shall have stops on the trades individually in tomorrow’s TGL, but we’ll give them 2% against us as an initial stop point.

Commodities very mixed with oil down,copper flat…

With crude pumped after another draw but dumped after production rose once again…

*  *  *

Gold and silver had quite a day – pushing the former above stocks YTD and the latter best for the year…

and bonds are having their worst year since 2009…

Charts: Bloomberg

Bonus Chart: ETSY! bwuahahah…. From $35.74 highs, down 45% now to today’s low of $19.50 (on its way to the $16 IPO price)

end

Oh OH! the city of Chicago has just been reduced to junk status which in turn triggers an immediate 2.2 billion dollar payment.  Thus we have not only Illinois in trouble, but also the largest city inside Illinois also in big trouble.

(courtesy zero hedge)

 

Chicago “Junking” Triggers $2.2 Billion Payment, Deepening Financial Crisis

In early March, we discussed the rather deplorable state of Illinois’ public pension plans which, we noted, are underfunded by some 60%. On a statewide basis, making up the deficit would cost around $22,000 per household, which gives you an idea of the cost to taxpayers of the grossly underfunded pension liabilities.

A month later, we pointed out the fact that spreads between Chicago’s muni bonds and USTs had blown out to the tune of 60bps as mayor Rahm Emanuel’s re-election became more assured. We also highlighted a WSJ graphic showing that when it comes to unfunded public worker pension liabilities per person, nobody does it like Chicago.

The situation worsened materially last Friday when the Illinois Supreme Court struck down a pension reform law that aimed at closing the state’s $105 billion hole.

Via The Chicago Tribune:

The Illinois Supreme Court on Friday unanimously ruled unconstitutional a landmark state pension law that aimed to scale back government worker benefits to erase a massive $105 billion retirement system debt, sending lawmakers and the new governor back to the negotiating table to try to solve the pressing financial issue.

The ruling also reverberated at City Hall, imperiling a similar law Mayor Rahm Emanuel pushed through to shore up two of the four city worker retirement funds and making it more difficult for him to find fixes for police, fire and teacher pension funds that are short billions of dollars.

That ruling, it turns out, would be the death knell for Chicago’s credit rating, at least as far as Moody’s is concerned. Citing “expected growth in the city’s highly elevated unfunded pension liabilities,” the rating agency cut the city to junk at Ba1. This is bad news for Chicago for a number of reasons, not the least of which is the fact that Emanuel was looking to refi nearly a billion dollars in floating rate debt into fixed rate notes and borrow another $200 million to pay off the related swaps — clearly this will now be far more difficult. The ratings agency’s actions also given creditors accelerated payment rights, meaning the city could be on the hook for some $2.2 billion in principal and interest on its outstanding liabilities. 

Needless to say, Rahm Emanuel is not happy. Here’s theTribune again:

Emanuel attacked Moody’s decision to downgrade the city’s credit, but his remarks illustrate the grave financial situation the city faces.

“This action by Moody’s is not only premature, but it is irresponsible to play politics with Chicago’s financial future by pushing the city to increase taxes on residents without reform,” said Emanuel in a statement, just hours after appearing on the South Side to bask in the formal announcement that President Barack Obama’s presidential library would be built in Chicago.

One analyst was sympathetic to the mayor’s argument that Moody’s acted too quickly, but noted the message being sent about Emanuel’s leadership as he enters a second term.

“A cut below investment grade is a major statement, implying that there is material risk to the city not paying its bondholders on time or in full,” said Matt Fabian, a managing partner at Municipal Market Analytics. “To have gone there without waiting to see the city’s approach to the current budget gap, or whether or not they will raise revenues is clear demonstration of a lack of confidence in city management. In other words, they see little reason to wait because they expect little in the way of a management response.”

Chicago now has the dubious distinction of being the only city “in recent history” to carry such a low rating other than Detroit:

Ciccarone noted that his firm’s data showed Chicago’s junk status rating is a level only reached in recent history by one other major city: Detroit, before it filed for bankruptcy in July 2013.

So we’re sorry taxpayers, but it looks like Chicago is going to need you to step up to the plate on this one:

Earlier market analyses have indicated that Chicago, unlike Detroit, has a varied economy and options for raising the needed revenue for righting its financial ship, but it won’t be painless. “Raising taxes is going to have to be part of the solution,” Ciccarone said.

Emanuel and city financial officials tried to downplay the action by Moody’s, noting other major debt rating agencies had not downgraded city creditworthiness to such troublesome low levels. Budget Director Alex Holt called Moody’s rating “an outlier.”

For years, Moody’s has warned the city about not addressing its pension problems, maintaining an intense focus not shared by other rating agencies, and also warned about city debt practices that Emanuel recently vowed to change.

Even so, Emanuel and the City Council last year put off making a decision on whether to enact a significant property tax increase to help cover the city’s ballooning pension costs. That deferral came as Emanuel and aldermen prepared to run for re-election this spring.

In the end, this serves to underscore not only the pitiable plight of the country’s pension plans (which, by the way, are likely to be far worse off on the whole than meets the eye due to the fact that managers cling to optimistic assumptions about investment returns in order to avoid having to revise the present value of their liabilities sharply higher) but also a worrying trend that we discussed earlier this week — namely, that state and city governments across America are going broke.

Here’s a look at just how underfunded Illinois’ pension system truly is:

*  *  *

Moody’s statement:

Rating Action: Moody’s downgrades Chicago, IL to Ba1, affecting $8.9B of GO, sales, and motor fuel tax debt; outlook negative

Also downgrades senior and second lien water bonds to Baa1 and Baa2 and downgrades senior and second lien sewer bonds to Baa2 and Baa3, affecting $3.8B; outlook negative

New York, May 12, 2015 — Moody’s Investors Service has downgraded to Ba1 from Baa2 the rating on the City of Chicago, IL’s $8.1 billion of outstanding general obligation (GO) debt; $542 million of outstanding sales tax revenue debt; and $268 million of outstanding and authorized motor fuel tax revenue debt.

We have also downgraded the following ratings on debt secured by net revenues of Chicago’s water and sewer enterprises: to Baa1 from A2 on $38 million of outstanding senior lien water revenue bonds; to Baa2 from A3 on $2.3 billion of outstanding second lien water revenue bonds; to Baa2 from A3 on $35 million of outstanding senior lien sewer revenue bonds; and to Baa3 from Baa1 on $1.5 billion of outstanding second lien sewer revenue bonds.

We have also downgraded to Ba2 from Baa3 the rating on $6 million of outstanding MetraMarket Certificates of Participation (COPs), Series 2010A, and to Ba3 from Ba1 the rating on $3 million of outstanding Fullerton/Milwaukee COPs, Series 2011A.

Finally, we have affirmed the Speculative Grade (SG) short term rating on $112 million of Chicago’s outstanding Sales Tax Revenue Refunding Bonds, Series 2002.

The outlook on all long term ratings remains negative.

 

end

 

The big story of the day and also one of the big catalyst for the rise in the price of gold and silver today:  retail sales instead of rising a bit went completely flat last month i.e. no gain in sales at all.

(courtesy zero hedge)

 

US Retail Sales Hint At Recession, Weakest Since Financial Crisis

Despite bouncing back last month at the fastest pace in a year, April just printed the slowest YoY growth since Nov09 at just 0.9% (retail sales has still missed expectations for 4 of the last 5 months). Against expectations of a 0.2% MoM rise in April (considerably slower than the 0.9% pop in March), Retail Sales missed with a 0.0% change. Ex-Auto and Gas MoM also missed with a mere 0.1% gain (aghainst +0.5% exp.) but it was the control group that saw the biggest miss, printing 0.0% (against hopeful expectations of a 0.5% gain). There was widespresd weakness with outright declines in autos, furniture, gas, food, electronics (AAPL hangover), and general merchandise.

What is curious is that moments ahead of the release, sellsiders were overslling the retail print to appear far more important than it is, in hopes for a big beat. CRT strategist David Ader says in note that “Retail Sales is, oddly, perhaps more important than NFP…”

And now we get the talking down.

MoM saw a modest reveision in march save it from 5 monthly misses in a row:

 

Year-over-Year retail sales growth slowest since July 2008’s slump:

 

Worse, non-seasonally adjusted retail sales which however are perfectly relevant on a Y/Y basis as the same seasonal adjustment takes place every 12 months, posted their first decline since the Great Recession.

 

And the Control Group shows no signsof improvment post-weather or post-gas savings…

 

The Breakdown is particularly ugly…

 

Oh well: it rained in the spring, unexpectedly, preventing Americans from spending trillions in cash they don’t have on stuff they don’t need. Oh, and don’t forget Easter came around this year. 

 

end

 

Q2 GDP Forecast Cut To 0.7% By Atlanta Fed

Zero Hedge first brought attention to the Atlanta Fed over two months ago, when the first massive divergence between bullish consensus and objective reality appeared. Since then it has been nothing but a downhill race for reality, with consensus scrambling to catch up. Moments ago, the Atlanta Fed just cut its Q2 GDP forecast once more, this time to 0.7% from 0.8%. This is on the back of a Q1 GDP which as of this moments is around -1.0%.

From the Atlanta Fed:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.7 percent on May 13, down slightly from 0.8 percent on May 5. The nowcast for second-quarter real consumer spending growth ticked down 0.1 percentage point to 2.6 percent following this morning’s retail sales report from the U.S. Census Bureau.

 

This means that the consensus will once again have to scramble and consult the Oracle Stone in their catch down to the Atlanta Fed.

It also means that the first half US GDP print will be negative and all else equal, would suggest a technical recession. It also means that for 2015 full year GDP to print at a “growing” 2.5%, the economy will have to grow at 5% or higher in both Q3 and Q4.

Good luck with that.

end
USA 30 yr bond yield rises to 3.07% and retraces 50% of the 2014 plunge:
(courtesy Bloomberg/zero hedge)

30Y Treasury Yield Retraces 50% Of 2014 Plunge

As 30Y yields push up to the highs of the day, steepning the yield curve across the entire complex, it has now retraced 50% of the yield collapse from the start of 2014 to early Feb 2015…

30Y Yields have retraced half the collapse of 2014…

and curves across the board have steepened dramatically…

Charts: Bloomberg

 

end

see you tomorrow night

Harvey

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