June 17b/Greece officially calls its debt to the Troika “ODIOUS”/revolts start in Greece/FOMC meeting results in gold and silver rising/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:


Gold:  $1176.40 down $4.00 (comex closing time)

Silver $15.94 down 2 cents.

In the access market 5:15 pm


Gold $1185.30

Silver: $16.14


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


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


At the gold comex today, we had a poor delivery day, registering 0 notices serviced for nil oz.  Silver comex filed with 0 notices for nil oz.


Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 242.33 tonnes for a loss of 61 tonnes over that period.


In silver, the open interest rose by 2,804 contracts even though Tuesday’s silver price was down by 12 cents.   The total silver OI continues to remain extremely high with today’s reading at 191,774 contracts now at multi-year highs despite a record low price. In ounces, the OI is represented by 958 million oz or 136% of annual global silver production (ex Russia ex China). 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 as they continue to raid as basically they have no other alternative.

In silver we had 0 notices served upon for nil oz.

In gold,  the total comex gold OI rests tonight at 415,718 for a gain of 8,848 contracts as gold was down by $4.80 yesterday. We had 0 notices filed for nil oz.

we had no change in gold inventory at the GLD; thus the inventory rests tonight at 701.90 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.

In silver, /no change in inventory at the SLV/327.874 million oz

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

1. Today, we had the open interest in silver rise by 2804 contracts to 191,774 despite the fact that silver was down by 12 cents on Tuesday.. The OI for gold rose by a whopping 8,848 contracts up to 415,718 contracts despite the fact that the price of gold was down by $4.80 yesterday.

(report Harvey)

2. Today, 6 important commentaries on Greece

zero hedge, Reuters/Bloomberg)

3. Dave Kranzler discusses the bubble in the housing sector of  the USA

(Dave Kranzler/IRD)


4. Gold trading overnight

(Goldcore/Mark O’Byrne)

5. Trading from Asia and Europe overnight

(zero hedge)

6. Trading of equities/ New York

(zero hedge)

7. A commentary on the upcoming death of the dollar as the Petro dollar is replaced by the petro-yuan.
(zero hedge)
8. We have 5 important commentaries on today’s FOMC meeting
(zero hedge/Jon Hilsenrath/Dave Kanzler)
9. a great commentary on the Fed-gate leak.
(zero hedge)

we have these plus other stories to bring your way tonight. But first……..

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 a whopping 8848 contracts from 406,870 up to 415,718 as gold was down $4.80  yesterday (at the comex close).  We are now in the big active delivery contract month of June.  Here the OI fell by 14 contracts down to 629. We had 17 notices served upon yesterday.  Thus we gained 3 contracts or an additional 300 oz will stand for delivery.  The next contract month is July and here the OI fell by 39 contracts down to 587.  The next big delivery month after June will be August and here the OI rose by 7093 contracts  to 273,644.  The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 33,094. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day) was poor at 105,101 contracts. Today we had 0 notices filed for nil oz.

And now for the wild silver comex results.  Silver OI rose by 2804  contracts from 188,970 up to 191,774 despite the fact that the price of silver was down 12 cents, with respect to Tuesday’s trading. We must have had our bankers pulling their hair out.  The front non active  delivery month of June saw it’s OI fall by 0 contracts and remaining at 27. We had 0 contracts delivered upon yesterday.  Thus we neither gained nor lost any silver contracts that will stand for delivery in this non active June contract month.The next delivery month is July and here the OI surprisingly fell by only 964 contracts down to 82,624. We have less than two weeks left to go before first day notice. The estimated volume today was poor at 13,619 contracts (just comex sales during regular business hours. The confirmed volume on day (regular plus access market) came in at 45,263 contracts which is very good in volume. We had 0 notices filed for nil oz today.

June initial standing

June 17.2015



Withdrawals from Dealers Inventory in oz    nil
Withdrawals from Customer Inventory in oz 63000.98 oz (Scotia,Manfra)
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz nil
No of oz served (contracts) today 0 contracts (nil oz)
No of oz to be served (notices) 629 contracts (62,900 oz)
Total monthly oz gold served (contracts) so far this month 2649 contracts(264,900 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month nil
Total accumulative withdrawal of gold from the Customer inventory this month  416,067.0  oz

Today, we had 0 dealer transaction

total Dealer withdrawals: nil oz

we had 0 dealer deposit

total dealer deposit: nil oz
we had 2 customer withdrawals

i) Out of Scotia: 62936.680 oz

ii) Out of Manfra: 64.30 (2 kilobars)

total customer withdrawal: 63,000.98 oz

We had 0 customer deposits:


Total customer deposit: nil oz

We had 0  adjustments:


Today, 0 notices was issued from JPMorgan dealer account and 10 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account

To calculate the total number of gold ounces standing for the June contract month, we take the total number of notices filed so far for the month (2649) x 100 oz  or 264,900 oz , to which we add the difference between the open interest for the front month of June (643) and the number of notices served upon today (17) x 100 oz equals the number of ounces standing.

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

No of notices served so far (2649) x 100 oz  or ounces + {OI for the front month (629) – the number of  notices served upon today (0) x 100 oz which equals 327,800 oz standing so far in this month of June (10.19 tonnes of gold).  Thus we have 10.19 tonnes of gold standing and only 17.07 tonnes of registered or for sale gold is available:

Total dealer inventory 548,844.869 or 17.07 tonnes

Total gold inventory (dealer and customer) = 7,791,115.871 (242.33 tonnes)

Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 242.33 tonnes for a loss of 61 tonnes over that period.



And now for silver

June silver initial standings

June 17 2015:



Withdrawals from Dealers Inventory 5225.17 oz (Scotia)
Withdrawals from Customer Inventory 68,402.04 oz (Scotia)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory  590,855.000 oz (CNT)??????
No of oz served (contracts) 0 contracts  (nil oz)
No of oz to be served (notices) 27 contracts(135,000 oz)
Total monthly oz silver served (contracts) 222 contracts (11,010,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month 526,732.4  oz
Total accumulative withdrawal  of silver from the Customer inventory this month 5,068,602.6 oz

Today, we had 0 deposits into the dealer account:

total dealer deposit: nil   oz

we had 1 dealer withdrawal:

i) out of Scotia: 5225.17 oz

total dealer withdrawal: 5225.17  oz

We had 1 customer deposits:

i) Into CNT:  590,855.000 oz??? can someone explain how we can get some a perfectly round number of a deposit???

total customer deposit: 590,855.000  oz

We had 2 customer withdrawals:

i) Out of Scotia: 60,065.800 oz

ii) Out of CNT: 8336.24 oz

total withdrawals from customer; 68,402.04 oz

we had 0 adjustment

Total dealer inventory: 57.840 million oz

Total of all silver inventory (dealer and customer) 180.693 million oz

The total number of notices filed today is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in June, we take the total number of notices filed for the month so far at (222) x 5,000 oz  = 11,100,000 oz to which we add the difference between the open interest for the front month of June (27) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing.

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

222 (notices served so far) + { OI for front month of June (27) -number of notices served upon today (0} x 5000 oz ,= 11,235,000 oz of silver standing for the June contract month.

we neither gained nor lost any silver ounces standing for this no active  delivery month of June.

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

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



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

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

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

i) demand from paper gold shareholders

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

vs no sellers of GLD paper.

And now the Gold inventory at the GLD:

June 17/no change in gold inventory/rests tonight at 701.90 tonnes

June 16./no change in gold inventory/Rests tonight at 701.90 tonnes.

June 15/we lost a huge 2.08 tonnes of gold from the GLD/Inventor rests tonight at 701.90 tonnes

June 12/we had a small withdrawal of .24 tonnes of gold from the GLD/Inventory rests this weekend at 703.98 tonnes.

June 11/we had another huge withdrawal of 1.5 tonnes of gold from the GLD/Inventory rests tonight at 704.22 tonnes

June 10/ we had a huge withdrawal of 2.98 tonnes of gold from the GLD/inventory rests at 705.72

June 9/ no change in gold inventory at the GLD/Inventory rests at 708.70 tonnes

June 8/ a big withdrawal of 1.19 tonnes of gold from the GLD/Inventory rests at 708.70 tonnes

June 17 GLD : 701.90  tonnes.




And now for silver (SLV) Please note the difference between GLD and SLV.  GLD has been depleting of gold/SLV has been adding to its inventory.

June 17/no change in silver inventory/327.874 million oz

June 16./no change in silver inventory/327.874 million oz

June 15/we had no change in silver inventory/327.874 million oz

June 12/we had another addition to the tune of 956,000 oz/Inventory rests this weekend at 327.874.  Please note that there has been an addition on each of the past 5 days.

June 11.2015: we had another monster of an addition to the tune of 2.791 million oz/Inventory rests at 326.918

June 10/another monster of an addition to the tune of 1.126 million oz/Inventory rests at 324.127

June 9/ a monster of an addition to the tune of 3.393 million oz/inventory rests at 323.001 million oz.

June 8/no change in inventory/SLV inventory rests at 319.608 milion oz.

June 5 a huge addition of 1.433 million oz of silver added to the SLV/Inventory at 319.608 million oz

June 17/2015: no change in silver inventory/SLV inventory rests tonight at 327.874 million oz


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

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

1. Central Fund of Canada: traded at Negative 8.0% percent to NAV in usa funds and Negative 8.1% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 61.6%

Percentage of fund in silver:38.1%

cash .3%

( June 17/2015)

2. Sprott silver fund (PSLV): Premium to NAV rises to +52%!!!!! NAV (June 17/2015)

3. Sprott gold fund (PHYS): premium to NAV rises to – .21% to NAV(June 17/2015

Note: Sprott silver trust back  into positive territory at +.52%.

Sprott physical gold trust is back into negative territory at -.21%

Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to Central GoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64)
Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis.
Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer.
Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer.
* * * * *


Early morning trading from Asia and Europe last night:

Gold and silver trading from Europe overnight/and important physical


(courtesy Mark O’Byrne/ Steve Flood/Goldcore)

“People Can No Longer Buy Retail Gold Coins”


– Armstrong and blogosphere on shortage of gold coins in Europe
– No shortage of gold whatsoever at retail level in Europe
– Gold demand in most of Europe quite mixed despite significant risks
– Germany, Switzerland, Greece seeing strong demand but no shortages
– Alarmist warning that governments to make gold “illegal”
– Poor data and research or disinformation?


A rumour has been making its way around the blogosphere suggesting that gold coins are not available for purchase from retail outlets across Europe. As one of Europe’s larger gold brokerage and storage providers, GoldCore can can confirm that this information is misleading and incorrect.

Martin Armstrong, who is well resourced and whose historical perspectives we sometimes find interesting, wrote about this supposed development recently and it has been taken up by other blogs.

Armstrong wrote:

“There is a very curious new development with respect to gold. In many European countries, people can no longer buy retail gold coins for bullion. Shops will buy but no one is selling. Banks that previously offered gold to the public have shut down in Spain. If someone leaves Spain wearing a lot of jewelry, authorities will pull them aside to weigh whatever jewelry they may have.”

The piece is entitled “Is gold becoming illegal?” and strikes us as being rather alarmist. We have seen no shortage of gold on a retail level whatsoever. Armstrong suggests that governments are “shutting down retail sales” and may confiscate gold and make it “illegal to even own.”

“Little by little, this hunt for money by desperate government is turning toward gold. Shutting down retail sales is quite alarming, for what typically follows is some decree of forcing the public to turn over bullion by a certain date, or thereafter it can be confiscated and illegal to even own.”

This is not true and there is no example of any European government “shutting down retail sales.”

Why these European governments would confiscate the tiny amounts of gold that their citizens have and not simply buy gold on the open market as is being done by the central banks of Russia, China and many other nations is ignored.

Also, the logistics of a government in this day and age confiscating gold and the enforcement of that confiscation is not considered.

It also ignores the fact that the gold bullion market is now a mature, sophisticated market that has become internationalized in recent years – arguably making the bullion market today more liquid than at any time in history.

If a prospective European buyer in one European country, such as Spain, cannot access gold from a local or national dealer there is absolutely nothing stopping them going online and buying from any of the scores of reputable bullion dealers in other EU countries or indeed from refineries and mints internationally.

Nor, is there anything to stop them from wiring funds to a bullion dealer or storage provider and storing gold in vaults in Zurich, Singapore or Hong Kong.

Demand for gold has actually been quite mixed across Europe in recent months. Refineries and mints we work with will attest to that fact.

This despite the unprecedented monetary experiment that is the ECB’s version of QE, the threats to the European project posed by a “Grexit” or “Brexit” and simmering tensions in the Middle East and between the EU and Russia.

At the same time Germany, Switzerland and Greece have seen robust demand for gold coins. Degussa, one of the larger refiners and wholesalers of gold in Europe reported a 30% surge in German demand in the first five months of this year.

“We expect demand to remain very buoyant as the uncertainty is still very high about Greece’s exit and concerns about other countries,” Bloomberg report the company’s CEO, Wolfgang Wrzesniok-Rossbach, as saying at the International Precious Metals Institute (IPMI) event on Monday in San Antonio, Texas.

He gave no indication of any shortages or inability to supply clients in Europe.

Indeed, even in Greece which looks set to default in the coming days and where we have seen some demand for gold sovereigns, including from Greek bullion dealers, there are no shortages of gold.

The suggestion that gold coin dealers across Europe are being hampered from selling to the public by national governments is incorrect. And when one poses the question “Is gold becoming illegal?” it begs the question – who benefits from the dissemination of this kind of negative information about gold?

Such information would likely discourage retail investors who are considering whether they should have an allocation of gold. Why would the typical retail investor buy something that the government may confiscate?

Of course, some governments may decide to confiscate gold but, unlike the experience in the U.S. in 1933 when the medium of exchange and currency was gold, as already indicated the amount of gold owned by the public today is minuscule.

This makes confiscation of gold bullion at an individual level highly unlikely. The risk is that governments may look to confiscate large pools of gold – with unallocated and ETF holdings held in banks being a prime target. There is also the risk that companies that control large pools of client gold could be nationalised by their national government.

We believe that there is possibility of debtor governments nationalising large gold deposits in large brokers, financial institutions and banks in their jurisdictions in the event of a systemic or monetary crisis.

This is why we advise clients to directly own physical gold and silver coins and bars en bailment (allocated, segregated, outright legal ownership and with the ability to take delivery) with secure, reputable vaulting companies in safe jurisdictions such as Singapore and Switzerland.

Armstrong also suggests that Chinese demand and indeed global demand for gold has fallen sharply and that this may result in the gold price falling further:

“Meanwhile, April saw the biggest decline in gold shipment to China that traditionally goes through Switzerland. In April, they fell 67%. As the economy has been turning down in Asia, the demand for gold has fallen by about 36%.

With governments in Europe cutting off the ability to buy gold, which is already declining in demand, mixed with the rising dollar, everything warns that the final low for gold may be on the horizon. …”

This is simplistic analysis as it focusses on Chinese mainland imports of gold from just Switzerland and ignores the huge supplied of gold flowing into China from all over the world into a variety of mainland Chinese cities and indeed Hong Kong.

Shanghai is obviously increasingly important in this regard and the best benchmark of total global Chinese demand remains withdrawals from the Shanghai Gold Exchange (SGE) and these remain robust (32.695 tonnes for the week ending June 5th) as indeed do premiums on gold bars in China.

Premiums on the Shanghai Gold Exchange were about $1-$2 an ounce overnight.


We have heard speculation regarding falling Chinese and Indian demand in recent years.
In fact, this has been the ebb and flow of the market and demand has fallen from record highs and then risen again. Indeed, when you fade out the daily, weekly and indeed monthly noise and focus on the quarterly and indeed the annual demand trends, it is clear that gold bullion demand in China, India has remained very robust and supportive of the gold market.

It is dangerous to use such simplistic analysis in order to make price predictions. Further lows and a “final low” in the gold market are possible but not due to European governments shutting down retail gold demand or alleged falling demand in China and Asia.


To conclude, there is no shortage of gold in Europe. If there were, it would be very much be in our interest and it would indeed be important to highlight that fact.

Given the very small size of the entire physical gold market and the even smaller size of the entire physical silver market, we believe shortages will likely develop when the next global financial crisis erupts.

This is a question of when rather than if as it is only a matter of time before this happens. Be assured – when shortages of gold coins and bars in Europe and internationally materialise you will hear about it.

For most, it will be then be too late to secure their coins and bars.

Must Read Guide:7 Key Gold Must Haves


Today’s AM LBMA Gold Price was USD 1,181.70, EUR 1,045.65 and GBP 748.92 per ounce.
Yesterday’s AM LBMA Gold Price was USD  1,186.20, EUR 1,050.06 and GBP 759.36 per ounce.

Gold slid $4.50 or 0.38 percent yesterday to $1,181.70 an ounce. Silver fell $0.09 or 0.56 percent to $16.02 an ounce.


Gold in Singapore for immediate delivery fell  0.2 percent to $1,179.01 an ounce an ounce near the end of the day,  while gold in Switzerland was flat again.

Gold continued losses overnight and stayed near $1,180 an ounce this morning despite the real and deepening risk of a Greek default. Jitters in the bond market and the risk of contagion are likely supporting gold and should see gains once the current period of lockdown below $1,200 comes to an end.

It appears Prime Minister Alexis Tsipras has no intention of making a last minute effort to meet the austerity demanded by the IMF and European lenders. Tsipras accused Greece’s creditors yesterday of trying to “humiliate” Greeks with more cuts. Europe appears to be preparing for Greece to leave the euro.

Some investors await the U.S. Federal Reserve policy statement at 1830 GMT.  Janet Yellen’s wording will be listened to for any hints as to the timing of the Fed’s interest rate hike. As ever, best to phase out the Fed’s words and focus on their actions and the reality that ultra low interest rates are set to continue for a few more months and likely for a few more years.

In late morning European trading gold is down 0.26 percent at $1,179.00 an ounce. Silver is off 0.25 percent at $15.96 an ounce and platinum is down 0.48 percent at $1,075.36 an ounce.

Silver continues to be accumulated. Smart money is taking the view that the supply and demand fundamentals are sound and the silver price is very undervalued versus increasingly frothy stock and bond markets and indeed even the depressed gold market (see Gold Silver ratio chart).


(courtesy Lawrence Williams/Mineweb)

Nonsensical gold commentary

A significant amount of commentary published on gold can be uninformed and misleading.

A bit of nonsense here – ‘Of shoes and ships and sealing wax, of cabbages and kings’ – a line from a perhaps allegorical poem – The Walrus and the Carpenter – by Lewis Carroll from Alice Through the Looking Glass for which a number of interpretations have been put forward by erstwhile scholars trying to seek a meaning. More likely, though, it was probably just a bit of nonsense designed to amuse the child for whom the book was written.

But it also reminds me of some of the nonsense spouted by economists and the mainstream media attempting to put their sometimes irrational interpretations on economic events – and particularly these days on the likely path of the gold price.

Perhaps the media can be forgiven – the writers probably have a brief to write commentary on something for which they only have a superficial understanding. They thus pick up on any claptrap spouted by self-important economists or analysts. These frequently gloss over any inconvenient factors, which may not fit their theories, before coming up with some didactic statement of so-called economic fact, which appears to support their own agenda…whatever that may be. This can be equally true of those who look for precious metals price movements up or down.

Where we would differ from much of the economic analysis by the mainstream media is by trying to piece together some of the facts out there, which are often ignored by those who may be discounting them for the sake of a good story, or headline. These may both point to rises or falls in the gold price as being likely, but mostly the former – a position which the media and the economists seem to be in total denial regarding.

For example, we have pointed out in these columns quite frequently in the recent past that Hong Kong gold exports to China can no longer be considered a proxy for total Chinese imports. We assume the Hong Kong figures are themselves accurate, but China has moved the goalposts and we do now know that a significant proportion of Chinese gold imports are entering the country directly, bypassing Hong Kong altogether, but China itself does not publish these figures so we don’t know for sure exactly how much is going in this way.

But other countries, like Switzerland and the USA do publish what we assume to be accurate export statistics which do give a breakdown of what is going to Hong Kong and what is going directly to China – and the proportion going directly to the mainland from these two nations at least is nowadays between 30 and 50%. And Switzerland in particular is known to be by far the biggest exporter of gold bullion to both China and Hong Kong. Thus we suggest that perhaps 40% of China’s gold imports are now coming in directly, rather than via Hong Kong which makes any reliance on rises and falls in Hong Kong gold exports to the mainland as fairly meaningless in assessing total Chinese imports. Yet still much of the heavily read major media, and some lazy commentators, publish assessments suggesting that the Hong Kong figures are just as relevant today as they were a couple of years ago before China eased its import restrictions. (See: China’s SGE gold withdrawals on track for record).

It also seems to be a given in media reports and analyses by bank economists that any rise in US interest rates will immediately mean a sharp decline in the price of gold on the markets. Indeed so strongly held is this ‘truism’ that any hint that the US Fed may be bringing forward the first interest rate rise for a number of years immediately knocks the gold price backwards as the theory is that because gold is a non-interest earning asset, people may switch to assets which give a greater rate of return. Well, true in concept but no-one seems to take account that any rise in interest rates will almost certainly be extremely small and still leave them in real negative territory.

But even more important is that in any case US demand for gold bullion nowadays is tiny in relation to demand elsewhere in the world where interest rates may still be falling and which should in reality be the true price setters. But this significant fact seems to be totally ignored and, unfortunately for the pro-gold lobby the prime gold commodity market is largely being driven by what we see as the plethora of what could be regarded as basically misleading information emanating from the media – reporting the views of the bank economists who, in any case may have their own hidden agenda. However, in recent months, any such consequent gold price dips have been remarkably short-lived as investors in parts of the world, which understand this, bring the price back to its previous levels, but aren’t yet prepared to chase prices upwards. (See: Gold: The US sets the price but Asia does the buying).

We have also touched on seasonality of demand. Both India and China, by far the largest gold consumers, see a sharp fall-off in demand through the late spring and summer months so to headline falls in imports between April, May or June and earlier months when demand is particularly strong is also very misleading.

On the other side of things, the gold bulls are often fixated on what they see as the basic law of pricing meaning that lower gold prices will lead to a sharp decline in newly mined gold output. This does not follow in the short to medium term and in any case gold supply moving into deficit may actually have little impact on the price. Above ground stocks in ETFs and, dare we say, potentially available for leasing from central banks, can ensure there remains ample supply (at a price) should production dip significantly. The initial impact, though, of lower gold prices is that production actually rises as the gold miners seek to keep their mines open by mining to higher grades, but at an unchanged mill throughput level, notwithstanding the adverse effects this may have on a mine’s life and long term profitability. The miners will be hoping that longer term prices will rise again enabling them to get back and mine the lower grades again – so here you have the great gold mine production anomaly. Lower gold prices may actually lead to higher gold output and vice versa.

Trying to predict the gold price is thus a somewhat invidious task. Things, which would seem to militate against rises, may have the opposite effect in reality. The pro-gold lobby sees what appears to them to be a concerted media campaign against possible price rises. They could well be right as there are politico economic factors at play here which might see gold price control as being in the best interests of maintaining currency, and economic, confidence. The big financial players – hedge funds and the bullion banks – may also have a hidden agenda in moving prices one way or another in their own best interests, and in the interests of their shareholders and clients, and again the pro-gold sector sees this as always being to gold’s disadvantage, but perhaps ignores times when gold moves the other way. So could things switch around in gold’s favour? Yes, but we don’t know when.

Most of the big Western Central Banks are loath to sell their gold, although many pay lip service to gold being unimportant as a monetary asset. If so why hang on to it? Others like the Russians and (as most believe) the Chinese are busy accumulating substantial additional holdings, perhaps as protection against a foreseen collapse of the value of the US dollar in which most foreign currency reserves are held.

So don’t take everything you read in the media on gold as necessarily being accurate. Or in providing good advice. As we mentioned earlier much is put out by reporters who really have little basic knowledge of the intricacies of the precious metals markets. The reporting is often based on views of those who feed them sometimes dubious facts, but have their own agendas and may make big profits for themselves and their clients by putting forward viewpoints which suit their own book and ensuring that these ideas are promulgated by often all too willing media outlets.


For the moment, China wants gold held down as much as Western central banks do


11:26a ET Wednesday, June 17, 2015

Dear Friend of GATA and Gold:

A friend asks what is meant by the Bank of China’s joining the London gold price-fixing process —


— and whether it will tend to support the gold price, since China seems to be accumulating so much metal.

The Bank of China is not China’s central bank — that’s the People’s Bank of China — but like all big banks in China, the Bank of China is owned and operated by the government and so in whatever it does it must be construed to be implementing government policy.

China may want the gold price to go up at some point, but if China lately had wanted to gold price to go up, it would have gone up already.

With its massive foreign-exchange reserves, China long has been able to run any market in the world, and thus for some years now nothing has happened in any major market without China’s assent.

China must have at least co-operated with the Western central bank attack on gold in April 2013, if only by declining to exercise the “Chinese put” that many analysts said had supported the gold market. Since that time China almost certainly has wanted the gold price held down, probably, as the sharpest analysts have speculated —


— to facilitate gold’s transfer from West to East in anticipation of a worldwide currency devaluation that will devalue unsupportable debt with it, boost the gold price, reliquefy central banks holding gold, and restore gold as government-recognized money.

Amid the now-comprehensive if largely surreptitious intervention by central banks in the gold market and major futures markets around the world, intervention extensively documented by GATA —


— gold is likely to rise only when China wants it to or when the major central banks all together want it to and stop their shorting, leasing, swapping, and high-frequency futures trading.

Theoretically gold also could go up if enough non-governmental investors worldwide ever got wise and bought enough real metal and took it out of the government-controlled financial system. But that would require being alerted by independent and honest mainstream financial news organizations exposing the manipulation of markets by central banks, and there aren’t any.

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



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

1 Chinese yuan vs USA dollar/yuan weakens to 6.2087/Shanghai bourse green and Hang Sang: green

2 Nikkei closed down by 38.67  points or 0.19%

3. Europe stocks all in the red/USA dollar index down to 94.86/Euro rises to 1.1259

3b Japan 10 year bond yield: slightly falls  .48% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 123.93/very ominous to see the Japanese bond yield rise so fast!!

3c Nikkei still just above 20,000

3d USA/Yen rate now well above the 123 barrier this morning

3e WTI 61.14 and Brent:  65.16

3f Gold down/Yen down

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

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

3h Oil 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 .80 per cent. German bunds in negative yields from 3 years out.

Except Greece which sees its 2 year rate jump big time  to 30.19%/Greek stocks rise by a tiny 0.45%/ still expect continual bank runs on Greek banks /Greek default inevitable/

3j Greek 10 year bond yield rise to to: 12.72%

3k Gold at 1179.80 dollars/silver $15.99

3l USA vs Russian rouble; (Russian rouble up 1/10 in  roubles/dollar in value) 54.11,

3m oil into the 61 dollar handle for WTI and 65 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 .9282 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0450 just below the floor set by the Swiss Finance Minister.

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

3r the 3 year German bund remains in negative territory with the 10 year moving closer to  negativity at +0.80

3s Ten weeks ago, the ECB increased the ELA to Greece by another large 2.0 billion euros.Six weeks ago, they raised it another 1.1 billion and then 4 weeks ago they raised it another tiny 200 million euros to a maximum of 80.2 billion euros. Three weeks ago, the limit was not raised. Last week, the ECB raised the ELA by 1/2 billion euros to 80.7 billion euros. Last Thursday, it was raised by a huge 2.3 billion euros to 83.0 billion.The ELA is used to replace depositors fleeing the Greek banking system. The bank runs are increasing exponentially.This week 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.

3t Greece  paid the 700 million plus payment to the IMF last Wednesday but with IMF reserve funds.  The funds are deferred to June 30.

3 u. If the ECB cuts off Greece’s ELA they would have very little money left to function. So far, they have decided not to cut the ELA but this weekend is the likely time to do it.

4. USA 10 year treasury bond at 2.33% early this morning. Thirty year rate well above 3% at 3.06% / yield curve flatten/foreshadowing recession.

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

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Futures Rebound As Yellen’s Market-Lifting Track Record Offsets Greek Gloom

With the Fed’s June FOMC statement in just over 7 hours and a Yellen press conference to follow shortly, one in which nobody expects the Fed will announces its first rate-hiking cycle in nine years despite repeated clues by Yellen that not only is there froth in the market but that the Fed has no dry powder to contain the next crisis when it emerges (even though a rate hike will catalyze the next crisis), traders have chosen to ignore the chatter from Greece which is getting worse by the hour, and unlike recent days, have bought risk overnight based on one simple technical: of the five press conferences in ten Fed meetings held by Yellen as Chairman, the S&P finished higher 80% of the time. And that, in a world dominated by HFT “big data” statistics is all one needs to know to load the boat.

Here is Deutsche’s preview of today’s potentially quite historic FOMC meeting: “DB’s Chief Economist Peter Hooper expects that we get no clear verbal signal pointing to a September liftoff tonight, but the Committee’s economic projections and Yellen’s message at the press conference will not be interpreted as inconsistent with that outcome. Peter notes that one important aspect of the meeting will be how upbeat the Committee sounds about economic developments in the opening paragraph of the statement as well as in Yellen’s statement at the press conference. The message will be that things are gradually moving into place for liftoff, but without clear indication or suggestion that it will be September, particularly given the still significant data to come between now and then. Recent data supports a more upbeat tone relative to April, while housing numbers and the latest trade report support the view that the winter lull was largely transitory. On the inflation picture, Peter believes that although the level of prices is still significantly lower than the Fed eventually wants to see, this is not a picture that would inhibit them to raising rates later this year, rather it’ll be interesting to see if Yellen acknowledges the green shoots in wage inflation or if she chooses to ignore or downplay them. In terms of economic projections, it’s likely we see the 2015 growth forecast downgraded, however Peter see’s little reason for the projections of either unemployment or core PCE inflation to change appreciably. Given little change in the prospective key drivers of policy rates, there therefore seems little reason to adjust the dot charts meaningfully. It’s possible that we see some of the higher dots marked down, but the important cluster around the median dot is expected to remain where it is for this year and next in Peter’s eyes. It’s possible that we do see the median dot for the longer-term neutral rate edge lower to 3.5% however.”

Speaking of Greece, one thing nobody expects and yet which the ECB could finally trigger is the so-called nuclear option, when the central bank refuses to raise or even reduces the ELA support for the Greek insolvent banking system. Such a development would launch the endgame culminating with either a Grexit or the Tsipras government resigning.

In any event, despite the lack of progress to resolve the situation in Greece, signs of fatigue following days of selling became apparent today and in turn meant that equity indices in Europe fluctuated between minor gains and losses since the open. In equity specific news, Remy Cointreau traded sharply higher after reporting higher FY operating profit and also raised dividend. Elsewhere, reports suggesting that from German press that Deutsche Telekom are in discussions with Comcast over the German telecoms T-Mobile unit.

Short-Sterling curve bear steepened aggressively following the release of the latest UK jobs report (better than expected wage growth data), while the release of the BoE minutes failed to reveal any meaningful change in the stance (9-0 vote). As a result of the re-pricing, a rate hike is now expected to take place in June 2016 vs. August 2016 prior to the release.

In Asia stocks traded mixed with the Shanghai Comp (+1.65%) despite sustained worries of a fresh clampdown on margin financing and this week’s wave of new IPOs. As virtually everyone has noted by now, the only question is not if but when the Chinese bubble pops. However, with the government firmly behind the biggest Chinese asset inflation in 8 years, this can go on for a while. The Hang Seng (+0.7%) fluctuated between gains and losses, while Nikkei 225 (-0.4%) remains in the red, after overturning its opening gains. The ASX 200 (+1.1%) is the session’s best performer lifted by financials as the sector trimmed yesterday’s losses, pushing the index back above its 200 DMA.

The CHF strengthened across the board, on touted safe haven bid, lack of liquidity, uncertainty over the FOMC and pre-positioning ahead of the SNB policy meeting tomorrow. Consequent USD weakness ensured that EUR/USD traded higher, while GBP/USD benefited from better than expected UK jobs report, while the release of the BoE minutes failed to reveal any meaningful change in the stance (9-0 vote).

WTI and Brent crude futures trade higher, supported by a weaker USD and yesterday’s API inventory report which showed a second consecutive drawdown in crude oil stockpiles. While the release of the DoE crude inventories are expected to show a drawdown of 1800K which is also supporting price action in oil. Spot gold has continued to gradually edge lower throughout the session alongside the stronger USD.

In summary: European shares trade between gains and losses with the autos and retail sectors underperforming and oil & gas, banks outperforming. Bank of England officials said factors holding back economy and keeping inflation below target are fading. U.K. wage growth higher than est., unemployment in line. Japan exports rise less than estimated. The French and Swedish markets are the worst-performing larger bourses, the Italian the best. The euro is stronger against the dollar. Japanese 10yr  bond yields fall; Spanish yields decline. Commodities gain, with silver, gold underperforming and Brent crude outperforming. U.S. mortgage applications, FOMC rate decision due later.

Market Wrap

  • S&P 500 futures up 0.3% to 2094.5
  • Stoxx 600 down 0.1% to 385.6
  • US 10Yr yield up 3bps to 2.33%
  • German 10Yr yield up 1bps to 0.81%
  • MSCI Asia Pacific down 0% to 146.4
  • Gold spot down 0.3% to $1178.9/oz
  • 27.7% of Stoxx 600 members gain, 70% decline
  • Eurostoxx 50 -0.2%, FTSE 100 -0.3%, CAC 40 -0.5%, DAX -0.2%, IBEX +0.1%, FTSEMIB +0.6%, SMI -0.4%
  • Asian stocks little changed with the Shanghai Composite outperforming and the Nikkei underperforming; MSCI Asia Pacific down 0% to 146.4
  • Nikkei 225 down 0.2%, Hang Seng up 0.7%, Kospi up 0.3%, Shanghai Composite up 1.6%, ASX up 1.1%, Sensex up 0.5%
  • Euro up 0.14% to $1.1264
  • Dollar Index down 0.15% to 94.85
  • Italian 10Yr yield down 7bps to 2.26%
  • Spanish 10Yr yield down 8bps to 2.28%
  • French 10Yr yield down 2bps to 1.23%
    S&P GSCI Index up 1.3% to 441.6
  • Brent Futures up 2% to $65/bbl, WTI Futures up 1.7% to $61/bbl
  • LME 3m Copper up 0.3% to $5767.5/MT
  • LME 3m Nickel up 0.6% to $12800/MT
  • Wheat futures up 2% to 504.3 USd/bu

Bulletin Headline Summary from Bloomberg and RanSquawk

  • CHF strengthens on touted safe haven flow, while GBP gains ground across the board following better than expected UK jobs report.
  • Greece remains in focus, EU officials have requested that EU leaders attend a summit this Saturday, while a senior EU Officials said that sufficient cover is in place in the Eurozone in reference to Greece.
  • Going forward, focus will be on the FOMC announcement and the weekly DoE Inventories report.
  • Treasuries decline before Fed concludes two-day meeting, with statement and updated SEP due at 2pm followed by Yellen presser.
  • FOMC statement may note improving economic data although Fed appears unlikely to begin hiking rates in June, based on published research from economists/strategists
  • Having soothed investors for the past seven years with low interest rates, bond-buying and other interventions aimed at shoring up weak economies, monetary policy makers are slowly stepping out of markets in a variety of ways
  • France’s European commissioner, Pierre Moscovici, said requests being asked of Greece were far from “crazy,” amid the direst warnings yet from the Greek central bank chief about the consequences of failure to reach an accord
  • Bank of England officials said factors constraining price growth were “likely to dissipate fairly shortly,” and could strengthen “notably” by year-end
  • Separate data published Wednesday showed U.K. pay growth accelerated to the fastest in almost four years
  • The ECB’s ABS purchase program should be judged on more than purchases and new issuance, a central bank official said; criteria should also include success in removing “stigma” from ABS and issuance of more “simple and transparent” deals
  • It’s no longer a question of whether China’s stock market rally is a bubble, but when the bubble will burst, according to a growing number of analysts; Bocom Intl says a crash may come within six months
  • About 1% of the global population, or about 73 million people, have been forced to leave their homes amid a spike in armed conflict over the past four years, the Institute for Economics  and Peace said in a report published on Wednesday
  • Sovereign 10Y bond yields mostly lower. Asian stocks mostly higher, European stocks mixed, U.S. equity-index futures gain. Crude oil and copper gain, gold lower


DB’s Jim Reid completes the overnight wrap


Greece headlines are set to be put to one side tonight when at 7pm GMT, the focus will be switched over to the Fed when we get the statement outcome from the FOMC meeting and Fed Chair Yellen’s post-meeting press conference shortly after. 10y Treasury yields fell for a second consecutive day yesterday, finishing 4.7bps lower at 2.310%, while yields on Fed Funds rates also edged down after a fairly nervous session for markets following mixed US housing data, the continued ping-pong political battle concerning Greece and of course ahead of today’s main event.

Looking forward first of all to tonight and the FOMC, DB’s Chief Economist Peter Hooper expects that we get no clear verbal signal pointing to a September liftoff tonight, but the Committee’s economic projections and Yellen’s message at the press conference will not be interpreted as inconsistent with that outcome. Peter notes that one important aspect of the meeting will be how upbeat the Committee sounds about economic developments in the opening paragraph of the statement as well as in Yellen’s statement at the press conference. Peter expects that the message will be that things are gradually moving into place for liftoff, but without clear indication or suggestion that it will be September, particularly given the still significant data to come between now and then. Recent data supports a more upbeat tone relative to April, while housing numbers and the latest trade report support the view that the winter lull was largely transitory. On the inflation picture, Peter believes that although the level of prices is still significantly lower than the Fed eventually wants to see, this is not a picture that would inhibit them to raising rates later this year, rather it’ll be interesting to see if Yellen acknowledges the green shoots in wage inflation or if she chooses to ignore or downplay them. In terms of economic projections, it’s likely we see the 2015 growth forecast downgraded, however Peter see’s little reason for the projections of either unemployment or core PCE inflation to change appreciably. Given little change in the prospective key drivers of policy rates, there therefore seems little reason to adjust the dot charts meaningfully. It’s possible that we see some of the higher dots marked down, but the important cluster around the median dot is expected to remain where it is for this year and next in Peter’s eyes. It’s possible that we do see the median dot for the longer-term neutral rate edge lower to 3.5% however. So all eyes on tonight.

As mentioned, Fed Funds expectations slipped slightly yesterday leading into tonight’s meeting with the Dec15, 16 and 17 contracts 1bp, 2bps and 3.5bps lower in yield respectively although in reality are still at the higher end of the recent range. Treasuries were reasonably well bid with Greece concerns once again fueling something of a safe haven bid, while the Dollar index firmed modestly (+0.20%). Perhaps surprisingly it was a stronger day for US equities as the S&P 500 (+0.57%) and Dow (+0.64%) benefited from a boost in consumer staples stocks as M&A activity helped lift markets.

Data flow in the US was disappointing at the margin. Housing starts for May generated headlines following a -11.1% mom (vs. -4.0% expected) print, falling sharply to 1036k from 1165k in April. Despite a better than expected building permits reading meanwhile (+11.8% vs. -3.5% expected) as permits climbed to eight year highs, the WSJ noted that this figure was most probably overstated given the surge in applications due to the expiration of tax-abatement laws this month in New York which was evident by the bulk of the rise in permits coming from the Northeast region. Yesterday’s data saw the Atlanta Fed GDPNow forecast for Q2 real GDP growth stay at 1.9%, although that was after the soft housing starts data being offset by Monday’s uptick in forecasts of real investment in petroleum and natural gas after the IP report.

Moving on, another day passed by in the Greece saga with little material progress. Instead, hopes appear to be fading for any agreement at tomorrow’s Eurogroup meeting after German newspaper Bild reported Greek Finance Minister Varoufakis as saying that Greece will not present a list of new proposals at the meeting. Prime Minister Tsipras was as defiant as ever meanwhile. Speaking in parliament at a meeting of Syriza’s parliamentary group, Tsipras targeted criticism at the level of the IMF, saying that the Fund ‘bears criminal responsibility for the situation in the country’ while also blaming Creditors on the insistence of denying any discussion on debt relief. German Chancellor Merkel extended her conciliatory comments meanwhile, maintaining that she wants to do everything possible to keep Greece in the euro zone and ‘concentrating all my energy on helping the three institutions and Greece find a solution’. Later in the day US Treasury Secretary Lew called Tsipras urging him to make a ‘serious move’ to compromise. For now the focus turns to tomorrow’s Eurogroup meeting. In the event of a deadlock, suggestions are that an emergency EU Leaders Summit will be called over the weekend to try and place a formal deadline on Greece. Today’s ELA review will also be important in the context of any potential funding cut off.

There was plenty of volatility in European markets yesterday where we saw risk assets bounce off their lows for the day. Indeed, having traded as much as 1% down in early trading the Stoxx 600 then rebounded to finish +0.64% on the day, while there were similar moves for the DAX (+0.54%) and CAC (+0.51%). There was similar intraday volatility in peripheral bonds meanwhile. Having traded some 12bps wider at the open and breaking 2.5% for the first time since August last year, 10y Spain yields then rallied to finish 5.7bps lower on the day at 2.343%. Italy (-1.9pbs) and Portugal (-4.0bps) also had similar rallies as markets bounced around on the various Greek headlines although it appears that Merkel’s more conciliatory comments helped lift markets. 10y Bunds, meanwhile, benefited from safe haven flows for most of the session, closing 2.7bps lower in yield at 0.795%. It was a weaker day once again for Greek assets as Greek equities finished 4.77% lower to mark the third consecutive day of losses of at least 4.50% with a MTD return now of -14.82%. Greek 2y and 10y yields finished 95bps and 75bps higher respectively.

It was a reasonably busy day for data flow in Europe yesterday although one which offered few surprises. German CPI for May was unchanged in the final revision at +0.1% mom and +0.7% yoy. The headline CPI reading for the UK was also as expected at +0.1% yoy, lifting the economy out of deflation, however the core came in slightly below expectations at +0.9% yoy (vs. +1.0% expected). RPI (+1.0% yoy vs. +1.1% expected) and PPI (-1.6% yoy as expected) were mixed. The German ZEW investor confidence survey for June weakened meanwhile, with the reading falling 2.8pts to 62.9 (vs. 63.0 expected), the second consecutive monthly decline as mounting Greek concerns weighed. The expectations index also slipped, falling to 31.5 from 41.9 last month – the lowest level since November.

Elsewhere the ECB’s OMT program – the details of which were announced in September 2012 – received a boost yesterday after getting the backing of the EU Court of Justice. The ECJ stated that ‘the programme for the purchase of bonds on secondary markets does not exceed the powers of the ECB in relation to monetary policy and does not contravene the prohibition of monetary financing in member states’. The programme initially came about from Draghi’s promise to do ‘whatever it takes’ to save the Euro and the verdict will be a welcome one for the ECB President in his crisis fighting armoury.

Looking at our screens this morning, bourses are trading with little obvious direction in the Asia timezone. Losses are being led out of China where the Shanghai Comp (-1.26%) and Shenzen (-1.54%) have suffered sharp declines for the third consecutive day. The Nikkei (-0.40%) is also lower while the Hang Seng (+0.34%) and ASX (+0.97%) are both higher in trading this morning. Elsewhere, the Yen is fairly unchanged versus the Dollar at ¥123.45 after Japan posted slightly more disappointing than expected export numbers for May (+2.4% yoy vs. +3.0% expected). Imports contracted 8.7% after expectations for a 7% decline. 10y Treasuries are 0.7bps lower in yield meanwhile, while other bond markets in Asia are generally following suit.

Onto today’s calendar now, the final May reading for Euro area CPI will be of focus for markets this morning, as will the release of the BoE minutes and various UK employment indicators. There will likely be plenty of Greece headlines to digest too. Over in the US the attention is on the outcome from the FOMC meeting and the post meeting press conference from Fed Chair Yellen.

The following is quite a story: The central bank of Greece is pleading for a deal as they know that if no deal comes to pass then there will be an uncontrollable crises ensuing on top of soaring inflation:
(courtesy zero hedge)

Bank Of Greece Pleads For Deal, Says “Uncontrollable Crisis”, “Soaring Inflation” Coming

The situation in Greece has escalated meaningfully since last week. After the IMF effectively threw in the towel and sent its negotiating team back to Washington on Thursday, EU and Greek officials agreed to meet in Brussels over the weekend in what was billed as a last ditch effort to end a long-running impasse and salvage some manner of deal in time to allow for the disbursement of at least part of the final tranche of aid ‘due’ to Greece under its second bailout program. Talks collapsed on Sunday however as Greek PM Alexis Tsipras, under pressure from the Left Platform, refused (again) to compromise on pension reform and the VAT, which are “red lines” for both the IMF and for Syriza party hardliners.

By Monday evening it was clear that both EU officials and Syriza’s radical left were drawing up plans for capital controls and a possible euro exit with Brussels looking to Thursday’s meeting of EU finance ministers in Luxembourg for a possible breakthrough. That seems unlikely however, given that Athens is sending FinMin Yanis Varoufakis whose last Eurogroup meeting ended with his being sidelined in negotiations after putting on a performance that led his counterparts to brand him an amateur, a gambler, and a time waster. For his part, Varoufakis says no new proposal will be tabled in Luxembourg as Eurogroup meetings aren’t the place for such discussions, which is ironic because Jean-Claude Juncker said something similar not long ago when the Greeks were trying to get a deal done at the very same Eurogroup meetings.

Perhaps realizing that pinning everyone’s hopes on a Thursday breakthrough is a fool’s errand, the EU will reportedly convene a high level, emergency meeting over what we’ve suggested may be a “Lehman Weekend” for the market.

Against this backdrop the war of words heated up on Tuesday with Tsipras delivering yet another incendiary speech to parliament in which the PM claimed the IMF has “criminal responsibility” for trying to “humiliate an entire people”, which is ironic because if anyone should be humiliated here it’s probably the IMF given that Athens employed the old “one move and Greece gets it” routine to force the Fund to pay itself €730 million in May and now faces the uncomfortable prospect of being railroaded into disbursing €3.5 billion in doesn’t want to disburse so that Greece can make June’s payments which have already been delayed and which Athens now wants to put off for another six months. Meanwhile, Jean-Claude Juncker has dropped the “Tsipras is my friend” routine altogether, saying he “doesn’t care about the Greek government” but rather about “the Greek people.” Juncker (who once famously opined that “when it gets serious, you have to lie”) took it a step further on Tuesday, blaming Athens for misleading Greeks: “I am blaming the Greeks for telling things to the Greek public which are not consistent with what I’ve told the Greek Prime Minister,” Juncker said. “Juncker either hadn’t read the document he gave Tsipras…Or he read it and forgot about it,”Varoufakis quipped, in a terse response. Finally, France’s European commissioner, Pierre Moscovici, brushed off Tsipras’ contention that the troika’s demands are “absurd,” saying creditors’ push for pension and VAT concessions is “far from crazy.”

And while the politicians engage in one-up word battles and play an endless game of headline hockey, analysts, bankers, and economists are busy speculating on what capital controls and a Greek exit will look like. Here’s UBS:

It would not be the first time that capital controls have been introduced in the Eurozone – there is the precedent of Cyprus, which restricted capital flows between March 2013 and April 2015. Yet, importantly, in the case of Cyprus, capital controls were imposed as part of a Troika bailout with the aim of protecting the Cypriot banking system while it was being stabilised and restructured. In contrast, in Greece capital controls would be imposed in the absence of a deal – as a result of stalemate in discussions over broader issues of economic policy. Against this background, we worry that capital controls in Greece would be another step towards an uncertain course of events and possibly a harbinger of worse things to follow.


Relative to Cyprus, capital controls in Greece might also be more painful. Compared to Cyprus, Greece is a more closed economy (Greece’s export quota is 33%, Cyprus’ is 56% (2014)). A larger part of economics activity is dependent on domestic drivers and the economy can rely much less on trade driven currency inflows to finance external payments. As a result, recessionary dynamics are likely to get worse in the domestic economy (and potentially even in parts of the export sector). Exporters short in cash and reliant on bank credit would face difficulties to transact (this might include even part of the tourism sector). Import activity would gradually be rationed to the extent that outflows match the inflow of Euros from abroad. The domestic cash business would decline in size and financial conditions and lending activity will tighten. Counterparty risk would pick up domestically, with collateral in domestic sectors rationed by firms’ capacity to generate cash. In addition to the cash constraints, heightened uncertainty would make economic actors very cautious (potentially affecting payment morale), thus restricting economic activity.

And from Bloomberg:

How would capital controls work?

They would hurt. No one knows the specifics for Greece, but here’s what happened in Cyprus: ATM withdrawals were capped at 300 euros a person per day. Transfers of more than 5,000 euros abroad were subject to approval by a special committee. Companies needed documents for each payment order, with approvals for over 200,000 euros determined by available liquidity. Parents couldn’t send children that were studying abroad more than 5,000 euros a quarter. Cypriots traveling abroad could carry no more than 1,000 euros with them. Termination of fixed-term deposits was prohibited, while payments with credit and debit cards were capped at 5,000 euros. Checks couldn’t be cashed.


How would capital controls be put in place? 


An element of surprise helps. In Cyprus it started with a long bank holiday, between March 16 and March 28, 2013. That gave the country time to negotiate an accord with euro-area member states and the International Monetary Fund. Banks re-opened with restrictions in place and a recapitalization plan for the country’s financial system, which included the imposition of losses on deposits.


How long might it last?


There’s no real limit. Cyprus kept controls in place for two years, even though they were supposed to be a temporary emergency measure. Limits on transactions gradually eased over the two-year period, before being lifted completely in April 2015. Experience from other countries, including Iceland, shows that once in place, they can only be removed gradually, after a long period of time. Iceland’s government presented a bill this month to lift capital controls implemented in 2008.

But perhaps the most dire assessment came from the Bank of Greece, which warned on Wednesday of an “uncontrollable crisis” in the absence of a deal. Here’s more, from the press release:


Failure to reach an agreement would, on the contrary, mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union. A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring.


All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.


This is why the Bank of Greece firmly believes that striking an agreement with our partners is a historical imperative that we cannot afford to ignore. From all the evidence available so far, it seems that a compromise has been reached on the main conditions attached to this agreement and that little ground remains to be covered. Besides, the lowering of the primary surplus targets is a decision of paramount importance that significantly extends the time needed for fiscal adjustment and allows for additional degrees of freedom in the conduct of fiscal policy. Equally important will be the reaffirmation and articulation in more specific terms of our partners’ willingness to provide debt relief, as initially stated at the Eurogroup meeting of 27 November 2012. What we need today is a viable debt deal which will spare future generations burdens that we have no right to saddle them with. 

To get an idea of how far apart the two sides are, consider the following from Tsipras (via Bloomberg):

“Our proposals fully ensure that we meet the budget targets that creditor institutions have set for 2015 and 2016,” Greek PM Alexis Tsipras tells reporters in Athens after meeting Austrian Chancellor Werner Faymann.


Savings of EU1.8b in 2016 alone from pension system aren’t possible; Greek proposals lead to savings of EU300m. There’s no room for additional pension cuts.


“Our proposals fully cover the extent of fiscal consolidation demanded, but Greece is a sovereign state. The Greek government has a recent mandate and it is its own competence to decide how to tax and where will it find themoney. The demand to find the savings asked from pension cuts is incomprehensible.”


“If Europe’s political leaders insist on this incomprehensible demand, they will assume the cost of a development which will not be beneficial for anyone in Europe.”

Government will assume responsibility to say “the big No” if no viable agreement is on the table.

And then of course there’s the incomparable, incorrigible Mr. Schaeuble:


If all of this sounds unequivocally bad to you and if it seems that capital controls and some manner of dramatic political and social upheaval are now an inevitability in Greece, you’re not alone, but because we like to preserve our reputation for staying positive, we’ll leave you with the following reassuring words from Tsipras:

“The real negotiations are starting now.”


Reuters comments on the above story:

(courtesy Matthias Williams/Reuters)

Markets | Wed Jun 17, 2015 8:06am EDT

Greek central bank issues ‘Grexit’ warning if aid talks fail


The Greek central bank warned on Wednesday that the country would be put on a “painful course” towards default and exiting the euro zone if the government and its international creditors failed to reach an agreement on an aid-for-reforms deal.

It also said Greece risked a renewed bout of recession and predicted that the current economic slowdown would accelerate in the second quarter of this year. The Greek economy had started growing again last year after being pounded by years of austerity, but fell back into negative growth in the first quarter of 2015, contracting by 0.2 percent year-on-year.

The ongoing crisis has prompted an outflow of deposits of about 30 billion euros ($33.84 billion) from Greek lenders between October and April, the central bank said.

Time is fast running out for Athens and its creditors to reach a deal before a 1.6 billion euro repayment by Greece to the International Monetary Fund falls due at the end of the month. But neither side appears willing to give ground, with Greek Prime Minister Alexis Tsipras accusing the creditors of trying to “humiliate” his country by demanding more cuts.

Despite the heated rhetoric, the central bank said that the two sides appeared to have reached a compromise on the main conditions attached to an aid agreement, and that little ground remained to be covered for a deal to stick.

“Failure to reach an agreement would … mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and, most likely, from the European Union,” the Bank of Greece said in a monetary policy report.

“Striking an agreement with our partners is a historical imperative that we cannot afford to ignore.”

Austrian Chancellor Werner Faymann, who has taken a relatively lenient line with Greece, was in Athens on Wednesday in a last-ditch bid to end the standoff.

The Greek central bank urged the European Union to spell out promises of debt relief to Greece – a key demand from Athens – in greater detail.

“An agreement would allow Greece to benefit from the favorable global environment and the ECB’s quantitative easing program,” the report said.

“Our top priority right now should be to create, as soon as possible, those conditions that would enable the Greek economy to benefit from the favorable global economic environment and the highly accommodative monetary policy at the euro area level and speed up a sustainable return to global capital markets.”

($1 = 0.8866 euros)




Greek Bank Bonds Plunge To Record Lows As ELA Haircut Looms

The most sensitive financial instrument to the reality of the situation in Greece is flashing redder than it has ever flashed before. After trading at par just 9 months ago when everyone was proclaiming the Greek crisis over, Greek bank bonds are now trading at a stunning 55 cents on the dollar… For anyone “hoping” that a deal is nigh, real money investors are saying “nein nein nein.”



With The ECB’s decision on ELA due today, we suspect the news wil lnot be great.

One has to woinder just who or what is suddenly buying EU stocks as contagion sporeads across Europe’s entire financial system?


Charts: Bloomberg


This is unbelievable;  the Greek debt committee has just officially declared all of the Greek debt to the 3 members of the institutions  (i.e. Troika) to be illegal, illegitimate and officially ODIOUS.  Therefore this is basically a declaration of default:
(courtesy zero hedge)
Now the protests start in earnest:
(courtesy zero hedge)

Meanwhile, In Greece, The Protests Return

With capital controls set to be implemented as soon as this weekend, and with EU officials planning to convene an emergency meeting on either Saturday or Sunday, Greeks are understandably restless at the prospect of being ‘Cyprus’d‘ while they wait to hear if they will be subject to further austerity or worse, a redenomination-fueled economic collapse.  

On the eve of a critical Eurogroup meeting in Luxembourg where FinMin Yanis Varoufakis says no new proposal will be tabled, Greeks are taking to the streets ahead of an anti-austerity protest planned for Wednesday evening. 

Here are the visuals:

It sure looks like a revolt is all but assured:
(courtesy zero hedge)

Greek Citizens Threaten To “Take The Heads” Of “Grave Digging” Creditors

Why there’s quite a bit of ambiguity surrounding Greece’s protracted (and increasingly absurd) negotiations with creditors, one thing is clear: the Greek populace faces a lose-lose scenario.

Striking a deal with creditors means accepting more austerity including pension cuts and a VAT hike. Failure to reach a deal means redenomination and, in all likelihood, an outright economic collapse as Greece is digitally bombed back to a barter system.

The combination of austerity and economic depression has hit the country’s pensioners especially hard, and times would get even tougher should PM Alexis Tsipras choose to concede to the troika’s so-called “red lines.” In April, pension payments were delayed by some 8 hours in what Athens claimed was a “technical glitch” and the Greek government’s move to borrow from pension funds in order to pay the bills not only represents yet another in a series of ridiculously circular funding schemes, but also demonstrates the extent to which pensioners are imperiled by Greece’s increasingly desperate situation.

Their backs against the wall, some Greeks have had enough and say further cuts to pensions and/or an increase in the VAT would lead some citizens to revolt (and that’s putting it mildly). WSJ has more:

As Greece lurches toward climb-down or collision with its creditors, an exhausted population is bracing for more economic pain—either way.


Panagiotis Koupalidis, a 68-year-old retiree, is supporting his wife as well as their three grown children, who lost their jobs in Greece’s depression, on a pension of €700 ($790) a month. That is just over half what it was before the austerity measures imposed by creditors as the condition for bailout loans..


“The creditors are acting like grave diggers,” he says. “They want to send us pensioners to an early grave.” Pension cuts and sales-tax increases—which would inflict the most pain on low-income families already living hand to mouth—are the most politically explosive demands from Greece’s creditors, who see them as essential to restoring Greece’s long-term financial stability.


(Communist-affiliated union members at the finance ministry last week)


Mr. Tsipras told lawmakers from his left-wing Syriza party that Greece can’t accept the terms on offer, but tried to sound optimistic. “I believe that we are now in the final stretch. The real negotiations are starting now,” he said on Tuesday.


Failure to reach a deal could lead to even-more pain through capital controls, further economic meltdown and a turbulent exit from the euro.


The prospect of sharp hikes in value-added tax, a form of sales tax, are threatening to hurt Greece’s battered business sector further. Lenders want to simplify Greece’s exemption-ridden VAT system and raise some rates to boost revenues by 1% of GDP a year.


The IMF is insisting on the measure through even though it thinks Greece’s economy is already overtaxed, because it sees extra revenues as essential for paying down Greek debt if Europe—which holds the bulk of it—won’t write it down.


“How can a deal that raises VAT even more be a good deal?” said Christos Lousis, a 53-year-old entrepreneur whose window-installation business had 26 employees before the crisis.


Years of recession have forced him to lay them all off, while his sales have fallen by nearly 90%. Now struggling to service his mortgage and the loans on his shrunken business, the father of two also fears that Greece will strip away homeowners’ protection from repossession by banks—which Greece’s creditors have pushed for to protect the banking system.


“They are going to turn us into murderers,” Mr. Lousis says. “If they come to seize my house I’m ready to take the head of whoever is standing there—and I’m not the only one thinking this way.”

And, in what is perhaps the best explanation of why talks between Athens and Brussels have hit a wall, Kathimerinireports that despite the fact that pensions account for some 18% of spending (the most in the EU), pensioners still find themselves struggling to stay above the poverty line.

The plight of 79-year-old Athenian Zina Razi and thousands like her strikes at the heart of why talks between Greece and its creditors have collapsed. She lives off a pension system that helps to consume a huge proportion of state spending and can appear overly indulgent – but still she’s broke.


Razi barely keeps up with her power and water bills, and since her middle-aged son lost his job, supports him as well. “I am always in debt,” she said. “I can’t even imagine going to the cinema or the theatre like I did in the past.”


Five years of austerity policies imposed at the creditors’ behest have helped to turn a recession into a full-blown depression, and still they want more. Athens has flatly refused to achieve further savings by raising value-added tax on essential items or, crucially, slashing pension benefits.


(‘high stakes’ pensioner poker)


As it inches closer to default and a potentially calamitous exit from the euro zone, the government has dismissed such demands as “absurd” or designed to pummel Greeks’ morale.


To the lenders, the pension system is still too generous compared with what the country can afford. Greece spent 17.5 percent of its economic output on pension payments, more than any other EU country, according to the latest available Eurostat figures from 2012.


With existing cuts, this figure has since fallen to 16 percent.


The lenders have denied asking for specific pension cuts. But the Greek side said among their suggestions was slashing a top-up payment that supports some of the poorest pensioners. For Razi, that would mean losing 180 euros ($203) out of her 650-euro monthly pension.


The average Greek pension is 833 euros a month. That’s down from 1,350 euros in 2009, according INE-GSEE, the institute of the country’s largest labour union. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of 665 euros, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.


“They can take our money, but they cannot take our hearts and souls. We live for our dignity,” Razi said.

Considering the above, we don’t think it’s unreasonable to suggest that social unrest could be just around the corner in Greece, especially if Tsipras manages to somehow convince Syriza hardliners that compromising on pension cuts and the VAT is preferable to a Grexit.

Then again, saving face with voters means standing firm in the face a redenomination-fueled economic collapse which, as mentioned above, would effectively impoverish the entire country, an eventuality that could very well also lead to social upheaval.

The question then, would appear to be this: with Greece caught in an economic Catch 22, is a popular revolt now assured?

*  *  *

The following is again bad news for the dollar:
(courtesy zero hedge)

PetroYuan Proliferation: Russia, China To Settle “Holy Grail” Pipeline Sales In Renminbi

Last week, in “The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi,” we discussed the intersection of two critically important themes which have far-reaching geopolitical and economic consequences. The first is the death of petrodollar mercantilism, the USD recycling system that has helped to buttress decades of dollar dominance and the second is the idea of yuan hegemony, a new, post-Bretton Woods world economic order characterized by the ascendancy of China-led supranational institutions.

These themes came together recently when it became apparent that Gazprom has begun settling all crude sales to China in yuan. Here’s a summary of the prevailing dynamics: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman’s projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.

Now, it appears Russia and China will de-dollarize natural gas settlements as well.

First, a bit of history is in order.

Last month, Chinese President Xi Jinping visited Moscow, where Gazprom Chief Executive Alexei Miller and China National Petroleum Corp Vice President Wang Dongjin signed a gas export deal which paves the way for 30 bcm/y to China via a new “Western Route.”

(the Altai line)

As a reminder, the two countries ratified a “Holy Grail” gas deal last May for the delivery of up to 38 bcm/y over 30 years via an “Eastern Route.” Also known as the “Power of Siberia” pipeline, the Eastern route was billed as the largest fuel network in the world with a total contract value of around $400 billion.

(mapping the Western and Eastern routes)

(Putin autographs a pipe at the groundbreaking ceremony for the Power of Siberia line)

Once the two pipelines are operational, China will become the largest consumer of Russian natural gas.

Last year, when the countries were still hammering out the details of the Eastern line, we said the followingabout the implications of Western sanctions on Moscow:

If it was the intent of the West to bring Russia and China together – one a natural resource (if “somewhat” corrupt) superpower and the other a fixed capital / labor output (if “somewhat” capital misallocating and credit bubbleicious) powerhouse – in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely “going according to plan.”

If the recent move by Gazprom to settle crude exports to China in yuan wasn’t enough to prove how prescient the above cited passage truly was, then consider the following quote from Gazprom yesterday:

“As a sales contract is not signed, then, of course, the currency of payment has not yet been determined. However, the Chinese side and the Russian side are discussing today and are in intricate negotiations on the possibility of paying in yuan and rubles.”

In other words, once both routes are up and running, some 68 bcm/y in natural gas exports from Russia to China will be settled in yuan amounting to hundreds of billions in renminbi settled trade over the life of the deals.

Now recall what we said last year about the “new normal” flow of funds…

  1. Gazprom delivers gas to China.
  2. China pays Gazprom in Yuan (convertible into Rubles)
  3. Gazprom funds itself increasingly in Yuan.
  4. Russia buys Chinese goods and services in Yuan (convertible into Rubles)

…and connect the dots to what Barclays recently said about the long-term benfits to Beijing of funding infrastructure projects (like the Moscow-Kazan High Speed Railway, in which China will invest nearly $6 billion) via China’s new Silk Road Fund…

China could benefit in the short, medium and long term from achieving various levels of the targets outlined in YDYL. Medium-term: Raise demand for Chinese capital goods and Chinese products in general, effectively helping China transition to a consumption-driven economy. 


Putting this all together, China, via both the settlement of energy exports from Russia in renminbi, and yuan-donminated loans from The Silk Road fund, can effectively create its own, closed-loop yuan recycling system with Russia which should, over time, serve to facilitate China’s transition away from a smokestack economy, while helping to relieve industrial overcapacity (note that earlier this month, China Railway Group won a $390 million contract for work on the Moscow-Kazan rail).

This is not conjecture. Rather, all of the above is part of a carefully crafted plan to embed the yuan in global trade and investment just as dollar dominance dies a slow death in the face of declining US hegemony and the resurgence of a multipolar economic and political order.

Oil related stories:
as we have been pointing out to you on several occasions, we are going to have the biggest oil glut in recorded history:
(courtesy zero hedge)

Biggest Glut In Recorded Crude-Oil History Taking Shape

The world is on the brink of the longest-lasting oil glut in at least three decades and OPEC’s quest for market share makes it almost unavoidable, according to Bloomberg.


Oil supply has exceeded demand globally for the past five quarters, already the most enduring glut since the 1997 Asian economic crisis, International Energy Agency data show.

But as WolfStreet.com’s Wolf Richter warns, if Iran and world powers reach an accord on the Islamic Republic’s nuclear program by their June 30 deadline, we’ll be watching the most magnificent oil glut ever building up into next year.

“The market is flooded with oil and everyone is desperate to sell quickly, so you have a price war,” a marine-fuel trader in Singapore, the largest ship refueling hub in the world, told Reuters as prices for bunker fuel oil are plunging.

OPEC, which produces about 40% of global oil supply, announced on June 5 to “maintain” output at 30 million barrels per day for the next six months. Six days later, the IEA’s Oil Market Report for June clarified that “Saudi Arabia, Iraq, and the United Arab Emirates pumped at record monthly rates” in May and boosted OPEC output to 31.3 million barrels per day, the highest since October 2012, and over 1 MMbpd above target for the third month in a row. OPEC will likely continue pumping at this rate “in coming months,” the IEA said.

“We have plenty of crude,” explained Ahmed Al-Subaey, Saudi Aramco’s executive director for marketing while in India to discuss with Indian oil officials supplying additional oil. “You are not going to see any cuts from Saudi Arabia,” he said. Saudi Arabia produced 10.3 MMbpd in May, its highest rate on record.

So forget the long-rumored decline of Saudi oil fields. For Saudi Arabia, it’s a matter of survival. It has cheap oil, and it won’t be pushed into the abyss by high-cost, junk-bond-funded, eternally cash-flow-negative producers in the US. It will defend its market share, and it can do so profitably.

Russian produced 10.71 MMbpd of oil and condensate in May, a hair lower than its post-Soviet record set in January, and within reach of the Soviet record of 11.48 MMbpd set in 1987. Russia is not cutting back either. It needs every foreign-exchange dime it can get. Its oil & gas sector is its economic lifeline.

And US oil producers aren’t backing off either. They idled 60% of their drilling rigs, slashed capital expenditures, laid off tens of thousands of workers, and shut some facilities. A number of companies in the oil patch have filed for bankruptcy. But US producers are pumping more oil than ever before.

Despite wild gyrations in granular production data that might point at a leveling off or even a decline in one or the other oil field, overall US production, based on the weekly estimates by the EIA, soared to 9.61 MMbpd in the week ended June 5. A new all-time record, and up 13.6% from a year ago! Note the relentless trend line:


With the world’s top three oil producers – Saudi Arabia, the US, and Russia – pumping at record levels and with OPEC producing above target, miracles would have to happen on the demand side to bring this into balance. But miracles are rare these days.

Over the past decade, China has absorbed 48% of the increase in global oil production. But now its economic growth is slowing and its economy is becoming more energy efficient. Demand in the US and Europe is not performing any miracles either. There is some growth: 1.4 MMbpd for 2015, according to the IEA. But not nearly enough to mop up the additional production from OPEC, Russia, and the US – not to speak of Iran when it rejoins the global oil trade.

So OECD crude oil inventories rose another 12.6 million barrels in May, despite the first draws in the US in nine months. According to Bloomberg, supply has exceeded demand for five quarters in a row, the longest glut since the 1997 Asian economic crisis. Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, put it this way: “Any expectations the oversupply will be gone by 2016 don’t look justified at this stage.”

If demand grows at 1.4 MMbpd in 2015, and if production remains at current levels – two big IFs – global oversupply would still run at 1 MMbpd in the third quarter and at 600,000 bpd in the fourth quarter, which, according to Bloomberg, would be “the eighth consecutive quarterly surplus, exceeding the current record of six quarters from 1997 to 1998.”

It would be the biggest glut in recorded crude-oil history.

But no production increases in the US may be unlikely. US shale producers can’t afford to keep production level. They’re loaded up with debt that is getting more expensive, creditors are getting antsy, cash flows are negative, and so they have to produce more to get more money and stay alive.

And then there’s Iran. Bloomberg:

The glut could swell further if Iran and world powers reach an accord on the Islamic Republic’s nuclear program by their June 30 deadline, Commerzbank predicts. The country could boost exports by 1 million barrels a day within seven months of sanctions being removed, Oil Minister Bijan Namdar Zanganeh said in Vienna on June 3.

If that happens, we’ll be watching the most magnificent oil glut ever building up into next year.

Oil producer Canada is feeling the heat from the oil-price crash, and manufacturing is getting hit hard, but not just because of the oil bust. Read…  Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis


Crude Tumbles On Cushing, Gasoline Inventory Build, Lower 48 Production Rise

Following last week’s major inventory draw (and last night’s less than expected API-reported inventory draw), DOE reports a 2.68 million barrel draw (slightly less of a draw than expectations of 2.79 million barrels). End products saw inventories rise considerably more than expected (Gasoline +460k vs -800k exp) and Cushing saw a build (+112k vs -850k exp.). Oil prices dropped on the news despite a very modest drop in production (-0.2%) which was all Alaska (as the Lower 48 saw production rise).


While the overall inventory saw a draw, Cushing and Gasoline saw notable builds…


And production rose (in the Lower 48) once again…


The reaction is clear…


Charts: Bloomberg


Your more important currency crosses early Wednesday morning:

Euro/USA 1.1259 up .0017

USA/JAPAN YEN 123.93 up .485

GBP/USA 1.5737 up .0099

USA/CAN 1.2315 up .0020

This morning in Europe, the Euro rose by a tiny 17 basis points, trading now well above the 1.12 level at 1.1259; 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 and today crumbling bourses.

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen continues to trade in yoyo fashion as this morning it settled down again in Japan by 49 basis points and trading just below the 124 level to 123.93 yen to the dollar.

The pound was again well up this morning as it now trades just above the 1.57 level at 1.5737, 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 down by 20 basis points at 1.2315 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 1.0489 to the Euro, trading well below 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 :  down 38.67 points or 0.19%

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

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

Gold very early morning trading: $1179.50


Early Wednesday morning USA 10 year bond yield: 2.33% !!! up 1 in basis points from Tuesday night and it is trading just above resistance at 2.27-2.32% and no doubt setting off massive derivative losses.

USA dollar index early Wednesday morning: 94.86 down 10 cents from Tuesday’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: 3.17%  down 4 in basis points from Tuesday ( still very ominous)

Closing Japanese 10 year bond yield: .48% !!! down 2 in basis points from Tuesday/very ominous/central bank intervention

Your closing Spanish 10 year government bond, Wednesday, down 4 points in yield ( still very ominous)

Spanish 10 year bond yield: 2.35% !!!!!!

Your Wednesday closing Italian 10 year bond yield: 2.32% down 1 in basis points from Tuesday: (very ominous)

trading 3 basis point lower than Spain.


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

Euro/USA: 1.1335 up .0094 ( Euro up 94 basis points)

USA/Japan: 123.38 down  .075 ( yen up 8 basis points)

Great Britain/USA: 1.5825 up .0184 (Pound up 184 basis points)

USA/Canada: 1.2230 down .0064 (Can dollar up 64 basis points)

The euro rose considerably today, especially after the FOMC results. It settled up 94 basis points against the dollar to 1.1335 as the dollar floundered badly against all the various major currencies. The yen was up by 8 basis points and closing well above the 123 cross at 123.38. The British pound gained huge ground today, 184 basis points, closing at 1.5825. The Canadian dollar gained some ground against the USA dollar, 64 basis points closing at 1.2230.

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

Your closing 10 yr USA bond yield: 2.32% par in basis point from Tuesday// (just above  the resistance level of 2.27-2.32%)/ and ominous

Your closing USA dollar index:

94.24 down 73 cents on the day


European and Dow Jones stock index closes:

England FTSE down 29.55 points or 0.44%

Paris CAC down 49.24 points or 1.02%

German Dax down  66.00 points or 0.60%

Spain’s Ibex down 58.00 points or 0.53%

Italian FTSE-MIB down 158.42 or 0.71%


The Dow up 31.26  or 0.17%

Nasdaq; up 9.33 or 0.18%


OIL: WTI 59.87 !!!!!!!



Closing USA/Russian rouble cross: 53.65  par  roubles per dollar on the day


And now for your more important USA stories.


NY trading for today:

Flummoxed Fed Sparks Insta-Buying Binge In Bonds & Bullion, Stocks Hit By Hindenburg

Economic expectations tumbled but rate hike expectations surged… labor market hopes rose but economic growth is expected to weaken… so buy stocks you retard! Artist’s impression of the last 2 days in The Eccles Building…




The result of all this confusion… A 3rd Hindenburg Omen in the last 5 days…


Futures show the full day’s vol…


Futures eneded up dumped back perfectly to VWAP…


Cash Indices on the day


Since Friday, Trannies remain ugly…


While stocks are back in the green from Friday, VIX remains higher


And Credit remains thoroughly unimpressed…


Bonds bought with both hands and feet…


The Dollar was monkey-hammered…


Gold and Silver stacked… (and crude and copper playing catch up)

*  *  *

Post FOMC performances…






Charts: Bloomberg

Bonus Chart: Still Confused after today’s FOMC?


Official statement from the Fed this afternoon at 2 pm:

(courtesy the Fed/zero hedge)

FOMC Forecasts Economic Improvement But Sees Weaker Inflation, Sets Tone For September Rate Hike

With data showing very little sign of the Q2 post-weather bounce that The Fed forecast, and markets quaking in their boots on every ‘good’ data print, The Fed remains cornered – desperate to hike (to regain some ammo) but needing to lie through their teeth in order to rationalize why…


So the bottom line – The Fed has no idea still, is data-dependent (unless the data disagrees with them), and is now the world’s plunge protection team. It seems the IMF’s warnings have been ignored.

Pre-FOMC: S&P Futs 2091, 10Y 2.387%, EUR 1.1260, Gold $1178

*  *  *

Reuters was excited pre-FOMC…


Here’s what happened after the March FOMC meeting…


Since the March FOMC meeting (the last press conference)… The Dow is unchanged, oil and silver and gold are notably higher, bonds worst…


And since the last Fed rate hike in June 2006…

*  *  *




And now the mouthpiece for the Fed: Hilsenrath:

(courtesy zero hedge/Jon Hilsenrath)


“Stingy” Fed Whisperer Hisenrath Confirms Hawkish Fed Ready To Hike Rates

Working at the usual blistering pace, WSJ’s Fed mouthpiece Jon Hilsenrath cranked out 648 words in the space of just four minutes on the heels of today’s FOMC announcement. “The Federal Reserve signaled it was moving toward interest rate increases in the months ahead now that signs of a dip in economic activity early in the year are waning,” Hilsy notes, confirming that stocks are indeed still set for a rendezvous with 1937. 

Via WSJ:


The Federal Reserve signaled it was moving toward interest rate increases in the months ahead now that signs of a dip in economic activity early in the year are waning, but the path of rate increases could be less steep than officials anticipated before.


For now, the Fed said, a benchmark interest rate near zero “remains appropriate.”


But in forecasts the Fed made public about its interest-rate outlook, 15 of 17 officials said they expected to start raising short-term interest rates before the end of 2015. The projections suggest officials are gravitating toward one or two quarter percentage point interest rate increases by December. That would move the Fed’s benchmark interest rate up from near zero, where it has been since December 2008.


The last time the Fed made such projections, its consensus appeared to be building around two rate increases this year. Fed officials also nudged down their rate projections for 2016 and 2017 by a quarter percentage point. The shifts suggested officials have become less certain about the longer-run vigor of the U.S. economy and its capacity to withstand much higher rates. Expansion of output is on track again in 2015 to undershoot the Fed’s expectations.


The meeting has gotten a great deal of attention because Fed officials had declared in March that it would be a live meeting when an interest rate increase was possible if the economy had performed up to expectations. Early in the year many Fed officials thought a rate increase in June was a likely scenario. Then the winter slowdown derailed that plan and many investors are now looking toward a first rate increase in September.


In a policy statement accompanying its newest economic and interest rate projections, the Fed pointed with some relief toward an improving economic backdrop after output contracted in the first quarter. Economic activity had been “expanding moderately,” the Fed said, after a winter stall, and job gains had “picked up.” The Fed pointed to a “moderate” pickup in consumer spending and some improvement in housing.


While inflation continued to run below its 2% objective, the Fed noted energy prices had stabilized after driving inflation lower.


The Fed has been saying since March it would begin raising rates when it sees further improvement in the labor market and becomes more confident inflation will move toward its 2% objective.


The central bank’s projections suggest a September move remains possible, but disagreement is brewing among officials about how soon and how aggressively to act later in the year.


For the fourth straight meeting, Fed Chairwoman Janet Yellen won uniform agreement on the rate decision with no dissents.


The interest rate projections showed that two officials don’t want to move rates at all this year. Five officials, on the other hand, want to move rates up by a quarter percentage point and another five want to move it up by half percentage point. In March, only one official saw a quarter percentage point increase and seven saw a half percentage point rise. The shifts show the center of gravity on the number of rate increases this year is moving down.


The median estimate for rates in 2016 has shifted down to 1.625% from 1.875% in March. The median estimate for 2017 has shifted down to 2.875% from 3.125% in March.


In economic projections accompanying the Fed’s statement, the central bank revised down its estimate of growth for 2015. In March the Fed saw economic output expanding by 2.3% to 2.7% this year. In the latest estimate it revised output growth to 1.8% to 2.0%. The Fed has consistently for several years found itself revising down growth estimates after early-year stumbles. However the central bank stuck to projections for the coming years.


The Fed nudged up its unemployment forecast for 2015, but kept its inflation forecast largely in line with previous estimates.

*  *  *

So thank you vanishing workers and double-adjusted GDP prints, we’re now all set for a rate hike-induced recessionary talespin to be followed by QE4 which, as BofA recently noted, is “the biggest risk” of all for global equities.

The initial reaction to the FOMC meeting results:

FOMC Reaction: Bonds & Bullion Bid… Dollar Dumped

Update: Stocks reverting…


The kneejerk reactions so far are Dollar down hard and bullion, bonds, and stocks bid… let’s see if Yellen can keep that going…

Why the markets tumbled:

Broad Decline In “Dot Plots” Suggest Fed Rate Hike Confidence Shaky

While virtually every single word change from the June statement compared to the April document shows a Fed that is increasingly more confident in the economy, the reason why the dollar has encountered a sudden air pocket following the Fed release is not due to the statement but what is in the Fed’s projection materials, where the Fed unambiguously cut its 2015 GDP central tendency forecast from 2.3%-2.7% in March to just 1.8%-2.0%, coupled with a pick up in the unemployment rate from 5.0%-5.2% to 5.2%-5.3%, suggesting quite implicitly that while on one hand the Fed is more optimistic, when it comes to quantitative metrics it just got that much more bearish.


But nowhere is the Fed’s ambivalence more evident than in the latest dot, or dart as we call them, plots of where every single FOMC member expects the Fed Funds rate at the end of 2015 and 2016. The wholesale drop in FF expectations, from 1.875% in March to 1.625% currently for 2016, is quite clear and suggests that while 15 people said it was time to hike rates in 2015 (vs 2 in 2016), their conviction is even lower than 3 months ago.

2015 dot plot:


And 2016:


It is totally amazing that when Fed officials leave, they suddenly tell the truth:

a must see

(courtesy zero hedge)

Another Fed “Insider” Quits, Tells The Truth

Once more, an “insider” from The Fed exposes the reality of an academic ivory tower clueless of the real financial markets. Former adviser to Dallas Fed’s Dick Fisher, Danielle DiMartino Booth speaking in a CNBC interview slams The Fed for “allowing the [market] tail to wag the [monetary policy] dog,” warning that “The Fed’s credibility itself is at stake… they have backed themselves into a very tight corner… the tightest ever.” As she writes in her first Op-Ed, “The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive… All retirees’ security is thus at risk when the massive overvaluation in fixed income and equity markets eventually rights itself.”


Via The Liscio Report,

The Great Abdication

The business cycle is dead! Long live the business cycle!

Not too long ago, in a land not so far away, the business cycle was declared to be defeated. Policymakers at the Federal Reserve were credited with slaying the pesky beast that featured recessions as part of its nature. Such was the faith in the permanence of business cycle’s demise that the era was given its own label, The Great Moderation, a perfect world in which inflation ran not too hot or too cold and profit growth was accepted as the steady state.

As is so often the case, reality rudely disturbed nirvana’s prospects. The Great Moderation devolved into the Great Recession precipitated by one of the most devastating financial crises in U.S. history. The veneer of calm advertised over the prior years was stripped away. In its stead, economists had to concede that an era of benign monetary policy had encouraged malinvestment, the scourge that Austrian Ludwig von Mises warned of in the early 20th century. An overabundance of debt, if left unchecked, inevitably leads to the misallocation of resources. In the case of the first years of the 2000s, the target was, of course, the housing market.

The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive. It goes without saying that the heat of the financial crisis merited a monumental response on policymakers’ part. That said, the most glaring outgrowth has been politicians’ exploiting low interest rates to their benefit. While it’s conceivable that well-intentioned central bankers want no part in encouraging Congressional malfeasance, the fact remains that the lack of action on politicians’ part would not have been possible absent the Fed’s allowing Congress to abdicate its responsibilities to the manna of easy money.

Of course, we all appear to have been spoiled over the last 25 years. A funny thing happened when the Fed placed a floor under stock prices with assurances that investors’ pain and suffering would be mitigated – recessions faded from the norm. Over the past 25 years, the economy has contracted one-fourth as often as it did in the 25 years that preceded this benign era. Hence the illusion of prosperity, one that has rendered investors complacent to the point of being comatose. That’s what happens when entire industries are able to run with more capacity than demand validates simply because the credit to remain in operation is there for the taking. To take but one example, capacity utilization is at 78.1 percent, shy of the 30-year average of 79.6 percent some six years into the current recovery. The downside is that the cathartic cleansing that takes place when recession is allowed to play out all the way to the bitter end of a bankruptcy cycle never occurs – winners and losers alike stay in business.

The savvy fellows in the C-suites are not blind to reduced competitiveness. As such they are remiss to expand their core businesses too much, that is, until the time they can truly assess the operating environment in a post-easy money world. The tricky part is that the credit is still there for the taking. What’s to be done? In the words of one of the wisest owls on Wall Street, UBS’s Art Cashin, such environments raise the not-so-fine art of financial engineering to a “botox state”. It’s no secret that companies have been gorging themselves on share buybacks and mergers and acquisitions, non-productive but highly lucrative endeavors. When combined the results are magnificent – costs are cut, profits juiced and bonus season becomes the most wonderful time of the year.

The insult added to the economic injury is the players who are compelled to underwrite the not-so-virtuous cycle. Broken pension accounting and incentives continue to force the hands of the individuals tasked with allocating the portfolios underlying the nation’s $18 trillion in public pension obligations. One of the least discussed consequences of easy monetary policy is the damage wrought on the nation’s pension system. Not only have low interest rates compounded underfunded statuses, they have driven pension assets into riskier and less liquid investments than anything prudence would dictate. The catalyst is the perverse rate of return assumptions that are wholly disconnected from reality. Averaging 7.75 percent, these bogeys have forced allocations into credit plays, many of which are caged in the least liquid corners of the debt markets. The irony is that many pensions have sought to diversify away from their bloated equity holdings by seeking out what they perceive to be the traditional safe harbor of fixed income investments, much of which flows straight back into the stock market via debt-financed share buybacks and M&A.

All retirees’ security is thus at risk when the massive overvaluation in fixed income and equity markets eventually rights itself. Pension math, however, will forestall the day of reckoning in the financial markets given the demographic surge in retiring beneficiaries that require states and municipalities to top off pensions’ coffers. Pensions will thus dig themselves into a deeper grave than they would otherwise by buying the credit craze more time.

Meanwhile, would-be retirees who don’t have the safety of promised pensions continue to be punished by low interest rates. The past seven years have criminalized conservative cash savings. The Swiss Re report quantified what U.S. savers have lost in interest income at $470 billion, while debtors had an easier time. It’s no coincidence that the average 401k balance for a household nearing retirement will only cover two years based on the nation’s median income. Nor is it any wonder that the labor force participation rate for those aged 55 and older has increased by three percentage points over the past decade. If only they were all earning what they did in their prime years.

And the lesson to be learned when making ends meet is simply not feasible? That would be the tried and true economic offset, the magic behind the miracle of our consuming nation, which for too long now has been debt that pulls forward the demand that should have to wait. Despite the collapse in mortgages, overall household debt remains elevated; it isn’t that far below its pre-recession level, and households are now splurgingon cars as lending standards have caved. Even credit card borrowing is making a comeback – the average household’s credit card balance of $7,177 is the highest in six years. Meanwhile, student debt is scaling record heights as families struggle to keep pace with the most egregious inflation plaguing household budgets, that of higher education.

As for the gravest sin of the QE era, in the fiscal year 2015, the U.S. government paid 1.8 percent on public debt. One would be hard pressed to identify any other debtor whose borrowing costs decrease despite its trebling in debt outstanding. Actually, that’s a privilege we need to protect. As for indemnifying the nation’s balance sheet, that opportunity has been squandered by spineless politicians who would rather maintain the veneer of scant deficits rather than extend the maturity of the nation’s debts. Our wise neighbors to the south recently issued a 100-year bond. Where, one must ask, is our leaders’ wisdom when we need it most?

Could it be that hiding behind the Fed’s largesse is the path of least resistance? It would certainly appear to be the case. All the while, the excesses in the financial markets continue to build unchecked. The time has long come and gone to abandon the model-driven decision framework that pushes the Fed into an ever-shrinking corner. It is high time central bankers acknowledge their complicity in enabling Congress to fiddle while the country burns. As was the case with the revelation that the Great Moderation was but a myth, it is crucial that our leaders retake the country’s reins thus also bringing to an end the deeply damaging era of The Great Abdication.

*  *  *

Now we know who will not be invited to Jackson Hole any time soon…

for your enjoyment:

Hensarling Slams Fed’s “Willful Obstruction” In Leak Probe, Demands “Immediate Compliance”

Pedro da Costa will be pleased (as should every other American who actually believes The Fed is NOT above the law) as Rep. Jeb Hensarling unleashes a damning letter to The Fed accusing them of “willful obstruction” in the Congressional leak probe. Hensarling and Duffydemand “immediate compliance” with the subpoena and see “no legal basis to withhold records from Congress.” We are sure these 2 gentlemen will not be invited to the FOMC Press Conference either.


As The Hill reports,

In a letter sent to Fed Chairwoman Janet Yellen, Hensarling and Rep. Sean Duffy (R-Wis.) accused the Fed of an inadequate initial examination, after it was discovered that investment advisers obtained inside Fed information before it was made public. And according to Hensarling, the Fed only reinvigorated that probe after lawmakers began asking, at which point the Fed said it could not hand over documents, lest it compromise that investigation.


The Fed’s Inspector General and the Justice Department are both investigating how the advisory firm Medley Global was able to detail for clients what Fed officials discussed in a private meeting, one day before the minutes of that meeting were made public.


But Hensarling’s panel has attempted to dig into the matter itself, and went so far as to subpoena the Fed in May to compel it to produce documents. But Yellen told Hensarling the Fed would not comply with the subpoena immediately, citing the ongoing investigations.


The fact that the Fed Inspector General briefly examined the matter years ago, and only reopened the investigation after lawmakers began making inquiries, has made Hensarling suspicious, as he accused the Fed of “vigorous and coordinated obstruction.”


“One plausible scenario is that the OIG merely ‘reopened’ the investigation to delay complying with the Committee’s requests,” he wrote. “That too is now the subject of the Committee’s investigation.”


But regardless of how and when other Fed investigations began, Hensarling insisted that Congress has the right to documents above all others. Saying his panel has the “absolute right” to requested records, Hensarling dismissed claims from the Fed’s Inspector General that executive prvilege allows them to not comply.


Rather, Hensarling said executive privilege can only be invoked against Congress by specific presidential request – and one has not been produced in this matter. And even if Prseident Obama did try to invoke executive privilege, Hensarling said his staff would still have the right to documents, because that privilege does not cover matters involving government misconduct.


Having made that argument, Hensarling said he expects nothing less than “full and immediate compliance” from the Fed.

*  *  *

The much-mentioned Medley Global Advsiors newsletter that the leak went into (via ProPublica)…

*  *  *

It appears Hensarling did not get the message from Yellen…

And now the last word on the FOMC meeting:  Dave Kranzler.
Both he and I agree that there is not a chance the Fed will raise rates this year:
(courtesy Dave Kranzler/IRD)

“No Virginia, There Will Be No Rate Hikes This Year”

Fed has been signaling it will raise rates for two years now. Same powerplay as #grexit scare. Won’t happen. System is broken till a Reset – next signal will be QE4 rumors  – Willem Middelkoop on Twitter

Yes!  Someone else who gets it.  Every week we getting these dopes from the Fed coming out and saying “hey man, the Fed is behind the curve – time to raise rates.”  But the even bigger dopes are the dopes who believe the hot air.  And now supposedly the Fed is on track to raise rates twice still this year.

The Fed has been on target to raise rates several times a year ever since Bernanke’s infamous “Taper” speech back in May 2013.   Last time I looked, the flag flying above the White House was not a Japanese flag, but the Federal Reserve, Wall Street, financial media stage show sure looks a lot like Kabuki Theatre – quite literally, “the art of singing and dancing.”


Here’s one of the MAJOR reasons that the Fed won’t touch this rates – not this year and not next year:    Housing Starts Unexpectedly Plunge 11.1%


May housing starts dropped 11.1% in May from April, with single family unit starts falling 5.4% and multi-family units dropping 18.5% (data from the link at the top). Although the month to month data reporting in the housing starts series has been volatile, there has been a definitive downtrend in starts since the beginning of 2013.

You can read the rest of this article I wrote for Seeking Alpha here:   Housing:  Look Out Below

A housing market that is on the precipice of re-collapse is just one of the reasons that the Fed will not be raising rates this year.   The reason the Fed won’t be raising rates next year is because we may well have experienced a systemic reset by then…

Dave Kranzler of IRD discusses the housing bubble:
(courtesy Dave Kranzler/IRD)

FOMC Day: There Has Been No Recovery – The Housing Bubble Is Re-Popping

The whole thing was in fact a giant lie used to cover up the fact that none of the money was spent to try and generate economic growth.  – Phoenix Capital Research LINK

The Fed’s FOMC is concluding another two-day meeting today and will issue its latest policy statement around 2 p.m. EST, as the idiots on financial tv sit on the edge of their seat trying to figure out which word or syllable has changed from the last policy decision statement.  The entire process is nothing more than well-staged theatre of the absurd.

How do we know the US is not in recovery? It’s really quite simple. If it were, the Fed wouldn’t have any issue with raising rates.  – Phoenix Cap Research

Now that we’re seeing retail sales decline month to month almost every month, manufacturing indices plunging to levels not seen since 2008-2009 and the GDP registering a decline, before inflation is stripped out – of almost 1% in Q1, it is highly improbable that the Fed will dare raise rates.  Not even a gratuitous quarter point bump.

Why this country’s debt-bloated, overleveraged financial system now has unmanageable levels of debt bulging for every nook and cranny in the system.  Even worse, there’s $100’s of billions of leveraged exposure lurking behind of the insidious facade of off-balance-sheet accounting at the big banks.

Then there’s housing bubble 2.0.  Only this time around its only a “price” bubble – as opposed to a price and volume bubble like housing bubble 1.0.   This price bubble has been fueled by the $2.0 trillion – and still counting as the Fed is still buying $10’s of billions of mortgages every month – of money printing.  – Investment Research Dynamics

Why do I say it’s only a price bubble?   Because, other than the loud noise of water cooler and cocktail party chatter about hot housing markets, transaction volume is at best tepid:

existing home salesBased on the level of existing home sales for the last 7 years, it’s hard to characterize this as a “hot” market. Too be sure, there are some poor souls who are getting suckered into buying a home by their aggressive realtor, but they are competing with a large cohort of investor/flippers who YTD have represented roughly 40% of transaction volume (more on this later). Institutional investment buyers who drove volume in 2011-2013 are leaving the scene, with some of them unloading homes onto the gaggle of mom and pop flipper operations.

price bubble

Here’s your housing bubble:   the median price of existing homes has soared 41% since 2012.  BUT as you can see from the graph just above, the price-action is not supported by volume.  As the volume dries up, there will be an an air-pocket collapse of the price.  Anyone who has traded relatively illiquid securities – homes are extremely illiquid most of the time – knows exactly what I’m talking about.  Once volume dries up and the market heads south, if you’re long, you’re wrong.

Speaking of a system bulging with debt protruding from every crevice, Jim Quinn’s Burning Platform featured a must-read article yesterday in which the author has discovered that the Loan-To-Value Ratio on Fannie Mae-issued mortgages is now at its highest level in history – nearly 10% higher than at the peak of housing bubble 1.0:

fannie mae loan to debt ratioThis is a debt and price bubble that has been fueled by the Fed and by the significant easing of credit terms for Government-sponsored and Government-backed mortgages. You can buy a home with effectively with a negative down payment. The Government requires a 3% down payment, the seller can subsidize up to 6% of your closing costs AND you can borrow the down payment.  That math adds up to a negative down payment.  Note:  Government = you, the taxpayer.

If the Fed raises interest rates, we will witness perhaps the the fastest systemic collapse in history.  We are going to witness a stunning collapse in housing anyway.  It’s just a matter of time before we see a reversion to the mean in which housing prices revert back to the true fundamental condition of the middle class in this country.  A fundamental condition which is has significantly and substantially degraded over the last seven years since the first housing bubble exploded.

I will leave you tonight with this interview of John Embry with greg Hunter.

(courtesy greg Hunter/John Embry/USAWatchdog)

Next Financial Calamity Unavoidable-John Embry

4By Greg Hunter’s USAWatchdog.com 

John Embry, Senior Investment Strategist at Sprott Asset Management, says there is no doubt another financial calamity is coming.  In fact, Embry says, “It’s unavoidable.  It’s inevitable is the word I would use.  There is no getting out of it.  If you thought 2008 was bad, and I thought it was terrible, this time, there is no ammunition left.  You can’t take interest rates any lower.  All you can do is print even more money.  That really didn’t work the last time.  The safety nets are largely gone if we do run into something untoward, and it could be fairly soon.  I don’t think there is really anything left to stave it off.  I don’t think they will refuel the period from 2015 to 2020 like they did after 2008.  I think it will be much uglier than that.”

One thing that could touch off the next meltdown is the Greek debt crisis.  Embry contends, “I think it is extraordinarily serious because there is no palatable solution.  Why I say there is no palatable solution is, theoretically, if you loan people money, I think it is incumbent on you to make sure they can pay you back.  In this instant, the Europeans put more and more debt on the backs of the Greeks to keep them current.  Now, when it has become obvious that they are utterly insolvent, they just can’t sort of dismiss them easily.  This paper is all through the European system.  I believe there are a lot of credit default swaps written on it too.  If the Greeks walked away from this and essentially default on the paper, I think this is a major story.  The fact that they are trying to down play it probably speaks to the fact that it is a major story.  I think there is a possibility of a Greek exit (from the EU) and if that happens, we are going to be facing an awful lot of financial chaos.”

Embry goes on to explain, “To me, I can see just two avenues at this point.  You can have a hard debt deflation where you clean the debt out of the system like we did in the 1930’s, but look what that cost us–years of depression and a great world war.  The other alternative, and they apparently are going down that path as we speak, is to just keep printing enough money to keep everything afloat.  But if you do that long enough, you are headed for a currency debacle and probably some sort of hyperinflation.  Either scenario, the endgame is not good.  We are buying time right now, but we are not correcting anything.”

So, do the powers that be just gun it and run it until it blows up?  Embry says, “That is without question.  These are smart people, they have made some mistakes, but they are basically smart people.  They recognize that we are beyond the pale, and the economies are extraordinarily weak because of the excessive debt loads. . . . You see more and more warnings from people who are part of the system.  They know full well there is no easy solution; so, consequently, they are starting to tell the public the truth a bit.”

How will gold and silver do in the next meltdown?  Embry contends, “I find stocks severely overvalued, and I find bonds more overvalued, and I would lump urban real estate into that category as well.  So, traditional assets are extremely overvalued.  To me, the two really undervalued assets are gold and silver.  They are significantly undervalued and everybody hates them. . . . Embry goes on to charge, “I would say gold and silver are as cheap as they were when gold was $250 an ounce and silver was $5 per ounce.  They are the cheapest assets on the planet.”

Join Greg Hunter as he goes One-on-One with financial expert John Embry of Sprott Asset Management.

(There is much more in the video interview.)


Well that about does it for tonight
I will see you tomorow night

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