August 5/another huge 4.77 tonnes of gold leaves the GLD as inventory rests tonight at only 667.93 tonnes/a small withdrawal of 142,000 oz of silver leaves SLV/Gold in backwardation in London/Poor USA ADP private wage report/USA trade deficit widens as the high dollar kills exports/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1085.70 down $5.00   (comex closing time)

Silver $14.55 unchanged.


In the access market 5:15 pm

Gold $1085.80

Silver:  $14.60


First, here is an outline of what will be discussed tonight:


At the gold comex today, we had a good delivery day, registering 2828 notices for 282,800 ounces  Silver saw 0 notices for nil oz

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 235.41 tonnes for a loss of 67 tonnes over that period.

In silver, the open interest fell by 2,814  contracts despite the fact that silver was up by 3 cents yesterday. The total silver OI continues to remain extremely high, with today’s reading at 185,848 contracts   In ounces, the OI is represented by .9292 billion oz or 132% 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 434,273. We had 84 notices filed for 8400 oz today.

We had a huge  withdrawal of 4.77 tonnes of  gold leaving the GLD today /  thus the inventory rests tonight at 667.93 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. I thought that 700 tonnes is the rock bottom inventory in GLD gold, but I guess I was wrong. However we must be coming pretty close to a level of only paper gold and the GLD being totally void of physical gold.  In silver, we had a small change in silver  inventory at the SLV,a withdrawal of 142,000 oz / Inventory rests at 326.209 million oz.

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

1. Today, we had the open interest in silver fell by 2814 contracts down to 185,848 even though silver was up in price by 3 cents yesterday. Again, we must have had some short covering.  The OI for gold fell by 7685 contracts to 434,273 contracts despite the fact that gold was up by $1.30.  We still have over 21 tonnes of gold standing with only 19.993 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.

(report Harvey)


2. One important stories on Greece with varoufakis telling exactly what happened right after the “No” vote

(courtesy zero hedge)

3.Gold trading overnight, Goldcore

(/Mark OByrne)



4 Trading of equities/ New York

(zero hedge)


5.  USA stories:

i) Data for today:

a) poor ADP report

b) trade deficit rises again

ii) Peculiar plummet in the 2 year Repo rate and a possible explanation

iii) Discussion on the twin trillion dollars deficits i.e. auto loans and student loans

6. Two oil related stories:

(zero hedge)


7. James Turk discusses gold backwardation with greg Hunter

(Greg Hunter usa watchdog/James Turk)


8. Hugo Salinas Price discusses how China will play its gold card

(Hugo Salinas Price)


Here are today’s comex results:


The total gold comex open interest fell from 441,958 down to 434,273 for a loss of 7,685 contracts despite the fact that gold was up $1.30 yesterday. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter was again the norm. What is interesting is that the LBMA gold is witnessing a 7.40 premium spot/next nearby month as gold is now in backwardation over there. We are now in the contract month of August and here the OI fell by 301 contracts falling to 6593 contracts. We had 84 notices filed upon on yesterday and thus we lost 219 contracts or 21,900 ounces will not stand for delivery. The next delivery month is September and here the OI fell by 12 contracts down to 2278.  The next active delivery month if October and here the OI  rose by 723 contracts up to 26,413.  The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 114,321. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 121,313 contracts. Today we had 2828 notices filed for 282,800 oz.

And now for the wild silver comex results. Silver OI fell by 2814 contracts from 188,662 down to 185,848 contracts despite the fact that silver was up by  3 cents yesterday .  We continue to have some short covering as our bankers pulling their hair out with respect to the continued high silver OI as the world senses something is brewing in the silver  arena. We are in the delivery month of August and here the OI fell by 0 contracts remaining at 60. We had 1 delivery notice filed yesterday and thus we gained 1 contract or an additional 5,000 ounces will  stand for delivery in this non active August contract month. The next major active delivery month is September and here the OI fell by 4250 contracts to 116,687. The estimated volume today was fair at 27,789 contracts (just comex sales during regular business hours). The confirmed volume yesterday (regular plus access market) came in at 44,480 contracts which is excellent in volume.  We had 0 notices filed for nil oz.

August contract month: initial standing

August 5.2015



Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  2286.22 oz (Brinks,HSBC,Manfra) incl 16 kilobars 
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz nil
No of oz served (contracts) today 2828 contracts (282,800 oz)
No of oz to be served (notices) 3765 contracts (376500 oz)
Total monthly oz gold served (contracts) so far this month 3171 contracts(317,100 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 275,221.9   oz

Today, we had 0 dealer transactions


total Dealer withdrawals: nil  oz


we had 0 dealer deposits

total dealer deposit: zero


we had 3 customer withdrawals
i) Out of Manfra: 96.45  (3 kilobars)
ii) Out of HSBC: 417.95 (13 kilobars)
iii) Out of Brinks; 1771.82 oz

total customer withdrawal: 2286.22  oz

We had 0 customer deposits:


Total customer deposit: nil oz

We had 2  adjustments and they were dillies

i) Out of JPMorgan:  276,049.092 oz was adjusted out of the customer and this landed into the dealer account of JPMorgan

ii) out of Scotia: 5021.13 oz was adjusted out of the customer and this landed into the dealer account of Scotia.

both of these adjustments will be used in the settling process.


JPMorgan has 11.66 tonnes left in its registered or dealer inventory.

(375,019.978 oz)


Today, 2750 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 2828 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 418 notices were stopped (received) by JPMorgan customer account

To calculate the total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (3171) x 100 oz  or 317,100 oz , to which we add the difference between the open interest for the front month of August (6593) and the number of notices served upon today (2828) x 100 oz equals the number of ounces standing

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

No of notices served so far (3171) x 100 oz  or ounces + {OI for the front month (6593) – the number of  notices served upon today (2828) x 100 oz which equals 693,600  oz standing so far in this month of August (21.57 tonnes of gold).

Thus we have 21.57 tonnes of gold standing and only 19.993 tonnes of registered or dealer gold to service it.

We lost 217 contracts or an additional 21,700 oz will not stand for delivery in this active month of August. These were most likely cash settled.

Total dealer inventory 642,796.092 or 19.993 tonnes

Total gold inventory (dealer and customer) = 7,568,456.953 oz  or 235.41 tonnes

Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 235.41 tonnes for a loss of 67 tonnes over that period.




And now for silver

August silver initial standings

August 5 2015:



Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 630,098.08  oz (CNT,Brinks, Delaware)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory 85,813.47 oz (Brinks)
No of oz served (contracts) 0 contracts  (nil oz)
No of oz to be served (notices) 60 contracts (295,000 oz)
Total monthly oz silver served (contracts) 18 contracts (90,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month 85,818.47 oz
Total accumulative withdrawal  of silver from the Customer inventory this month 3,011,049.7 oz

Today, we had 0 deposits into the dealer account:

total dealer deposit: nil   oz


we had 0 dealer withdrawal:


total dealer withdrawal: nil  oz


We had 1 customer deposits:

i) Into Brinks;  85,813.47 oz


total customer deposits:  85,813.47  oz


We had 3 customer withdrawals:

i)Out of Brinks:  598,171.72  oz

ii) Out of CNT  29,999.400 oz

iii) Out of Delaware:  1926.964 oz


total withdrawals from customer: 630,098.08  oz


we had 1  adjustment

 Out of Delaware:
i)  1,019,502.78 oz leaves the dealer and lands into the customer account of Delaware

Total dealer inventory: 55.754 million oz

Total of all silver inventory (dealer and customer) 173.410 million oz

The comex has been bleeding silver lately.


The total number of notices filed today for the August contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (18) x 5,000 oz  = 90,000 oz to which we add the difference between the open interest for the front month of August (60) 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 August contract month:

18 (notices served so far)x 5000 oz + { OI for front month of August (60) -number of notices served upon today (0} x 5000 oz ,= 390,000 oz of silver standing for the August contract month.

we lost 13 contracts or an additional 65,000 oz will not stand in this delivery month of August.

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




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:

August 5.we had a huge withdrawal of 4.77 tonnes from the GLD tonight/Inventory rests at 667.93 tonnes

August 4.2015: no change in inventory/rests tonight at 672.70 tonnes

August 3.2015: no change in inventory at the GLD./Inventory remains at 672.70 tonnes

 July 31/we had a huge withdrawal of 7.45 tonnes/Inventory rests this weekend at 672.70 tonnes

July 29/no change in inventory/rests tonight at 680.13 tonnes

July 28/no change in inventory/rests tonight at 680.13 tonnes

July 27/no change in inventory/rests tonight at 680.13 tonnes

July 24.2015/we had another massive withdrawal of 4.48 tonnes of gold form the GLD/Inventory rests at 680.13 tonnes.

July 23.2015: we had another withdrawal of 2.68 tonnes of gold from the GLD/Inventory rests at 684.63 tonnes

july 22/another withdrawal of 2.38 tonnes of gold from the GLD/Inventory rests at 687.31

July 21.2015: a massive withdrawal of 6.56 tonnes of gold from the GLD.

Inventory rests at 689.69 tonnes.  China and Russia need their physical gold badly and they are drawing their physical from this facility.

July 2o.2015: no change in inventory

July 17./a massive withdrawal of 11.63 tonnes  in gold tonnage tonight from the GLD/Inventory rests at 696.25 tonnes

July 16./we lost 1.19 tonnes of gold tonight/Inventory rests at 707.88 tonnes


August 5 GLD : 667.93 tonnes


And now SLV:


August 5/ a small withdrawal of 142,000 oz of inventory leaves the SLV/Inventory rests tonight at 326.209 million oz


August 4.2015: a small withdrawal of 476,000 oz of inventory at the SLV/Inventory rests at 326.351 million oz

August 3.2015; no change in inventory at the SLV/inventory remains at 326.829 million oz

And now for silver (SLV)  July 31/no change in inventory/rests tonight at 326.829 million oz

July 29/no change in silver inventory/326.829 million oz

July 28/we had a huge withdrawal of 2.005 million oz from the SLV/Inventory rests at 326.829 oz

July 27/no change in silver inventory/inventory rests tonight at 328.834 million oz

July 24/no change in silver inventory/inventory rests tonight at 328.834 million oz

July 23.2015; no change in silver inventory/rests tonight at 328.834 million oz

july 22/no change in silver inventory/inventory rests at 328.834 million oz.

July 21.we had a massive addition of 1.241 million oz into the SLV/Inventory rests tonight at 328.834 million oz.

Please note the difference between gold and silver (GLD and SLV).  In GLD gold is being depleted and sent to the east.  In silver: no depletions, as I guess this vehicle cannot supply physical metal.

July 20/no change

july 17.2015/no change in silver inventory tonight/inventory at 327.593 million oz

July 16./no change in silver inventory/rests tonight at 327.593 million oz


August 5/2015:  tonight inventory rests at 326.209 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 11.9 percent to NAV usa funds and Negative 11.8% to NAV for Cdn funds!!!!!!!

Percentage of fund in gold 62.0%

Percentage of fund in silver:37.7%

cash .3%

( August 5/2015)

2. Sprott silver fund (PSLV): Premium to NAV falls to -1.04%!!!! NAV (August 5/2015) (silver must be in short supply)

3. Sprott gold fund (PHYS): premium to NAV rises to – .76% to NAV(July August5/2015)

Note: Sprott silver trust back  into negative territory at-  1.04%

Sprott physical gold trust is back into negative territory at -.76%

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 CentralGoldTrust (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.
* * * * *


And now for your overnight trading in gold and silver plus stories

on gold and silver issues:


(courtesy/Mark O’Byrne/Goldcore)


Gold Two Steps Forward … One Step Back

GoldCore's picture

Gold Two Steps Forward … One Step Back

  • ‘Death of gold’ greatly exaggerated
  • Vital context: gold rose sharply in years preceding crisis and during crisis
  • Important to consider gold in local currency terms
  • In euro, gold is up 2% in 2015, after 13% gain in 2014
  • Gold at €300 in 2001, rose to €1,400 during crisis and at €1,000 today
  • History, academic and independent research shows gold is a safe haven
  • Sharp fall in value of commodities means global economy is weakening

The deluge of negative publicity regarding gold in recent weeks would give one the impression that it was now worthless and serves no function in a portfolio. We believe this publicity is greatly exaggerated and will be seen as folly in the coming months.

In the years running up to the financial crisis of 2008 gold rose dramatically despite the warning signs being widely ignored. It continued to act as a reliable store of value as the crisis deepened and then began to fall back following the stability – temporary, we believe – provided by central banks creating more debt to deal with a crisis of over-indebtedness.

The negative publicity has generally focussed on the performance of the gold price in dollar terms which is not particularly relevant to investors and savers in other currencies.

Gold rose from €300 in 2000 to around €1,400 at the height of the crisis. It has since fallen back to €1,000. In this context, one can see that gold’s function as a store of value and as a safe haven is still clearly evident. Gold’s recent performance in euro terms has been reasonably strong with a very respectable 13% rise last year and 2% gains so far this year.


History, academic research and independent research show unequivocally that gold acts as a safe haven. As GoldCore’s research director Mark O’Byrne pointed out on RTE Radio 1’s Morning Ireland this morning [click to listen] gold has an inverse relationship to other financial instruments.

The recent negative publicity points out that gold should have seen gains during the recent crisis in Greece and thus failed to act as a safe haven. This is not strictly correct. The uncertainty caused by the crisis should equally have caused stock markets and bond markets to falter. They did not and therefore gold’s inverse relationship to these assets was never tested.

Mark also made the point that the sharp drop in the value of commodities in recent months should not be viewed as a triumph for non-tangible assets such as stocks and bonds. Indeed it indicates latent weakness in the global economy and possible trouble on the horizon.

“It’s interesting because the fall in value of all commodities and oil prices suggests that the global economy is much, much weaker than people actually think and that should give pause for concern in terms of the outlook in the coming months.”

The lower price for gold at this time should be viewed as an opportunity to acquire physical gold as a financial insurance against the unresolved debt crisis which must assert itself again in the coming months or years and may be imminent.

Mark, let’s go through the price movements with regard to gold over the past few years. We’ve seen it go from $700 to $1,900 during the financial crisis and it has come back to about $1,100?

Exactly, yes, and more important for Irish people, it’s important to think in local currency terms – which is obviously euros for Irish people – so there has been a similar big price move in euro terms. It actually went from €300 in the year 2000 to €1,400 at the height of the financial crisis after Lehman Brothers and indeed then the euro-zone debt crisis. So it’s very much a case of two steps forward in the early part of the decade and then one step backwards in recent months and years and we’ve had a very sharp correction, particularly in dollar terms. It’s actually more a story of dollar strength rather than gold weakness because gold in euro terms is actually up 14% last year and this year gold is actually up in euro terms but you wouldn’t know that from the headlines. It’s up 2% so far in 2015.

We had the Greek situation in July and a fall in [gold] price in July. Might we have expected to see it go up in July because of that Greek situation?

Yeah, absolutely, and I think a lot of people were scratching their heads. It is a safe haven asset – there is a huge body of academic research and indeed independent research from asset allocation experts who have shown that gold is a safe haven asset. It has an inverse relation so it goes up when everything else is going down. I suppose the Greek crisis did not lead to a correction in the stock markets and bond markets as some people were expecting and therefore that could be a reason that gold did not react as people expected.

Also, physical demand did increase but it didn’t increase hugely. There was a lot of safe haven buying going on particularly out of Germany because the Germans are worried about what is going to happen to the euro and, of course, in Greece itself. But also, there wasn’t any sudden selling of gold by central banks or investors in physical coins and bars. The selling was actually on the futures market so a lot of the speculative money that’s in the global financial system – which is a bit of a casino – and the hedge funds are momentum-driven and they follow trends. The trend in the gold price has been down in recent months and these guys are shorting the marketplace and pushing prices lower.

We also had the situation in China with very heavy losses in stock markets in July and that was accompanied by pressure on commodities. Why was that the case?

China is one of the biggest economies in the world with 1.3 billion people and a growing middle class and the narrative was that this is creating huge demand for commodities – as it was – as China industrialises. Now obviously there are concerns about China and we would have serious concerns about the Chinese economy going forward given – like most economies – a lot of the growth has been driven by huge increases in debt levels and obviously we’ve seen property markets there fall quite a bit in most of the cities around China and then we’ve had the huge wallop on the stock market over there. So people are beginning to question that story. It’s interesting because the fall in value of all commodities and oil prices suggests that the global economy is much, much weaker than people actually think and that should give pause for concern in terms of the outlook in the coming months.

You can listen to the full interview with Mark O’Byrne RTE’s Morning Ireland website.

A very interesting commentary tonight from Hugo on a strategy that China may orchestrate with respect to the pricing of gold.
(courtesy Hugo Salinas Price)

Will China Play The ‘Gold Card’?

Hugo Salinas Price

Alasdair Macleod has posted an article at which I think is important.

(See “Credit deflation and gold”.

The thrust of the article is that China, at some point, will have to revalue gold in China; which means, in other words, that China will decide to devalue the Yuan against gold.

Since “mainstream economics” holds that gold is no longer important in world business, such a measure might be regarded as just an idiosyncrasy of Chinese thinking, and not politically significant, as would be a devaluation against the dollar, which is a no-no amongst the Central Bank community of the world.

However, as I understand the measure, it would be indeed world-shaking.

Here’s how I see it:

Currently, the price of an ounce of gold in Shanghai is roughly 6.20 Yuan x $1084 Dollars = 6,721 Yuan.

Now suppose that China decides to revalue gold in China to 9408 Yuan per ounce: a devaluation of the Yuan of 40%, from 6721 to 9408 Yuan.

What would have to happen?

Importers around the world would immediately purchase physical gold at $1,084 Dollars an ounce, and ship it to Shanghai, where they would sell it for 9408 Yuan, where the price was formerly 6,721 Yuan.

The Chinese economy operates in Yuan and prices there would not be affected – at least not immediately – by the devaluation of the Yuan against gold.

Importers of Chinese goods would then be able to purchase 40% more goods for the same amount of Dollars they were paying before the devaluation of the Yuan against gold. What importer of Chinese goods could resist the temptation to purchase goods now so much cheaper? China would then consolidate its position as a great manufacturing power. Its languishing economy would recuperate spectacularly.

The purchase of physical gold would take off, no longer the activity of detested “gold-bugs”, but an activity linked to making money, albeit fiat money. Inevitably, the price of physical gold in Dollars would separate from the price of the “paper gold” traded on Comex and go higher, leaving paper gold way behind in price.

If the US were to provide the market with physical gold in the quantities being purchased for trade with China, it might be able to prevent the rise in the price of gold in Dollars; however, we know that Comex has only one ounce of physical gold for every 124 owners of paper gold, so that action would be impossible. China would be sucking up the world’s gold at a huge rate, if the price of gold in Dollars were to remain where it is at present.

The only way that the US might counter the Chinese move, would be to revalue gold in Dollars; which is to say, the US would have to effect a corresponding devaluation of the Dollar against gold, to nullify the effect of the Chinese devaluation of the Yuan against gold.

At a Dollar price of gold of $1,517 Dollars per ounce, the Chinese devaluation would be left without effect: the present Yuan/Dollar exchange rate would then remain at 6.20 Yuan per Dollar: 9,408 Yuan/6.20 exchange rate = $1,517 Dollars per ounce.

This is the old policy of the 1930’s, commonly known as “beggar thy neighbor”, where countries carried out competitive devaluations against gold in order to preserve their manufactures and continue exporting. The response of importing nations was to raise tariffs on imported goods. (Say good-bye to an integrated world economy.)

Will China decide to “beggar its neighbors”, the US and Europe? I think that the huge problem of keeping the Chinese economy on its feet and avoiding the political instability which would rage through China by not doing so – with a population in excess of 1.3 billion human beings – will be so compelling that China will practically inevitably resort to raising the price of gold in China.

When might this happen? The world economy is going from bad to worse by the day. The Chinese may opt for this measure out of sheer desperation, and it may be a reality soon. I have the sensation that things are falling apart around the world at an increasing rate of speed. PerhapsChina will move this Fall?

Devaluing the Dollar on the part of the US would upset the apple-cart of Dollar hegemony in the world. But not to devalue would price US goods out of world markets, along with European goods. “Damned if you do, damned if you don’t.”

Dollar devaluation would force a Euro devaluation and all Hell would break lose, as all countries would belatedly realize the importance of having gold reserves, and one country after another would devalue their currencies against gold. Import tariffs and restrictions on imports would once again prevail. The dream of “Globalization based on the fiat dollar” would evaporate in the orgy of currency devaluations against gold.

The era of the Dollar as reserve currency of the world, would have ended.

When the dust shall have settled on this giant crisis, the powers of this world will have recognized, once again, that gold is money; what would remain would be the work of establishing the gold standard de jure, by international accords, in order to abolish tariffs and import restrictions and renew the free international flow of goods.

However, another horrible scenario is possible: the US, run by those who insist on maintaining the plan for world domination through endless war, may decide to go to war with China and with Russia, too, for good measure. Let us hope that reason prevails and that the Dollar loses its status as world reserve currency in a peaceful manner.



(courtesy Stefan Gleason/GATA)_

Stefan Gleason: Five extraordinary things that will shake up precious metals


4:05p ET Tuesday, August 4, 2015

Dear Friend of GATA and Gold:

Writing today at, Stefan Gleason, president of Money Metals Exchange in Eagle, Idaho, enumerates “Five Extraordinary Things that Will Shake Up Precious Metals,” basically a list of the fundamental factors supporting a rise in price for the monetary metals, including the imminent collapse of the monetary metals mining industry, its agreement to die quietly and cease production.

Will fundamentals ever again mean anything in markets that, like the gold and silver markets, are controlled by surreptitious intervention by central banks and their agents? Certainly not with their permission. But if this central bank policy is sufficiently exposed, anything could happen.

Gleason’s commentary is posted at The Street here:…

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


(courtesy Reuters/GATA)


on the IMF recommendation to delay the entry of the yuan into the SDR:


IMF staff review recommends delaying currency basket adoption of yuan


By David Chance and Krista Hughes
Tuesday, August 4, 2015

WASHINGTON — The International Monetary Fund should put off any move to add the yuan to its Special Drawing Rights currency basket until September 2016, an IMF staff report said, a move that would effectively end the Chinese currency’s chances of an early inclusion.

The report, published today, comes after Beijing launched a major diplomatic push for the yuan’s inclusion in the IMF basket as part of its long-term strategic goal of reducing dependence on the dollar.

The report said the implementation of any formal decision to add the yuan to a basket of currencies comprising dollars, euros, pounds, and yen should be delayed so as not to disrupt financial market trading on the first day of 2016. …

… For the remainder of the report:…



The following was brought to your attention yesterday.  It is worth repeating

(courtesy Chris Powell./James McShirley/GATA)

James McShirley: Kitco inadvertently acknowledges that the gold price is suppressed


By James McShirley
via Bill Murphy’s “Midas” commentary at
Tuesday, August 4, 2015

How do you mention manipulation without actually saying it? Well, if you work for Kitco and your name is either Neils Christensen or Peter Hug you do it this way:…

Christensen: “The one bright spot for the precious metals market appears to be the physical market as the U.S. Mint reported a 469-percent increase in July coin sales compared to last year.”

Then Christensen hands it off to Hug: “It is not just the mint that has seen unprecedented demand for bullion as prices significantly dropped last month. In his morning commentary, Peter Hug, global trading director for, said that many bullion dealers have been struggling to obtain a supply of silver coins and small gold bars. However, he added that he does not see this reemergence of physical bullion to help support prices as gold trades under $1,100 an ounce and silver under $15 an ounce.”

Huh? So the one bright spot is the actual stuff flying off the shelves?

If the physical market is on fire as Neil so coyly reports, then why are there any dull spots? And Mr. Hug declares that not even phenomenal physical demand can overcome the derivative-induced malaise!

Neils and Peter both just inadvertently admitted manipulation without ever saying the “M” word. When the only “bright spot” happens to be rip-roaring demand for the actual product, you know you have an out-of-control cartel using derivatives to suppress market prices.

If all the collective commodity producers on the planet could ever understand how gold is the linchpin for the suppression of their collective products, GATA would have a million members. In the meantime we have $3 corn, $9 beans, $2 copper, and a gold suppression scheme on steroids. The financial tail continues to wag the working dog.

Gold’s days of being pinned to the mat are getting numbered. The clock is ticking. The exchange-traded fund GLD is methodically raided, the U.S. Mint is drained, and the Comex shelves are all but bare. All that’s left is the potential for a huge rally.

Maybe now Kitco could be so kind as to lease the gold in its client pool accounts to the cartel? That ought to buy another week or two of suppression. It’s the least they could do as dutiful apologists for their bullion bank buddies.


(courtesy GATA/Chris Powell)

Surging demand for the real stuff even as paper gold prices fall


10:07a ET Wednesday, August 5, 2015

Dear Friend of GATA and Gold:

Another monetary metals dealer, Money Metals Exchange in Idaho, reports surging demand for the real stuff even as prices for “paper gold” fall, “more buying interest than at any time since the 2008 financial crisis.” The firm reports its recent sales data here:

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


James Turk discusses the prolonged gold backwardation which has never happened before in monetary history

(courtesy James turk and Greg Hunter/USAWatchdog)

Prolonged Gold Backwardation Has Never Happened in Monetary History-James Turk

By Greg Hunter On August 5, 2015 Greg Hunter’s

Renowned gold expert James Turk says prolonged gold backwardation like we are seeing now, where the spot price is higher than the future price, has never happened before. Turk contends, “No, never, and I am a student of monetary history as well, and I have never seen it happen like this in monetary history. Typically, when a backwardation would occur under the classic gold standard, for example, the banks that would have fractional reserve banking would go under. There would be a banking collapse. So, typically, if there was a backwardation, it would only last for a few days as it did in 1999 and in 2008. So, we have an unusual situation where we have heavy government involvement where they are trying to keep the gold price under wraps so they can maintain this policy of zero interest rates. They are thinking they are going to jumpstart the economy, but the economy is not being jumpstarted. All it’s doing is deferring the ultimate collapse and the governments’ ability to repay all the debt that they owe.”

Turk, a best-selling author who co-wrote a book called “The Money Bubble,” says what is happening now is nothing short of an historic bubble getting ready to pop. Turk explains, “In other words, just as we look back to the South Sea bubble and the Mississippi bubble, people are going to look back to today and say this is the money bubble. People are using what they think is money, but what they are using is really a money substitute. That’s the theme of the book that John Rubino and I wrote. We have lost sight as to what money truly is. It is a physical asset without counter-party risk and that is gold and silver.”

Turk thinks this bubble will end like all bubbles. Turk predicts, “This money bubble is going to pop. It has to because there is just too much debt in the world. That debt has to be reconciled and, ultimately, when you are reconciling debt, it gets back to the point about collateral on the balance sheets. There is just not enough good collateral to support all of this paper money circulating out there.”

It comes as no surprise that Turk thinks the premier collateral is gold. Turk goes on to say, “That’s what you are going to want, and that is ultimately what’s going to reemerge in global commerce. . . . It’s ultimately going to go back to gold.”

Turk also says there is way too many paper promises for the actual physical gold that can be delivered. So, in the future, Turk says, “I see a lot of these promises to deliver gold being broken and, ultimately, the only way you are going to see this being resolved is with a much higher gold price.” How high? Turk estimates, “You’ve got to be looking back to the all-time highs of $1,900 or $2,000 per ounce. We are eventually going to take those out. It’s just a question of when we do it. It’s obvious it is going to happen because gold has been money for 5,000 years and, ultimately, people will come back to gold when they realize that all these promises of bankers and central bankers really cannot be fulfilled. So, it is just a question of when that reconciliation comes. In March of 1968, the dam broke and the gold price was released, and the gold price climbed for another 12 years. When the gold price finally gets released this time around, it’s going to climb for many, many more years. It’s hard to say how high it can go, but relative to the amount of paper that’s out there . . . a price several times higher than what we have today seems very, very reasonable in the long run.”

Join Greg Hunter as he interviews James Turk of

(There is much more in the video interview.)

Video Link


And now your overnight Wednesday morning trading in bourses, currencies, and interest rates from Europe and Asia:


1 Chinese yuan vs USA dollar/yuan remains constant at  6.2096/Shanghai bourse: red and Hang Sang: green

2 Nikkei up 93.70 or 0.47%

3. Europe stocks all in the green  /USA dollar index up to 98.03/Euro down to 1.0868

3b Japan 10 year bond yield: rises to 40% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 124.38

3c Nikkei still just above 20,000

3d USA/Yen rate now just above the 124 barrier this morning

3e WTI 46.04 and Brent:  50.44

3f Gold up  /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 slightly rises to .66 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate falls to 20.50%/Greek stocks this morning down badly again by 3.24%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 11.72%

3k Gold at $1087.50 /silver $14.57

3l USA vs Russian rouble; (Russian rouble down 1/5 in  roubles/dollar) 62.97,

3m oil into the 46 dollar handle for WTI and 50 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 .9792 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0643 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

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

3r the 4 year German bund remains in negative territory with the 10 year moving further from negativity to +.66%

3s The ELA rose another 900 million euros to 90.4 billion euros.  The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.

4. USA 10 year treasury bond at 2.25% early this morning. Thirty year rate below 3% at 2.91% / yield curve flatten/foreshadowing recession.

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


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

Futures Rebound On Ongoing Dollar Strength; Commodities Rise, China Slides, Greek Banks Continue Plunging

In many ways the overnight session has been a mirror image of yesterday, with the dollar accelerating its Lockhart-commentary driven rise, which curiously has pushed ES higher perhaps as a result of more USDJPY correlation algos being active and various other FX tracking pairs. Indeed, the weak yen is all that mattered in Japan, where the Nikkei 225 (+0.5%) rose amid JPY weakness, despite opening initially lower as index heavyweight Fast Retailing (-4.5%) reported a 2nd consecutive monthly decline in Uniqlo sales. Elsewhere in mirror images, China slid 1.7%, undoing about half of yesterday’s 3.7% jump, and is now down for 4 of the past 5 days.

As a reminder, the key event yesterday interview by Fed centrist, Atlanta Fed President Lockhart, who said that the US economy is ready for a rate rise and that it would take a significant deterioration in data to convince him that a move in September would not be warranted: the result was sending the USD and yields surging and stocks sliding.

Speaking to the WSJ, Lockhart said that ‘my priors going into the September meeting as of today are that the economy is ready and it is an appropriate time to make a change’. Lockhart also said that ‘I think there is a high bar right now to not acting’ and that ‘it will take a significant deterioration in the economic picture for me to be disinclined to move ahead’. There was some mention from Lockhart in the article that inflation could come under pressure in the time ahead with the recent decline in the oil market, although Lockhart said that he was ‘reasonably confident’ inflation is on a path towards its goal given the slack in the labour market and broader economy is diminishing.

The comments were interesting given that Lockhart is seen as something of a centrist in the Fed camp who moves with the consensus. Lockhart had also previously said back in May that he is more prepared to take the risks of waiting rather than being too early. In his comments yesterday Lockhart also added that the addition of the word ‘some’ to the FOMC statement in relation to further improvement in the labour market was ‘a qualifier that conveys to the public that we’re getting close’. This of course will be tested somewhat today when we get the July ADP employment print (with market expectations at 215k) which of course comes as an important precursor ahead of payrolls on Friday.

As DB summarizes “one has to hand it to the Fed as they are not seemingly being derailed by the recent commodity rout, the concerns over China (and other EM countries), and the general disappointments over the state of the wider global recovery.” That, and of course the reality that a Fed hike in September will unleash the ghost of 1937...

Back to Asian equity markets which traded mixed following the weak close on Wall Street, after Fed’s Lockhart stated that a rate lift-off could be seen as appropriate in September. The Shanghai Comp (-1.6%) was the session’s laggard as the PBoC reiterated that they will follow a prudent monetary policy, in spite of the latest Services PMI posting its highest reading since Aug’14.  Finally, JGB’s fell following spill-over selling in USTs weighed by the aforementioned more hawkish than usual comments from Fed’s Lockhart.

Curiously, despite Lockhart’s hawkish comment being blamed for the late day failed to weigh on European sentiment (Euro Stoxx: +0.76%) as stellar earnings from SocGen (+8.0%) buoyed demand for stocks. In turn, the upside was led by the financial sector, with materials also posting good gains following a number of positive broker updates by Liberum who upgraded BHP Billiton (+2.5%), Rio Tinto (+2.7%) and Glencore (+2.0%) to hold from sell. In terms of other notable movers, Standard Chartered shares reversed initial weakness following earnings to trade higher by 0.7%, as market participants welcomed the fact that the bank did not announce capital raising plans, that’s despite reporting less than impressive financial metrics.

One place where there was no mirror image was Greek banks which as the Bloomberg chart below shows, continued their limit down selloff for the third day in a row.

As reported moments ago by Bloomberg, Greek banks extended a rout that has wiped out more than half their value this week, sending the nation’s stocks lower for a third day. Piraeus Bank and Alpha Bank plunged at least 29 per cent, while Eurobank Ergasias plummeted 15 per cent. National Bank of Greece climbed 2.3 per cent, rebounding after a 50 per cent tumble in two days.

While about half of the 60 stocks listed on the benchmark ASE Index climbed, the lenders’ losses dragged the gauge lower. The ASE fell 1.4 per cent to 651.02 at 10:43 a.m. in Athens, after closing at its lowest level since September 2012 on Tuesday.

Another place where there has been no mirror image action is AAPL stock which has continued to tumble, catalyzed moments ago by a downgrade to Netural by BofA (more shortly).

FX markets have seen a continuation of yesterday’s trend with USD continuing to strengthen on the back of comments from Fed’s Lockhart (USD-Index: 0.2%) amid relatively light macro news flow elsewhere. The European morning saw a host of European and UK services and composite PMI with the European numbers generally beating expectation, while UK PMIs came out lower than expected, however these data points failed to have a sustained reaction on FX markets.

Looking elsewhere, Bunds retraced yesterday’s flattening bias and traded lower, in tandem with USTs in reaction to hawkish comments by the Fed and also benefited from an encouraging set of EU PMIs . The peripheral bond yield spreads tighter as a result, with the bid tone supported by domestic accounts, whereas BTPs also benefited from a lack of supply in August.

The energy complex heads into the North American crossover flat on the day, with WTI and Brent paring much of their overnight gains on the back of a larger than previous drawdown (-2400k vs. Prey. -1900k), with WTI Sep’15 futures residing just above the USD 50.00/bbl handle ahead of today’s DoE crude oil inventories, which are expected to show a drawdown of 1630k.

Elsewhere, gold traded sideways overnight with sentiment dampened as markets price in an increased chances of an earlier than anticipated Fed rate lift-off, while copper prices fell as the USD firmed.

Going forward, today’s highlights include the latest US ADP employment change report and ISM non-manufacturing report.a

In summary: European shares rise with the basic resources and autos sectors outperforming and real estate, industrials underperforming. Chinese stocks fall for fourth time in 5 days. European bourses outperforming today include Germany, France, Ireland. Silver, copper fall with cotton as wheat gains. Euro falls to 2-week low vs dollar; yields rise on eurozone 10-yr bonds with gilts, bunds showing largest increases. U.S. ISM non-manufacturing, trade balance, mortgage applications, ADP employment change, Markit U.S. composite PMI, Markit U.S. services PMI due later.

Market Wrap

  • S&P 500 futures up 0.3% to 2088.7
  • Stoxx 600 up 0.8% to 401.9
  • US 10Yr yield up 1bps to 2.23%
  • German 10Yr yield up 3bps to 0.67%
  • MSCI Asia Pacific down 0.1% to 141.5
  • Gold spot down 0.1% to $1086.7/oz
  • Eurostoxx 50 +0.9%, FTSE 100 +0.3%, CAC 40 +1%, DAX +1%, IBEX +0.7%, FTSEMIB +0.8%, SMI +0.1%
  • Asian stocks fall with the Nikkei 400 outperforming and the CSI 300 underperforming; MSCI Asia Pacific down 0.1% to 141.5
  • Nikkei 225 up 0.5%, Hang Seng up 0.4%, Kospi up 0.1%, Shanghai Composite down 1.6%, ASX down 0.4%, Sensex up 0.5%
  • Euro down 0.19% to $1.086
  • Dollar Index up 0.17% to 98.1
  • Italian 10Yr yield up 1bps to 1.78%
  • Spanish 10Yr yield up 1bps to 1.95%
  • French 10Yr yield up 2bps to 0.97%
  • S&P GSCI Index up 0.2% to 372.1
  • Brent Futures up 0.6% to $50.3/bbl, WTI Futures up 0.5% to $46/bbl
  • LME 3m Copper down 0.6% to $5205/MT
  • LME 3m Nickel up 0.2% to $10855/MT
  • Wheat futures up 0.3% to 494.8 USd/bu

Bulletin headline summary from Bloomberg and RanSquawk

  • FX markets have seen a continuation of yesterday’s trend with USD continuing to strengthen on the back of comments from Fed’s Lockhart
  • The unexpected comments by the centrist Fed’s Lockhart failed to weigh on sentiment as stellar earnings from SocGen buoyed demand for stocks
  • Going forward, Today’s highlights include the latest US ADP employment change report and ISM non-manufacturing report
  • Treasuries higher in overnight trading on rising expectations of Fed hike next month after Fed’s Lockhart stated yday that Sept. may be appropriate time to begin raising rates.
  • Germany’s government bonds fell, with 10-year yields rising the most in three weeks, after euro-area services growth beat estimates and amid signals the Federal Reserve is ready to raise U.S. interest rates as soon as next month
  • China will probably keep the yuan pegged to the dollar into 2016 after the IMF signaled a delay to giving it reserve status
  • Chinese investors, who rushed for the exits when a debt-fueled stock rally ended, are now ignoring worsening credit profiles to buy corporate bonds with borrowed cash
  • Standard Chartered Plc Chief Executive Officer Bill Winters signaled the bank may not need to raise capital after first- half profit dropped by 44 percent
  • Societe Generale SA gained the most in two years after the bank reported the highest profit since the financial crisis, bolstered by equity trading revenue, and raised its capital targets
  • Even as much of Europe’s bond market slows down for the summer holidays, sales of the riskiest bank debt are surging back to life
  • The latest debt-restructuring offer from Ukraine’s government wouldn’t be acceptable to the nation’s bondholders, according to a person with knowledge of the negotiations
  • Sovereign 10Y bond yields mixed. Asian stocks mixed, European stocks, U.S. equity-index futures rise. Crude oil higher; copper and gold fall


DB’s Jim Reid completes the overnight event wrap

One has to hand it to the Fed as they are not seemingly being derailed by the recently commodity rout, the concerns over China (and other EM countries), and the general disappointments over the state of the wider global recovery. We’re still not convinced the US and global economy merits a hike in September but the official chatter continues to lean towards it. Last night FOMC voter and Atlanta Fed President Lockhart said that the US economy is ready for a rate rise and that it would take a significant deterioration in data to convince him that a move in September would not be warranted. Speaking to the WSJ, Lockhart said that ‘my priors going into the September meeting as of today are that the economy is ready and it is an appropriate time to make a change’. Lockhart also said that ‘I think there is a high bar right now to not acting’ and that ‘it will take a significant deterioration in the economic picture for me to be disinclined to move ahead’. There was some mention from Lockhart in the article that inflation could come under pressure in the time ahead with the recent decline in the oil market, although Lockhart said that he was ‘reasonably confident’ inflation is on a path towards its goal given the slack in the labour market and broader economy is diminishing.

The comments were interesting given that Lockhart is seen as something of a centrist in the Fed camp who moves with the consensus. Lockhart had also previously said back in May that he is more prepared to take the risks of waiting rather than being too early. In his comments yesterday Lockhart also added that the addition of the word ‘some’ to the FOMC statement in relation to further improvement in the labour market was ‘a qualifier that conveys to the public that we’re getting close’. This of course will be tested somewhat today when we get the July ADP employment print (with market expectations at 215k) which of course comes as an important precursor ahead of payrolls on Friday.

US rates were the significant price mover on the back of Lockhart’s comments. 10y Treasury yields, up a couple of basis points prior to the comments closed 7.3bps higher at the end of play at 2.222% while 2y and 5y yields moved 6.8bps and 8.8bps higher respectively – the former now back at 0.734% and to the highest level this year. The move wider was led by the short to mid part of the curve with 30y yields up just 4.5bps to 2.898%. Looking across the Fed Funds contracts, the comments were enough to add 3bps to the Dec 15 contract (to 0.330%) and 7bps and 8bps to the Dec16 and Dec17 contracts respectively to 1.030% and 1.635%. Based on futures pricing, the implied probability of a September move has now risen to 50% from just 38% the day before. The Dollar caught a bid with the comments with the broader Dollar index eventually closing +0.45%.

The chatter proved to be unsupportive for US equity markets however. Having traded relatively flat before hand, the S&P 500 (-0.22%) eventually closed a touch lower with utility names leading the move lower while Apple (-3.21%) continues to be a notable drag, falling for the fifth consecutive day and tenth in the last eleven sessions. The energy component (-0.46%) was also slightly softer yesterday despite a more constructive day in the commodity space. Both WTI (+1.26%) and Brent (+0.95%) rebounded yesterday, with the latter back to $50. Gold ended (+0.08%) modestly higher while there were also modest rebounds for Aluminum (+0.31%) and Copper (+0.29%).

Before we take a look at the rest of markets, it’s a heavy day for PMI data today and we’ve had the day’s first services and composite readings in Asia this morning. In China we’ve seen a decent bounce in the July services reading, increasing 2pts from the previous month to 53.8 – an 11-month high and 12th straight month of expansion. That’s in stark contrast to the manufacturing reading we got earlier in the week which was low enough to keep the composite reading soft, falling 0.4pts to 50.2 and the lowest level since May last year. Staying in China, an IMF report out last night has said that the Fund should hold off any move to add the Yuan to its benchmark currency basket until after September next year after China had made a push to add the Yuan to the IMF’s Special Drawing Rights basket as a way of reducing its dependence on the Dollar.

It’s been another choppy session for Chinese equity markets this morning with the Shanghai Comp (-1.27%) and Shenzhen (-0.91%) both down at the midday break with volumes 30% below the 30-day average. In Japan the Nikkei is +0.53% despite a 0.6pt fall in the services PMI to 51.2, while the composite remained unchanged at 51.5. Elsewhere, the Hang Seng (+0.27%) and Kospi (+0.06%) are both firmer while the ASX (-0.61%) is down. 10y Treasury yields have extended their move higher, up 2bps this morning to 2.241%. Oil markets are a touch firmer with WTI and Brent +0.46% and +0.48% respectively while Gold (-0.16%) is slightly lower. Credit markets are largely unchanged meanwhile.

With Lockhart’s comments coming after the European close there was little to report in terms of price action in European rates with 10y Bunds just 1.1bps higher in yield at 0.637%. Risk assets were a touch softer. Led by declines for tech and financial names, the Stoxx 600 closed -0.17% with peripheral bourses underperforming. In credit Crossover closed 4bps wider in a fairly quiet session while in the FX space the Euro (-0.63%) dropped on the back of Dollar strength. Data wise Euro area PPI was slightly weaker than expected for June (-0.1% mom vs. 0.0% expected) although the annualized rate stayed unchanged at -2.2% yoy. Staying in the region, our colleagues in Europe noted that the latest breakdown of ECB purchases showed that the Central Bank is roughly €7bn ahead of schedule now relative to the monthly target given the frontloading of the last few months. They note now that this gives the ECB room to significantly reduce purchases should they feel that to continue at the current pace would be disruptive in the less liquid conditions, although it’s unlikely that we see a significant drop in purchases in just one month and instead, as mentioned by Coeure and Draghi, there is likely to be a ‘backloading’ of purchases over the space of several months in the remainder of the year to bring the aggregate purchases back in line.

Greece was back in the headlines again yesterday after Greek Finance Minister Tsakalotos said that negotiations with Creditors were going better than expected with the Finance Minister being quoted as saying that ‘everything will be concluded this week’. Greek press Ekathimerini is reporting that there is optimism between the two sides that a third bailout package can be approved by August 20th.
Before we turn over to the day ahead, we again update our earnings beat/miss ratio monitor after accounting for yesterday’s reports. With 402 S&P 500 companies having now reported, earnings beats have remained steady at 74% however sales beats have ticked down once more to 49% now (from 50% yesterday). Over in Europe meanwhile, earnings beats of 64% and sales beats of 66% is up from 63% and 65% this time yesterday.

Turning over to today’s calendar now, as mentioned earlier we’ve got the final July services and composite PMI’s due today and we start this morning with the prints for the Euro area, Germany and France as well as advanced readings for the UK, Italy and Spain. Euro area retail sales for June are also expected this morning. Looking ahead to this afternoon, the services and composite PMI prints for the US will be closely followed as will the July ISM non-manufacturing reading. The aforementioned ADP employment change print will likely be the highlight however while the June trade balance reading is also expected. Earnings wise we’ve got Time Warner due today.


Varoufakis explains what happened immediately after the “NO” vote

(courtesy zero hedge)

Varoufakis Tells All: Tsipras Was “Dispirited” With “No” Vote, Referendum Was Meant As “Exit Strategy”

In the wake of Greek PM Alexis Tsipras’ seemingly inexplicable decision to disregard a referendum outcome he had aggressively campaigned for on the way to accepting a deal with Athens’ creditors that looked far worse than the proposal that 62% of Greek voters indicated was unacceptable just a week prior, some began to question whether Tsipras intended to win the referendum at all.

That is, some wondered if, seeing no way out, Tsipras had secretly hoped that a “yes” vote would have given him an excuse to either accept creditors’ proposals and say he was simply doing the bidding of the Greek populace, or else simply resign in feigned disgust at his people’s willingness to accept a bad deal.

Indeed, the Telegraph’s Ambrose Evans-Pritchard reportedearly last month that the Greek prime minister who decisively and unexpectedly pushed for a plebiscite on the last weekend of June, “never expected to win the referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.”

Now, in an interview with Christos Tsiolkas for the Australian magazine Monthly, ex-FinMin Yanis Varoufakis tells the story of what took place in the minutes and hours after the referendum “no” vote and details what he calls “The Schaueble Plan”. Most notably, Varoufakis says Tsipras was “dispirited” by the “no” vote and that many in the Greek government were indeed depending on a “yes” vote to give them a way out of what seemed like an intractable situation.

Here are the notable excerpts from the piece:

*  *  *

From Greek Tragedy, by Christos Tsiolkas

Let me just describe the moment after the announcement of the result. I made a statement in the Ministry of Finance and then I proceeded to the prime minister’s offices, the Maximos [also the official residency of the Greek prime minister], to meet with Aleksis Tsipras and the rest of the ministry. I was elated. That resounding no, unexpected, it was like a ray of light that pierced a very deep, thick darkness. I was walking to the offices, buoyed and lighthearted, carrying with me that incredible energy of the people outside. They had overcome fear, and with their overcoming of fear it was like I was floating on air. But the moment I entered the Maximos this whole sensation simply vanished. It was also an electric atmosphere in there, but a negatively charged one. It was like the leadership had been left behind by the people. And the sensation I got was one of terror: What do we do now?

I could tell [Tsipras] was dispirited. It was a major victory, one that I believe he actually savoured, deep down, but one he couldn’t handle. He knew that the cabinet couldn’t handle it. It was clear that there were elements in the government putting pressure on him. Already, within hours, he had been pressured by major figures in the government, effectively to turn the no into a yes, to capitulate.

[There were people in the government] who were counting on the referendum as an exit strategy, not as a fighting strategy.

When I realised that, I put to him that he had a very clear choice: to use the 61.5% no vote as an energising force, or [to] capitulate. And I said to him, before he had a chance to answer, ‘If you do the latter, I will clear out. I will resign if you choose the strategy of giving in. I will not undermine you, but I will steal into the night.’

Tsipras looked at me and said, ‘You realise that they will never give an agreement to you and me. They want to be rid of us.’

And then he told me the truth, that there were other members of the government pushing him into the direction of capitulation. He was clearly depressed.

I answered him, ‘You do the best with the choice that you’ve made, one that I disagree with wholeheartedly, but I am not here to undermine you.’

So then I went home. It was 4.30 in the morning. I was distraught – not personally, I don’t give a damn about moving out of the ministry; it was actually a great relief. I had to sit down between 4.30 and 9 in the morning and script the precise wording of my resignation because I wanted on one hand that it was supportive of Aleksis and not undermining him but on the other hand [to] make clear why I was leaving, that I was not abandoning ship. The ship itself had abandoned the course.”

The German finance minister, Wolfgang Schäuble [had a plan].  I called it the Schäuble plan. He has been planning a Greek exit as part of his plan for reconstructing the eurozone. This is no theory. The reason why I am saying it is because he told me so.

This is Schäuble’s way of exacting concessions from France and Italy, that was what the game always was. The game was between Germany, France and Italy, and Greece was – not so much a scapegoat – we have an expression in Greece.

It is a clear strategy for influencing from Paris and from Rome,particularly from Paris, the kind of concessions towards creating a disciplinarian, Teutonic model of the eurozone.

(courtesy Almanar news/and special thanks to Robert H for sending this to us)
Putin to Turkey Envoy: Tell Erdogan He Can Go to Hell along with ISIL Terrorists
Russian President Vladimir Putin broke the accepted diplomatic protocols and personally summoned Turkish Ambassador to Moscow Ümit Yardim, and warned him that the Russian Federation shall sever the diplomatic relations immediately unless Turkish President Recep Tayyip Erdoğan stops supporting ISIL terrorists in Syria, where Russia holds its last navy base in the Mediterranean sea, FNA reported.The AWD news website quoted Moscow Times as reporting that the Russian president purportedly went into a long diatribe criticizing the Turkish foreign policy and its malevolent role in Syria, Iraq and Yemen by supporting Saudi-backed al-Qaeda terrorists, which escalated the conversation with the Turkish ambassador to a fierce polemic.Also the Republican news website said that according to the leaked information obtained by the Moscow Times, the meeting between Putin and Turkish ambassador was imbued with intense mutual resentment where Yardim repudiated all Russian accusations, laying blame on Russia for Syria’s bitter and protracted civil war.“Tell your dictator president he can go to hell along with his ISIL terrorist and I shall make Syria to nothing but a ‘Big Stalingrad’, for Erdoğan and his Saudi allies are no vicious than Adolf Hitler,” replied Vladimir Putin in the 2-hour closed door meeting with Turkish emissary.“How hypocrite is your president as he advocates democracy and lambasts the military coup d’état in Egypt,” added Putin, “And he simultaneously condones all terrorist activities aimed to overthrow Syrian president.”

The Russian president continued by saying that his country won’t abandon Syrian legitimate administration and will cooperate with its allies, namely Iran and China, to find a political solution to Syria’s interminable civil war which descended the 23-million Arab nation to an utter ethnic and religious anarchy.

Just look at who bought a ton of Apple stock:
(courtesy zero hedge)

The Swiss National Bank Bought Another 500,000 AAPL Shares Just Before 10% Correction

Three months ago we were stunned to learn, and report, that the Swiss National Bank – a central bank – had been one of the biggest buyers of AAPL stock in the first quarter, when it added 3.3 million shares to its existing position, or 60%, bringing the total to 9 million shares, for a grand total of $1.1 billion. Moments ago, the SNB which unlike the Fed and the other “serious” central banks releases a 10-Q divulging its equity holdings, updated on its latest stock portfolio.

We were amused to learn that in the quarter in which AAPL stock almost hit a new all time high, the Swiss money printing authority which reported a record $20 billion loss in the second quarter, and a record $52 billion in the first half, added another 500,000 AAPL shares, bringing its new grand total to a whopping 9.4 million shares, equivalent to $1.2 billion as of June 30 (well below that now following the recent 10% correction).


At $1.2 billion, AAPL remains the top holding of the SNB, almost double the second largest position, which as of June 30 was Exxon stock valued at $637 million (and is worth much less now, and has most likely been surpassed in notional terms by #3 MSFT).

So what are the the Swiss hedge fund with nearly $94 billion in equity holdings? Here is the full breakdown.


Now if only the Fed would be this transparent about its own equity holdings…


Oil related stories:


First we have both API and DOE report on oil drawdowns, which cause oil to rise.  However production also rose which then saw crude dumped:

(courtesy zero hedge)

Crude Pumps’n’Dumps As Production Surge Trumps Inventory Draw

Following API’s drawdown last night, DOE reported a significant 4.41mm barrel draw (dwarfing the 1.63mm barrel draw expectation). Thisis the 11th of last 14 drawdown in inventory. Crude spiked on the news, seemingly ignoring the 0.6% surge in production – its biggest jump since late May… but has given all the spike back now, hitting a $45 handle.


Inventories plunged…


Crude spiked…


but production surged…


and crude plunged…


Charts: Bloomberg


WTI earlier in the day plunges into the 44 dollar handle:

(courtesy zero hedge)

WTI Plunges To $44 Handle, Near 5-Month Lows

Despite CNBC’s focus on ‘lows are in’ after a bigger than expected inventory draw, the realization that production continues to surge has cratered WTI crude which is now trading with a $44 handle!! This is the lowest in 5 months. Energy credit risk is back near 1000bps once again – near its record wides vs the broad HY index.

Crude plunges from $46 to $44


… and credit risk soars:


Your early Wednesday morning currency, and interest rate moves


Euro/USA 1.0868 down .0017

USA/JAPAN YEN 124.38 up .088

GBP/USA 1.5608 up .0043

USA/CAN 1.3187 down .0008

Early this Tuesday morning in Europe, the Euro fell by 17 basis points, trading now just below the 1.09 level at 1.0868; 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,  an imminent  default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes. 

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 9 basis points and trading just above the 124 level to 124.38 yen to the dollar.

The pound was up this morning by 43 basis points as it now trades just above the 1.56 level at 1.5608, 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 stopped its descent as it rose slightly by 8 basis points at 1.3187 to the dollar. (Harper called an election for Oct 19)

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies

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

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this Tuesday morning: up by 93.70 or 0.46%

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

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

Gold very early morning trading: $1088.00


Early Wednesday morning USA 10 year bond yield: 2.25% !!!  up 3 in basis points from Tuesday night and it is trading below resistance at 2.27-2.32%

USA dollar index early Wednesday morning: 98.03 up 9 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: 2.50% up 10 in basis points from Tuesday

Closing Japanese 10 year bond yield: .40% !! up 1 in basis points from Tuesday

Your closing Spanish 10 year government bond, Wednesday, up 17 in basis points

Spanish 10 year bond yield: 2.04% !!!!!!

Your Wednesday closing Italian 10 year bond yield: 1.92% up 15 in basis points from Tuesday: 

trading 12 basis point lower than Spain.



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

Euro/USA: 1.0901  up .0017   (Euro up 17 basis points) 

USA/Japan: 124.81  up .518  (Yen down 52 basis points)

Great Britain/USA: 1.5607  up .0042 (Pound up 42 basis points

USA/Canada: 1.3183 down .0010  (Canadian dollar up 10 basis points)

This afternoon, the Euro rose by 17 basis points to trade at 1.0901.  The Yen retreated to 124.81 for a loss of 52 basis points.  The pound rose 42 basis points, trading at 1.5607. The Canadian dollar  rebounded from yesterday’s huge flushing as it gained 10 basis points to 1.3183

Your closing 10 yr USA bond yield: 2.26% up 5 in basis point from Tuesday// ( just below the resistance level of 2.27-2.32%)/


Your closing USA dollar index:

97.88 down 6 cents on the day


European and Dow Jones stock index closes:

England FTSE up 65.84 points or 0.98%

Paris CAC up 84.59 points or 1.65%

German Dax up 180.23 points or 1.53%

Spain’s Ibex up 129.00 points or 1.16%

Italian FTSE-MIB up 238.56 or 1.87%


The Dow down 10.22  or 0.06%

Nasdaq; up 34.40 or 0.67%


OIL: WTI 45.03 !!!!!!!



Closing USA/Russian rouble cross: 63.45 down 1.4  roubles per dollar on the day



And now for your more important USA stories.


Your closing numbers from New York

Mickey Mouse Market Pops-n-Drops As Crude Carnage Follows VIXtermination

We suspect more than a few ‘traders’ feel like the chap in the middle seat…


China weak overnight as once again each government sponsored lfit is sold into..


To get the full experience of today’s farcical market, we look to the futures markets… weakness in China… Fed’s Powell unwinds Lockhart’s comments… crap jobs data sparks rip higher on bad news buying…good ISM dats sparked good news selling… AAPL buyback maintained S&P early on… Crude production data sent WTI plunging and so did S&P… Nasdaq gains all about the AAPL buyback rip…


The late day bounce took S&P Futs back to VWAP…


Cash indices show the roundtrip to unch…


But The Dow was the underperformer as Disney’s plunge took 80 points off the index…


And note that the S&P lost 2100 close (below its 50 and 100DMA) despite efforts to hold it…


As the day was dominated by AAPL (buyback anyone?) and DIS (oops)…


VIX hit 2015 lows today… for absolutely no good reason whatsoever apart from someone needed to cover Disney’s dump and support Apple’s buyback…


Treasury yields pushed on higher today with the curve flattening further…


The Dollar dumped and pumped after weak jobs data and good ISM Services data…


Commodities trod water along with the dollar but crude was clubbed…


As inventory draws were trumped by a push higher in production…. WTI tested $44 handle to 4-month lows…


Charts: Bloomberg


Today:  a poor private ADP jobs report:

(courtesy ADP)

ADP Employment Tumbles Near 2015 Lows, Below Lowest Estimate And Down 20% From A Year Earlier

Following June’s small-business-driven better-than-expected rise in ADP employment, July printed a stunningly weak 185k against expectations of 215k – the biggest miss since March. This is around the lowest level of the year and lowest since Q1 2014. It is also 20% lower than the 232K ADP print a year ago, and the weakest July print since 2013: all signs screaming QE4 a rate hike is imminent.

Sure enough small business exuberance in June turned to pessimism in July as gains rose at half the pace for firms less than 50 people. Manufacturing jobs were also weak (8k goods producing vs 178k services). The question now is what will The Fed need as an excuse to raise rates given that employment is no longer their crutch, printing below economists’ lowest estimate.


From the report:

Payrolls for businesses with 49 or fewer employees increased by 59,000 jobs in July, half of the June number. Employment among companies with 50-499 employees increased by 62,000 jobs, down from 78,000 the previous month. Employment gains at large companies – those with 500 or more employees – increased sharply from June, adding 64,000 jobs in July, up from 34,000. Companies with 500-999 added 17,000 jobs after adding 28,000 jobs in June. Companies with over 1,000 employees added 47,000 jobs, almost eight times the weak 6,000 added the previous month.

Some commentary from the source which still refuses to provide unadjusted data:

“July employment growth was slower than June, but is still in line with what we have seen since the first of the year,” said Carlos Rodriguez, president and chief executive officer of ADP. “Notably, large businesses with more than 500 employees had their strongest job gains since last December and were almost double the June number.”


Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is strong, but it has moderated since the beginning of the year. Layoffs in the energy industry and weaker job gains in manufacturing are behind the slowdown. Nonetheless, even at this slower pace of growth, the labor market is fast approaching full employment.”

Because crashing oil prices are “unambiguously good.”



And some more pretty charts:

Change in Total Nonfarm Private Employment by Company Size


Change in Total Nonfarm Private Employment by Selected Industry


Spot the housing boom: Change in employment construction:


Saving the best for last, here is ADP “infographic”:


<br />
        ADP National Employment Report: Private Sector Employment Increased by 185,000 Jobs in July<br />



The high USA dollar is hurting USA multinational companies as well as exports.  Today its trade deficit surged 7% to 43.8 billion dollars as exports were slammed and imports rose.

(courtesy zero hedge)

US June Trade Deficit Surges 7% To $43.8 Billion As Strong Dollar Slams Exports, Imports Rise

Dear Fed: behold another example of why your ludicrous rate hike ideas will crush the economy. Moments ago the BEA reported that the June international trade deficit spiked by 7.1% from $40.9 billion in May (revised) to $43.8 billion in June, as exports decreased and imports increased.

The previously published May deficit was $41.9 billion. The goods deficit increased $2.9 billion from May to $63.5 billion in June. The services surplus decreased less than $0.1 billion from May to $19.7 billion in June.

As a result of the jump in the USD, exports of goods and services decreased $0.1 billion, or 0.1 percent, in June to $188.6 billion. Exports of goods decreased $0.2 billion and exports of services increased $0.1 billion.

  • The decrease in exports of goods mainly reflected decreases in capital goods ($0.8 billion) and in industrial supplies and materials ($0.6 billion). An increase in consumer goods ($0.8 billion) was partly offsetting.
  • The increase in exports of services mainly reflected an increase in other business services ($0.1 billion), which includes research and development services; professional and management services; and technical, trade-related and other services and increases in several categories of services of less than $0.1 billion. A decrease in transport ($0.2 billion), which includes freight and port services and passenger fares, was mostly offsetting.

But while GDP boosting outbound trade declined, inbound rose rose: imports of goods and services increased $2.8 billion, or 1.2 percent, in June to $232.4 billion. Imports of goods increased $2.7 billion and imports of services increased $0.1 billion.

  • The increase in imports of goods mainly reflected increases in consumer goods ($1.7 billion) and in industrial supplies and materials ($1.2 billion). A decrease in capital goods ($1.3 billion) was partly offsetting.
  • The increase in imports of services mainly reflected an increase in travel (for all purposes including education) ($0.2 billion) and increases in several categories of services of less than $0.1 billion. A decrease in transport ($0.2 billion) was mostly offsetting.

Perhaps it is time to adjust the definition of GDP to be boosted by net imports.

Looking at the geographic breakdown, the following picture emerges:

  • The balance with Canada shifted from a surplus of $0.2 billion in May to a deficit of $3.1 billion in June. Exports decreased $1.1 billion to $23.0 billion and imports increased $2.2 billion to $26.2 billion.
  • The deficit with Mexico increased from $4.1 billion in May to $5.4 billion in June. Exports increased $0.1 billion to $20.0 billion and imports increased $1.4 billion to $25.5 billion.
  • The deficit with China decreased from $30.6 billion in May to $29.0 billion in June. Exports increased $0.9 billion to $10.5 billion and imports decreased $0.7 billion to $39.5 billion.

Finally, when stripping out oil, the US trade deficit is once again en route to surpassing its all time highs. Or rather lows.



This should hurt Boeing:

(courtesy zero hedge)

First Ex-Im Casualty: Boeing Loses Deal Due To “Credit Woes”

Before Congress left town for the August recess, the Senate passed a three-month transportation spending bill designed to keep the Highway Trust Fund solvent for another 90 days. This means construction on roads and bridges didn’t immediately grind to a halt last Friday and it also means Congress – which recently has demonstrated a remarkable inability to legislate anything – will need to come to an agreement on a longer-term solution at the end of October. Expect that to be a fight, and one bone of contention will be the Export Import bank whose charter expired at the end of June. 

The Depression-era institution provides financing for US exporters and their customers, and when the three-month Highway Trust Fund patch didn’t include a rescue plan for the bank, beneficiaries were up in arms. “We’re at a loss how Congress can literally go on vacation and just say, ‘Good luck, guys,'” Tyler Schroeder, a financial analyst at the Texas-based Air Tractor told Politico.

Conservatives – notably the Tea Party – claim the bank essentially represents a welfare program for corporations. Those corporations, the bank’s supporters argue, may move jobs overseas if the bank is relegated to the annals of history.

Boeing has been particularly vocal about its plans to go offshore.

“We’re actively considering now moving key pieces of our company to other countries, and we would’ve never considered that before this craziness on Ex-Im,” chairman Jim McNerney said last Wednesday.

By the time he made that statement, McNerney had already been given a preview of what this “craziness” may mean for Boeing, because as Reuters reports, the company lost a deal worth “several hundred million dollars” in mid-July after the buyer backed out citing Export Import Bank concerns. Here’s more:

Boeing is scrambling to find alternate financing for a satellite contract worth “several hundred million dollars” that was scuttled by privately held commercial satellite provider ABS due to uncertainty about the future of the U.S. Export-Import Bank, three sources familiar with the matter said on Tuesday.


ABS, based in Bermuda and Hong Kong, terminated its order for the satellite in mid-July, citing the expiration of the trade bank’s charter on June 30, according to the sources, who asked not to be named given the sensitivity of the issue.


The termination marks the first known casualty of the ongoing congressional debate over the future of the trade bank, which lends money to U.S. exporters and their foreign customers.


ABS told Boeing, the largest U.S. exporter, that it would have to consider non-U.S.-based producers to build ABS-8, given the absence of U.S. export credit financing, the sources said.


Boeing first announced the ABS contract in June, saying the new satellite, scheduled for delivery in 2017, would expand broadcast and enterprise services to Australia, New Zealand, the Middle East, Russia, South Asia and Southeast Asia.


GE last week said it was also taking steps to shift some manufacturing work overseas now that the bank will be shuttered at least until September.

So while opponents will likely continue to claim the private sector can step in to provide the same financing and assistance as that provided by the bank, and that ultimately, ExIm is nothing more than a “vast, well-funded network of consultants, lobbyists and big-government interest groups” (to quote Heritage Action Chief Executive Officer Michael Needham), those arguments aren’t likely to go over well with workers who lose their jobs when the corporate management teams at Boeing and GE decide it’s time to remind Congress of who is really in charge by laying off Americans and moving the jobs overseas, which is why suspect it’s just a matter of time before the “bring back our jobs, bring back ExIm” rallies begin.

The USA has two twin trillion dollar bubbles:
i) student loans  1.2 billion
ii) car loans: .9 billion

Twin Trillion-Dollar Bubbles Prompt Dramatic Rise In Non-

Mortgage Debt

Don’t look now, but the US is staring down not one but two trillion-dollar bubbles, both of which have been documented here extensively.

The first is the US auto loan bubble which has ballooned to $900 billion on the back of loose underwriting standards. Don’t believe easy credit is behind the inexorable rise in auto loan debt? Consider the following Q1 statistics from Experian which we never tire of showing:

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

Sitting behind the auto lending boom is Wall Street’s securitization machine which will churn out around $100 billion in auto loan-backed paper this year (for perspective, that accounts for around half of total projected consumer ABS issuance). The longer the Fed-driven hunt for yield persists, the more demand they’ll be for this paper and the more demand there is, the easier it will be to get a car loan and larger the bubble will become.

Meanwhile, the nation’s student debt bubble has reached epic proportions, with students and former students laboring (or perhaps “not laboring” is more appropriate given what we know about how difficult it is for degreed millennials to find good jobs) under a debt burden that averages $35,000 per student and totals a staggering $1.2 trillion in aggregate. As we’ve detailed exhaustively, debt service payments on these loans are causing delays in household formation and driving up demand for rentals in a market that’s already red hot thanks to the fact that the collapse of the housing bubble turned a nation of homeowners into a nation of renters.

Considering all of the above, we weren’t at all surprised to learn that US households’ non-mortgage debt is soaring and the two main drivers are student loan debt and auto loans. Here’s more from HousingWire:

Black Knight Financial Services analyzed U.S. mortgage holders’ levels of non-mortgage-related debt and found those levels are at their highest in over 10 years.


What we’ve found is that mortgage holders today are carrying more non-mortgage debt than at any point in the past 10 years, with an average of $25,000 per borrower. That’s $1,400 more on average than one year ago, and nearly $2,600 more than in 2011,” he said. “The primary driver of this increase is a rise in auto-related debt, which accounted for 81% of the overall non-mortgage debt increase over the past four years. We also noticed a clear correlation between non-mortgage debt and borrowers inquiring about a new mortgage, with those who have recent mortgage inquiries on their credit reports carrying nearly 40% more debt than borrowers who do not.”


Black Knight found that the student loan debt of U.S. mortgage holders is at all-time high: 15% of mortgage holders are carrying student loan debt, with average balances of nearly $35,000. The average student loan debt for all mortgages has more than doubled since 2006, and the share of mortgage holders carrying that debt has increased by 44% over that 9-year span.

Here are some of the key findings:

  • Black Knight found that U.S. mortgage holders are carrying the most non-mortgage debt they have – an average of approximately $25,000 each – in over 10 years
  • Student loan debt among mortgage holders is at an all time high
  • Among mortgage holders, student loan debt has increased by roughly 56% since 2006, to an average balance of nearly $35,000
  • The share of borrowers carrying student loan debt has increased by 44% in that same time span
  • 48% of mortgage holders have automobile debt as well
  • Auto debt accounted for 81% of the increase in overall non-mortgage debt among mortgage holders over the past 4 years
  • Nearly 15% of those with homes in the lowest 20% of values are still underwater, compared to just 1.7% of those in the top 20%
  • Some 5.7 million borrowers lack enough equity in their homes to cover the cost to sell them



We bring the following to your attention.  Not sure what this means, except that the Fed may wish to telegraph that it will raise rates next month;

(courtesy zero hedge)

What Is The Reason For Today’s Stunning Plunge In 2 Year Repo Rates?


While most bond watchers are keenly focusing on the latest selloff in the long-end of the bond curve in general, and the 10 Year in particular becuase supposedly the Fed is going to hike “any minute now“, it was the 2 Year where the real fireworks are, and as can be seen on the chart below, not only is the nominal yield on the 2Y rise to the above the highest closing level of 2015 and the highest since April 2011…


… but just as importantly the yield on the 2Y TIPS is positive only for the first time since late 2014 and early 2015 when we had yet another imminent rate hike scare:


So what is going on here: is it just more seller than buyers, who are front running an epic curve flattening or even the inversion that may well happen once the Fed launches its rate hiking cycle?

Or is something else happening behind the scenes.

We ask because in addition to the normal selloff in cash products, something far more dramatic took place in the repo market where the rate on the 2Y just suddenly crashed out of nowhere.

Here is one attempt at explanation by Wedbush’ Scott Skyrm:

Almost out of nowhere, Repo rates in the 2 Year Note dropped dramatically today.Since the issue just settled two days ago, we’re too early in the auction cycle for it to become naturally special. We’re in the middle of the slowest week in the summer, so a general increased market activity should not be driving it. The Street hasn’t been actively squeezing issues since 2006, so that’s not the reason. My best guess is that some yield curve flatting trades were put on yesterday, expecting a grater probability of a Fed tightening in September.

That… or central banks themselves (and on in particular) were eager to give the impression that today’s data is highly suggestive of a rate hike (just ignore the ADP report, and the ongoing commodity carnage please), and soaked up all available repo then proceeded to slam the living daylights out of the 2 Year note.

In any event, if the Fed itself is telegraphing – via the short end – that the Fed will hike rates, there are two possibility: i) the Fed will hike rates or ii) the Fed will once again be massively wrongfooted and will be forced to cover its 2Y short sending the yield on the short end crashing and leading to some more VaR shocks among whoever it is that is still actually trading securities in this beyond illiquid market.






In after hours:


Tesla Tumbles – The Quarter In Just Three Charts

It appears faith in the hyper-growth names is fading. Tesla is down 8% after hours after humans parsed through its various non-GAAP shenanigans and found:


Not close to whispor numbers and fears of model X production challenges are now dragging down expectations for model S output.


Burning cash…



As TSLA admits,

We are now targeting deliveries of between 50,000 and 55,000 Model S and Model X cars in 2015.


While our equipment installation and final testing of Model X is going well, there are many dependencies that could influence our Q4 production and deliveries. We are still testing the ability of many suppliers to deliver high quality production parts in quantities sufficient to meet our planned production ramp.


Since production ramps rapidly late in Q4, a one-week push out of this ramp due to an issue at even a single supplier could reduce Model X production by approximately 800 units for the quarter. Furthermore, since Model S and Model X are produced on the same general assembly line, Model X production challenges could slow Model S production.


Simply put, in a choice between a great product or hitting quarterly numbers, we will take the former. To build longterm value, our first priority always has been, and still is, to deliver great cars.

Tesla EPS: GAAP vs non-GAAP:

Tesla Revenues: GAAP vs non-GAAP (yes, non-GAAP revenues). Note that GAAP revenues in Q2 were lower than in the Q4 2014 quarter!

And finally, free cash flow. It speaks for itself.

This hedge fund is in deep trouble with two horrible bets:
i) Puerto Rico
ii Greece
it cannot get worse!!
(courtesy zero hedge)

Hedge Fund Horrors: First Einhorn Has Worst Month Since 2008, Now Paulson Getting Redeemed

Although hindsight is always 20/20, one could be forgiven for questioning the wisdom of making concentrated bullish bets on both Puerto Rico and the Greek banking sector, but that’s exactly what John Paulson did and needless to say, the results haven’t been favorable.

As a matter of fact, Paulson’s bets on Puerto Rico and Greece mean the billionaire managed to get himself and his investors involved in two rather dubious “firsts“: earlier this week, Puerto Rico became the first US commonwealth in history to default, and last month, Greece became the first developed country to default to the IMF.

At this point, Bank of America has apparently seen enough because according to The New York Times, the bank’s wealth management arm is pulling clients’ money from one Paulson fund and putting another on “heightened review.” Here’s more:

The wealth management arm of Bank of America Merrill Lynch is liquidating its clients’ money from one of Paulson & Company’s funds and has put another fund under “heightened review,” according to two people with knowledge of the hedge fund.


The bank told its financial advisers on Tuesday that it had submitted a full redemption request for client money in Paulson’s Advantage fund. The bank has also closed another Paulson fund, the Special Situations fund, to new client money and put it on “heightened review,” citing concerns “regarding significant concentration in illiquid investments, as well as heightened volatility and risk profile for the funds,” according to a document that was sent to advisers and seen by The New York Times.


Some of Mr. Paulson’s big bets this year have turned sour. He is one of a handful of bold hedge fund investors who poured hundreds of millions of dollars into Greece in a wager that the country’s economy would recover after years of economic crisis. 


Mr. Paulson is also one of Puerto Rico’s biggest hedge fund investors, betting that the commonwealth will emerge from its own debt crisis. Many analysts say that prognosis looks increasingly tenuous after the commonwealth’s first bond default in its history this week.



Investors in the special situations fund have seen particularly wide swings, in part because of its exposure to Greece. The fund, which was set up in 2008 to make bets on a recovery in the United States and is now focused on Europe, has lost investors 3.8 percent this year as of the end of June. The fund is the second biggest shareholder after the government in Greece’s largest bank, Bank of Piraeus. It also bought a 10 percent equity stake in the Athens water monopoly, Athens Water Supply & Sewage, in 2014 for $137 million. At the time, the company had little debt and investors expected it to be privatized. Today, the utility is unable to collect payments on its bills.

That’s right, Paulson not only bought a double-digit stake in a Greek public utility, but also made large wagers on Bank of Piraeus which has, along with the rest of the sector, traded limit-down all three days this week as every eurocrat in Brussels scrambles to determine how many tens of billions in recap funds the sector will need.

“They have good management and we think the Greek economy is improving, which should benefit the banking sector,” Paulson said in 2013, adding that Piraeus and Alpha Bank were “very well capitalised.” As Bloomberg noted back in June, Paulson “disclosed a 6.6 percent stake in [the bank] in the second quarter of 2014, and [although] that stake was valued at about 655 million euros on the date that the investment was disclosed … the same stake [is now] worth just 162 million euros.”

But even as investors demand their money back, Paulson can take solace in the fact that he is not alone. July wasthe worst month for David Einhorn’s Greenlight Capital since 2008, (apparently it doesn’t pay to be bearish on momo names in today’s market).

“The overall market environment has become acutely unfavorable for our investment strategy,”Einhorn said.

We imagine that sentiment goes double for Paulson.

the following should give you a good idea as to the problems facing the state of Illinois and of course, it’s largest city Chicago
(courtesy zero hedge)

“I Pay $271 A Month To Schools And I Don’t Have Kids”: Illinois Bureaucracy Sucks Homeowners Dry

Ever since the Illinois Supreme Court struck down a pension reform bid in May, prompting Moody’s todowngrade the city of Chicago to junk, the state’s financial woes have becoming something of a symbol for the various fiscal crises that plague state and local governments across the country.

The state High Court’s decision was reinforced late last month when a Cook County judge ruled that a plan to change Chicago’s pensions was unconstitutional.

As we’ve discussed at length, these rulings set a de facto precedent for lawmakers across the country and will make it exceedingly difficult for cities and states to address a pension shortfall which totals anywhere between $1.5 trillion and $2.4 trillion depending on who you ask.

For Illinois, the situation is especially vexing. As you can see from the following graphics, the state’s unfunded pension problem is quite severe.

(Charts: Chicago Tribune)

As the New York Times explains, “pension costs in many American states and cities are growing much faster than the money available to pay them, causing a painful squeeze. Officials who try to restore balance by reducing pensions in some way are almost always sued; outcomes of these lawsuits vary widely from state to state. Some of the worst problems have been brewing for years in Illinois, particularly in Chicago, where the city’s pension contributions have long been set artificially low by lawmakers in Springfield, the state capital. With more and more city workers now retiring, a $20 billion deficit has materialized.”

And while we’ve spent quite a bit of time discussing the various issues involved in the pension debate from overly optimistic return assumptions to the use of pension-obligation bonds as stopgap measures, even we were surprised to learn just how convoluted the fiscal situation truly is in Illinois.

As the following excerpts from a Reuters special report make clear, Illinois is in bad shape, and fixing things isn’t going to be easy.

*  *  *

From Reuters

Multitude of local authorities soak Illinois homeowners in taxes

Mary Beth Jachec [a] 53-year-old insurance manager gets a real estate tax bill for 20 different local government authorities and a total payout of about $7,000 in 2014. They include the Village of Wauconda, the Wauconda Park District, the Township of Wauconda, the Forest Preserve, the Wauconda Area Public Library District, and the Wauconda Fire Protection District.

Jachec, looking at her property tax bill, is dismayed. “It’s ridiculous,” she said.

A lot has been said about the budget crisis faced by Illinois – the state government itself is drowning in $37 billion of debt, and has the lowest credit ratings and worst-funded pension system among the 50 U.S. states. But at street level, the picture can be even more troubling.

The average homeowner pays taxes to six layers of government, and in Wauconda and many other places a lot more. In Ingleside, 55 miles north of Chicago, Dan Koivisto pays taxes to 18 local bodies. “I pay $271 a month just to the school district alone,” he said. “And I don’t have children.”

The state is home to nearly 8,500 local government units, with 6,026 empowered to raise taxes, by far the highest number in the U.S.

Many of these taxing authorities, which mostly rely on property tax for their financing, have their own budget problems. That includes badly underfunded pension funds, mainly for cops and firefighters.

A Reuters analysis of property tax data shows that the sheer number of local government entities, and a lack of oversight of their operations, can lead to inefficient spending of taxpayer money, whether through duplication of services or high overhead costs. It leads to a proliferation of pension funds serving different groups of employees. And there are also signs that nepotism is rife within some of the authorities.

On average, Illinois’ effective property taxes are the third highest in the U.S. at 1.92 percent of residential property values.

In many Illinois cities and towns, high taxation still isn’t enough to keep up with increasing outlays, especially soaring pension costs, and some services have been cut. For example, in the state capital Springfield, pension costs for police and fire alone will this year consume nearly 90 percent of property tax revenues, according to the city’s budget director, Bill McCarty.

Sam Yingling, a state representative who until 2012 was supervisor of Avon Township, north of Chicago, has become an outspoken critic of the multiple layers of local government.

Yingling said when he left the township three years ago, the township supervisor’s office had annual overheads from salaries and benefits of $120,000. He claimed its sole mandated statutory duty was to administer just $10,000 of living assistance to poor residents.

The large number of local governments is a legacy of Illinois’ 1870 constitution, which was in effect until 1970. The constitution limited the amount that counties and cities could borrow, an effort to control spending.

So when a new road or library needed building, a new authority of government would be created to get around the borrowing restrictions and to raise more money. Today, for example, there are over 800 drainage districts, most of which levy taxes.

And it isn’t only the number of authorities that is a concern. Illinois has about one sixth of America’s public pension plans – 657 out of almost 4,000.

Local authorities in Illinois are mandated by law to keep the Illinois Municipal Retirement Fund, with 400,000 local government members, fully funded. They had to contribute $923 million in 2014, up from $543 million in 2005.

However, there is no such requirement for the local pension funds. The result: Many of these funds throughout the state are woefully underfunded, and some have less than 20 percent of what they need to meet obligations.

*  *  *

The piece – which you’re encouraged to read in full as it contains several of the most egregious examples of government waste and inefficiency you’ll ever come across – goes on to say that reform simply isn’t an option, as the Illinois legislature is filled with lawmakers who have at one time or another themselves benefited from the state’s sprawling local bureaucracies. Reuters also says it has identified nearly a dozen instances where husbands employ wives, mothers employ daughters, and fathers hire sons,” suggesting nepotism weighs heavily on the already elephantine system.

Bear in mind that this is the same state whose court system refuses to allow efforts at pension reform to move forward, and while all of this may seem like a recipe fordefault disaster, just remember, PIMCO sees a lot of “long-term value” in Chicago’s debt.

Let us close with this offering from Guy Haselmann of Scotiabank
(courtesy Guy Haselmann/Scotiabank)

Scotiabank Warns “The Fed Is Cornered And There Are Visible Market Stresses Everywhere”

Via Scotiabank’s Guy Haselmann,

Part One, China

An economic slowdown is underway in China.  This is reflected in the steep drop in the commodity complex and in the currencies of emerging market countries. Large imbalances are being worked off as Beijing attempts to shift the composition of its growth.  Policy decision are not always economic.

New sources of growth are being sought by Beijing as deleveraging occurs.  Since officials care foremost about social stability, they try to preserve as many current jobs as possible during their attempt at economic transformation.  During this period, banks might be averse to calling in loans.  State owned enterprises (SOEs) are pressured to keep producing, so that workers can continue to receive a pay check.  The result is over-production and downward pressure on prices.

Part Two, The Seven Year Fed Subsidy

The Fed’s zero interest rate policy has provided a subsidy to investors for the past 7 years.  The lure of easy profits from cheap money was wildly attractive and readily accepted by investors. The Fed “put” gave investors great confidence that they could outperform their exceptionally low cost of capital.  These implicit promises by central banks encouraged trillions of dollars into ‘carry trades’ and various forms of market speculation.

Complacent investors maintain these trades, despite the Fed’s warning of a looming reduction in the subsidy, and despite a balance sheet expected to shrink in 2016.  It has been a risk-chasing ‘game of chicken’ that is coming to an end.  Changing conditions have skewed risk/reward to the downside.  This is particularly true because financial assets prices are exceptionally expensive.

Maybe investors do not believe ‘lift-off’ looms, because the Fed has changed its guidance so many times.  Or maybe, investors are interpreting plummeting commodity prices and the steep fall in global trade as warning signs that global growth and inflation are under pressure.  Is this why the US 30 year has rallied 40 basis points in the past 3 weeks?  (see my July 17th note, “Bonds are Back”)

Either scenario creates a paradox for risk-seeking investors.  If the US economy continues on its current slow progress pace, then the Fed will act on its warning and hike rates in September.  However, if the Fed does not hike in September it is likely because problems from China, commodities, Greece, or emerging markets (etc) cause the global outlook to deteriorate further.  Neither scenario should be good for risk assets.

Part Three, “Carry Trade”

During the 2008 crisis, Special Investment Vehicles (SIVs) were primarily responsible for freezing the interbank lending market. SIVs were separate entities set up primarily to earn the ‘carry’ differential between short-dated loans and longer-dated assets purchased with the proceeds of the loans. This legal structure allowed banks to own billions of dollars of securities (CDOs and such) off of their balance sheets. Since the entities were wholly-owned with liquidity guarantees, the vehicles received the same attractive funding rates as the parent banks.

When the housing crisis (and Lehman collapse) spurred loan delinquencies, banks had to place all of these hidden securities onto their balance sheets. Since the magnitude of the SIV levered assets was unknown to others, bank solvency was questioned, and interbank lending froze.  Many of these securities had to be sold at fire sale prices, i.e., prices well below their economic value.

When the Fed begins to normalize rates, trillions in carry trades will likely begin to unwind.  The similarity to 2008 is glaring, except that banks no longer own SIVs.  Regulations have chased the ‘carry trades’ from the banking system into the shadow banking system where officials can’t see or measure the risk. The banking system today is, no doubt, far less exposed, but too many sellers could overwhelm the depth of the market, leading to asset price contagion that filters into the real economy.   

The FOMC is probably fearful of such an outcome, and its unknown impact on the broader economy, which could explain why it has delayed ‘lift-off’.  It may also be the reason why the Fed emphasizes that the pace of rate normalization will be “gradual”, and will remain “overly-accommodative”.   Unfortunately, the Fed recognizes that speculators do not wait to retreat in an orderly manner.  They are also fully aware that regulations have impaired market liquidity; figuratively shrinking the exit doors.  This is where ‘macro-prudential’ comes in. 

Part Four, Counter-Productive Policies Back the Fed into a Corner

Few lessons have been learned by market ‘booms’, and the ‘busts’ that always follow.  ‘Booms’ occur when the Fed diverges the price of money too far below the ‘natural rate of interest’.  Easy money flows into ever less-productive assets.  As prices are pushed ever-higher, the yield drop cascades down the capital curve.  The process cannot be sustained. High prices directly infer lower future returns.  Late-stage investors receive the lowest return with the highest level of risk (game of chicken).

These cycles are tragic because ‘busts’ have negative consequences that are worse than the ‘booms’ are beneficial.  During the ‘bust’, elevated asset prices go back down to their original or fundamental value. They may even overshoot on the downside due to the regulatory limitations that have been put in place during the ‘boom’ years.

The ‘wealth effect’ is, at a minimum, reversed during the ‘bust’.  There is no ‘free lunch’.  More importantly, after the ‘bust’, the newly acquired higher levels of debt remain.  The result is a lower natural economic growth rate, lower levels of future investment, and more regulation, which all lead to decreased profits.

Zero interest rates undermine market incentive structures.   Share buybacks have surpassed capital expenditures. Cheap money makes acquisitions attractive relative to new investment projects. Why not, cheap money implies high uncertainty.  Furthermore, excess liquidity encourages malinvestment and over-capacity, and acts as a headwind for both of the Fed’s dual mandates.

Experimental monetary policy over the past seven years should reveal that attempts at artificial monetary inflation are ineffective. Yet, they give no hints of discarding this failed ideology. Unless this ideology changes, ever-greater quantities of printing just to repair the inevitable bust will be required as the chosen response.  No wonder why Bitcoin is intriguing and confidence in fiat currencies has come into question.

·    “Two roads converged in the woods and I took the one less traveled by and that has made all the difference.” – Robert Frost

Part Five, Notice the Warning Signs

There are warning signs and visible market stresses beyond those mentioned yesterday.  To list them all is beyond the scope of this note.

Nonetheless, the impact of a slowing China is being under-estimated by markets.  The steep drop incommodities is telling us something about demand.(It’s not just oil: suppliers don’t frack copper)

Equity market ‘internals’ are deteriorating and momentum is faltering.

Similar to 2008, the subprime corporate sector (CCC-rated credits) are showing cracks beyond the energy sector, e.g., into chemicals and technology. This is typically a late-stage phenomenon and a warning sign of growing risk aversion.

FOMC members are threatening ‘lift-off’, but markets don’t believe them, because they have ‘moved the goal posts’ of their guidance so many times.  The Fed appears to want an ideal set of conditions which rarely ever materializes. Investors are inclined to stay fully invested until they actually see a hike with their own eyes.  Complacency is high.  Anyone who has entered the financial industry in the past 9 years has never witnessed a rate hike.

Investing during ZIRP and QE has more to do with fully capitalizing on aggressive Fed policy, and less about finding value for the long run.  The investment industry is so focused on short term investment results that decisions are motivated by the necessity of beating peers and benchmarks in order to keep one’s job.

Yet, “lift-off” will reduce the Fed’s subsidy.  Total rate normalization is the removal of ‘the gift’ provided to the private sector.  The process in getting there will be the catalyst that begins the reduction of carry trades and market speculation.

Positional unwinds may begin as a trickle, but morph into a cascade. Those who try to hold on will likely confront a shrinking Fed balance sheet in 2016.  Investors should do their own homework to understand what this is likely to mean for risk assets (Hint: it’s not a good result).

*  *  *

Part Six, Portfolio Adjustment Recommendations During Policy Pivot (with a few forecasts thrown in)

Raise cash levels.  Cash has great optionality enables it to be deployed at better levels.  With rates so low, cash has never had such a low opportunity cost.


Increase portfolio liquidity, while reducing portfolio volatility.


Buy long-dated on-the-run Treasury securities, or the highest quality and most liquid corporate bonds.  I expect an abrupt ‘risk-off’ trade as the Fed begins ‘normalization’ that will bring UST 10’s and 30’s well thru 2% and 2.75%, respectively.  I can envision this happening prior to the September FOMC meeting.

  • If the Fed hikes it will likely help the long end.
  • If the global economy sputters due to China or due to other factors that force the Fed to remain on hold, then long Treasuries will again perform well.
  • If the Fed loses its window of opportunity to hike due to worsening financial and economic conditions then it has few tools left to provide further stimulus.  Moreover, markets might begin to question the effectiveness of past actions and not believe future ones. In such, cries of “more Fed” which have benefited financial assets over the past few years would no longer help risk assets.

Own US Treasuries versus European debt.


Investors should decrease trades that try to play the Fed subsidy too aggressively even in a world of ‘gradual’.


Take down equity beta and hidden betas.  Hedge, buy puts, sell calls, and buy tail risk on equity exposures.


Set up for a long term structural bull market in the US Dollar.

  • As mentioned, slowing demand for industrial commodities from China is putting significant pressure on the budgets of emerging market countries and commodity exporters. Some of these countries may be incentivized to boost revenues by selling more at discounted prices. EM currencies have been leaking lower all year and have room to fall to levels not seen since the early part of this century.  (Own USD:  EM = lower still, EUR<100, $/CAD>1.40, AUD<.6500)

Commodities are over-sold, but have been struggling to have any bounce at all. This week the CRB commodity index fell below its 2009 low, sinking to a level last seen in 2003. In many areas, supply continues to surpass any increases in demand.  Oil risks testing the $40 support level.  Other industrial commodities risk falling to multi-decade lows. (Supply destruction takes time, and demand is slow to pick up).

Investor outperformance in the next year will likely come from defensive strategies and reversing to risk under-weights with an emphasis on liquidity and reducing portfolio volatility.

“Actions speak louder than words, but not nearly as often” – Mark Twain


Well that about does it for tonight

I will see you tomorrow night



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: