Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1128.10 up $11.00 (comex closing time)
Silver $15.18 up 39 cents.
In the access market 5:15 pm
In the access market today, gold broke above the huge resistance at $1130.00. It will be interesting to see if the bankers are stop the momentum of gold tomorrow.
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a poor delivery day, registering 1 notice for 100 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 227.62 tonnes for a loss of 75 tonnes over that period.
In silver, the open interest rose by 755 contracts despite the fact that silver was down in price by 51 cents yesterday. The total silver OI continues to remain extremely high, with today’s reading at 173,545 contracts In ounces, the OI is represented by .867 billion oz or 124% 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 432,728. We had 1 notice filed for 100 oz today.
We had no changes at the GLD today / thus the inventory rests tonight at 671.87 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 no changes in silver inventory at the SLV tune of / Inventory rests at 324.968 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver rose by 755 contracts up to 173,545 despite the fact that silver was down by 51 cents in price with respect to yesterday’s trading. The OI for gold rose by 1781 contracts to 432,728 contracts despite the fact that gold was down by $1.50 yesterday. We still have 17 tonnes of gold standing with only 15.243 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.
2.Gold trading overnight, Goldcore
3. Four stories on China devaluing their yuan and how this will lead to a huge deflation throughout the globe; discussing possible ideas as to how the accident of the toxic explosion in Tianjin occurred; the official IMF statement that China will not be included in the SDR’s.
4, Contagion spreading in Asia in Viet Nam as they devalue their dong
5. The Turkish lira plunges to all time lows as this country is in total turmoil
6 Trading of equities/ New York
7. Three oil related stories, including a very important one on how Kazakhstan is also spiraling out of control with the low oil price.
8. The Donesk region of the UKraine will hold a referendum to join Russia
8. USA stories:
The USA just released minutes of the FOMC meeting a few weeks ago and this caused turmoil
3 big stories
(zero hedge/Jon Hilsenrath)
Let us head over and see the comex results for today.
August contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||192.90 oz (Manfra)
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||1 contract (100 oz)|
|No of oz to be served (notices)||1647 contracts (164,700 oz)|
|Total monthly oz gold served (contracts) so far this month||3826 contracts(382,600 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||552,940.1 oz|
Total customer deposit: nil oz
JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz) and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes
We lost 114 contracts or an additional 11,400 ounces will not stand for delivery. Thus we have 17.023 tonnes of gold standing and only 15.243 tonnes of registered or dealer gold to service it. today we must have had considerable cash settlements.
August silver initial standings
August 19 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||124,485.84 oz (Brinks)|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1999.57 oz (Delaware)|
|No of oz served (contracts)||0 contracts (nil oz)|
|No of oz to be served (notices)||16 contracts (80,000 oz)|
|Total monthly oz silver served (contracts)||59 contracts (295,000 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||7,548,552.2 oz|
total dealer deposit: nil oz
Today, we had 0 deposits into the dealer account:
total customer deposits: 1997.57 oz
total withdrawals from customer: 124,485.84 oz
we neither lost nor gained any silver ounces standing in this non delivery month of August.
August 12./ a huge deposit of 4.18 tonnes of gold into the GLD/Inventory rests at 671.87 tonnes
August 7./no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes August 6/no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes 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
And now SLV:
August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz
August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz
August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.
August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.
August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz
August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.
August 11./ no changes in SLV inventory/rests tonight at 326.209 million oz.
August 7.no changes in SLV/Inventory rests this weekend at 326.209 million oz
August 6/no changes in SLV/inventory rests at 326.209 million oz
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
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. * * * * *
Soros’ “Pig” Accumulates A Lot Of Gold
Stan Druckenmiller is going big on gold.
Druckenmiller is one of the world’s most successful and respected traders. As a hedge fund manager from 1986 to 2010, he generated an incredible average annual return of 30%.
Druckenmiller was also George Soros’s right-hand man at Quantum, Soros’s famed hedge fund. Quantum’s now legendary 1992 trade shorting the British pound was Druckenmiller’s idea. It made Quantum about $1 billion. People say the trade “broke the Bank of England.”
Most professional investors preach diversification. But Druckenmiller says he’s successful because he’s not afraid to concentrate his bets when he really believes in a trade. He calls it “being a pig.”
Druckenmiller’s fund recently bought $300 million worth of SPDR Gold Trust (GLD), an ETF that tracks the price of gold. It’s a huge bet, even for a big-time trader like Druckenmiller. He put 20% of his fund’s money into this trade, and it’s his largest position.
Read the full article by Casey Research on their website here.
Today’s Gold Prices: USD 1,123.20, EUR 1,017.71 and GBP 716.90 per ounce.
Yesterday’s Gold Prices: USD 1,119.15, EUR 1,011.30 and GBP 714.13 per ounce.
On Tuesday, gold finished trading with a small gain of 0.01% or $0.10, closing at $1,117.70/oz. Silver dropped 0.2.87% or $0.44, closing at $14.88/oz.
Gold marks time ahead of Fed minutes – Reuters
Gold Investors Eye Federal Reserve Minutes for Rate Rise Clues – Bloomberg
China Devaluation Sparks Gold Buying Everywhere — Except China – Bloomberg
Cash-Strapped Venezuela May Sell Off Gold, Citigroup Says – Bloomberg
Greece sells airports to Germans as Bundestag prepares for day of reckoning – The Telegraph
This “Pig” Just Made a Massive Bet on Gold – Casey Research
Is Asian gold demand really low – or at an all-time high? – Lawrieongold
A Flyspeck of Gold versus Infinite Dollars – Moneda De Plata Para México
23 Nations Around The World Where Stock Market Crashes Are Already Happening – Zero Hedge
Unworkable and unreformable, the euro surely cannot survive another serious downturn – The Telegraph
Click on News and Commentary
(courtesy Hugo Salinas Price/GATA)
Hugo Salinas Price: A flyspeck of gold
Submitted by cpowell on Wed, 2015-08-19 00:54. Section: Daily Dispatches
8:54p ET Tuesday, August 18, 2015
Dear Friend of GATA and Gold:
Hugo Salinas Price, president of the Mexican Civic Association for Silver, writes today that gold should not be measured in U.S. dollars but the latter by their price in grams of gold. Judged that way over the long term, Salinas Price writes, the dollar has depreciated to nearly nothing. His commentary is headlined “A Flyspeck of Gold” and it’s posted at the association’s Internet site, Plata.com, here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Lawrence Williams: Is Asian gold demand really low or at an all-time high?
Submitted by cpowell on Tue, 2015-08-18 11:57. Section: Daily Dispatches
7:57a ET Tuesday, August 18, 2015
Dear Friend of GATA and Gold:
Mining journalist Lawrence Williams writes today that Asian gold demand seems to be a lot higher than the World Gold Council maintains. Williams’ commentary is headlined “Is Asian Gold Demand Really Low — Or at an All-Time High?” and it’s posted at his Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Jon and Dave Kranzler discuss the huge shortage of silver:
(courtesy SilverDoctors/Dave Kranzler)
People also need to recognize that the gold and silver shortage is real. We’ve got the Royal Canadian Mint, for example, not being able to supply silver coins without a lengthy time delay…Eric, you and I believe the metals are headed for a complete turnaround that’s going to astonish everybody. If we look at the 90 percent junk silver bags. I deal with one of the largest companies in the world and what we are seeing is what I call ‘The 90 percent factor.’ Historically, when gold and silver are set for an explosive move, 90 percent bags become virtually unavailable.
When the biggest suppliers in the industry, and I’m talking directly with two of them, are saying ‘We can’t even get 90 percent bags and we probably won’t be able to fulfill any order for at least 8 – 12 weeks on those,’ you know we have serious supply problems. So 90 percent bags are virtually unavailable at these prices and those who are primary dealers in them can’t even acquire them. – Steve Quayle on King World News
The Federal Reserve and the bullion banks are now blatantly manipulating the price of gold and silver using paper gold and silver, which can be printed in unlimited supply. They no longer try to hide or disguise their operation and certainly never deny that they are constantly intervening in every market – not just the precious metals – in order to disrupt and prevent the valid price discovery mechanism of free markets.
I’ve always said that 90% bags are the leading indicator of impending market shortages…we saw that the week before the big smash-down in the silver price the first week of July, when premiums on 90% bags spiked. Then around July 6th or 7th, 90% bags went “no offer” at the largest market maker of 90% bags in the U.S. at the wholesale level. And it’s been “no offer” ever since. – Doc from Silver Doctors on Shadow of Truth
I used the quote at the top because it independently confirms everything we heard from Doc at Silver Doctors today, who told us that across the product spectrum silver coins are selling out at the wholesale level. The only reason this can be occurring is because there’s a shortage of unrefined silver that has developed globally.
The U.S. mint production has been going down about 20% per week. The first week they resumed sales the total allocated to authorized dealers was 1.4 million coins, the next week it went down to 1 million, last week it was down another 20% and I haven’t heard the number yet for this week. The Royal Canadian Mint didn’t take any orders last week and they’re not advising when they’ll resume taking orders for maples. – Doc
China and India are primarily attributed with importing most if not all of the annual mined supply of gold for the past couple of years and both are on track to import a record amount this year. But very little is mentioned about their silver consumption. India is on track to import a record amount of silver and China is using all of its internally mined silver to supply its massive solar program (see this SoT podcast: Solar Energy Drives Silver Demand).
The reason it’s important to understand the retail demand function for silver is because, at the margin, it will be the retail investors who will “tip the scale” on the Government’s silver manipulation operation and force shortages that will overwhelm the naked paper short interest, both on the Comex/LBMA and in the OTC derivatives market.
Rory and I visited with Doc today because we wanted to hear first-hand about what he’s seeing in the markets which feed into the retail supply for silver investment products. The only time premiums across the board for retail silver products were higher than they are right now was during the 2008 take-down of gold and silver. There were a lot less retail participants back then, which means that the current market has been set-up to become even more extreme than it was in 2008.
Of course, do not overlook the fact that the price take-down and shortage of metals back then preceded the Great Financial Collapse, because we know that current fundamental conditions are worse than they were in the period leading up the de facto collapse of the financial system.
This fiasco has been going on for many years. Somebody should explain to Greece as to what “real money” will they produce???
Greece halts activity at troubled Eldorado Gold Corp mine
Reuters | August 19, 2015 11:49 AM ET
ATHENS — Greece has suspended the mining operations of Canada’s Eldorado Gold in northern Greece, saying the company violated contract terms, in a setback to one of the top foreign investment projects in the country.
The US$1-billion project is considered a test case for Greece’s ability to attract foreign investment to help revive its economy, but has been beset by problems due to opposition by local residents on environmental grounds.
Energy Minister Panos Skourletis said on Wednesday that the project had been halted but could resume if the company fulfills contract terms. The project includes gold mines already in operation and two factories under construction that will enable the company to process gold and other minerals in Greece rather than overseas. Greece, which has just secured its third international bailout, badly needs such projects to help diversify its ailing economy.
“We are recalling our approval of the technical studies, which will result in the halting of operations at Skouries and part of operations in Olympiada,” Skourletis told reporters after meeting Prime Minister Alexis Tsipras. “The company has violated some terms.”
Vancouver-based Eldorado Gold Corp took over the project in 2012, promising to invest US$1 billion over the next five years as part of a plan to eventually source up to 30 per cent of its global gold production in Greece.
An energy ministry source said the government considered Hellas Gold, Eldorado’s Greek subsidiary, violated the terms of its contract by failing to provide authorities with details on its techniques which would make gold extraction safe.
Details of methods applied in Finland were supplied instead, and were not accepted, the source said without elaborating. Eldorado was not immediately available for comment.
The decision to halt operations is the latest twist in a long-running saga over the project in Greece’s Halkidiki region. It has been dogged by controversy over the potential environmental impact and faced uncertainty after the leftist Syriza party of Prime Minister Alexis Tsipras came to power in January as the party had sided with residents during its election campaign.
In March the government revoked authorization to complete the construction of a processing plant at the Skouries site.
Residents of the area have been opposed to the project for years, fearing environmental damage. They have mounted repeated legal appeals against the development, with two such petitions rejected by Greece’s highest court earlier this month.
Eldorado fell 10 per cent to $4.90 at 10:01 a.m. in Toronto, the most intraday since Jan. 30. The Vancouver-based producer has dropped 31 per cent this year.
Now the big boys in the base commodity game are getting hurt!!
(courtesy zero hedge)
The Next Leg Of The Commodity Carnage: Attention Shifts To Traders – Glencore Crashes, Noble Default Risk Soars
One month ago we asked:
Today we got our answer.
Commodity trading giant Glencore may have top-ticked the commodity supercycle with its 2011 IPO, but it’s been downhill ever since (66% downhill to be precise if measured by the tumble in the stock price), culminating this morning when the Baar, Switzerland-based mining and commodity giant reported a first half net loss of $676 million, compared with net profit of $1.72 billion a year ago.
Revenue tumbled 25% to $85.7 billion after the company admitted China’s economic slowdown had caught the company “by surprise” and that no one in the mining industry “can read China” at the moment.The result: GLEN stock had plunged by 9% as of the last check, wiping out $3 billion in market value, and down a whopping 44% in the past three months, substantially underperforming its peers Rio Tinto (which Glencore once tried to acquire) and BHP Billiton.
In addition to the poor earnings, the company slashedboth its operating outlook and its spending plans: Glencore said it expected trading, or what the company calls its marketing division, to post full-year earnings before interest and tax of $2.5 billion to $2.6 billion. Glencore Chief Executive Ivan Glasenberg had previously said he expected the trading division to generate $2.7 billion to $3.7 billion in full-year earnings before interest and tax “no matter what commodity prices are doing”.
It would appear what commodity prices are doing mattered after all.
Perhaps more concerning is that as a result of Glencore’s 29% EBITDA tumble to $4.6 billion the company’s default risk as measured by its CDS, had surged to the highest in over two years. The reason is that while the company has been deleveraging its debt load “somewhat” it appears not to be enough, and now fears have appeared that at this rate, Glencore may lose its investment grade rating soon. CEO Ivan Glasenberg hinted as much when during the conference call he said a a modest rating cut was manageable. “Even if we drop one notch, it isn’t a high cost to the company,” he said on the call. To many this sounded like a confirmation that a downgrade is imminent.
The company attempted to smooth over the damage when it said it lowered net debt by almost $1 billion to $29.6 billion, by reducing capital expenditure together with lower requirements for funding working capital at its trading business, adding that Glencore plans to reduce net debt to
$27 billion by the end of 2016, while maintaining its dividend-payment
However, judging by the stock and CDS price chart below, it did not quite achieve the desired result.
The FT summarizes the company’s cap table, which is not pretty: “The value of the company’s shares has shrunk to £22bn, compared with net debt of $29.6bn excluding inventories of $17bn it says it can sell swiftly. Glencore aims to maintain dividends, which cost more than $2bn a year, alongside a ratio of net debt to earnings of under three times. At an estimated net debt level of $27bn, earnings of $9bn will be required in 2016.”
In other words, a dividend cut for Glencore now appears in the cards, and is virtually inevitable if copper, which istrading under $5000 at six year lows and is massively levered to how China’s economy dies, is unable to stage a bounce.That looks increasingly unlikely especially following the recent breach of copper’s 15 year support trendline:
Why copper? As Reuters reminds us, formerly just a commodities trader, Glencore merged with mining company Xstrata in 2013. The marketing business was seen as a plus in diversifying earnings of the combined company as its success was not so closely tied to commodity prices.
The price of copper, Glencore’s largest earner, is at six-year lows weighed down by a slowdown in China, one of the world’s biggest consumers of metals and other raw materials.
“We are still looking for growth in both copper and zinc production in the second half of 2015 and then continuing in 2016,” Kalmin told Reuters. “Those in particular are the two commodities that we see going forward fundamentally looking in much better shape than other commodities.”
Coal prices, another major commodity for Glencore, also show no sign of recovering due to a supply glut.
Yet despite the collapse in coal, copper and other commodity prices, Glencore has been slow to adjuts. Competitor Rio Tinto this month said it planned $1 billion in cost cuts this year and Anglo American is to cut thousands of jobs in the next few years and may sell assets. Analysts had expected deeper cost cuts by Glencore to ease the strain on its debt levels and protect its credit rating. However, perhaps in expecting yet another dead cat bounce, the Swiss company has so far avoided dealing with the looming commodity crunch. Its stock is reflecting that this morning.
Worst of all, however, is that while Glencore’s existing commodity exposure as a result of its miner “hybrid” nature may go up and down, its trading operation was supposed to be a natural hedge to deteriorating fundamentals: after all, commodity trading should be vibrant even when (and perhaps especially) prices drop. That also did not happen: the company’s trading division reported a 29% drop in first-half adjusted EBIT to $1.1 billion over the same period, lower than some analysts expected. According to the WSJ, the company blamed everything but itself for this disappointment:
Glencore blamed tough trading conditions, particularly in aluminum and nickel, as well as coal markets. A slowdown in Chinese economic growth caught the company by surprise, it said, restricting access to credit there and softening demand. All that squeezed trading profits.
The company’s agricultural-trading division also suffered, due in part to Russia’s unexpected imposition of a new Russian export tax in February. The only bright spot in trading was in energy, where volatility in the oil markets helped the company report a profit despite the slump in coal prices.
But the punchline came during the call when Glasenberg blamed “speculators”, not so much China, for the lower commodity prices. Of course, it goes without saying that when commodity prices were at record highs, it was all thanks to the fundamentals.
In any event, while the market remains focused on the miners, our warning from one month ago remains more relevant than ever: the real surprise will be the traders: the Glencores, Mercurias and Trafiguras of the world, who may indeed be quietly liquidating billions in paper commodity exposure.
And not just them: yesterday we noted the ongoing collapse in Asia’s largest commodity trader, Noble Group. This is the real canary in the Asian coal, and copper, mine. Judging by the ongoing blowout in Noble Group CDS, up another 48 bps since yesterday’s note…
… the pain in the commodity world may be about to get a whole lot worse especially if Noble Group suffer a liquidity/capitalization ‘event’ and is forced to liquidate any of its billions in commodity holdings.
It is at that point that we will see just how immune to the commodity carnage the US stock market truly is.
Vietnam devalues dong to protect exports, offset China’s yuan action
Submitted by cpowell on Wed, 2015-08-19 12:49. Section: Daily Dispatches
By Ho Binh Minh
Wednesday, August 19, 2015
HANOI, Vietnam — Vietnam devalued the dong for the third time this year on Wednesday as authorities sought to support a languid export sector facing fresh challenges from a surprise devaluation of the Chinese yuan.
The State Bank of Vietnam, the nation’s central bank, also widened the dollar/dong trading band for the second time in a week, underscoring concerns a weaker yuan could further inflame a bloated trade deficit.
China, Vietnam’s top trading partner, rattled global financial markets when it devalued its currency by nearly 2 percent on Aug. 11, heightening worries of a global currency war. …
… For the remainder of the report:
If the sell, they are idiots!!
(courtesy Bloomberg/GATA) )
Cash-strapped Venezuela may sell gold, Citigroup says
Submitted by cpowell on Wed, 2015-08-19 12:26. Section: Daily Dispatches
By Ranjeetha Pakiam
Wednesday, August 19, 2015
Countries facing cash shortages may be tempted to sell part of their gold reserves to raise funds, according to Citigroup Inc., which cited Venezuela as a potential example amid concern it may default.
The South American nation is one country that may be at risk of selling part of its holdings after oil fell and commodity prices weakened, analysts including David B. Wilson and Aakash Doshi, wrote in a report. Calls by Bloomberg to Venezuela’s central bank and the media office at the finance ministry outside normal office hours weren’t answered. …
… For the remainder of the report:
The following link to latest interview regarding backwardation and China entering the currency wars.
1 Chinese yuan vs USA dollar/yuan falls slightly this time to 6.3956/Shanghai bourse: green and Hang Sang: red
Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.
2 Nikkei down 331.84 or 1.61%
3. Europe stocks all in the red /USA dollar index down to 96.94/Euro down to 1.1039
3b Japan 10 year bond yield: lowers at 37% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 124.34
3c Nikkei still just above 20,000
3d USA/Yen rate now just above the 124 barrier this morning
3e WTI 42.39 and Brent: 48.87
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and 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 .645 per cent. German bunds in negative yields from 4 years out.
Except Greece which sees its 2 year rate rises to 11.16%/Greek stocks this morning up by 1.27%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield rises to : 9.31%
3k Gold at $1121.85 /silver $14.93
3l USA vs Russian rouble; (Russian rouble up 16/100 in roubles/dollar) 65.66,
3m oil into the 42 dollar handle for WTI and 48 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 forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9738 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0751 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 +.645%
3s The ELA lowers to 89.7 billion euros, a reduction of .7 billion euros for Greece. 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 2.19% early this morning. Thirty year rate below 3% at 2.85% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Chinese Intervention Rescues Market From 2-Day Plunge, Futures Red Ahead Of Inflation Data, FOMC Minutes
With China’s currency devaluation having shifted to the backburner if only for the time being, all attention was once again on the Chinese stock market roller coaster, which did not disappoint: starting off with yesterday’s dramatic 6.2% plunge, the Shanghai Composite crashed in early trading, plunging as much as 5% in early trading and bringing the two-day drop to a correction-inducing 11%, and just 51.2 points away from the July 8 low (when China unleashed the biggest ad hoc market bailout in capital markets history) . And then the cavalry came in, and virtually the entire afternoon session was one big BTFD orgy, leading to a 1.2% gain in the Shanghai Composite closing price, while Shenzhen and ChiNext closed up 2.2% and 2.7%, respectively.
According to the WSJ, the U-turn came after a handful of companies disclosed their biggest shareholders, some of which included state-backed firms. Analysts say that gave investors a sense of security in Beijing’s market role. As a reminder, one of the reasons given for yesterday’s tumble in Chinese stocks was that “investors” did not get a bailout: “At 2 p.m. it started to turn south again at a very fast rate,” said Steve Wang, a research director at Reorient Group. “People questioned why the government hadn’t yet stepped in” at a time of the day that it usually would, he added.
Today it did and as Reuters notes, “state-backed buyers later rushed in, enabling stocks to finish the day more than 1 percent higher.”
“It’s a clear sign that the government is intervening in the market…otherwise their previous efforts would have been in vain,” said Zeng Xianzhao, a manager at Nuoding Asset Management.
It is a pattern that has been repeated several times since Beijing’s “national team”, a coalition of state-backed financial institutions and regulators, went into action early last month with instructions to halt a crash in share prices.
Investors say China’s stock markets – which were never for the faint of heart – have become dysfunctional since the government’s massive and unprecedented rescue effort.
Just to make sure there is enough liquidity in the aftermath of the liquidity-draining Yuan devaluation, overnight the PBOC also injected 110 billion yuan ($17.18 billion) worth of liquidity into the nation’s banking system on Wednesday through its medium-term lending facility (MLF). The People’s Bank of China said in a brief statement that it injected the funds through 14 banks. The lending facility had a maturity of six months with a 3.35% interest rate.
This follows another massive liquidity injection yesterday, not only via reverse repo but by direct injections into banks: the central bank on Tuesday completed putting $48 billion into the China Development Bank and $45 billion into the Export-Import Bank of China, the official Xinhua news agency reported.
Some examples of company attempts to reassure investors on their own without the “National Team”, included Dongxu Optoelectronic Technology, which in a company filing midday on Wednesday, disclosed that its third- and fourth-largest shareholders as of August 14 were China Securities Finance Corp., the state-run firm tasked with propping up the market, and Central Huijin Investment, the domestic investment arm of China’s sovereign-wealth fund. Stock of the company, which manufacturers electronic-accessory components, hit its upward daily limit of 10%.
Also Wednesday, Zhefu Holding Group, which manufacturers turbine generators, disclosed that Central Huijin is the company’s biggest shareholder, according to a filing on the Shenzhen stock exchange. Its shares also limited up.
While not all companies counting state-backed firms among their biggest shareholders gained Wednesday, the announcements offered enough of a confidence boost to spill into the broader market. And with little needed to reignite speculator greed, the scramble to BTFD with a government backstop was on, resulting in a green close after what has been another 2 day nausea inducing rollercoaster ride.
Still, as we reported yesterday both the richest tradersand long-term investors are staying well to the sidelines, moving their cash into bonds and the money market, or simply selling to wave after wave of retail investors, as roller-coaster markets and a gloomy stream of economic news heighten their anxiety over the world’s second-largest economy. “We advise strapping in for a bumpy ride,” said Tim Condon, head of Asia research for ING Bank in Singapore.
And while China’s PPT helped rescue local stocks once more, neighboring Hong Kong was not so lucky, and the Hang Seng Index fell 1.3% Wednesday, wiping out all year-to-date gains.
Elsewhere in Asia, the Nikkei 225 (-1.6%) was led lower by materials amid China growth concerns prompting a sell-off in commodities, coupled with worries over the latest trade figures. ASX 200 (+1.5%) outperformed with the index bolstered by strong earnings. JGBs rose after the BoJ entered the market to purchase JPY 780b1n of government debt.
European equities reside firmly in the red this morning (Euro Stoxx: -0.8%) amid light newsflow following on from negative sentiment in Asia and ahead of today’s key risk events in the form of US CPI and FOMC minutes release. The Euro Stoxx 50 future traded to its 200- DMA for the first time in a month. The Dax is now well through its 200-DMA and today’s close should be closely watched.
Norway’s sovereign wealth fund reported its first quarterly loss in three years. Losses came from its bond portfolio and U.S. shares. They repeated that they remain long term committed to Chinese shares. Norwegian shares are down about 1%
U.K. shares are heavy weighed by Glencore, which posted a 56% decline in first-half profit. The stock is also the year’s worst FTSE 100 performer.
U.S. equity futures are down about 0.3%. Later today, CPI will be reported and the Fed will release the minutes from its July meeting. Both events are important and closely watched.
FX markets have remained relatively subdued, with the USD-index (-0.1%) residing in negative territory ahead of the aforementioned US risk events, while AUD recovered from overnight weakness in line with the move higher prior to the close with the Shanghai Composite to see AUD/USD trade in positive territory throughout the European morning. Finally, fixed income markets have been bolstered by the weakness in equities, with T-Notes currently residing in positive territory with no US auctions scheduled for today.
Elsewhere, as expected German lawmakers have approved a 3rd Greek bailout.
Commodities have experienced a mixed session today, with gold moving higher amid the stronger USD, while Iron ore saw its largest decline in a month and copper reached fresh 6 year lows on concerns regarding Chinese growth . Away from the metals complex, energy products today have traded flat amid relatively light newsflow as participants await today’s DoE crude oil inventories (Exp. drawdown of 820k) after yesterday’s API inventory showed a drawdown of 230k.
In summary: European shares fall with the chemicals and basic resources sectors underperforming and real estate, telco outperforming. Asian stocks fall led by Nikkei 225. Shanghai Composite pared losses of as much as 5% to rise over 1%. Vietnam devalued its currency for the third time this year, by 1%. Oil recovers from earlier decline, Iraq says a production boost was important to meet the needs of its growing population, Angola to export most crude in almost 4 years in Oct. German parliament appears set to back a third bailout for Greece. The German and French markets are the worst-performing larger bourses, the Swiss the best. The euro is stronger against the dollar. Irish 10yr bond yields rise; French yields decline. Commodities gain, with WTI crude, soybeans underperforming and zinc outperforming. U.S. mortgage applications, CPI, Fed minutes due later.
- S&P 500 futures down 0.4% to 2086
- Stoxx 600 down 1.1% to 383.8
- US 10Yr yield down 1bps to 2.19%
- German 10Yr yield little changed at 0.64%
- MSCI Asia Pacific down 0.6% to 136.2
- Gold spot up 0.5% to $1123.2/oz
- All 19 Stoxx 600 sectors drop; real estate, telco outperform, chemicals, basic resources underperform
- Eurostoxx 50 -1.2%, FTSE 100 -1.1%, CAC 40 -1.2%, DAX -1.3%, IBEX -0.8%, FTSEMIB -0.9%, SMI -0.8%
- Asian stocks fall with the ASX outperforming and the Nikkei underperforming; MSCI Asia Pacific down 0.6% to 136.2
- Nikkei 225 down 1.6%, Hang Seng down 1.3%, Kospi down 0.9%, Shanghai Composite up 1.2%, ASX up 1.5%, Sensex up 0.5%
- Euro up 0.36% to $1.1064
- Dollar Index down 0.29% to 96.76
- Italian 10Yr yield down 1bps to 1.81%
- Spanish 10Yr yield down 1bps to 2%
- French 10Yr yield down 1bps to 0.97%
- S&P GSCI Index up 0.2% to 362.8
- Brent Futures up 0.3% to $48.9/bbl, WTI Futures down 0.1% to $42.6/bbl
- LME 3m Copper up 0.2% to $5046/MT
- LME 3m Nickel up 0.7% to $10430/MT
- Wheat futures up 0.5% to 501 USd/bu
Bulletin Headline Summary from Bloomberg and RanSquawk
- European equities reside firmly in the red this morning (Euro Stoxx: -0.8%) amid light newsflow following on from negative sentiment in Asia and ahead of today’s US CPI and FOMC minutes release
- FX markets have remained relatively subdued, with the USD-index (-0.1%) residing in negative territory ahead of the aforementioned US risk events
- As expected German lawmakers have approved a 3rd Greek bailout in a 454-113 vote
- Treasuries steady before report forecast to show consumer prices (headline and core) rose 0.2% in July and Fed releases minutes of last month’s meeting.
- If minutes viewed “as a signal that liftoff in September is a high probability outcome,” 2Y and 5Y yields “could sell off by at least 5bp and 13bp, respectively,” Morgan Stanley says
- Emerging-market stocks sank to a four-year low on concern capital outflows will accelerate amid prospects of higher U.S. interest rates and a slowing Chinese economy
- Glencore Plc slid as much as 9.4% in London after reporting a 56% in 1H profit on the China-led rout in commodities; plans further spending cuts as it seeks to maintain dividends while preserving IG rating
- It’s getting harder to predict metals consumption in China, the world’s biggest user of raw materials, Glencore CEO Ivan Glasenberg said in a phone interview in London
- The PBOC injected liquidity to some China banks today through its Medium Term Lending Facility to ease liquidity pressure after devaluation of yuan, Reuters reports, citing 3 unidentified people with knowledge of the matter
- The German parliament voted in favor of a third bailout for Greece, one of the last hurdles to approving the program, after Merkel pressed lawmakers to lend their support
- Aim of 3rd bailout is to help Greece again stand on its own feet, German Finance Minister Wolfgang Schaeuble says ahead of vote in parliament; Greece’s compliance will be controlled step for step
- Sovereign 10Y bond yields lower. Asian stocks mixed, European stocks lower, U.S. equity-index futures decline. Crude oil and copper lower, gold gains
DB’s Jim Reid Concludes the overnight event wrap
Just after I suggested that the summer lull was upon us yesterday, another late dip in the Chinese equity market just after we went to print livened up markets over the last 24 hours and that continues to be the case this morning. The Shanghai and Shenzhen Composites fell 6.15% and 6.58% yesterday and are -3.12% and -2.98% as we go to print, although they had tumbled as much as 5% prior to the midday break. They were, however, only down around 1.5% this time yesterday so anything can happen in that last two hours after trading resumes for the afternoon session.
This latest slump was seemingly sparked initially by the back of the still soft, but improving house price data which we noted in yesterday’s report and which dampened some hopes that broader government stimulus is around the corner. However the bulk of the emphasis has been placed on the news from the Securities Regulator late on Friday that the state-owned margin lender China Securities Finance Corp will no longer conduct daily interventions to help support the market, putting investors on edge that the interventions we saw following the huge slump in Chinese equity markets a month or so ago might now be a more rare occurrence. It was also interesting to see that the PBoC yesterday injected the largest amount of cash into the financial system in a single day almost 19 months (through reverse repos), a signal perhaps that there could be concerns of capital outflows following the recent Yuan devaluation.
Looking at the rest of Asia this morning, that weakness in China has seen a broad-based sell-off across bourses across the region. The Nikkei has fallen 1.32%, while there are also steep declines for the Hang Seng (-1.03%) and Kospi (-1.59%). The ASX (+1.29%) is the lone outlier although the index has pared back earlier stronger gains. There’s been further action in the FX space meanwhile with the State Bank of Vietnam again taking the step to devalue the Dong, lowering the currency by 1% and widening the trade band in the process after a similar move last Wednesday in response to the PBoC. Despite very small moves in the Yuan this morning, the Malaysian Ringgit (-0.62%) in particular has declined, while the Taiwanese Dollar (-0.20%) and Indonesian Rupiah (-0.33%) are also weaker. 10y Treasury yields are a basis point lower while Oil markets have sold off half a percent. Meanwhile, the Yen has strengthened slightly (+0.10%) after Japan reported the biggest trade deficit since February (¥268bn vs. ¥153bn expected) on the back of decelerating exports (7.6% yoy from 9.5% last month) in particular.
Back to yesterday. The sharp sell-off in China bourses hit sentiment in DM but was relatively well contained for the most part as equity markets on the both sides of the pond finished with just modest declines, extending the fairly range bound nature in equities at the moment. Led by weakness for materials and tech stocks in particular, the S&P 500 closed down 0.26% while the NASDAQ and Dow finished 0.64% and 0.19% lower respectively. Closer to home, having traded between gains and losses over most of the session, the DAX (-0.22%) and CAC (-0.27%) both closed a tad lower, although the Stoxx 600 (+0.22%) did manage to creep into positive territory.
Although equity markets were fairly range bound yesterday, there was plenty of volatility once again in the commodity space and Oil in particular. A rally in the late-afternoon yesterday on the back of expectations that today’s EIA report may show a drop in US stockpiles helped WTI close up +1.79% and bounce back above $42. Brent (+0.14%) also recovered having traded as much as 1% lower intraday. It was a sea of weakness across the rest of the complex yesterday however. Base metals in particular suffered with Copper and Aluminum tumbling 1.56% and 0.89% respectively (both marking six-year lows) with the former at one stage breaking below $5000/tn temporarily. Precious metals were under considerable pressure with Silver (-2.98%), Platinum (-0.36%) and Palladium (-2.72%) all down, while Gold finished unchanged following the latest US housing data. Despite the bounce back in oil, US HY energy spreads moved another 2bps wider and are now around 120bps wider MTD already. Spreads are starting to create some distance from the previous December 2014 wides too, sitting around 70bps wider now. For comparison, broader HY spreads are 34bps wider MTD.
In terms of the US data flow, housing starts rose +0.2% mom during July which, although less than expected, combined with a decent upward revision to June to see the annualized rate tick up to 1.21m (vs. 1.18m expected) and the most since October 2007. Building permits were soft (-16.3% mom vs. -8.0% expected) which dragged the annualized rate back down to 1.12m from 1.34m, although as we had noted yesterday the distortions from the tax break changes had a significant impact in the Northeast region in particular and in fact the three-month moving average was little changed. That helped fuel another decent day for the Greenback with the Dollar index closing +0.24% and its fourth consecutive daily gain. Treasury yields nudged up with the data, the benchmark 10y yield closing up 2.5bps at 2.193%. There was little change in Fed Funds contracts however, while the probability of a September move by the Fed was unmoved at 48%. Interestingly there was a notable upgrade to the Atlanta Fed’s GDPNow Model forecast for Q3 growth to 1.3% from the August 13th 0.7% reading following the latest housing starts and IP numbers (particularly as a result of a boost from motor vehicle assemblies last month). That said the forecast is still well below the current market estimates which generally sit in the 2.2% to 3.5% range according to the report.
It was a day of rising sovereign bond yields across Europe too yesterday. 10y Bunds finished 1.6bps higher at 0.641% while yields in Italy (+5.2bps), Spain (+6.1bps) and Portugal (+10.5bps) all moved higher. Gilt yields (+5.8bps) also climbed while Sterling rallied +0.48% against the Dollar following the latest July inflation numbers. Headline CPI for month came in a tad higher than expected at -0.2% mom (vs. -0.3% expected), nudging the annualized rate up to +0.1% yoy from flat. It was the core reading which generated the most upside surprise however, coming in at +1.2% yoy (vs. +0.9% expected) supported by clothing prices in particular. DB’s George Buckley noted that it’s too early to be confident that this is a new trend in core inflation, given that just a month earlier the core was running at a near 15-year low. However, George notes that should this continue then it could be supportive of expectations that when oil and food price effects eventually drop out of the annual comparison, headline inflation is set to return back to its target in the medium term. The other inflationary indicators offered few surprises. RPI was in line and unchanged at +1.0% yoy while core PPI remains soft at +0.3% yoy (vs. +0.2% expected). Ultimately George believes that thus far the news on domestic price pressures has been incremental, but it may not take many more months until the Bank feels more convinced about the inflation outlook. He continues to see the first hike in May 2016 but risks may be skewed towards an earlier move.
Moving on, pressure on emerging markets continues to be a hot topic at the moment. Yesterday actually saw the Malaysian Ringgit (+0.43%) rebound shortly after we went to print but there’s been no shortage of weakness in Asian FX markets of late with declines since the Yuan moves generally in a 2 to 4% range. A story in the FT last night has caught our eye meanwhile after highlighting the surge in EM capital outflows over the past year. The article notes that total net capital outflows from the 19 largest emerging market economies has now reached $940bn in the past 13 months, which is double that which flowed out over three quarters during the 2008/09 crisis. The data is only as of end-July, so we’d expect the recent Chinese Yuan moves to have exaggerated the outflows.
Just before we run over today’s calendar, there were a couple of interesting developments in Greece yesterday. The ECB has taken the move to reduce the ELA ceiling available to Greek banks, cutting the facility by €0.7bn to €89.7bn. On top of this, yesterday also saw a Greek government council overseeing state asset sales sign off on the first privatization deal under PM Tsipras. They agreed to a 40-year concession for a German airport operator to run 14 regional airports, which is believed to raise €1.2bn. Yesterday we also got wind of the bail-out approval from parliaments in Austria, Estonia and Spain. There’ll likely be much attention on the Bundestag vote today.
Over to today’s calendar now, it’s a quiet session this morning in Europe with no notable releases although it’s all eyes on the US this afternoon when we kick off with the July CPI report, followed up later this evening with the FOMC minutes from the July 28/29th meeting. This will give analysts another chance to sharpen their liftoff expectations. Just on the US CPI data, market expectations are currently sitting at +0.2% mom for the headline, with DB’s Joe Lavorgna slightly less optimistic at +0.1%. Market consensus for the core is also at +0.2% mom, in line with Joe’s view.
Early yesterday evening Chinese stocks plummet only to the rescued by the POBC late in the session. Margin debt drops for the first time in 8 days. The yuan is set basically the same as yesterday.
(courtesy zero hedge)
Margin Debt Drops For 1st Time In 8 Days As Chinese Stocks Continue Slide With Yuan Stable
Following yesterday’s massive CNY120bn liquidity injection – the largest since Jan 2014 – and the notable absence of the plunge protection team in the afternoon rout (“we’re only here for emergencies”), we note that margin debt fell for the first time in 8 daysas Chinese farmers and grandmas realized once again that the stock market is not a free-ride to nirvana. Chinese stock futures indicate the losses will be extended at the open as the Yuan fix is held unchanged.
Weakness in stocks continues…
- *CHINA’S CSI 300 STOCK-INDEX FUTURES FALL 0.6% TO 3,603
We suspect The Chinese Plunge Protection Team will be out today as we near the 200DMA once again…
And The PBOC sets the CNY Fix unchanged:
- *CHINA SETS YUAN REFERENCE RATE AT 6.3963 AGAINST U.S. DOLLAR
For now, no further liquidity injections following yesterday’s outpouring…
In a routine operation Tuesday, the People’s Bank offered 120 billion yuan ($18.77 billion) worth of seven-day reverse repurchase agreements, or reverse repos, short-term loans to commercial lenders in the money market.
The cash injection marks the biggest of its kind since Jan. 28, 2014, when the bank offered 150 billion yuan via 14-day reverse repos.
Some good news – or sanity…
- *SHANGHAI MARGIN DEBT FALLS FOR FIRST TIME IN EIGHT DAYS
Outstanding balance of Shanghai margin lending fell by 1.6%, or 14.6b yuan, from previous day to 879.9b yuan on Tuesday, according to exchange data. Tuesday’s percentage drop was biggest since Aug. 3.
The 8 Trillion Black Swan: Is China’s Shadow Banking System About To Collapse?
“Wealth management products (WMP) in China have come under the spotlight after a series of missed payments raised concerns over the shadow banking sector that often directs credit to firms shut out from bank lending or capital markets,” Reuters said in February, after reporting that CITIC (China’s top brokerage), was looking at ways to repay investors after the issuer of one of the wealth management products the broker sold missed a $1.12 million payment to investors.
That news came a little over a year after the now infamous “Credit Equals Gold #1 Collective Trust Product” incident and a subsequent default scare on a similar product backed by loans to a struggling coal company.
Although wealth management products and CTPs (which differ from WMPs) are often described as “murky” and “opaque”, the basic concept is fairly simple. WMPs are marketed to investors as a way to get more bang for their buck (er.. yuan) than they would with bank deposits. Funds from these investors are then invested at a higher rate. If the assets investors’ money is used to fund run into trouble, that’s not good news for WMP investors. Simple.
The main issue here is the sheer size of the market. As FT notes, “in 2010, as regulators tried to rein in the explosion in bank credit resulting from the country’s Rmb4tn economic stimulus plan, banks turned to trusts to help them comply with lending controls.” So essentially, trusts helped banks offload credit risk at the behest of the PBoC. Here’s the process whereby banks use trusts to get balance sheet relief:
The amount of trust loans outstanding in China has ballooned to nearly CNY7 trillion (total trust assets under management is something like CNY14 trillion) and now,Hebei Financing Investment Guarantee Group – which, as Caixan notes, is “the largest loan guarantee company in the northern province of Hebei [and] is wholly owned by the provincial regulator of state-owned assets” – is apparently broke, and that’s bad news because it guaranteed some CNY50 billion in loans made by dozens of trusts who in turn issued wealth management products to investors.
In short, if Hebei can’t guarantee the loans, WMP investors could be forced to take a loss and as anyone who follows developments in China’s financial markets knows, Beijing is not particularly keen on permitting SOEs to collapse – especially if there’s a risk of rattling retail investors’ fragile psyche. Here’s FT with the story:
Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province asking for a bailout that would enable the bankrupt credit guarantee company to continue to backstop loans to borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs).
Hebei Financing Investment Guarantee Group has guaranteed Rmb50bn ($7.8bn) in loans from nearly 50 financial institutions, according to Caixin, a respected financial magazine. More than half of this total is from non-bank lenders, mainly trust companies, who lent to property developers and factories in overcapacity industries
The letter appeals directly to the government’s concern about social stability and the fear of retail investors protesting the loss of “blood and sweat money”. The 11 companies sold 24 separate WMPs worth Rmb5.5bn.
“The domino effect from the successive and intersecting defaults of these trust products involves a multitude of financial institutions, an immense amount of money, and wide-ranging public interests,” 10 trust companies and a fund manager wrote to Zhao Kezhi, Hebei party secretary.
“In order to prevent this incident from inciting panic among common people and creating an unnecessary social influence, we represent more than a thousand investors, more than a thousand families, in asking for a resolution.”
Hebei Financing stopped paying out on all loan guarantees in January, when its chairman was replaced and another state-owned group was appointed as custodian.
Though Hebei Financing guaranteed loans underlying WMPs, the products themselves did not guarantee investors against losses. Caixin reported that several trust companies, fearing reputational damage, have used their own capital to repay investors.
The 11 groups behind the recent letter have taken a different approach, pressuring the government for a rescue.
There a few things to note here. First, the reason the underling assets are going bad is because WMP investors’ money was funneled into real estate development and all manner of other parts of the economy which are now struggling mightily. Second, the idea that China should allow for defaults on trust products is nothing new. In fact, we’ve been saying just that for at least a year. Finally, and perhaps most importantly, the banks’ playing of the social instability card underscores an argument we made when China’s equity market was in the midst of its harrowing plunge last month. In “Why China’s Stock Collapse Could Lead To Revolution” we warned that “it is only a matter of time before all the ‘nouveau riche’ farmers and grandparents see all their paper profits wiped out and hopefully go silently into that good night without starting mass riots or a revolution.”
Yes, “hopefully”, but maybe not because as is becoming increasingly clear by the day, simultaneously micro managing the stock market, the FX market, the command economy, the media, and just about every other corner of society is becoming a task too tall even for the Politburo and sooner or later, something is going to break and shatter the “everything is under control” narrative.
Whether or not the catalyst for widespread social upheaval will be a catastrophic chain reaction in the shadow banking system we can’t say for sure, but as FT reminds us, technical defaults on trust products have in the past been met with “public protests by angry investors at bank branches.”
Here’s a snapshot of WMP issuance (note the durations as it gives you an idea of what kind volume we’re talking about on maturing products):
As you might have noticed from the above, it appears that maturity mismatch could be a real problem here. Here’s what the RBA had to say about this in a bulletin dated June of this year:
A key risk of unguaranteed bank WMPs is the maturity mismatch between most WMPs sold to investors and the assets they ultimately fund. Many WMPs are, at least partly, invested in illiquid assets with maturities in excess of one year, while the products themselves tend to have much shorter maturities; around 60 per cent of WMPs issued have a maturity of less than three months (Graph 5). A maturity mismatch between longer-term assets and shorter-term liabilities is typical for banks’ balance sheets, and they are accustomed to managing this. However, in the case of WMPs, the maturity mismatch exists for each individual and legally separate product, as the entire funding source for a particular WMP matures in one day. This results in considerable rollover risk.
In other words, the WMP issuers are perpetually borrowing short to lend long. The degree to which this is the case apparently varies depending what type of WMP (or trust product) one is looking at, and we will mercifully spare you the breakdown of the market by type (other than to include the pie chart shown below), but the important thing to note here is that it seems highly likely that at least CNY8 trillion in WMPs are exposed to the “considerable rollover risk” mentioned above.
Allow us to explain how this could end. If China allows a state-run guarantor like Hebei Financing Investment Guarantee Group (the subject of the FT article cited above) to go broke and that in turn triggers losses for investors in WMP products, demand for those WMPs will dry up – and right quick. If that happens, WMPs will stop rolling, freezing the market and triggering a cascade of forced liquidations of the underlying (likely illiquid) assets.
It’s either that, or China bails everyone out. As the RBA concludes, “a key issue is whether the presumption of implicit guarantees is upheld or the authorities allow failing WMPs to default and investors to experience losses arising from these products.”
And while that is certainly a key issue, the key issue is what those investors will do next.
|Is The Tianjin Shock Wave Linked
To Vaporized ‘Ro-Ro’ Ship?
|By Yoichi Shimatsu
Exclusive To Rense
|This past week’s on-shore shock-wave event in Tianjin, China, has striking similarities with the mysterious vaporization of a “roll on / roll off” car-carrier ship off the coast of Norway in June 1991. If the comparison discussed here proves to be correct, then the massive explosion at the port that serves Beijing could well be the opening shot of World War III.
The visual panorama at ground zero in Tianjin is a curious because there’s an inner ring empty of debris with its edges blackened by the massive explosions, smoke plumes and wreckage from a large chemical warehouse. Was there a sequence of two events at Tianjin: first a seismic air burst, which was followed by an explosive conflagration? Some online analysts speculate about the possibility of a tactical nuclear weapon. If high levels of radiation are not detected, however, then the cause was probably a more exotic weapons technology, especially after the power blackout over most of the city is factored into the disaster.
One noticeable “coincidence” is that the mega-blast occurred less than two days before Prime Minister Shinzo Abe’s twisted “apology” for the Japan aggression in Asia and the Pacific, which hinted at the urgent need to prepare for the next war. Due to his past connections with Aum Shinrikyo’s weapons trade, Abe cannot be excluded as a suspect in either the Tianjin disaster or the 1991 vaporization event intended against the Norwegian royals. Neither can Japanese-made cars be excluded as the delivery system in both incidents.
Quirk in the Subway Gassing
The strange tale spouted unexpectedly in the first weeks of my team’s investigative reporting of the March 1995 Tokyo Subway gassing. The morning rush-hour gassing in the heart of Japan’s capital was prompted by a police crackdown on covert transfers of weapons of mass destruction from Yeltsin-era Russia by the Aum Shinrikyo sect. At the time, Shinzo Abe was deeply involved in arms-smuggling by Aum operative Kiyohide Hayakawa, who like Abe had been a member of the Kobe branch of the Unification Church, which was a hub of covert operations.
Our investigative journalism partly focused on major shipping companies, whose managers were queried about extra-large cargo containers that could convey a nuclear-tipped ballistic missile from the Black Sea, specifically from newly independent Ukraine. A copy of Hayakawa’s notebook, which I obtained from an intelligence-affairs analyst, mentioned purchases of at least one of these massive rockets.
Spokesmen at all the Japanese-owned shippers replied curtly that there were no records of such dangerous cargo. A notable exception was the manager of a Norwegian shipping company, who gave a curious reply: “Could that be the bomb that blew up the Japanese car carrier just before the crowning of Norway’s new king?”
I was flabbergasted by his unexpected remark. “Well, uh, possibly,” I replied and then arranged for a face-to-face discussion at a Roppongi beer hall. At our introductory meeting, the shipper asked if I wanted him to phone a ship captain in Norway who was a colleague of a vaporized crew member. I nodded, and he dialed an overseas number, spoke briefly and then handed the receiver to me.
“It’s known among ship’s captains like myself because I work for the same company,” the voice said over the line with a thick Nordic accent. “One of our freighters got a distress call when passing by a large Japanese car-carrier. The Japanese captain said that during some high seas the hood of one of the compact cars popped open. A crew member who went over to shut the hood noticed a strange metal object lodged next to the engine and thought it might be dangerous.
“Nobody aboard the ‘roll on / roll off’ (car carrier) knew what it was, and so the Japanese captain made a radio call for help. The Norwegian freighter crew obliged by sending over one of its engineers and an assistant on a Zodiac inflatable boat. Once aboard the car-carrier, the Norwegian engineer called his own captain over a hand-held radio, saying that there was a large screw head that appeared to hold down the lid of the box. After getting approval to open the device, engineer kept on describing his movements as he turned the screwdriver.
“At that moment, the Norwegian crew members watched in stunned silence as the Japanese car-carrier vaporizing before their eyes in an brilliant flash of light that faded, leaving nothing but the ocean in sight. The shock wave knocked out all the batteries inside the freighter, but caused no damage. The odd thing they noticed that it all happened in silence, there was no noise.”
The vanishing of a huge ship from Japan was a major event, I responded, so how come I’ve heard of it?
“Well, you see, sir, the Japanese vessel was scheduled to unload cars at the port of Trondheim right at the time that the new king and queen were about to be blessed at the cathedral. The blast set off a massive security alert, and all the ports of Norway were locked down. So the news never got out.”
Round Up the Usual Suspects
After the Norwegian departed, my head started to spin. If the blast had been from a Ukrainian nuclear missile, the Norwegian ship could not have survived intact and the sound would have been thunderous. So what could it have been that vaporised the car-carrier.? At the next morning’s editorial meeting, I asked my reporters if they had heard any Aum Shinrikyo members speak of a super-weapon that could make something as large as an office tower vanish in a flash.
A rookie female reporter said that the guru Shoko Asahara had spoken to his followers about a new type of powerful electromagnetic bomb that could fit inside the hood of a car. Bingo. Back in those days of spotty Internet, I went to the USIA-sponsored American library in downtown Tokyo and ran a check of magazine articles on CDs, and came up with the “Procyon” invented by Russian weapons-designer Andre Sakharov.
The Procyon, named after the lesser Dog Star or Canis Minor, is a Tesla coil that builds up a massive electrical charge. When explosive charges packed around the housing are detonated, the power of the electromagnetic jolt is equivalent to all the electricity generated on Earth is released in one-billionth of a second. The device was designed to wipe out electronic control systems over a wide area. The Pentagon purchased a smaller version for testing at the Redstone arsenal in Huntsville, Alabama, so the Procyon was for real.
Thus I deduced Hayakawa and his boss Shinzo Abe were able to obtain a few Procyon devices from the advanced weapons laboratories at Yekaterinaberg though the good graces of Oleg Lobov. Yeltsin’s national security adviser. Lobov had been appointed president of the Aum-run Russo-Japan University. The late ambassador to Moscow Shintaro Abe, the father of Shinzo, was a founder of that college, along with the notorious rightist Shintaro Ishihara. More than 2,000 former Soviet weapons designers and scientists were recruited as students with generous research grants.
So on orders from the two Shintaros. and blessings from boy wonder Shinzo and his guru Asahara, Aum Shinrikyo operatives rolled on a Procyon-loaded car heading for Norway and timed to assassinate the entire Norwegian Royal Family along with much of Western Europe’s upper crust.
Crazed Grudge Match
Judging from the historical revisionism of rightist politicians, the grudge goes back to March 1933 when the British-lead delegations of Western Europe refused to support the Japanese military occupation of Manchuria in northeast China. It may seem absurd to attempt a massacre of Europe’s blue bloods 58 years after that event, but for Shintaro Abe and his son Shinzo the “empire” of Manchuria is the bright shining star of their firmament, because their family patriarch Nobusuke Kishi was the finance minister of that utopian experiment, the man who paid for the fabled dream-turned-nightmare.
Norway’s Royal House of Glucksberg is on the long list of arch-enemies, because Harald’s grandfather Haakon VII was staunchly pro-British and a formidable military strategist against the Axis Powers, and therefore no friend of militarist Japan back in those dark days. There wasn’t a compelling reason for Japanese rightists to throw a lifeline to the Norwegian royals, even in the event that one of the VIP guests at Trondheim cathedral was the actual target of the ultimate car bombing. When it comes to acts of spectacular vengeance, the more the merrier.
If there was any clue to a more recent motive, it came during a drinking bout with one of my senior rightist contacts who blurted out in a drunken stupor that he had phoned the then-prime minister of Ukraine to nuke London for some insult hurled by the just-retired Margaret Thatcher. His strong complaint had something to do with her refusal to sponsor a permanent seat for Japan on the Security Council, after stuffing gobs of yen into her purse. When I asked if the lives of all the good people in London was worth such a trifling matter, he shrugged his shoulders and then roared, “Let’s have another bottle of sake!” That was one terrorist plot nipped in the bud. Japanese rightists are simply not the most rational or coherent minds within our myopic culture. Thatcher probably wasn’t even invited to Trondheim.
A World in Need of Heroes
It is regrettable that the Norwegian ship’s engineer and Japanese crewmen on that ro-ro, never got the public recognition they deserved for stopping the annihilation of Trondheim, even if they never had a clue about what was under the hood.
More tragic is that there were no such unintended heroes at the Toyota assembly plant or the Mitsubishi Motors shipping center in Tianjin.
Proper credit should go to the Japanese prime minister for meaning what he partially says, even if he doesn’t completely say what he means. The new and improved knock-off of the Procyon is impressive, an ace up the sleeve. But it is cars that should be banned as lethal weapons, when considering the fact that more than 1.2 million people are killed in auto accidents every year. After all, what good is an implosive Tesla coil without a delivery system?
Fatalities mount among residents suffering traumatic injuries, a human-interest story ignored by the world news media. In the rarified air of geopolitical contest, where collateral damage doesn’t count and only winning matters, the success of offense is ultimately determined by the toughness of defense. The shielding around the world’s fastest and biggest supercomputer, Tianhe-1, held back the electromagnetic wave that reduced Tianjin, so the attackers come away with a draw and not a checkmate. The next round should be interesting.
Yoichi Shimatsu is a science journalist based in Hong Kong and Southeas
German Parliament Approves Third Greek Bailout, Opposing Votes Drop
With a Greek payment to the ECB due tomorrow, there was no doubt that Germany’s parliament would ratify the Third Greek bailout, and the only question was whether political opposition to a Greek rescue would be larger or smaller than expressed in the last such Bundestag vote on July 17. Sure enough, following a speech by Schauble urging his fellow MPs to give Greece a “chance for a new start”, moments ago the German parliament approved the third bailout with 454 votes for, 113 against – of which 63 were Merkel’s lawmakers – and 18 abstentions.
Curiously, the No votes declined compared to to the last such vote on July 17. Here is the comparison:
- August 19: Yes 454; No 113 (63 from Merkel’s block); Abstain 18
- July 17: Yes 439; No 119 (60 from Merkel’s block), Abstain 40
- February 27 (Greek bailout extension vote): Yes 542; No 32; Abstain 13
And with that the Third Greek bailout is sealed, and Europe can resume paying Greece so it can promptly repay Europe, and perpetuate the can kicking cycle for a few more months, until Greece once again realizes virtually none of the money will make its way into the Greek economy, and a new political crisis re-emerges.
No SDR For You: IMF Tells China To Wait At Least One Year Until Reserve Basket Inclusion
If there was any confusion as to whether the recently devalued Chinese yuan would be landing in the IMF SDR basket on January 1, the Fund just cleared it up.
As Bloomberg reports, a recommended extension of the current basket to September 30, 2016 was approved by the board on August 11:
IMF executive board extends current composition of its Special Drawing Rights for nine months until Sept. 30, 2016.
IMF staff had recommended extending the current basket, which was due to expire Dec. 31, to minimize disruption if yuan added.
Board decision gives SDR users “sufficient lead time to adjust in the event that a decision were to be taken to add a new currency to the SDR basket”
Board made decision Aug. 11, IMF says in statement
And from WSJ:
The fund’s executive board approved an extension of the current basket of reserve currencies including in its special drawing rights, or SDRs, to September 30, 2016. The board’s action confirms an earlier proposal for a delay in the five-year re-evaluation of the basket, which doesn’t include the yuan, and it said a decision on the future basket is expected by the end of the year.
Although Beijing has outlined plans to liberalize its financial markets, the yuan doesn’t meet the IMF’s key criteria for reserve currencies to be “freely usable,” meaning countries could face problems trying to buy and sell the currency in a pinch.
And while the move supposedly won’t affect the Board’s decision on whether to include the yuan, it’s certainly interesting that the IMF happened to decide that there’s “merit in agreeing on a limited extension of the current valuation basket,” the very day (or, technically the day after) China devalued.
Here’s a little background for the uninitiated from Barclays:
The SDR is an international reserve asset created by the IMF as a supplement to member countries’ reserve assets. The total allocated SDR as of now is 204bn or about USD280bn.
However, the SDR is not considered as a currency or a claim on the IMF. Instead, it is a potential claim on IMF members for the so called “freely usable” currencies, currently the USD, EUR, GBP and JPY. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and many other international organizations.
When to use an SDR? An SDR allocation is a low-cost way of adding to members’ international reserves. For member countries that choose to hold their allocation, the net carrying cost is effectively zero. If a member’s SDR holdings are below its allocation, it incurs a net interest obligation. Conversely, members receive interest at the SDR interest rate on the amount that their holdings exceed their cumulative allocations. In the case of an IMF lending program, the member receives a loan amount proportional to (or times of) its quota (denoted in SDR) and pays interest according to its net position (with a scheduled principal payment).
Why does the RMB matter?
China is eager to achieve international recognition of the CNY as an international reserve currency, on par with others included in the SDR basket, due to the increased use of the CNY in trade settlement and in bilateral central bank swap lines, and China’s status as the world’s second-largest economy. The IMF’s review of the options for widening the SDR will examine two factors: the export criterion and the “freely usable” criterion. For the former, the RMB is certainly qualified, as China is now the world’s largest exporting country. The most challenging factor for the RMB will be the second one, eg, a freely usable currency.
Turkey Turmoiling: Lira Plunges To Record Low On Financial, Political, Terrorism Fears
Turkey’s lira is once again in free fall, after testing all-time lows against the dollar during multiple sessions of late as political turmoil and civil war wreak havoc on the currency.
On Tuesday, the central bank failed to hike rates and delivered what was generally said to be a confused set of guidelines for navigating the normalization of monetary policy in developed markets. On Wednesday, news that the timing of a rate hike will now depend on the Fed looks to have put pressure on TRY.
In short, a perfect storm of political upheaval, indeterminate monetary policy, and growing violence between Ankara and the country’s Kurdish population have conspired to send the lira on a terrifying ride and as you’ll note from the headline roundup presented below, it looks as though things are going to get a whole lot worse before they get better.
- TURKEY WON’T RAISE RATES UNTIL FED DOES: HALK YATIRIM’S TOKALI
- TURKEY LIRA NOT YET AT LEVEL TO HURT COMPANIES, AKBEN SAYS: AA
- TURKEY REPEAT ELECTIONS AUTHORIZED BY BRD BEFORE 90 DAYS: SABAH
- ERDOGAN: COALITION FAILURE MEANS TURKEY NEEDS TO ASK THE PEOPLE
- ERDOGAN: TURKEY HAS A SERIOUS GOVT FORMATION AND TERROR PROBLEM
- ERDOGAN: TURKEY’S SYSTEM HAS CHANGED, OTHERS WON’T ACCEPT IT
- GUNFIRE HEARD OUTSIDE ISTANBUL’S DOLMABAHCE PALACE: HURRIYET
- TURKEY 2-YR BOND YIELDS RISE 3BPS TO 10.71%, 5TH DAY OF GAINS
this ought to be interesting!!
(courtesy zero hedge)
East Ukraine’s Donetsk Republic Will Hold Referendum To Join Russia
Following the 2014 Crimean referendum which saw the Black Sea peninsula join Russia shortly after the Ukraine presidential coup and ensuing territorial conflict between pro-Kiev and pro-Moscow regions, many speculated it is only a matter of time before the Donetsk region, subsequently elevated into People’s Republic status, which has been engaged in constant warfare with the Kiev army (which is in such bad shape it recently drafted a disabled man without arms) would follow suit.
We now have the answer.
Having waited for over a year for the Ukraine civil war/conflict to be relegated to back page status, if that, Putin has finally given the green light, and as Xinhua reports, leaders of the self-proclaimed “Donetsk People’s Republic” are planning to hold a referendum on seceding from Ukraine and joining Russia, the Donetsk-based Ostrov news agency reported Wednesday.
The referendum is scheduled to take place some in early to mid November, or specifically two to four weeks after the Oct. 18 local elections, said the news agency.
The ballot papers for the referendum designed in the colors of the Russian flag have already been printed, it said.
And while neither the rebel leadership nor the Ukrainian authorities have commented on the report yet, the modus operandi is strikingly familiar to what happened in Crimea.
Should Donetsk indeed proceed with a popular secession vote, the result is virtually assured but the bigger question is just how would Europe react considering this would result in another territorial expansion of Russia which would be accused of annexing a region that Kiev has largely given up even pretending it has control over.
In July, leaders of pro-independence insurgents in Donetsk region said they would hold local elections on Oct. 18 without Kiev’s supervision as they believed that the Ukrainian government has not fulfilled its obligations under the Minsk peace agreement.
Last week, violence in eastern Ukraine has sharply escalated after several weeks of relative calmness. On Sunday night, at least 11 people, including nine civilians, were reportedly killed in Donetsk region, marking the worst casualties in the conflict since early June.
Then again, after the recent referendum farce in Greece in which a substantial majority of the population voted for one thing just to get the opposite, maybe history is about to rhyme a few hundred kilometers northeast of Athens.
What Today’s Oil Plunge To 2009 Levels Means For Earnings, In One Chart
Moments ago, following the DOE report of an unexpected jump in oil inventories which caught all algos by surprise, oil plunged by over $1 to a price not seen since 2009.
So what does this mean for S&P 500 earnings in general, and energy earnings in particular?
Nothing short of much more pain, if not a complete wipeout, as the following chart – showing energy EPS with a 4 month lag vs oil prices – from Citigroup reveals.
Which, as we also reported two days ago, means forward energy multiples are about to explode to record highs and, as we also commented, if and when the realization arrives that forward multiples in the 25-30x range are just a “tad high” and multiples mean revert, watch out for a 50% crash in energy stock prices…
… which after a year of hopium courtesy of central banks, will finally metastasize to the rest of the S&P 500.
And today, WTI breaks into the 40 dollar handle:
(COURTESY ZERO HEDGE)
WTI Collapses To A $40 Handle & What That Means For Earnings, In One Chart
Moments ago, following the DOE report of an unexpected jump in oil inventories which caught all algos by surprise, oil collapsed to a $40 handle…
…a price not seen since 2009.
So what does this mean for S&P 500 earnings in general, and energy earnings in particular?
Nothing short of much more pain, if not a complete wipeout, as the following chart – showing energy EPS with a 4 month lag vs oil prices – from Citigroup reveals.
Which, as we also reported two days ago, means forward energy multiples are about to explode to record highs and, as we also commented, if and when the realization arrives that forward multiples in the 25-30x range are just a “tad high” and multiples mean revert, watch out for a 50% crash in energy stock prices…
… which after a year of hopium courtesy of central banks, will finally metastasize to the rest of the S&P 500.
Social Unrest Growing In Kazakhstan As Oil Prices, Currency War Batter Economy
Following last night’s collapse in the Kazakhstan Tenge:
- *KAZAKH TENGE WEAKENS 4.4% VS USD ON INTERBANK MARKET TO 196.96
We thought it worth looking at yet another Eurasian nation at the mercy of the oil and currency wars…
Sinking oil prices are putting the brakes on Kazakhstan’s once-soaring economy, forcing layoffs in the all-important energy sector.
With memories of the months-long strike in the western town of Zhanaozen that culminated in abloody crackdown in 2011 still fresh in the memory, the government has put measures in place to prevent the seeds of industrial unrest.
As the global benchmark for oil was plunging below $50 per barrel last week, Sino-Kazakhstani drilling company Velikaya Stena (Great Wall) announced a raft of layoffs. A company official contacted by EurasiaNet.org on August 12 confirmed that 203 staff had been fired and that another 200 layoffs are expected in the fall.
Velikaya Stena, which is based in the western oil-hub city of Aktobe, is only one of many feeling the squeeze from the low price for oil, which accounts for a quarter of Kazakhstan’s economy and 60 percent of its balance of payments.
“Low oil prices have hit profits at Kazakh producers,” Alex Nice, Kazakhstan analyst at the London-based Economist Intelligence Unit, told EurasiaNet.org. “They have also struggled because, unlike the Russian central bank, the Kazakh National Bank has held the currency relatively steady against the dollar since February last year. As a result, labor costs for commodity producers have remained high in dollar terms.”
The scale of the revenue squeeze in the oil sector was demonstrated last month when the National Bank was compelled to step in and prop upKazakhstan’s cash-strapped oil giant, KazMunayGaz.
The layoffs in Aktobe have heightened the mood of despondency in the energy sector, a source at CNPC-AktobeMunayGaz, a Sino-Kazakhstani joint venture between the two countries’ state energy companies, told EurasiaNet.org on condition of anonymity. “The mood is very low, because people don’t want to lose their jobs,” the source at the Aktobe-based firm said.
A distressed oil worker quoted in a report on the layoffs was indicative of a high sense of concern among those who still have jobs at Velikaya Stena, which has cut salaries by half in a cost-cutting measure to compensate for falling revenues. “I’m the only breadwinner in the family,” Kanay Borekeshov told the Moy Gorod regional news website. “I have four children. … The money we get is barely enough for us. And if they cut the salary and then leave us without work at all, we will be finished.”
“We currently have only seven teams working out of 24,” lamented Arman Kamalov, Velikaya Stena’s deputy director, in remarks quoted by Moy Gorod. “Work is drying up.”
The experience of Zhanaozen has taught authorities the value of more efficient negotiation. Since those events, the government has pressured oil companies to come to terms with strikers on the rare occasions that industrial action occurs. A strike in May at a company servicing the massive Karachaganak field in northwestern Kazakhstan was swiftly ended with a pay offer.
But Astana is showing that it is still ready to wield the stick.
Last year, parliament adopted legislation placing severe restrictions on independent trade union activity and criminalizing any action deemed to provoke an illegal strike.
Trade unions are also bristling over the drafting of a new labor code. In a statement on July 23, the Federation of Trade Unions of Kazakhstan condemned the pending legislation, which is intended to revise rules on numerous points, including contract termination and salary. “The new draft of the Labor Code strengthens the position of the employer at the expense of workers’ rights,” the statement said. “Adoption of the Labor Code will create the conditions for increased social tension in labor collectives and even across entire industries.”
While oil workers are alarmed by the impact of low prices on their employers, the CNPC-AktobeMunayGaz source told EurasiaNet.org there is little appetite for striking.“People are dissatisfied, but they understand that oil prices are low so they are treating [cost-cutting measures] with understanding.”
Over the near term, analysts believe Kazakhstan’s oil companies can weather the storm. “Currently, there is no reason to expect mass dismissals as the crisis is just emerging,” Kassymkhan Kapparov, director of the National Bureau for Economic Research, told EurasiaNet.org.
It all seemed so much brighter only two years ago.Astana was counting on a massive boost in output with the launch of the super-giant Kashagan field. Delays there now mean it will not start pumping oil, as well as generating revenue for the treasury, until 2017.
The government says oil output will be flat this year, at 80 million metric tons, while OPEC forecasts that Kazakhstan’s production will actually fall slightly in 2015. Kazakhstan’s budget is based on an oil price of $50 per barrel, so any sustained fall below that level will put pressure on government spending.
Officials are already dipping into the country’s National Fund – a pool of accumulated energy revenue set aside for a rainy day – to breathe life into the flagging economy, which Astana forecasts will grow at just 1.5 percent this year.
“Low commodity prices are likely to have a significant impact on Kazakhstan’s economy,” said Nice. “[Gross domestic product] growth is likely to slow to 1-2 percent this year, down from 4.3 percent in 2014.”
“The government has responded with an infrastructure program to offset weak investment, but it is cutting back spending in other areas,” he said. “If commodity prices and exports also remain weak in the coming years, it’s hard to see where the drivers of growth will come from.”
* * *
How long before Kazakhstan turns to Putin? Or monetizes Borat?
Euro/USA 1.1039 up .0009
USA/JAPAN YEN 124.34 down .043
GBP/USA 1.5662 up .0003
USA/CAN 1.3068 up .0008
Early this Wednesday morning in Europe, the Euro rose by 9 basis points, trading now just below the 1.11 falling to 1.1068; 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 and another Chinese currency devaluation although last night it weakened a tiny .002.
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen continues to trade in yoyo fashion as this morning it settled up again in Japan by 4 basis points and trading just above the 124 level to 124.34 yen to the dollar.
The pound was up this morning by 3 basis points as it now trades well above the 1.56 level at 1.5692, 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 fell again by 8 basis points to 1.3068 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 and especially last week with the fall of the yuan carry trade.
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: down by 65.79 or 0.32%
Trading from Europe and Asia:
1. Europe stocks all in the red (except Spain slightly in the green)
2/ Asian bourses mixed … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)red/India’s Sensex in the green/
Gold very early morning trading: $1121.85
Early Wednesday morning USA 10 year bond yield: 2.19% !!! par in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%
USA dollar index early Wednesday morning: 96.94 down 6 cents from Tuesday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3955 down .0003 ( Chinese yuan up 3 basis points)
ClusterF’ed: Bonds & Bullion Pumped While Stocks & Dollar Dumped
Let’s start with a quick intraday across the major asset classes…
Surprise! Volume’s back…
Quite a day for stocks… Something changed today!! No follow through on a post Fed pump…
Stocks on the week have been wild…
With all major cash indices red on the week…
Energy stocks atrting to catch down to reality…
VIX crashed to unchanged on the FOMC minutes only to rip back higher to 15…
Who could have seen this coming?
This is starting to worry us… Financials CDS is really starting to decouple…
The Treasury Complex was a mess – an inflation spike in yields after the CPI print, followed by a rally as stock dumped.. then a spike in yields on the leaked minutes followed by an aggressive bid…
The US Dollar held gains after the CPI print (after its flash crash) but started to wilt into the European close. The leaked minutes saw an itial pop then a big dump in the dollar (note the strength all day in Swissy)…
Commodities were very mixed. Silver screamed higher on the day and gold pushed on to new 1-month highs as Crude and Copper were crushed…
The October WTI contract was glued at the $40/$41 barrier intop the close after collapsing 4.7% on the day – its biggest drop in 7 weeks and lowest since March 2009 (when the Fed initiated QE1)
And Copper broke its 15-year trendline…
We leave you with the following from a St. Louis Fed vice President:
“A Taylor-rule central banker may be convinced that lowering the central bank’s nominal interest rate target will increase inflation. This can lead to a situation in which the central banker becomes permanently trapped in ZIRP.”
On that note…
FOMC Minutes Leaked Early After Embargo Broken, Fed Warns Risk To GDP Forecast “Tilted To The Downside”
Seconds ago, someone accidentally (we hope) pulled a Janet Yellen as the following just came from Bloomberg nearly 30 minutes before the official Minutes release time:
- *MOST FED OFFICIALS IN JULY SAW CONDITIONS FOR RATE RISE NEARING: BBG
And MarketNews promptly reacts:
- 13:42 08/19 FOMC MINUTES: SEPT SEP WONT INCLUDE GRAPH OF PREFER LIFTOFF YR
- 13:42 08/19 FOMC MINUTES: SEPT SEP WILL INCLUDE MEDIANS FOR ALL VARIABLES
- 13:42 08/19 FOMC MINUTES: REVIEW OF LONG RUN MON POL FRAMEWORK TO TAKE YRS
- 13:42 08/19 FOMC MINUTES: SOME PARTIC NOT YET SEEN EVID INFL MOVING TO 2%
- 13:42 08/19 FOMC MINUTES: SEVERAL PARTICIPANTS EXPRESS CONCERN ON CHINA
- 13:42 08/19 FOMC MINUTES: SOME LANG REFLECTS FURTHER PROGRESS TOWARDS GOAL
- 13:42 08/19 FOMC MINUTES: MANY PARTICIP SAW SCOPE FOR MORE LBR MKT GAINS
- 13:42 08/19 FOMC MINUTES: SOME PART SAID COND HAD BEEN MET, WLD BE SHORTLY
- 13:42 08/19 FOMC MINUTES: MOST PARTICIPANTS SAY COND NOT MET; APPROACHING
- 13:42 08/19 FOMC MINUTES: MEMB ‘GENERALLY AGREED’ MORE INFO NEEDED TO HIKE
- 13:42 08/19 FOMC MINUTES: ONE MEMBER INDICATED READY TO RAISE RATES IN JUL
- 13:42 08/19 FOMC MINUTES: NO TIP TOWARDS SEPT LIFTOFF, DOESN’T RULE IT OUT
Treasury Yields reacted dramatically:
And then, about 10 minutes later, the Fed finally released the full minutes. Here are some of the key excerpts.
First, on general financial conditions:
Financial conditions were affected by developments abroad over the intermeeting period but were little changed on balance. Federal Reserve communications and economic data releases, including the June employ-ment report and retail sales data, put some downward pressure on the path of expected future short-term in-terest rates. On net, 5-year and 10-year Treasury yields were somewhat lower, measures of inflation compensa-tion over the next 5 years based on Treasury Inflation-Protected Securities declined, equity prices were little changed, and the foreign exchange value of the dollar rose modestl
… On Greece:
Over the intermeeting period, market yields fluctuated in response to news about developments abroad, including Greek debt negotiations. After having widened amid concerns about the difficult negotiations between Greece and its creditors, Greek and other peripheral euro-area sovereign spreads nar-rowed, on net, over the intermeeting period as news emerged of progress toward an agreement.
… And China:
In China, stock prices fell substantially, prompting a number of policy
and regulatory actions by Chinese officials to sup-port the stock
market. While these developments at-tracted investor attention, reaction
in asset markets out-side Greece and China was limited on balance
… And Puerto Rico:
Credit conditions in municipal bond markets were stable over the intermeeting period. Despite the announce-ment that Puerto Rico might seek to restructure at least part of its debt, spreads on an index of 20-year general obligation municipal bonds over comparable-maturity Treasury securities changed little, and the pace of issu-ance of long-term municipal bonds remained robust.
… And the rest of the world:
Sovereign bond yields and monetary policy expectations in the United Kingdom changed little, on net, over the intermeeting period. By contrast, yields in Canada, New Zealand, Norway, and Sweden decreased following weaker-than-expected macroeconomic data releases and additional monetary policy accommodation. The for-eign exchange value of the U.S. dollar increased during the intermeeting period against the currencies of major U.S. trading partners. Stock markets in most advanced foreign economies ended the period higher. Equity prices in emerging market economies, however, gener-ally moved lower on net.
The staff’s forecast for inflation was revised down, particularly in the near term, as the decline in crude oil prices over the intermeeting period was expected to result in lower consumer energy prices. Although energy prices and non-oil import prices were expected to begin rising steadily next year, the staff continued to project that inflation would be below the Committee’s longer-run objective of 2 percent over 2016 and 2017. Inflation was anticipated to move up gradually to 2 percent there-after, with inflation expectations in the longer run as-sumed to be consistent with the Committee’s objective and slack in labor and product markets projected to have waned.
On employment and the economy:
The staff viewed the uncertainty around its July projec-tions for real GDP growth, the unemployment rate, and inflation as similar to the average of the past 20 years. The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff’s as-sessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks. At the same time, the staff viewed the risks around its outlook for the unemployment rate as roughly balanced.
Rreal GDP growth over the medium term was revised down a small amount, in part because of a slightly stronger forecast for the exchange value of the dollar. The staff also made two small adjustments to its supply-side assumptions. First, the projected rates of productivity gains and potential output growth over the medium term were trimmed. With actual and potential GDP growth both a bit weaker, the projected narrowing of the output gap over the medium term was little re-vised. Second, the staff lowered slightly its estimate of the longer-run natural rate of unemployment. The unemployment rate was expected to decline gradually to this revised estimate.
On consumer spending:
With respect to consumer spending, the incoming data had been uneven but participants cited reports from contacts suggesting a pickup since the first quarter. Participants generally expected consumer spending to rise moderately over the near term. Continued gains in employment and income, high household net worth, and low gasoline prices were viewed as factors that should support consumer spending in coming months. Consumer credit conditions were also seen as favorable, with business contacts pointing to steady loan growth, esp-cially for auto loans and credit cards. However, a couple of participants were concerned about the outlook for consumer spending, noting that spending had been disappointing in recent months even though real income had already been boosted by the lower gasoline prices and the improved labor market.
Participants viewed the recent data on housing starts and permits as well as the higher levels of sales and prices as indicative of continued recovery in the housing sector. The easing of lending standards for residential mort-gages evidenced in the most recent SLOOS was cited as a factor likely to support further progress. However, a couple of participants noted that they did not expect this sector to be a major contributor to economic growth over the remainder of the year
Business fixed investment remained soft even as the drag from the sharp contraction in drilling rigs over the first half of this year appeared to be fading. Although investment spending was expected to pick up over the second half of this year, a few participants were concerned that the further decline in oil prices that had occurred in recent weeks might continue to hold down energy-related investment. In addition, government spending was ex-pected to add very little to growth in aggregate spending this year. Participants also expected net exports to con-tinue to subtract from GDP growth over the second half of the year, reflecting in part the damping influence of the dollar’s earlier appreciation
And on the general market:
On balance, broad U.S. equity price indexes were little changed over the intermeeting period. Option-implied volatility on the S&P 500 index over the next month in-creased for a time in response to foreign developments before falling back to the lower end of its range over re-cent years. Based on reports from about 40 percent of firms in the S&P 500 index, earnings per share in the second quarter were about unchanged or slightly higher than their first-quarter levels. Spreads on 10-year triple-B-rated and speculative-grade corporate bonds over comparable-maturity Treasury securities widened some-what over the period.
But the punchline which the market appears focused on:
The risks to the forecast for real GDP and inflation were seen as tilted to the downside
* * *
In summary what rate hike? The countdown to QE4 has begun.
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Full Minutes below:
see zero hedge
The initial reaction: stocks soar (but later reverse)
as the big question reappears: Rate Hike or QE4
(courtesy zero hedge)
Stocks Soar Into The Green As Question Emerges: “Rate Hike Or QE4 First?”
It appears that the Fed’s cunning plan to hike rates so it can cut rates was just foiled once again.
Moments ago stocks have soared into the green for the day in an epic algo stop run as ‘traders’ weigh the words amid the FOMC Minutes. The crucial sentence is “The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff’s assessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks.” This suggests the possibility of a monetary reaction (QE4) if external shocks occur even before they have had a chance to raise rates.
Here is a sample of the litany of FOMC notices that suggest that far from a rate hike, the US economy is more likely to see QE4 first!
Some participants also dis-cussed the risk that a possible divergence in interest rates in the United States and abroad might lead to further appreciation of the dollar, extending the downward pres-sure on commodity prices and the weakness in net ex-ports
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The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff’s assessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks
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a few participants observed that although GDP growth appeared to have picked up in recent months rel-ative to the first-quarter pace, the level of GDP re-mained lower than had been projected earlier in the year
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a couple of participants were concerned about the outlook for consumer spending, noting that spending had been dis-appointing in recent months even though real income had already been boosted by the lower gasoline prices and the improved labor market.
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a few participants were concerned that the further decline in oil prices that had occurred in recent weeks might continue to hold down energy-related investment. In addition, government spending was expected to add very little to growth in aggregate spending this year.
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The ongoing rise in labor demand still appeared not to have led to a broad-based firming of wage increases… it was noted that considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation.
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While the recent Chinese stock market decline seemed to have had limited implications to date for the growth outlook in China, several participants noted that a material slow-down in Chinese economic activity could pose risks to the U.S. economic outlook
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considerable uncertainty remained about when wages might begin to accelerate and whether that development might translate into increased price inflation
It gets better:
Participants generally continued to anticipate that, with appropriate monetary policy, inflation would move up
But… didn’t the St. Louis Fed just admit the US wasted 7 years on making the rich richer and boosting wealth inequality to record levels, while doing nothing at all for the economy?
And the punchline:
Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term and that the inflation outlook thus might not soon meet one of the conditions estab-lished by the Committee for initiating a firming of policy. Several of these participants cited evidence that the response of inflation to the elimination of resource slack might be attenuated and expressed concern about risks of further downward pressure on inflation from international developments. Another concern related to the risk of premature policy tightening was the limited ability of monetary policy to offset downside shocks to inflation and economic activity when the federal funds rate was near its effective lower bound.
Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.
Right, just like in 2010, 2011, 2012, 2013, 2014 and so on.
Market reaction: initial kneejerk lower to take out the downside stops, followed by a furious blast higher for the remaining stops.
Of course this could simply be an algo stop run, which fades momentarily alongside the last trace of Fed credibility.
The mouthpiece for the Fed: Jon Hilsenrath
In other words…the Fed has no idea what they are doing!!
(courtesy zero hedge/Jon Hilsenrath)
Hilsenrath Confirms Fed Confusion In Leaked FOMC Minutes
WSJ’s Fed mouthpiece Jon Hilsenrath – whose embargo-assisted lightspeed typing and proofing was amusingly frontrun by someone else this afternoon – is out with his take on the Fed minutes, which some feared would be rendered less meaningful thanks to the currency market turmoil that’s unfolded since the data-dependent FOMC’s July meeting.
In an effort to cut through any confusion and extract some hints about what is or isn’t coming in September, Hilsenrath digested the minutes, peered into his crystal ball, and came up with the following.
The Federal Reserve’s next policy meeting is four weeks away and officials show no clear sign of having settled on a decision about whether to raise short-term interest rates at that time.
Minutes of the Fed’s July policy meeting left mixed markers about whether central bank officials are leaning toward or against a rate increase at their next meeting after months of signaling that they intend to move away from the near-zero interest-rate policy before year-end.
“Most [officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” said minutes of the Fed’s July 28-29 meeting, released Wednesday.
Their assertion that they were approaching a rate move might be read as a hint that they saw a September move in the cards, but the minutes showed that officials had wide-ranging views about taking that step and some notable trepidation.
“Some participants expressed the view that the incoming information had not yet provided grounds for reasonable confidence that inflation would move back to 2 percent over the medium term and that the inflation outlook thus might not soon meet one of the conditions established by the [Fed] for initiating a firming of policy,” the minutes said.
Some also worried about moving prematurely and lacking tools to address downside shocks to the economy, and about downside risks to the economy from developments abroad, particularly China.
There was push back against hesitating. A number of officials argued that a rate increase could convey confidence to the world about the economic outlook and that the Fed needed to move in acknowledgment of the progress the economy had already made toward normalcy.
your humour story of the day:
10 Reasons Why The Fed Won’t Raise Interest Rates
1. China Hard Landing – Last week China decided to devalue their currency which brings into question the strength of the global economy.
2. Football – With football season kicking off, there are a lot of Fantasy Football lineups to be filled out. Paying attention to the draft is much more important than a 0.25% rise in short term interest rates.
3. Off The Highs – The market has been range bound almost the entire year. The S&P 500 recently had a couple of brief scares below 2100 but Janet (Yellen) is looking for 2150-2200 before a rate hike can even be put on the table (Update: $SPY just went below 200DMA). The US equity market is currently in the 3rd longest bull market ever. Janet will not settle for anything less than gold (which is now also worthless).
4. The Plague – With a couple of cases of people catching The Plague in California and Colorado, Janet doesn’t want to further sicken the market by raising interest rates. See last year’s Ebola scare.
5. Commodities and Inflation – Prices of most commodities have been hammered the past few years (still waiting to see this tax cut passed on to the consumer). This weakening of commodity pricing could be bad news if it is a sign that global demand is also weakening. The Fed has also been keeping their eye on inflation (deflation), but we haven’t hit the magic 2% inflation target since 2012.
7. IMF Warning – Back in June, the International Monetary Fund (IMF) warned about potential risks of a Fed tightening. At this point, the Fed’s only job is to fall in line and listen to what the IMF says. If they can “fix” Greece, I’d swallow my pride and listen to them too.
8. Addiction – We are addicted to free money (and fast food). Once an addict, always an addict. From thefederalreserve.gov website: “Low interest rates help households and businesses finance new spending and help support the prices of many other assets, such as stocks and houses.” Key emphasis on stocks.
9. Labor Market – The Fed won’t raise rates because we haven’t hit our full unemployment (moving) target.
10. The Ghost of 1937 – I know it sounds super scary. Anyways, about 80 years ago the Fed tried to pull off an unsuccessful rate hike after the Great Depression causing another recession and a 50% market decline. Good enough for me. If it happened 80 years ago it MUST be exactly the same today because nothing has changed since then.
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Bonus: In case I’m wrong and the Fed does raise rates at least we know they can always lower them again when things turn to shit.
After 6 Years Of QE, And A $4.5 Trillion Balance Sheet, St. Louis Fed Admits QE Was A Mistake
As you’re no doubt aware, the Fed is fond of using the research departments at its various branches to validate policy and analyze away bad economic outcomes. For instance, earlier this year, the San Francisco Fed came up with an academic justification for the now infamousdouble seasonally adjusted GDP print – they call it “residual seasonality.” Then there’s the NY Fed, where researchers recently took to the bank’s blog to explain why, despite all evidence to the contrary, Treasury liquidity is “fairly favorable.”
Be that as it may, someone will occasionally say something really inconvenient – like when, back in April, the St. Louis Fed warned that the American Middle Class was “under more pressure than you think,” a situation the bank blamed on the diverging fortunes (literally) of the haves and the have nots in the post-crisis world. The implication – made clear in the accompanying graphics – was that QE was effectively eliminating the Middle Class.
Now, the very same St. Louis Fed (this time in the form of a white paper by the bank’s vice president Stephen D. Williamson), is out questioning the efficacy of QE when it comes to stoking inflation and boosting economic activity.
Williamson says the theory behind QE is “not well-developed”, and calls the evidence in support of Ben Bernanke’s views on the transmission mechanisms whereby asset purchases affect outcomes “mixed at best.”
“All of [the] research is problematic,” Williamson continues, as “there is no way to determine whether asset prices move in response to a QE announcement simply because of a signalling effect, whereby QE matters not because of the direct effects of the asset swaps, but because it provides information about future central bank actions with respect to the policy interest rate.” In other words, it could be that the market is just reading QE as a signal that rates will stay lower for longer and that read is what drives market behavior, not the actual bond purchases.
But the most damning critique of Bernanke’s response to the crisis is this:
There is no work, to my knowledge, that establishes a link from QE to the ultimate goals of the Fed inflation and real economic activity. Indeed, casual evidence suggests that QE has been ineffective in increasing inflation. For example, in spite of massive central bank asset purchases in the U.S., the Fed is currently falling short of its 2% inflation target. Further, Switzerland and Japan, which have balance sheets that are much larger than that of the U.S., relative to GDP, have been experiencing very low inflation or deflation.
And then there’s this:
A Taylor-rule central banker may be convinced that lowering the central bank’s nominal interest rate target will increase inflation. This can lead to a situation in which the central banker becomes permanently trapped in ZIRP. With the nominal interest rate at zero for a long period of time, inflation is low, and the central banker reasons that maintaining ZIRP will eventually increase the inflation rate. But this never happens and, as long as the central banker adheres to a sufficiently aggressive Taylor rule, ZIRP will continue forever, and the central bank will fall short of its inflation target indefinitely. This idea seems to fit nicely with the recent observed behavior of the worldís central banks.
Thus, the Fed’s forward guidance experiments after the Great Recession would seem to have done more to sow confusion than to clarify the Fed’s policy rule.
So in sum, the vice President of the St. Louis Fed has taken a look around and discovered that in fact, not only have trillions in asset purchases not worked when it comes to creating “healthy” inflation and boosting growth in the US, these asset purchases haven’t workedanywhere they’ve been tried. Furthermore, he’s noticed that central bankers that adhere, in a perpetual state of Einsteinian insanity, to the Taylor principle, will neverbe able to raise rates and finally, he thinks that the more the Fed talks, the more confused the public gets about what it is the central bank intends to do.
We would agree on all accounts here, although when it comes to forward guidance and discerning what the Fed’s goal is, actions, as they say, speak far louder than words and with the S&P 500 having levitated some 200% since March of 2009, we don’t think anyone is truly “confused.”
We all enjoy Hugo (who is the 3rd or 4th richest person in Mexico and a gold and silver bug
(Hugo Salinas Price talks with Greg Hunter)
Well that is all for today
I will see you tomorrow night