Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1153.40 down $6.20 (comex closing time)
Silver $14.76 down 54 cents.
In the access market 5:15 pm
We are now witnessing massive manipulation preventing gold from breaking loose from the shackles of our banking cartel. The signal to attack today was evident in the lower price of silver on Friday together with the lower gold/silver shares. (Friday night gold was up $6.60 yet silver was down 22 cents). Generally this is a signal sent to the bankers to continue with its raids.Today with the world crumbling, our bankers could not let gold rise as gold is a good barometer of global health.
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a poor delivery day, registering 0 notice for 0 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 227.397 tonnes for a loss of 75 tonnes over that period.
In silver, the open interest rose by 1456 contracts despite the fact that silver was down in price by 22 cents on Friday. Something, again really spooked our shorts as they ran to the hills to cover. The total silver OI now rests at 170,648 contracts In ounces, the OI is still represented by .853 billion oz or 121% of annual global silver production (ex Russia ex China).
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI rests tonight at 438,785. We had 0 notice filed for nil oz today.
We had no changes at the GLD today / thus the inventory rests tonight at 677.83 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex. 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 rise by 1456 contracts up to 170,648 despite the fact that silver was down by 22 cents in price with respect to Friday’s trading. The OI for gold fell by 4,556 contracts to 438,785 contracts, despite the fact that gold was up by $6.60 on Friday. We still have 16.49140 tonnes of gold standing with only 14.78 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.
2, FRBNY gold report
3.Gold trading overnight, Goldcore
4. Six stories on the collapsing Chinese markets, the devaluation of the yuan and the huge downfall in trading today
(zero hedge/Bloomberg/Ambrose Evans Pritchard)
5. Huge fall in bourses in the Middle east
6. European bourses also in turmoil today
7a. Bloodbath in emerging markets today
7b Venezuela declares martial law.
8 Trading of equities/ New York
9. One oil related stories,
10. USA stories:
- Dow falls over 500 points (six stories)
- 7 million students have not made one payment
11. Physical stories:
- Bill Holter interview
- Ben Davies
- Ted Butler (on silver)
- Dave Kranzler on gold demand/gold demand from China 65 tonnes in last reporting week.
- India imports of gold/silver alloy to double next year (Reuters)
12/ Putting it all together tonight: Raul Meijer and Ray Dalio
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||225.05 oz (Manfra ( 7 kilobars)|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||0 contract (nil oz)|
|No of oz to be served (notices)||1476 contracts (147,600 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||559,852.5 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 19 contracts or an additional 1,900 ounces will not stand for delivery. Thus we have 16.4914 tonnes of gold standing and only 14.78 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.
August silver initial standings
August 24 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||768,781.24 oz (CNT)|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||602,106.67 oz (CNT,Delaware|
|No of oz served (contracts)||0 contracts (nil oz)|
|No of oz to be served (notices)||25 contracts (125,000 oz)|
|Total monthly oz silver served (contracts)||301 contracts (1,505,000 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||8,328,161.7 oz|
total dealer deposit: nil oz
Today, we had 0 deposits into the dealer account:
total customer deposits: 602,106.67 oz
total withdrawals from customer: 768,781.24 oz
we neither gained nor lost any silver ounces standing in this no active 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 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz
August 21.2015/ no change in inventory at the SLV/Inventory rests at
324.698 million oz
August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz
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. * * * * *
“Gold and silver will be your only lifeboats” warns Jim Sinclair
- “As for gold and silver, these markets are both REALLY tight if you want the physical metal. If you are trading paper metal …oh well, can’t help you.”
- “This is the Great Credit Unwind and as such, currencies of all sorts, including the dollar, will take turns crashing. Watch the various sovereign treasury prices and yields (also CDS credit default swaps) as a clue to which country is experiencing an “attack du jour”.”
- “Gold and silver will be your only lifeboats as they are no one’s liability in a world where everything including the money in your pocket is someone else’s liability.”
Jim Sinclair is one of the most respected experts on the gold market in the world and he released this important warning to his community over the weekend.
Today’s Gold Prices: USD 1,153.50, EUR 1,005.93 and GBP 734.40 per ounce.
Friday’s Gold Prices: USD 1,149.35, EUR 1,021.33 and GBP 732.75 per ounce.
Gold in USD – 1 Week
On Friday, gold rose as high as $1161.67 in New York and ended with a gain of 0.64%. Silver slipped to as low as $15.14 and ended with a loss of 1.29%.
Gold was 4% higher for the week and made strong gains in all major currencies. Silver was also higher, but by just 0.41% for the week.
Gold stayed close to its highest level in almost seven weeks today as worries over a slowing Chinese economy pushed investors away from risky assets such as equities and into safe haven assets.
Asian equities tumbled to three-year lows, the U.S. dollar retreated and industrial commodities from copper to oil slid to their weakest since 2009. The Chinese stock market collapsed another 8.5% and the Nikkei was 4.6% lower.
Gold stands tall as China fears fuel safe-haven draw – Reuters
Gold Holds Weekly Gain as Global Equity Selloff Increases Demand – Bloomberg
Gold Bulls in Goa Happy to Quit This Year for Promising 2016 – Bloomberg
Kazakhstan, Malaysia Boost Gold Reserves; Colombia Cuts Holdings – Bloomberg
Stocks post worst week of 2015 – Investors move to gold – The Irish Times
“Gold and silver will be your only lifeboats” warns Jim Sinclair – Jim Sinclair’s MineSet
Death of buy-to-let: landlords wake up to Osborne’s 150pc tax – The Telegraph
Can Kickers United –Why It’s Getting Downright Hazardous Out There – David Stockman’s Contra Corner
The Fed Is Looking at a Very Different Dollar Than Wall Street – Bloomberg
Is Gold a Safe Haven? – FXStreet
Click on News and Commentary
Turning $1 Billion into $5 Billion
August 21, 2015 – 9:50am
Today, I will attempt to make the case for how one might go about turning one billion dollars into five billion dollars by buying silver. At first, some of my specific points might seem to be at odds with my long held argument that fully paid for positions in the actual metal at current price levels are as close to a sure thing as it gets in the investment world. But it is still my conviction that owning unencumbered and unleveraged metal is the best way to go; what’s different about this article is that it is directed to any entity that can plunk down a cool billion dollars or more in buying silver.
My basic case is straightforward – the price of silver is likely to climb by (at least) five times over the reasonable investment future (3 to 5 years or less), just as it did in 1980 and into early 2011. Actually, on those two prior occasions, silver rose by more than ten times from the price lows of 3 to 5 years before those price peaks. There are more reasons why silver should rise more in price than it had in past price runs, but in the interest of brevity, I will deal only with the special circumstances confronting a billion dollar investor.
The percentage of people or financial entities in the world that could afford to buy a billion dollars’ worth of anything in one shot is admittedly very small; but with more than seven billion people in the world that small percentage still translates into many of thousands of potential buyers. And if you include the number of those entities which could borrow the money necessary to buy a billion dollars’ worth of silver (or anything), the number becomes simply staggering. I mention this first to establish that buying a billion dollars’ worth of silver is far from impossible in terms of the number of entities potentially capable of doing so.
In fact, the real problem is not that big potential buyers don’t exist, but rather that even one large such buyer would overwhelm the actual silver market; meaning there’s really only room for one (possibly two) big silver buyer, no matter how many thousands of potential candidates may exist. At current prices, one billion dollars would amount to 65 million ounces of silver ($1 billion divided by $15.30). Sixty-five million oz of silver is equal to one full month of world mine production. (800 million oz annually).
I don’t think it is possible that any entity buying a full months’ actual production wouldn’t have a profound impact on the price of any industrial or consumable commodity. Certainly, no one could take a month’s worth of the real world production of corn or copper or crude oil off the market without causing an upside explosion in price.
More to the point, if a big buyer did try to buy a full month’s actual production of these other commodities, it would take a heck of a lot more than the one billion dollars it would cost in silver. A full month’s world production of corn or copper would cost $8 billion, while a full month of world oil production, if you could buy it and store it somehow, would cost $140 billion, even at current depressed prices. Not only is silver the most affordable and practical commodity where a billion dollars would buy a full month’s world production, the cost of safely storing the metal would not exceed 0.5% per annum and provide no particular logistical problems.
Even in the case of gold, where the equivalent of 60 years of annual world production exists in above ground inventories in some form, were someone to suddenly buy a full month’s worth of actual gold production, or 8 million oz, it should jolt the price upward. Then again, 8 million oz of gold would cost $9 billion, not the $1 billion is silver; meaning there is much more bang for the buck in silver than in gold. Stated differently, one billion dollars’ worth of gold would come to less than one million ounces, and few would hold that such a purchase, alone, would cause gold prices to explode.
Remember, I am talking about actual silver, not futures or other derivatives contracts and the key to turning one billion dollars into five billion dollars involves buying actual silver. But unlike a buyer of actual silver for amounts ranging from $1000 to as much as $10 million who can purchase such amounts without disrupting the market, any entity trying to buy a billion dollars of actual silver could not do so easily.
It’s not as if one could just call their broker and buy 65 million oz of real silver “at the market” or on a limit buy order close to current prices. Or click on an online trading account and buy 70 million shares (one billion dollars’ worth) of SLV, the big silver ETF. Clearly, there are practical restrictions on how much actual silver could be purchased when talking about a billion dollars’ worth. Yet I am still convinced that anyone wishing to turn one billion dollars into five billion dollars can do so with actual silver better than any other investment asset. The trick is in how one deploys $1 billion into actual silver in the first place.
The trick to buying a billion dollars’ worth of actual silver is not to buy the metal head on, but by first locking in the price through futures contracts and other derivatives. Yes, I know I go out of my way to discourage readers from dealing on margin and to stick to real metal and now I am suggesting that a very large buyer use futures and other derivatives contracts. But the simple truth is that trying to buy a billion dollars’ worth of silver in a straightforward manner would be self-defeating in that it couldn’t be done without driving the price sharply higher.
In any investment, regardless of the amounts involved, the idea is to buy at as low a price as possible, not to run the price higher before one has finished investing. Admittedly, this is not a problem for most investors, most of the time; but it is a very big problem for anyone trying to buy a billion dollars’ worth of actual silver. Yes, I know that I contend that JPMorgan has purchased some 400 million oz of physical silver, at a cost basis of close to $10 billion; but it still took the bank four and a half years of consistently manipulating the price. Few have the skills and treachery of this bank and could never replicate what it has done.
So what would be my specific game plan for buying $1 billion worth (65 million oz) of actual silver? First, I would buy 7500 contracts (the equivalent of 37.5 million oz of COMEX silver futures and the equivalent of up to 6000 COMEX contracts (30 million oz) in some combination of slightly out of the money call options on COMEX futures and/or on SLV. This would, effectively, lock in the price. There might be some price slippage here and that is not particularly critical to the potential fivefold price target, as ending up with 60 million oz for one’s billion dollars will not change the equation.
Why only 7500 COMEX futures contracts, plus options, instead of just buying 13,000 futures contracts from the get go? While the four largest short sellers in COMEX silver futures hold an average of 12,000 contracts each, the four largest longs average 7500 contracts each and the idea is not to give the regulators any reason to interfere. Back in 2004 and 2008, the CFTC was quite explicit, in denying that silver was manipulated, in pointing out there were no barriers for any long taking delivery on futures contracts (aside from the 1500 contract limit per month). By buying no more contracts than the average of what the four largest longs currently hold would seem not to establish a level of holdings the regulators could object to.
Following the establishment of a 60 to 65 million oz long futures and options silver position, the next step is to convert these derivatives into actual metal via delivery and by arbitrage. Sticking to CME rules, a conversion from futures to actuals of 1500 contracts per month would result in 7.5 million oz of actual silver each delivery month. Even if the deliveries were spread out over the five traditional COMEX delivery months in a year, it would take a full year to get delivery on the 37.5 million oz, but the cost per ounce would be assured.
As deliveries were made at the rate of 1500 contracts per (traditional delivery) month, new futures contracts could be established to replace those futures contracts delivered against or by converting option positions into equivalent new futures, up to 65 million ounces minus actual metal received. Additionally, the process could be expedited by arbitrage opportunities of converting already purchased COMEX futures and options on futures and in SLV into metal and/or shares of SLV. Any Authorized Participant in SLV is fully capable of executing an arbitrage of futures or options into shares of SLV; there would be little real slippage as this is nowhere near the same as buying new positions from scratch.
One additional advantage a big buyer of SLV would have is a unique view in assuring any new shares purchased were met with the requisite amount of new metal. A buyer of 10 million shares or more would know instantly if the required metal wasn’t deposited, regardless if the short position grew, and could take measures to insist actual metal was deposited; including converting shares to metal for more secure ownership at no increase in storage costs.
The idea is to use the COMEX futures market the way it was intended, namely, to lock in prices and not to manipulate prices as is practiced today. What are the risks in someone buying a billion dollars’ worth of silver as I just outlined? First is the risk of lower prices, but at $15 an oz, what is the realistic downside in silver? Over the past year, we have slid under $15 on a number of occasions, but have always bounced back. Prior to that, silver hadn’t been under $15 for five years.
It’s certainly not the case that just because silver hasn’t been this low in quite some time that it means it can’t go lower temporarily; but we are now firmly below the cost of production for most of the primary silver miners judging by recent earnings reports. While silver mine production has not contracted significantly to date, there are indications production may be moving in that direction, particularly if base metal prices stay low. Certainly, the persistent low silver price has definitely impacted potential future production, which has been further limited by the rotten resource financing situation.
The best protection against further price declines in silver is the current existing low price and if the price weren’t so demonstrably low, I wouldn’t recommend it for purchase by those looking to invest $1000 or $1 billion. Every asset has a risk of going lower, at least temporarily, and the best known way of limiting that risk is to buy the asset at as low a price as is possible. We’re there in silver.
What other risks does the billion dollar silver investor face? I’d be lying if I said such an investor would be greeted by a neighborhood welcoming committee from the CFTC or the CME or the existing shorts. That’s why a big buyer must be careful not to intentionally try to goose prices, like the Hunt Brothers did in 1980. In fact, the desire to drive up prices through their silver purchases was their undoing. The best way a big buyer today can avoid the Hunts’ fate is make the darn purchase and be done with it, save for converting derivatives into actual metal. The better model to follow would be Warren Buffett who tried his best to buy silver on dips, mostly in COMEX futures and then converting to actuals, as I suggest. Buffett bought double the 65 million oz that one billion dollars would buy today, but the principle is the same.
Finally, I suppose there is some risk that JPMorgan, should it desire, could cap prices by selling some of its massive physical silver position (at a loss). But I still think the bank’s prime motivation is to make as much as possible and JPM’s buying of silver is good for future prices. Big banks seem to do everything under the sun to make money, even if it means preying on their own customer base. I think the proof of this is in the amazingly large and diverse regulatory fines and sanctions against the big banks, and JPMorgan in particular.
Yet these big banks are an integral component of the financial system and the economy and to imagine what it would look like if they didn’t exist, one need look no further than Greece or anywhere without a fully functioning banking system. So, even though the big banks do things that damage others, including their own customers, they are a necessary evil hard to live without. I am certain that JPMorgan will do whatever it can to cut off competition from a big silver buyer looking to buy on the cheap, but increasingly, the only sure way of eliminating completion at low prices I can envision is to let silver prices rise.
Aside from the obvious benefit of being in position to profit by fivefold (or more) on what would be, essentially, a straight cash purchase of an unencumbered real asset, there is an additional intangible benefit – the potential fame and historical recognition of doing something right that eluded both the Hunt Brothers and Warren Buffett, neither of which completed their massive silver purchase successfully. Any big buyer of silver pulling off what I’m suggesting would be recognized and remembered for the next 100 years. That’s got be appealing to at least some of the many thousands capable of buying a billion dollars’ worth of silver – not that making billions of dollars wouldn’t be enough.
Finally, real silver provides an unquestioned investment alternative in a financial world primarily denominated in record debt and counterparty interdependence. Silver can go out of and come into investment favor, but when held in the right form, it can never go bankrupt or default. Simply stated, it’s real and it’s spectacular.
August 21, 2015
Ladies and Gentlemen:
Notice something unusual here:
first of all the july reporting came 3 weeks late
Secondly: no change in gold holdings!!!
Thus: Germany did not get it’s gold last month
(courtesy data from FRBNY)
|Mar 2015/r||Apr 2015/r||May 2015/r||Jun 2015/p|
|Held in custody|
|2||U.S. Treasury securities2||2,572,193||2,876,637||2,977,160||2,936,856||2,899,276||2,902,424||2,947,547||2,961,208||3,004,353||3,021,988|
|3||U.S. government agency securities3||404,325||311,319||311,852||290,949||286,779||284,197||284,884||284,538||287,685||298,627|
Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one. – Alan Greenspan, “Gold and Economic Freedom,” 1966
I don’t know if the Plunge Protection Team will be able to stabilize and bounce the market today. I suspect they will get it done sometime in the next 24-48 hours – there’s real blood money at stake here. By this I mean there’s still a lot of middle class wealth that has not been wiped off the table and into the pockets of the elitists. Hell, Hillary Clinton is still standing – for now.
But at some point our system will collapse. EVERYONE in this country has been living off the benefits of The Big Lie for too long. It’s not just the upper .1% who have benefited, even the welfare programs have been levitated by the U.S. Government’s ability to bamboozle the rest of the world into buying our debt and accepting our currency.
When the rest of the world flinched at taking down more debt, the Fed printed trillions to buy U.S. Treasuries directly, and lent $100’s of millions to the Bank of Japan and the ECB to enable them indirectly to continue propping up the Big Lie.
But today gives us a glimpse of The Truth. Beneath the headlines of plunging stock markets, and not being reported by the U.S. financial muppets, is a stunning 1.5% plunge overnight in the U.S. dollar:
At the same time, the world’s oldest currency – the Wall Street Journal’s “Pet Rock” – has performed as the ultimate flight to safety today:
While the “Einsteins” out there offered only the obvious explanations for China’s move to devalue the yuan, I have maintained all along that it was first and foremost a means of tossing a “grenade” at the massively unprecedented U.S. dollar bubble. It only took a about 3% move to accomplish this.
Meanwhile, here’s what’s really happening in China:
Shanghai gold withdrawals for the week ending Aug 14th have been reported at 65.013 tonnes (previous week 56.015 tonnes). This brings the year to date total to 1,585 tonnes, 161 tonnes more than in the record 2013 year at the same time. – John Brimlow’s “Gold Jottings”
The Fed kept insisting that it would raise rates in September. For anyone willing to look honestly at the underlying economic evidence, it was obvious – OBVIOUS – that the Fed would never raise rates. It was nothing but Orwellian smoke. Keep repeating a lie until almost everyone wants to believe it.
I heard a radio promo yesterday for a mortgage broker who insisted that “rates are definitely going higher later this year so you better take out as big of a mortgage as you can now and buy your dream house.”
Rates may go higher this year, but if they they do it’s because the dollar is collapsing – or even vanishing – as the rest of the world other than the Bank of Japan and the ECB rush for the exists with their Treasury holdings.
The Big Lie is that gold is a Pet Rock and the U.S. dollar is the global flight-to-safety currency of the world. If that’s the case, then how come China seems to be cornering the market in Pet Rocks while dumping the dollar through that exit door at the back of the movie theater?
(courtesy Ben Davies/GATA)
Ben Davies: Another BRIC in the wall
Submitted by cpowell on Mon, 2015-08-24 02:14. Section: Daily Dispatches
10:12p ET Sunday, August 23, 2015
Dear Friend of GATA and Gold:
China’s stock market became a gigantic and astonishing bubble arising from Chinese culture’s obsession with gambling and the Communist government’s belief that it could inflate and control a market system indefinitely, but the bubble now is deflating anyway, Hinde Capital’s Ben Davies writes in the London investment firm’s latest letter.
Davies concludes that in the end markets East and West are bigger than governments, which only think themselves omniscient. Davies well may be right, but of course the determinant of being right is always timing. What is the maximum age today for those who aspire to witness the victory of markets over totalitarian and corrupt governments East and West and their “financial repression”?
Davies’ new letter is headlined “Another BRIC in the Wall” and it’s posted at the Hindesight Letters Internet site here —
— where you can read the introduction in the clear and then the whole letter if you supply your e-mail address.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
India’s imports of gold-silver alloy may almost double, refiner says
Submitted by cpowell on Sun, 2015-08-23 15:34. Section: Daily Dispatches
By Rajendra Jadhav
Saturday, August 22, 2015
PANAJI, India — India’s imports of dore, a semi-pure alloy of gold and silver, are rising fast and could nearly double this fiscal year, the head of the country’s top gold refiner said on Saturday.
A lower duty of 8.24 percent on dore, versus the overall tax of 10.30 percent on the import of refined gold, is pushing refineries to buy more.
Some new refineries have also added to demand.
“In the last few months, dore imports are going up,” Rajesh Khosla, managing director of MMTC-PAMP India, said on the sidelines of the International Gold Convention in Panaji, capital of India’s western resort state of Goa.
“With the current trend, its share in total imports could rise to 15 to 20 percent.” …
… For the remainder of the report:
China’s neighbors step up stock market support
Submitted by cpowell on Sun, 2015-08-23 15:12. Section: Daily Dispatches
From Bloomberg News
Sunday, August 23, 2015
China isn’t the only country resorting to extraordinary measures to shore up its tumbling stock market.
Taiwan on Sunday slapped a ban on short-selling of borrowed stocks at prices lower than the previous day’s close, while South Korea’s finance ministry said it will act “pre-emptively” after the nation’s largest exchange-traded fund suffered the biggest weekly withdrawal since its inception 15 years ago. China itself said over the weekend it will allow pension funds to invest in stocks for the first time, while penalizing major shareholders at publicly traded companies for violating rules that limit stake sales.
In South Korea, financial authorities were ordered to hold meetings to monitor the markets and implement measures when necessary, the country’s Financial Services Commission said. …Taiwan’s financial watchdog imposed the ban on short-selling of borrowed stocks and depository receipts, the Financial Supervisory Commission announced. The measure will take effect on Monday, it said.
While the rule doesn’t apply to brokerages and futures brokers who are shorting for hedging purposes, the regulator is working to encourage the financial industry to hold shares of listed companies, it said on its website. Taiwan’s benchmark index fell 5.2 percent last week.
In Indonesia, the nation’s largest fund manager is taking the slump that’s driven stocks into a bear market as the cue to start buying again.
BPJS Ketenagakerjaan, which manages around 193 trillion rupiah ($13.8 billion), will enter the equities market along with other state-owned institutional investors, Elvyn Masassya, its president director, said in a text message on Sunday. Shares are “relatively cheap,” he said, without naming any.
China’s securities regulator said late Friday it will penalize major shareholders at publicly traded companies, such as Southwest Securities Co. and Guoxing Rongda Real Estate Co., for violating rules that limit stake sales. …
… For the remainder of the report:
1 Chinese yuan vs USA dollar/yuan rises considerably this time to 6.4044/Shanghai bourse: red 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 895.15 or 461.%
3. Europe stocks all deeply in the red /USA dollar index down to 94.05/Euro up to 1.1495
3b Japan 10 year bond yield: lowers to .35% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.04
3c Nikkei now below 20,000
3d USA/Yen rate now just below the 123 barrier this morning
3e WTI 38.78 and Brent: 43.78 (this should blow up the shale boys)
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund slightly falls badly to .545 per cent. German bunds in negative yields from 5 years out.
Except Greece which sees its 2 year rate falls slightly to 14.10%/Greek stocks this morning down by 2.83%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield rises to : 9.76%
3k Gold at $1157.00 /silver $14.98 (8 am est)
3l USA vs Russian rouble; (Russian rouble down 1 1/2 in roubles/dollar) 70.67,
3m oil into the 38 dollar handle for WTI and 43 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 (already upon us). 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 .9355 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0782 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 5 year German bund now enters in negative territory with the 10 year moving closer to negativity to +.545%
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 2.00% early this morning. Thirty year rate below 3% at 2.68% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Summarizing The “Black Monday” Carnage So Far
It’s officially Black Monday, if only in China for now.
We warned on Friday, after last week’s China rout, that the market is getting ahead of itself with its expectation of a RRR-cut by China as large as 100 bps. “The risk is that there isn’t one.” We were spot on, because not only was there no RRR cut, but Chinese stocks plunged, with the composite tumbling as much a 9% at one point, the most since 1996 when it dropped 9.4% in a single session. The session, as profile overnight was brutal, with about 2000 stocks trading by the -10% limit down, and other markets not doing any better: CSI 300 -8.8%, ChiNext -8.1%, Shenzhen Composite -7.7%. This was the biggest Chinese rout since 2007.
The worst news is that the 3,500 level in the SHCOMP which until recently had been seen as a “hard barrier” for the PBOC, has now been breached, and not only is the Shanghai Composite red for the year after being up 60% a little over 2 months earlier (don’t worry though: just like on Yahoo Finance Twitter everyone took profits at the highs), but nobody knows why the Politburo let stocks tumble and worst of all, how much further will it allow stocks to drop.
Elsewhere in Asia, equity markets traded with significant losses on what is being referred to as ‘black Monday’ amid increased growth concerns coupled with commodities falling to fresh 6 year lows and US stocks in correction, sparked a further sell-off in the region . The ASX 200 (-4.1%) declined by the most in 4 years, Nikkei 225 (-4.6%) and Hang Seng (-5.2%) also saw considerable losses with energy dragging the index lower. 10yr JGBs saw relatively muted trade and are up by 3 ticks.
Risk averse sentiment has dominated the price action in both Asia and Europe as the week kicks off, with Chinese equities again under heavy selling pressure as market participants were left disappointed by the lack of action by the PBOC to ease monetary conditions further. As a result, equity indices in Europe opened sharply lower (Euro Stoxx: -2.3%) and in spite of coming off the worst levels of the session, remain broadly lower, with materials and energy sectors underperforming amid the continued slump in commodity prices. The Dax was well below 10,000 at last check.
In FX markets today, JPY benefited from risk averse and interest rate differential flows as market participants scale back Fed rate hike expectations, which in turn saw the pair fall below the 200DMA line and hit its lowest levels since mid-July.
The short-sterling curve has been seen flatter in trade so far in European amid the ongoing risk averse sentiment, which as pointed out by David Smith of The Times is set to put interest rate rise on hold by both the Fed and the BoE. Consequently, EUR outperformed GBP, which in turn saw EUR/USD hit 1.1500 level for the first time since February 2015, while EUR/GBP gradually edged towards the 200DMA line as USD continued its recent trend lower (USD-Index: -0.7%).
Fixed income products reside in positive territory, bolstered by the global risk off sentiment as T-Notes head into the North American open in positive territory, albeit off their best levels. Elsewhere, Eurozone 5y5y inflation forward rate fell to its lowest level in 6 months.
In the US, the 10-year Treasury yields traded below 2 percent for the first time since April, precisely what Goldman said in its Top Trade #2 for 2015 would not happen.
The rout in energy and base metals markets continued today, seeing WTI fall to its lowest level since February 2009 and Brent crude to its lowest level since March 2009 below the USD 40/bbl and USD 45/bbl respectively as Iran continues their recent rhetoric regarding an increase in supply. Elsewhere in base metals, iron ore and steel hit limit down overnight and traded around 9 year lows, with nickel reaching its lowest level for 6 years. Gold has also seen soft price action today, reversing some of last week’s gains. Some more key commodity headlines courtesy of RanSquawk
- Iran oil minister has stated that the country will increase oil output at any cost and oil prices would benefit from an emergency OPEC meeting, according to Iranian press . (Shana/BBG/RTRS)
- Oil production in Libya seen at between 350-400KBPD according to the Eastern State oil firm head . (RTRS)
- Kuwait’s Shuaiba oil refinery, which has a capacity of 200k, reopened on Saturday according to the head of Kuwait National Petroleum Company after the refinery saw a fire last Monday. (RTRS)
- BP’s Whiting Refinery, which has a capacity of 405k bpd, continues to see a fall in operational levels as has been the c\se sin ce August 8th (Genscape)
- CFTC data shows that hedge funds and money managers switched to a net long position in COMEX gold contracts in the week to Aug 18th, after four consecutive weeks of net short positions . (RTRS)
- World Gold Council forecasts strong demand from India and China in H2, citing stock market weakness and devalued CNY for increased demand in China and festivals boosting demand in India. (BBG)
- Bankers suggest that Indian gold lenders are unwilling to increase interest rates on gold deposits more than 1 %, which could scupper government strategy to reduce imports. (RTRS)
- The world’s biggest gold refiner Valcambi states Indian gold demand could reach 950 tons this year amid low prices during peak festival season. (RTRS)
- Rio Tinto’s China managing director announces Co. are to increase shipments of iron ore to China by 20% this year for a total of 240m1n ton while Fortescue CFO state they have great confidence in China’s long term growth. (BBG/RTRS)
Going forward, market participants will get to digest the release of the latest Chicago Fed Nat Activity Index, as well as look out for comments by Fed’s Lockhart. Be very careful for unexpected comments by Bullard because it was just around a -10% correction that the St. Louis Fed president hinted at QE4 last October.
Biggest selected cross-asset moves via Bloomberg
- Equities: Shanghai Composite (-8.5%), MSCI Asia Pacific (-4.8%)
- Bonds: Greek 10Yr yield (+2.4%), Portuguese 10Yr yield (+2%)
- Commodities: LME 3m Nickel (-5.7%), WTI Futures (-3.8%)
- FX: Yen spot (+1.6%), Dollar Index (-1%)
- Chicago Fed activity index due later
- 19 out of 19 Stoxx 600 sectors fall; chemicals is the most active -2.8% on 233% 30-day avg. vol., followed by construction -3.1% on 229% avg. vol.; travel & leisure is the least active sector -3.4% on 162% avg. vol.
- FTSE 100 down -2.8%, CAC 40 down -2.9%, DAX down -2.9%, IBEX 35 down -2.8%, FTSE MIB down -3%, S&P 500 futures down -2.4%, Euro Stoxx 50 down -2.9%
- Bonds: German 10yr yield up 1bps to 0.57%, Greek 10yr yield up 23bps to 9.98%, Portugal 10yr yield up 5bps to 2.68%, Italian 10yr yield up 3bps to 1.89%,
- Credit: iTraxx Main up 4 bps to 77.49, iTraxx Crossover up 18.1 bps to 364.81
- FX: Euro spot up 0.93% to 1.1492, Dollar index down -0.96% to 94.093,
- Commodities: Brent crude down 3.7% to $43.78/bbl, Gold down 0.4% to $1156.25/oz, Copper down -.3% to $4936.5/MT, S&P GSCI down 2.4%
- Top Stoxx 600 Outperformers: Abengoa SA +3.6%, Modern Times +2.3%, RSA Insurance +0.3%, AA PLC -0.1%, Pirelli -0.2%, MAN SE -0.2%, Sulzer -0.3%, Kabel Deutschland -0.4%
- Top Stoxx 600 Underperformers: National Bank of Greece SA -10.2%, Seadrill -7.2%, Tullow Oil -7%, BB Biotech AG -7%, ArcelorMittal -6.2%, Glencore -6.1%, Henderson -6.1%, Genmab A/S -5.9%
- About 1% of Stoxx 600 members gain, ~99% decline
- Asian stocks fall with the Kospi outperforming and the Shanghai Composite underperforming
- Nikkei 225 -4.6%, Hang Seng -5.2%, Kospi -2.5%, Shanghai Composite -8.5%, ASX -4.1%, Sensex -5.9%
- 0 out of 10 sectors rise with staples and utilities outperforming and energy and financials underperforming
Bulletin Headline Summary from Bloomberg and RanSquawk
- Asia equity markets traded with significant losses on what is being referred to as ‘black Monday’ amid increased growth concerns, with European equities following suit
- The rout in energy and base metals markets continued today, seeing WTI fall to its lowest level since February 2009 and Brent crude to its lowest level since March 2009 below the USD 40/bbl and USD 45/bbl respectively
- Going forward, market participants will get to digest the release of the latest Chicago Fed Nat Activity Index, as well as look out for comments by Fed’s Lockhart
- Treasuries gain, 10Y breaks below below 2% level as China’s stocks plunged the most since 2007, commodities and EM currencies routed amid concern slowdown in world’s second-largest economy is deepening.
- Global stocks have lost $5t since China devalued the yuan on Aug. 11, with the carnage raising doubt about the ability of the global economy to withstand a eventual liftoff in U.S. interest rates this year
- The volatility “will certainly keep the Fed on hold for the rest of 2015. Look for 10yrs to break 2% successful this week and possibly head back towards 1.86%,” ED&F Man head of rates ED&F Man Tom DiGaloma writes in note
- PBOC, with ~$3.9t of bank deposits locked up as reserves and benchmark 1Y interest rate at 4.85%, may be the only central bank around the world with the firepower to arrest the rout
- However, traders say the slowing economy has left the state fighting a losing battle; the government is “trying to defy market forces at overvalued levels,” says CMB Intl Securities strategist Daniel So
- RBI Governor Raghuram Rajan said Monday central banks should avoid giving “booster shots” to stock markets; Japan’s Abe acknowledged that the central bank’s 2% inflation target is getting more difficult to achieve
- Taiwan slapped a ban on short-selling of borrowed stocks at prices lower than the previous day’s close, while South Korea’s finance ministry said it will act “pre- emptively” after the nation’s largest ETF suffered the biggest weekly withdrawal since its inception 15 years ago
- Vice President Joe Biden is gearing up for a packed September schedule in his day job that could showcase him as the politician best poised to carry on Obama’s policies -– or open him up to new lines of attack if he stumbles.
- Sovereign 10Y bond yields mixed. Global stocks and U.S. equity-index futures plunge. Crude oil, copper and gold fall
DB’s Jim Reid Completes the overnight recap
This morning’s rout in Asia comes after hopes that more government support in China could be around the corner, although the lack of any state intervention first thing this morning is seemingly exaggerating the pain in markets. As per the WSJ, the PBoC is set to make another move to cut the RRR, possibly as soon as this week in a bid to flood the Chinese banking system with as much as $106bn in liquidity. Meanwhile, a second story doing the rounds is a report that China’s State Council has published a plan allowing for pension funds managed by local governments to invest in the stock markets for the first time. According to Reuters, the report suggests that pension funds will be allowed to invest up to 30% of their net assets in stocks, funds and balanced funds having only previously been able to invest in bank deposits and treasuries.
Elsewhere, echoing similar moves by the Chinese regulators, yesterday Taiwan’s Financial Supervisory Commission made the move to ban traders from short-selling borrowed stocks and depository receipts at lower prices than the previous day’s close in a bid to stabilize the Taiwanese stock market. There’s also news out of South Korea where the Financial Services Commission Chairman has urged authorities to make timely actions when deemed necessary in markets and act ‘pre-emptively’ after the nation’s largest ETF saw its biggest weekly withdrawal since inception in 2000 last week.
These reports have clearly done little to help sentiment this morning however and it’s looking like the rout is set to extend into DM markets with S&P 500 futures down some 2.5% already.
Back to markets on Friday. With the S&P 500 tumbling to its lowest level now since October last year, the Dow (-3.12%) saw a similar sharp decline on Friday and as a result officially entered correction territory with a now 10% retreat from the May highs. It was a similar story in Europe also. The Stoxx 600 tumbled 3.26%, while the DAX (-2.95%) and CAC (-3.19%) also moved a steep leg lower. Peripheral bourses were not immune to the moves either, with a 2.98% fall for the IBEX in particular taking it into negative territory (-0.08%) for the year. That’s after the index was up as much as 15% just four months into the year. Credit also had a poor day. In the US CDX IG finished nearly 2bps wider while in Europe we saw Crossover and Main leak 15bps and 3bps wider respectively. All-told that saw the VIX jump 46.5% to 28 on Friday and in turn marking the highest level since December 2011. Amazingly, last week’s 119% surge in the index (albeit from a low base) was the largest in the history with data going back to 1990.
Oil markets once again generated plenty of headlines on Friday as WTI finished down 2.11% on the day at $40.45/bbl and has in fact tumbled another 2% in trading this morning taking it below $40 in the process. Brent (-2.49%) also weakened on Friday while the complex wasn’t helped by the latest Baker Hughes oil rig count which showed an increase in the number of operating rigs last week. Combined with the sell-off on Friday, we’ve seen a fresh wave of selling across equity markets in the Middle-East this weekend and a number of fresh cycle lows reached, particularly in the more Oil-sensitive countries. The Saudi-Arabian equity market tumbled into a bear-market yesterday after plummeting nearly 7%, Dubai saw its biggest one-day loss this year, Egypt fell the most in three years and Israel saw its biggest slide in nearly four years. Saudi Arabia in particular – seen as something of a bellwether for the Gulf – has now tumbled 24% from its April peak and in turn entered its second bear market in less than a year.
Much of the rest of the commodity complex also suffered on Friday with the likes of Aluminum (-1.71%), Copper (-1.25%) and Silver (-1.61%) all sliding. Gold (+0.74%) continues to be one of the few beneficiaries from the selloff in risk while Treasuries also benefited from a decent bid on Friday with the 10y (-3.1bps) yield down for the third consecutive day to 2.037%. Fed Funds contracts continue to slide too with the Dec15 contract down another 1.5bps to 0.275% having been as high as 0.340% earlier in the month.
There was a similar move lower for Bunds too with the 10y down another 1.9bps to 0.562% while the peripherals ended 2-4bps higher. Dataflow largely played second fiddle to the sharp moves on Friday. In the US the flash August manufacturing PMI declined 0.9pts from July to 52.9 after expectations for no change. There was better news in Europe however where we saw the Euro area flash composite PMI rise 0.2pts to 54.1 (vs. 53.9 expected), led higher by the services reading in particular (0.3pts to 54.3; 54.0 expected) while the manufacturing print stayed unchanged at 52.4 (vs. 52.2 expected). Regionally, Germany led the gains with the composite rising 0.3pts to 54.0 (vs. 53.6 expected) after a surge higher in the manufacturing print (+1.4pts to 53.2; 51.6 expected) which was more than enough to offset a slightly weaker services print (-0.2pts to 53.6; 53.7 expected). Meanwhile in France we saw the composite drop slightly to 51.3, from 51.5 last month.
Before we turn over to the week ahead, the St Louis Fed President Bullard reiterated his stance on Friday that the outlook for US growth remains relatively good and that the expansion in the second half is likely to be ‘above trend’. Bullard also noted ‘there has been a lot of cumulative progress in labour markets and I think you can look through the decline in oil’ before saying that he is more sanguine about the outlook for global growth relative to markets. Bullard is a non-voter this year but as we noted earlier, with markets seemingly in freefall mode at the moment there will be plenty of attention on the Fedpseak this week for us to gauge how the Fed is viewing the recent volatility.
Turning over to this week’s calendar now. It’s a very quiet start to the week today with no data due out this morning in Europe and just the Chicago Fed’s national activity index this afternoon. Tomorrow is set to be busier though and in particular there will be much focus on the final reading for Q2 GDP in Germany along with the IFO survey and trade data. In the US we get more housing data with the S&P/Case Shiller house price index, July new home sales and FHFA house price index. The flash composite and services PMI’s are also due along with the consumer confidence reading and Richmond Fed manufacturing activity index. We start in Asia on Wednesday where we get Japan PPI and China consumer sentiment data. There’s nothing of note in Europe on Wednesday while in the US there’ll be much focus on the durable and capital goods orders data for July. In Europe on Thursday we’ll get UK house price data along with various confidence indicators out of France. The afternoon session is particularly data heavy in the US with the second reading of Q2 GDP and Core PCE likely to be front and centre, while pending home sales and the Kansas City Fed manufacturing activity index are also due. Closing out the Asia session on Friday will be Japan CPI and retail sales, along with China industrial profits and conference board leading indicators. It’ll be a particularly busy end to the week in Europe too where we get French PPI, German CPI, UK Q2 GDP and Euro area confidence indicators. It’s also a busy end in the US where we get the PCE core and deflator readings for July, personal spending and income prints and finally the University of Michigan consumer sentiment print for August.
* * *
No Greatly Anticipated RRR Cut From China, Just More Jawboning: Will It Be Enough
In the aftermath of China’s worst manufacturing PMI since the financial crisis, which in turn sent the Shanghai Composite crashing to the “hard floor” level of 3500, below which the PBOC and Beijing officially are seen as having lost control, virtually every China expert and strategist rushed to defend China’s policymakers (and its stock market) with predictions that an RRR cut as large as 100 bps is imminent, and would take place as soon as this weekend, a much-needed move to calm nerves that China is in control. This is what we said on Friday:
The sellside set the weekend stage with big hopes for a RRR cut as big as 100 bps which may be the catalyst for the next major leg lower because unless the PBOC delivers, the market will resume sliding on fears Beijing has finally given up on micromanaging and artificially pushing the stock market bubble higher. Case in point, via Bloomberg:
- Julia Wang, Hong Kong-based economist at HSBC:
- Economy’s recovery seems to have lost more momentum, reinforcing already weak market sentiment
- This will weigh on economic activity and labor conditions in coming months
- Expect further policy easing, including another 25 bp policy rate cut and 100 bp RRR cut in coming weeks
- Zhu Qibing, Beijing-based analyst at China Minzu Securities:
- Aug. flash factory PMI components reflect both weak domestic and external demand
- Further currency depreciation may not be the solution to lift Chinese exports, according to their relationship in recent years
- PBOC policy may not effectively transmit to real economy, but further RRR cuts needed to counter liquidity shortage
- Expect RRR cut at end of 3Q
- Jacqueline Rong, Beijing-based economist at BNP Paribas:
- Aug. flash PMI data reflects slowing property investment and manufacturing activities; infrastructure spending may have yet to pick up this month
- Slowing economic activity, together with equities’ performance, may risk 3Q GDP falling below 7%
- 7-day repo rate edging higher this week even after PBOC injected large amount of cash via OMOs and MLF; this suggests capital outflows may be accelerating
- Timing of another RRR cut is nearer, size of could 50-100 bps
- Nie Wen, economist at Huabao Trust:
- Yuan still has room to devalue as its REER is still relatively high vs other regional currencies
- Rising capital outflows are not a result of weakening yuan, but rather expectations for slowing economic growth
- PBOC easing is still much needed to counter the economic slowdown; another RRR cut may arrive as early as end of the month
Well, the weekend – traditionally the time when the PBOC announces any interest rate or RRR cuts – has come and gone, and… nothing. Which, as we further noted on Friday, was the biggest risk for Chinese stocks:
Why did China do nothing, knowing very well the world’s spotlight was aimed squarely at it over the weekend to do something, anything, and intervene in a forceful manner thus halting the outright liquidation that has gripped not only Shanghai but all the world’s other capital markets.
One explanation is that, as was revealed two weeks ago, China is modestly pulling out of the “plunge-protection” business, to see just how big the stock market fallout is/will be. Indeed, now that China is actively involved in the FX market on a day to day basis following the depegging of the CNY, it may have its hands full with micromanaging every downtick in both stocks and the Yuan.
Alternatively, China is just too confused and naive when dealing with market demands for an imminent bailout, as happened on Friday with Chinese stocks, which crashed nearly 5% in a clear signal that more has to be done, demands which were subsequently echoed in the US as well, as now it is Yellen’s turn to “assure” markets that selling is meaningless, at least according to America’s “most trusted personal finance expert” Suze Orman.
Or perhaps it is even simpler: it could be the China, approaching the end of its intervention firepower and also unwilling to go back to square 1 in the monetary intervention camp, namely rate cuts, will henceforth engage in what its western peers do all the time: jawbone, spread rumors, and otherwise intervene verbally and with promises but not with actual deeds. This may explain why this morning the WSJ dedicated an entire article to what everyone else had already known should happen over the weekend: an RRR cut. To wit:
The People’s Bank of China is preparing to flood the country’s banking system with new liquidity to boost lending, according to officials and advisers to the central bank, as a weaker currency could spur more funds leaving Chinese shores.
The step–which involves cutting the deposits banks are required to hold in reserve–would signal that the Chinese central bank’s exchange-rate maneuvering in the past two weeks is backfiring, forcing it to resort to the same easing measures that so far have failed to help spur economic activity.
The move, which the people say could come before the end of this month or early next month, would involve a half-percentage-point reduction in the reserve-requirement ratio, they say, potentially releasing 678 billion yuan ($106.2 billion) in funds for banks to make loans.
It would be the third comprehensive reduction in the reserve requirement this year. Another option being considered at the PBOC is to only target the cut to banks that lend large amounts to small and private businesses—the ones deemed key to China’s future growth—though that strategy hasn’t proven effective in the past in channeling credit to those borrowers.
None of this should be news to anyone who has followed the Chinese stock market re-crash in the past month, where the entire 18% rebound has now been washed away, and where China is now the only world market supported by key support levels, both chartist and psychological. Thus there is one big problem with the WSJ story: not only is everyone aware of it, but everyone demands actions, not words, nor promises of a rate hike “before the end of this month or early next month”, in order to prevent the SHCOMP from tumbling all support levels, and sliding back to its multi-year trading range of just around 2000. Should that happen, China will have bigger problems than just your plain-vanilla hard economic landing to worry about: it may be more concerned with civil disobedience and outright violence as tens of millions of “traders” suddenly feel betrayed by their government. Recall that as Nomura warned two months ago, a market crash “Poses Great Danger To Social Stability.”
In other words, today’s China open, and more importantly, close will may be the most closely watched yet. Because should the Chinese National Team prove too weak for the tsunami of selling now that the PBOC did not cut the RRR, and confirm that China is the first central bank to have lost control, then what happens in European and US markets after the China close could make last week’s S&P decline seem like a walk in the park.
Caught On Tape: Another Huge Chemical Warehouse Explosion Rocks China
Who could have seen this coming?
Just a little over a week after a powerful explosion killed 114 and injured more than 700 in the Chinese port of Tianjin, it appears as though a second blast has occurred at a chemical warehouse, this time in China’s eastern Shandong province. A residential area is reportedly located just 1 km away.
We’ll await the details which we imagine will suggest that, as was the case in Tianjin, many more tonnes of something terribly toxic were stored than is allowed under China’s regulatory regime which apparently only applies to those who are not somehow connected to the Politburo.
Record capital flight from China as industrial slump drags on
China’s state media decries “unimaginably fierce resistance” to economic reforms, a sign that president Xi Jinping is becoming furious with incompetent party officials
China’s Vice President Xi Jinping
8:12PM BST 21 Aug 2015
Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency.The exodus of funds is draining liquidity from interbank markets and has pushed up overnight Shibor rates by 30 basis points in the last ten trading days, a sign of market stress.Yang Zhao from Nomura said $90bn left the country in July. The pace has accelerated since the central bank (PBOC) shocked the markets by ditching its currency peg to the US dollar.Capital flight for the first three weeks of August is already close to $100bn, despite draconian use of anti-terrorism and money-laundering laws to curb illicit flows.Overnight Shibor ratesMr Zhao said the PBOC had intervened “very aggressively” to stabilise the currency and prevent the devaluation getting out of hand, but this automatically tightens monetary policy.The central bank will almost certainly have to cut the reserve requirement ratio (RRR) for banks to offset the loss of liquidity, with some analysts expecting action as soon as this weekend.The PBOC’s latest report calls for “monetary easing”, dropping the usual caveat that measures should be targeted. It is a sign that Beijing is preparing blanket stimulus, despite worries that this could lead to a repeat of the credit excesses that have haunted China since the post-Lehman boom.The PBOC has already injected $160bn into the China Development Bank for projects.Hopes that China is at last shaking off a recession in the first half of the year – caused by a combined monetary and fiscal crunch – have once again been dashed by grim manufacturing data.The Caixin PMI survey slumped to 47.1, far below the boom-bust line of 50 and the lowest since March 2009. New export orders slid further to 46.0 while inventories are rising, a nasty cocktail.Caixin Insight said the bad figures reflect the tail-end of a downturn that has largely run its course as stimulus kicks in. “The economy could be in the process of bottoming out and may start to rebound within the next few months,” it said.The ructions in China come at a moment when markets are already bracing for the first interest rate rise by the US Federal Reserve in eight years, a move that threatens to tighten the noose further on over-stretched emerging markets (EM) and the commodity nexus.Danske Bank said the latest rout is worse than the “taper tantrum” in 2013 when the Fed first hinted at tightening, and is quickly turning into a “perfect storm” as the Turkish lira, Brazilian real, Malaysian ringgit, and Russian rouble all go into free-fall.Capital outflows from emerging markets have reached $940bn since June 2014, according to NN Investment Partners. The damage from the EM crisis is ricocheting back into the US. High-yield bonds spreads have surged to three-year highs, rising to bankruptcy levels of 1100 basis points for energy companies.It is unclear where China’s political system is now heading. The country is gripped by an anonymous article published in the state newspapers warning that the reform process faces “unimaginably fierce resistance”Jonathan Fenby from Trusted Sources said the article is a sign that a furious President Xi Jinping is losing faith in his officials after a secret conclave of the party leadership in August. “Behind the confident front which he presents to China and the rest of the world, factionalism is still alive within the senior ranks,” he said.The botched handling of the Shanghai equity crash has raised serious doubts about the competence of the Chinese leadership. The conclave report urged “drastic and pragmatic reform” of the state-owned enterprises, fiscal policies, finance, and the judicial system.There is little doubt that the party committed grave policy errors over the winter months, culminating in the so-called “fiscal cliff” as a botched reform of local government finance caused spending to collapse. The question is whether the worst is over as the authorities launch another stop-go cycle.Credit growth rose to a 31-month high in July, though a chunk of this is simply rolling over old debts to keep the game going.Fiscal spending is picking up sharply as the new bond market finally comes on stream. Local governments issued almost $200bn of securities in June and July, a blistering catch-up pace.Simon Ward from Henderson Global Investors says his measure of the money supply – “true M1” – has recovered after turning negative late last year for the first time this century.It has been rising at an annual pace of 10pc over the last six months and is accelerating, pointing to a lift-off in growth later this year. His measure includes household demand deposits.Yet capital flight greatly complicates the picture. It comes at a time when the Shanghai composite index of stocks has dropped back to 3,507, retesting the post-crash lows of early July. There is a pervasive fear that the crisis may be deeper than admitted so far by the Communist Party.The PBOC has clearly been caught off-guard by the violent reaction of the markets to its new exchange rate regime, widely suspected to be a disguised move to devalue the yuan and rescue struggling exporters. It has had to step in to stabilise the currency near 6.40 to the dollar, containing the devaluation at 3pc.Nomura said these conspiracy theories are misguided. The PBOC had to act to bring exchange rate policy into line with other reforms of China’s capital account or face mounting complications. It is a healthy development.The PBOC was faced with the “Impossible Trinity”, a textbook case in economics where you cannot control capital flows, monetary policy, and the currency, all at the same time. One has to give.“Unless they opened up the exchange rate, they were going to lose monetary policy independence. It was quite urgent,” said the bank.Michael Kurtz, Nomura’s Asian equity strategist, said markets have misread what is happening on the ground in China, pricing in a doom scenario that is unlikely to happen. “This represents a buying opportunity. We think stocks will end materially higher at the end of the year,” he said.The ugly PMI figures overstate the weakness of the economy. Premier Li Keqiang is deliberately shifting resources away from the old industrial sectors. The “trade-intensity” of Chinese growth is plummeting as the country matures.The Chinese people have hardly felt the effects of their slowdown so far. The pain has been exported to Brazil, South Africa, Australia, and other countries that live off China’s commodity demand.Bo Zhuang from Trusted Sources said the stability of the jobs market is the “ultimate bottom line for the Chinese leadership”. Employment is so far holding up well. A net 7.2m jobs were created in first half of the year, enough to meet the annual target of 10m.However, the ratio of vacancies to applicants peaked at 1.15 late last year and has since dropped to 1.06, the steepest fall since the Lehman crisis. One of the weakest components of Friday’s PMI survey was employment, so the ratio is likely to fall further.The Chinese authorities have manoeuvred themselves into a corner. With hindsight they liberalised the exchange regime too soon, before the fiscal recovery had fed through and before it was clear that the recession was safely over.They have now to contend with accelerating capital outflows that they themselves provoked, and that make it even harder to manage the downturn. Xi Jinping has every reason to be exasperated.
Angry Chinese Investors Capture Head Of Metals Exchange In Predawn Hotel Raid
Meet Shan Jiuliang.
He’s the head of Fanya Metals Exchange and he was captured in a daring predawn raid in Shanghai on Saturday.
As FT notes, “Fanya is a forum for trading minor metals like indium and bismuth that has also functioned as a shadow banking conduit — not only leveraging metal deposited with the exchange as collateral for loans, but offering high interest investment products to retail investors.”
If that sounds familiar to you, it should. Just last week in “The 8 Trillion Black Swan: Is China’s Shadow Banking System About To Collapse?,” we took a fresh look at the dizzying array of wealth management products and collective trust products that are, together, a CNY17.2 trillion industry in China. Summarizing a (very) long and convoluted story, WMPs are marketed to investors through banks as a high yielding alternative to savings deposits. Investors aren’t often aware of exactly what they’re investing in or how risky it might be or that in many cases, issuers borrow short to lend long resulting in a perpetual case of maturity mismatch.
“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,” the RBA said in a report, to which we responded that in the event investors are forced to take losses, “the key issue is what those investors will do next.”
Well, now we know.
First they will stage angry protests and then, if their money is not returned to them in about a month, they will travel from all corners of the country, stake out a hotel, kidnap the issuer of the WMP and haul him away to jail. Here’s FT with the story:
The head of a Chinese exchange that trades minor metals was captured by angry investors in a dawn raid and turned over to Shanghai police, as the investors attempted to force the authorities to investigate why their funds have been frozen.
Investors have been protesting for weeks after the Fanya Metals Exchange in July ceased making payments on financial investment products. The exchange, based in the southwestern city of Kunming, bought and stockpiled minor metals such as indium and bismuth, while also offering high interest, highly-liquid investment products from its offices in Shanghai and its financing branch in Kunming.
Some investors flew in from faraway cities to join hundreds more surrounding a luxury hotel in Shanghai before dawn on Saturday. When Fanya founder Shan Jiuliang attempted to check out, they manhandled him into a car before delivering him to the nearest police station. Shanghai police took Mr Shan into custody and promised to work with local authorities in Yunnan province to investigate what has happened to investors’ money. They later released him without charge.
The demonstrations in Shanghai and Kunming and the exchange’s unusual accumulation of several years’ supply of some metals have so far failed to attract much public attention from regulators. A report by the local regulator identifying the exchange as one of the bigger investment risks in Yunnan was redacted to remove reference to Fanya late last year.
The exchange began to experience liquidity problems this spring. Fanya is estimated to hold several years’ supply of minor metals used in some high-tech and military applications, which it purchased at above-market prices. The exchange’s travails are pressuring prices for some of these metals, as traders anticipate it will have to sell its stockpile.
The exchange, which has acknowledged it has problems, is backed by several of China’s minor metals miners. It has said it has found a buyer but won’t identify the company. Mr Shan “was deceiving us. He admitted to us that there is no buyout group,” said one disgruntled investor surnamed Gu, who participated in the rainy early morning raid.
Mr Shan has been holding regular meetings with exchange backers since problems first surfaced this spring and was on the way to Guangzhou for a business trip when captured.
As you can see, we are not at all joking when we contend that any move by China to allow for defaults and permit market forces to play a larger role in determining which investments eventually sour is likely to be met with a severe public backlash, especially for something like WMPs where investors believe they may have been deceived.
If Shan Jiuliang’s bad weekend is any indication of what’s in store for the Politburo once the PBoC loses complete control of the stock market, managing the yuan and restoring economic growth may be the least of Xi Jinping’s worries.
Chinese Futures Plunge 4% At The Open; Shanghai Tumbles 3.8% Below 3,500 “Hard Line” Support
But… but… pension funds are “allowed” to buy stocks.
Judging by the first few minutes of trading in the first thing to open this evening on the mainland, the CSI 300 Index Futures which immediately tumbled by 4% to 3340, China’s attempt to deflect attention from the fact that it did not do a 50-100 bps RRR cut is not doing too well.
Some other indicative levels which are in line with the CSI:
- Shanghai Composite to open -3.8%, some 130 points below the 3,500 “hard line” support level below which it is a nothing but air back to 2000
- Shenzhen down 4.3%
- ChiNext down 5.1%
That said, we expect the National Team to not give up without a big fight, and forcefully step in any minute and do everything in its power to prevent the resultant plunge in the Shanghai Composite which is set to open shortly, or else SHCOMP 2000 beckons, and with it lots and lots of social unrest.
h/t @Stalingrad_Poor and @RudyHavenstein
Middle eastern affairs:
Sunday night/Monday morning
Middle east plummets:
Mid-East Meltdown Continues: Stocks Sell-Off Across Petrodollar States
On Sunday, we saw a Gulf market meltdown with stocks falling 7% in Saudi Arabia and 5% or more in the United Arab Emirates and Qatar. The steep declines came on the heels of Friday’s horrific selloff in US markets and presaged the carnage that would begin to unfold hours later when Asian bourses opened for trading for the week.
As Brent continued to slide, the selloff in Mid-East markets continued unabated on Monday with Saudi Arabia’s Tadawul All Share Index dipping more than 6%, hitting levels last seen in May of 2013.
“Oil just can’t stop sliding and local investors are very worried about where the bottom is and how long regional economies can take the battering,”one asset manager in Abu Dhabi told Bloomberg, who reminds us that “Middle Eastern stocks had their worst day of the year on Sunday after Saudi Arabia’s index of equities sank more than 20 percent from a peak in April.”
In Dubai, stocks declined 1.4 percent to 3,401.62 after plunging as much as 6.1 percent.
The gauge could fall below 3,000, “and if that happens, it will be a severe jolt,”Nabil Rantisi, the managing director of brokerage at Mena Corp. Financial Services, which has a client deposit base of 6.8 billion dirhams ($1.85 billion), said by phone from Dubai. “It’s a scary scenario.”
Yes, scary indeed. And as WSJ alluded to on Sunday when, just hours after we reminded the world that this latest bout of carnage across global markets all started with the demise of the petrodollar, it noted that “petrodollar-dependent Persian Gulf [states] depend on energy exports to finance their expansionary spending plans at home, the weak outlook for oil further aggravated a recent sell-down of risk in the region.”
Put simply, if oil prices stay low – and they likely will, as revenue maximization for the Saudis still looks to be outweighed by the desire to wrench every last bit of market share away from US shale drillers by bankrupting the entire space – the region’s fiscal situation will only deteriorate, triggering further pressure on petrodollar reserves, making the pegs in Saudi Arabia and the UAE increasingly unsustainable, and ultimately forcing the Saudis into the debt market to mitigate the FX reserve drawdown.
All of this will have an adverse impact on credit worthiness (see Fitch’s move to cut its outlook for the kingdom) which could trigger further flows out of the country and so on and so forth in a very non-virtuous circle, just months after Saudi Arabia’s historic move toopen its stock market to foreign investment.
And as the pressure mounts on asset prices so too will the pressure mount for fiscal retrenchment and you can believe that reining in the quality of living in these states will come at a tremendous social and political cost.
Perhaps Al Masah Capital said it best: “regional buyers need a lot of conviction to step in front of this speeding train [especially] in context of a rapidly changing economic environment.”
Summed up in one picture: “Arab Traders With Hands On Their Faces”
And Europe plummets:
(courtesy zero hedge/Sunday night/Monday morning)
Carnage Continues Across European Stocks; EURUSD Surges Above 1.1500 As WTI Crude Tumbles To $38 Handle
Germany’s DAX is now down 15% since the “China doesn’t matter” devaluation began with most European borses down 3-5% from Friday’s close as the day started off with a modest bounce only to test new lows. EURUSD is now up 500 pips in 4 days back to 7 month highs. European bond risk is surging with Portugal up 50bps since China’s debacle began. And finally crude continues to get battered, now testing the $38 handle for the first time since Feb 09.
As the massive EURCNH carry trade contonues to be unwound, EUR surges higher to 7 month highs…not what Draghi ordered…
And as carry goes, so goes risk… European stocks are being battered…
And crude has collapsed through another big figure to the $38 handle…
And finally do not forget this is not money that will rotate from ‘stocks’ to ‘bonds’ this is credit-created positions via carry/repo that when liquidated simply disappear – there is no cash to move to another asset. That’s the whole point – the asset inflation has been created by leveraged carry – and as is obvious now, the market emperor is wearing no clothese beneath the thin veneer of centrally planned smoke and mirrors.
South American and North America plus emerging markets:
Venezuela Announces Martial Law In Border State, Dispatches 1500 Soldiers
While Venezuela’s collapse to a socialist singularity best defined by total economic devastation has been chronicled extensively here over the years…
… to the point where neither the country’s hyperinflation, nor the total collapse of its currency…
… nor its return to a barter economy, nor even the fact that it has run out of condoms, fake breasts, or beer engender much of a reaction, perhaps the only thing readers seem attuned to is when will the social implosion lead to renewed political tensions which will likely result in another violent political overthrow, one which may or may not involve the local military.
Today Venezuela took a step in that direction when its president Maduro declared a state of emergency in a border region near Colombia following an attack by smugglers in which three soldiers and a civilian were injured, resulting in 60 days of martial law in five municipalities of the state of Tachira. He also said the closure of the border, announced on Thursday, will be extended until further notice.
Petrol and food smugglers have increasingly clashed with officers. According to the BBC, Maduro said Colombian paramilitary groups regularly travel to Venezuela, generating chaos and shortages in order to destabilise the revolution.
Many are openly speculating that the official explanation is bogus, and Maduro merely wants a pretext to deploy the army first to one state in which social tensions have led to violence and death as a test, then everywhere else where anti-government sentiment is on the rise.
Maduro said an extra 1,500 soldiers had arrived to reinforce the area. “This decree provides ample power to civil and military authorities to restore peace,” he said in a broadcast on state television.
It also empowers the local army to deal with the population as it sees fit, and in general to confirm that Venezuela society is rapidly spiraling out of control.
On Wednesday, three Venezuelan army officers and a civilian were injured in riots with Colombian smugglers.
Venezuela closed its border with Colombia for the first time last year.
Colombian President Juan Manuel Santos has criticised the move. Mr Santos said ordinary people on both sides of the border, including children, would suffer the most. “If we co-operate, the only ones to lose are the criminals, but if the border is closed, there is no co-ordination and the only ones to gain are the criminals,” said Mr Santos.
Tensions run high along the porous 2,200-kilometre (1,370-mile) border.
And unless the price of oil somehow rebounds, Venezuela, whose economy is entirely dependent on oil exports, will surely see tensions migrate to the capital Caracas, where a far more violent ending is assured, as well as the country’s inevitable default. Recall as of a few weeks ago, according to the CDS market VENZ was determined to be the state most likely to default in the coming months.
Perhaps at this point the question is not whether Maduro will lose control – he will – but which US-baked banking interests will step in to wrest control of the Venezuelan oil industry from the state, and just how will this be implemented?
Monday morning: Emerging markets collapse following China into the gutter:
(courtesy zero hedge)
Bloodbath: Emerging Market Assets Collapse As China Selloff Triggers Panic
On Sunday evening, this happened:
- BLOOMBERG COMMODITY INDEX SLIDES TO LOWEST LEVEL SINCE 1999
That’s right, Bloomberg’s commodity index cratered to its lowest level since 1999 or, said differently, the lowest level of the 21st century. That headline flashed just minutes after we highlighted Barclay’s take on the “long, slow, and painful” end of the commodities supercycle which is weighing heavily on emerging markets in the wake of China’s move to devalue the yuan. Here’s how we described the setup on Sunday evening:
Emerging markets will remain in focus this week as the world watches anxiously to see if China’s move to devalue the yuan will ultimately transform an already precarious situation into an outright crisis.
Slowing demand from China has been the major concern for commodity exporters and indeed, wide open capital markets (thanks to ultra accommodative monetary policies across the globe) have served to keep struggling producers afloat, perpetuating a global deflationary supply glut.
Saudi Arabia’s attempt to squeeze the US shale complex has only exacerbated the problem, as persistently low crude prices put further pressure on the commodities space as well as on the FX reserves of oil producing countries. When China devalued the yuan,it validated the suspicions of those who had assumed that the country’s economy was in far worse shape than anyone at the NBS was willing to admit. Additionally, it marked a new escalation in the global currency wars and threatens to undermine the export competitiveness of many an emerging economy.
So that, in a nutshell, was where we stood going into the week and that rather abysmal backdrop (if you’re an EM) has prompted quite a few analysts and commentators to draw a comparison between what’s unfolding in EM FX markets and the Asian Financial Crisis of 1997/98. What’s amusing is that some of the same desks who rushed to make the comparison a week ago now look to be talking back their predictions, perhaps realizing that circulating such things might be adding fuel to the fire.
But it is far too late for that – the genie is out of the bottle and indeed it was a bloodbath across EM overnight with currencies under continued pressure and the MSCI EM index falling 4.2% as Chinese stocks collapsed after the PBoC failed to slash RRR over the weekend. Here’s a survey of the carnage:
Here’s a look at some of the overnight chatter courtesy of Bloomberg:
BRL -1.72% at 3.5612 vs USD, dragged into EMFX selloff seen today as commodities meltdown leads to massive stops;
Rupee weakens for third day; India has sizable forex reserves and won’t hesitate to use them to curb volatility: RBI Governor Rajan; makes strong case for sticking to disinflation path, saying “rate cuts should not be seen as goodies that the RBI gives out stingily after much public pleading”
Malaysia’s 10-year bonds fall; nation’s foreign reserves fell to $94.5b as of Aug. 14 from $96.7b as of July 31; anti-graft agency says probe on 2.6b ringgit ($614m) fund is ongoing; 1MDB ready to assist Swiss authorities on probe related to it
Indonesia’s 10-year bonds drop; Bank Indonesia expects benchmark rate unchanged at 7.50% for next year, while undervalued rupiah needs joint policy effort: Governor Martowardojo
Won falls; Bank of Korea FX official Park declines to comment on speculation of market intervention, but says authorities aware of importance of market stability
Singapore’s dollar drops for second day; data today will show consumer prices dropped 0.2% from year earlier in July, smallest decline in seven months
USD/RUB is set to test YTD high at 71.8465 as Russia remains most vulnerable CEEMEA currency, hit both by global risk aversion and collapse in oil prices
Russian PM Medvedev said exporters will soon start selling hard currency for rubles, a form of indirect intervention
USD/TRY holding below last week’s blow-off top as market has discounted negative political situation; fall in U.S. yields, further drop in oil prices both supportive factors
ILS may outperform other EM peers as BoI likely to leave rates on hold at 0.1% today, as forecast by 15 out of 17 analysts in Bloomberg survey
USD/ZAR to remain volatile after spiking ~8% to record high in illiquid overnight Asia trading, key drivers now are ZAR traders’ P&L and risk-management concerns
EUR/PLN rises to fresh 6-mo. highs, PLN may remain under pressure despite strong domestic fundamentals as positions cleaned out on broad EM contagion
And a bit more from FT:
Fears over China’s decelerating growth have sent investors fleeing from the currencies of emerging markets, from South Africa to Malaysia, whose prospects have become twinned with the fortunes of the world’s second-largest economy.
Following an Asian session where markets went into meltdown after the Beijing government failed to meet widespread expectations that it would support its economy and stock market with either a major liquidity injection or an interest-rate cut, emerging market currencies are struggling to find any support.
Falling commodity prices are also affecting the finances of emerging markets, such as Indonesia and Russia, that produce raw materials for China’s slowing industrial engine, as well as the still-lacklustre economies of Europe.
The Malaysian ringgit has fallen 1.4 per cent to M$4.23 per dollar, a level not seen since the 1998 Asian crisis, when Kuala Lumpur pegged its currency at M$3.80 to the dollar before removing this control in 2005.
The Indonesian rupiah has lost 0.65 per cent to Rp14,030 per dollar, also its weakest since the late 1990s crisis.
The Thai baht is down 0.3 per cent to Bt35.74 per dollar, its lowest since 2009.
The Turkish lira is hovering around fresh record lows, down 1.1 per cent to TL2.95 per dollar.
The South African rand is 2.3 per cent lower at R13.2 per dollar, having briefly dropped to an all-time low of R14 per dollar earlier in the day.
The Russian rouble is 1.1 per cent weaker against the dollar, at Rb70.10, having not crossed the threshold of Rb70 for the first time since February.
Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks
Three weeks ago, when we last looked at the collapse in trade along what may be the most trafficked route involving China, i.e., from Asia to Northern Europe, we noted that while that particular shipping freight rate Europe had crashed some 23% on just one week, there was some good news: at least the Baltic Dry index was still inexplicably rising, and at last check it was hovering just above 1,100.
That is no longer the case, and just as with everything else in recent months, the Baltic Dry dead cat bounce is now over, with the BDIY topping out just above 1200 on August 4, and now back in triple digit territory, rapidly sliding back to the reality of recent record lows which a few months ago we suggested hinted that much more is wrong with global trade, and the global economy, than artificially manipulated stock markets would admit.
More importantly, a major source of confusion appears to have been resolved. Recall that as we noted on August 3, “many were wondering how it was possible that with accelerating deterioration across all Chinese asset classes, not to mention the bursting of various asset bubbles, could global shippers demand increasingly higher freight rates, an indication of either a tight transportation market or a jump in commodity demand, neither of which seemed credible. We may have the answer.”
We did. To wit:
“Should the dead cat bounce in shipping rates indeed be over, and if the accelerate slide continues at the current pace, not only will shippers mothball key transit lanes, but the biggest concern for global economy, the unprecedented slowdown in world trade volumes, which we flagged a week ago, will be not only confirmed but is likely to unleash yet another global recession.“
As expected, on Friday, we got confirmation that the BDIY has indeed become a lagging indicator to actual demand, when Reuters reported in its latest weekly update using data from the Shanghai Containerized Freight Index, that key shipping freight rates for transporting containers from ports in Asia to Northern Europe fell by 26.7 percent to $469 per 20-foot container (TEU) in the week ended on Friday.
The collapse in rates is nothing short of a bloodbath: “it was the third consecutive week of falling freight rates on the world’s busiest route and rates are now nearly 60 percent lower than three weeks ago.
Freight rates on the world’s busiest shipping route have tanked this year due to overcapacity in available vessels and sluggish demand in goods to be transported. Rates generally deemed profitable for shipping companies on the route are at about $800-$1,000 per TEU.
Other Europe-focused freight rates did even worse, with container freight rates from Asia to ports in the Mediterranean plunging 32.1%, while those to the US West and East coast slid by 7.9% and 9.9%, respectively.
This should not come as a surprise: it was back in March when we first reported that “Global Trade Volume Tumbles Most Since 2011; Biggest Value Plunge Since Lehman.”
It took the no longer discounting “market” about 6 months to figure this out. As for the culprit, no question who is at fault.
What happens next?
Well, some, such as the world’s largest container shipping company, Maersk Line, will desperately try to no longer lose money on every transit, with a plan to raise spot freight rates by $1,000 from ports in Asia to ports in northern Europe, with effect from Sep 1. Other major container shipping companies have similar plans.
The virtually guaranteed outcome of this “strategy”, as there is simply not enough demand as the world careens off the global recession cliff to offset a surge in freight costs, will be an even greater collapse in trade volumes.
The alternative, is just as bad: as we sarcastically hinted first in March:
… none of the above should alarm anyone: remember – central banks can just print trade with just the flick of a CTRL-P switch.
And then again three weeks ago when we said no need to worry because it is just a matter of time before “central planners learn how to print trade.”
For now, however, printing money no longer equates to boosting global trade. In fact, easy monetary policy now appears to be backfiring, as even the “market” has figured out.
So, sarcasm aside, what really happens next, to both shipping, trade, the global economy and markets? Sadly, unless central planning finally works after 7 years of failing ever upward… this.
Crude Snaps Below $40 : Gartman Stopped Out Of Oil Long
It was inevitable.
As we reported first on Friday, the best contrarian indicator the market has ever known, perhaps even better than the legendary FX titan, Tom Stolper, Dennis Gartman recommended clients invest their monopoly money alongside his, in a short gold, long crude trade: one which has lost about 5%on both legs in 24 hours. To wit:
CRUDE OIL PRICES ARE LOWER BUT WE ARE CHANGING OUR VIEW ON PRICES for having been overtly and rather relentlessly… and very publically… bearish, we are this morning turning bullish of crude oil and we are turning so because the term structure shifts mandate that we do so…. We do not make this statement lightly for this is a material shift in our view of the energy market… a very material shift.
* * *
Amidst the carnage of the global stock markets this morning and even in light of the sustained bear market in crude oil, the narrowing of the contangos in Brent and WTI brings us to become a buyer of crude as noted at length above. We’ll buy a unit of crude oil, split between Brent and WTI, upon receipt of this commentary. We shall, for the moment, give these prices the latitude to move 3% against us, hoping that we can tighten that up when we return Monday.
Moments ago, the $40 support level for oil finally snapped…
… and with its so did Gartman’s oil stop loss level, which means Gartman is now stopped out.
Normally this would mean going long, however in this case China has yet to open and following the disappointment of no RRR-cut, tonight’s commodity carnage may just be beginning.
Ray Dalio issues a warning:
(courtesy Ray Dalio/Bridgewater/zero hedge)
Forget Rate Hikes: Bridgewater Says QE4 Is Next; Warns World Is Approaching End Of Debt Supercycle
In a just released letter to clients, the head of the world’s largest hedge fund delivers one of his usual sermons about the economy as a perpetual motion machine, affected by central banks, and where interest rates are supposed to boost asset returns by being below “the rates of return of longer-term assets.”
None of that is terribly exciting and it is in fitting with what Bridgewater has said for a long time (incidentally, it is curious that just over the weekend, the FT released a piece in which a “US asset manager warns over risk parity” which is what Bridgewater’s bread and butter is all about).
What is exciting is the following part:
That’s where we find ourselves now—i.e., interest rates around the world are at or near 0%, spreads are relatively narrow (because asset prices have been pushed up) and debt levels are high. As a result, the ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias. Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.
That is what we are most focused on. We believe that is more important than the cyclical influences that the Fed is apparently paying more attention to.
We suppose this gis supposed to justify the Fed’s preoccupation with hiking rates, and why Yellen has on more than one occasion spoken against soaring asset prices. And yet…
While we don’t know if we have just passed the key turning point, we think that it should now be apparent that the risks of deflationary contractions are increasing relative to the risks of inflationary expansion because of these secular forces. These long-term debt cycle forces are clearly having big effects on China, oil producers, and emerging countries which are overly indebted in dollars and holding a huge amount of dollar assets—at the same time as the world is holding large leveraged long positions.
While, in our opinion, the Fed has over-emphasized the importance of the “cyclical” (i.e., the short-term debt/business cycle) and underweighted the importance of the “secular” (i.e., the long-term debt/supercycle), they will react to what happens. Our risk is that they could be so committed to their highly advertised tightening path that it will be difficult for them to change to a significantly easier path if that should be required.
Leading to the conclusion that “We Believe That the Next Big Fed Move Will Be to Ease (Via QE) Rather Than to Tighten“
Odd, that: it’s precisely what we have been saying since the announcement of the taper in 2013.
As for why stocks just took a major leg down once the letter hit, Dalio’s warning that the era of easy debt-funded returns is over, appears to be striking a chord…
The following is an extremely important commentary that I would like you to pay attention.
Rauol Meijer describes today’s Black Monday crash as extremely important and he tells you why.
a must read…
(courtesy Raul Meijer)
Is This Black Monday Crash The BIG ONE? It Doesn’t Matter
After losing 11% last week, Shanghai this morning was down almost -9% at one point, after lunch went back up to -6.5%, and ended its day at -8.49%. A Black Monday for sure, but is this the BIG ONE? It really doesn’t matter one bit. Unless perhaps you persist in calling your self an investor, in which case we pity you, but not for losing your shirt. Because God knows we’ve said enough times now that there are no functioning markets anymore, and therefore no-one who can rightfully lay claim to the title ‘investor’.
Plenty amongst you will be talking about economic cycles, and opportunities, and debate how to ‘play’ the crash, but all this is useless if and when a market doesn’t function. And just about all markets in the richer part of the world stopped functioning when central banks started buying assets. That’s when you stopped being investors. And when market strategies stopped making sense.
Central banks will come up with more, much more, ‘stimulus’, but what China teaches us today is that we’re woefully close to the moment when central banks will lose the faith and trust of everyone. After injecting tens of billions of dollars in markets, which thereby ceased to function, the global economy is in a bigger mess then it was prior to QE. The whole thing is one big bubble now, and we know what invariably happens to those.
More QE is not an answer. And there is no other answer left either. Those tens of trillions will need to vanish from the global economy before any market can be returned to a functioning one, and by that time of course asset prices will be fraction of what they are now. It may not happen today, but that doesn’t matter: what’s important to know is that it WILL happen.
And if you keep being out there trying to outsmart a non-functioning market, you’ll get burned as badly as the millions of Chinese grandmas who already lost 20%+ so far just this month. And that’s just on their share holdings; Chinese property ‘markets’ will be at least as badly burned.
China’s leaders, and its people, have walked eyes wide open into an ugly albeit nigh perfect trap.They’ve all started to believe that borrowing more could make them richer. Outstanding credit across the entire society has reached idiotic proportions. We can get somewhat of a glance at what levels debt have reached in Steve Keen’s Is This The Great Crash Of China?, in which he argues that a crash is inevitable, simply given those levels.
But we can at the same time be sure that this doesn’t tell the whole story. Much of what has gone on in the shadow banking sector remains unknown and carefully hidden. Thousands of local governments have plunged themselves into the deep end borrowing from trusts and other often shady instruments, at interest levels much higher than the ‘official’ ones. Even these shadow trusts last week have begun asking for bailouts, a development that can only make one think of a Godfather episode of one’s choice.
China’s first big mistake is that Xi and Li and their ilk think they can control housing and stock markets. Which basically means they think they can stop people from selling property and assets when they feel these might go down in ‘value’.
China’s second big mistake is that so many people believe that Xi and Li actually have any such control. Which means the people don’t sell nearly soon enough, and will be saddled with the losses. From an economic perspective, it’s an exercise in stupid futility, or, if you prefer, futile stupidity.
Add to this that the credit that allowed the Chinese to purchase all these alleged assets came from nowhere, and will therefore of necessity have to go back to nowhere, and you have a recipe for deflationary debt deleveraging the likes of which the world may never have seen before in history, unless perhaps you count the tulip- or South Sea bubbles, but they are just small scale anecdotes compared to today.
This deleveraging will be global. We pity the many millions of poor souls who think that countries like the US and Britain will be spared the worst because their economies are doing ‘so well’. Doing well in a global Ponzi is not a recommendation.
China’s fall is being exacerbated by the fact that it has two -heavily intertwined- parties who believe in their own omnipotence, the government (Politburo) and the central bank. Both are being found out at the same moment. And both will resist this discovery. As will all central banks in the west, where at least any idea of omnipotence of governments has long been eradicated.
But the entire west has become so addicted to China’s debt, and the illusion of prosperity and economic recovery it has brought, that all prices everywhere must come down, as noted above, until the tens of trillions of dollars in stimulus measures have vanished into the thin air they were fabricated in. Until value becomes real value again, not this virtual zombie Ponzi pricing.
Today may be just a warning sign, and it may take a while longer before the deluge, but it will come. And since China has nothing left to fall back on but even higher private and public debt levels, make that sooner rather than later.
The main advice we’ve always given with regards to debt deleveraging stands: get out of debt.
Meanwhile, the western financial press, which has been reporting on non-functioning markets for years as if they actually were still functioning, is worrying about a potential Fed rate hike, telling its readers and listeners that the US central bank ‘looks set to make a dangerous mistake’. But the real ‘mistake’ was made a long time ago.
Euro/USA 1.1495 up .0110
USA/JAPAN YEN 120.04 down 1.89
GBP/USA 1.5717 up .0048
USA/CAN 1.32500 up .0064
Early this Monday morning in Europe, the Euro rose by a huge 110 basis points, trading now well above the 1.14 rising to 1.1495; 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, blood letting on all, European and Asian bourses. Last night the Chinese yuan weakened a considerable .0157 basis points for its 4th devaluation.
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 now trades in a northbound trajectory as settled up again in Japan up by 189 basis points and trading now just above the 120 level to 120.04 yen to the dollar, blowing up the yen carry traders.
The pound was down this morning by 48 basis points as it now trades well above the 1.57 level at 1.5717, as most currencies react to the weaker dollar.
The one exception is the Canadian dollar which continues to occupy the toilet as it fell again by 64 basis points to 1.3250 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 with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageble.
2, the Nikkei average vs gold carry trade (blowing up)
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 Monday morning: down by 895.15 or 4.61%
Trading from Europe and Asia:
1. Europe stocks all deeply in the red
2/ Asian bourses all deeply in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red/
Gold very early morning trading: $1154.50
Early Monday morning USA 10 year bond yield: 2.00% !!! down 7 in basis points from Friday night and it is trading well below resistance at 2.27-2.32%
USA dollar index early Monday morning: 94.05 down 73 cents from Friday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.4028 up .0012 ( Chinese yuan down 13 basis points)
“Black Monday” Brings Global Market Rout, Investors Mourn The Death Of Central Bank Omnipotence
Another day in ignoropia…
And a second clip – because we can – that seemed a perfect analog for mainstream media in the middle of today…
It started in China…
Continued in Europe…
And then catastrophied in The US…
The crash in stocks at the open appeared as much driven by a collapse in USDJPY – JPY carry unwinds – which ripped back and lifted stocks…
Cash indices ripped back off the lows and Nasdaq ‘touched’ unchanged on the back of AAPL… before it all fell apart again…
As the end of the day loomed, chatter of QE4 (hope) and PBOC RRR Cut (hope) managed to ramp stocks… dragging S&P minis back to VWAP… (on heavy volume)
Some context for the drop today…
Everything is red post-QE3…
Energy stocks crashed, catching down to energy credit markets…which hit another record wide today…
“Inconceivable” – US financial stocks collapse to credit…
Catching up to credit…
Treasury yields plunged as stocks collapsed but as the PPT stepped in and rescued AAPL, so bonds got hit (with the long bond yield soaring to +4bps from -11bps at one point)… then as the weakness re-accelerated, yields plunged… 10Y traded with a 1 handle once again… and 30Y went out with a higher yield
The USD drooped most in 5 months today back to 7 month lows…
Despite USD weakness, commodities were all lower as we suspect margin calls necessitated widespread selling in everything…
Crude was utterly monkey-hammered back to a $37 handle…
One final thing… China opens in a few hours!!
Futures Just Crashed To New Overnight Lows, S&P Down 3%
It just went from bad to worse.
- S&P FUTURES AT DAY’S LOW, FALLING 61PTS OR 3.1%
- NEW LOWS FOR NASDAQ FUTURES, DOWN 195PTS OR 4.6%
- NEW LOWS FOR DOW FUTURES DOWN 533PTS OR 3.2%
- EUROPE’S STOXX 600 FALLS 5.3%, WORST ONE-DAY DROP SINCE 2011
- TREASURIES EXTEND GAINS; 10Y YIELD FALLS TO 1.967%
Someone wake up the Fed: “They have no idea how bad it is… They know nothing.” Etc.
Nasdaq Futures Halted Below 4,000 After Hitting Circuit Breaker Down 5%
NASDAQ 100 SEPTEMBER FUTURES HIT CIRCUIT BREAKER, HALTED – RTRS
Nasdaq Futures below 4,000!
The Nasdaq is now notably underwater for 2015, trading at levels first seen over a year ago.
Nasdaq is halted for the 3rd time…
Blood On The Streets: Down Dumps 1000 Points At Open, Biggest Drop Since Lehman
Blood on the streets…
Panic!! All Major US Equity Indices Halted
Nasdaq was the first to be halted at 0758ET.
The Dow is now down 850 points from Friday’s close and halted…
The S&P 500 Futures is halted for the first time in history.
What Is Really Going On: Market Liquidity Worse Than During The Flash Crash; 4500 Crash Events; Constant Halts And Unhalts
Curious why few if any traders can actually execute any trades, whether buys or sells? The reason is that despite the relative calmness of the index prints, what is going on beneath the surface is an unprecedented wave of constant halt and unhalts as all stop levels were taken out, many in circuit breaker territory, making it virtually impossible for any matching enginge to, well, match buyers and sellers.
Here is a sample:
The resulting halts made it impossible for regular traders to step in, requiring central banks to buy via the CME’sCentral Bank Incentive Program, to restore some market stability.
And just to add to the pain, there is absolutely no liquidity in either stocks…
… Or bonds:
As the market breaks:
Deutsche Bank Sums It Up “The Fragility Of This Artificially Manipulated Financial System Was Finally Exposed”
Today’s dose of vile tinfoil hattery magick comes straight from the bank with the cool $55 trillion or so in derivatives, Deutsche Bank:
The fragility of this artificially manipulated financial system was exposed over the last couple of days of last week. It all ended with the S&P 500 falling -3.19% on Friday – its worst day since November 9th 2011.
* * *
We’ve long felt that the only thing preventing another financial crisis has been extraordinary central bank liquidity and general interventions from the global authorities which we still expect to continue for a long while yet. So when policy changes, risks arise. The genesis of this recent sell-off has been the threat of the Fed raising rates next month, but China’s confrontational move two weeks ago and the subsequent knock-on through EM have accelerated us towards something more serious. We always thought something would get in the way of the Fed raising rates in September and we’re perhaps seeing this now. With 24 days to go until we find out, the probability of a hike has gone down to 34% from a 54% recent peak on August 9th. Having said we always thought something would come along to derail a Fed rate hike we probably should have gone underweight credit. However with trading liquidity poor and with a reasonably high desire to be long amongst investors there has to be a big move to justify the change in stance. Also with a strong possibility that the Fed will relent and that China could add more stimulus soon, there may be a small window to be short European credit. So at the moment this could be a dangerous time to sell. However if it wasn’t for expected intervention and extraordinary central bank policy we would be very bearish as the global financial system remains an artificial construct reliant on the largesse of the authorities.
So 6 years after we first said what at the time was seen as heretical “tinfoil” conspiracy theory, now everyone admits it. Almost time to take a vacation maybe…
7 Million People Haven’t Made A Single Student Loan Payment In At Least A Year
Perhaps it’s all the talk about across-the-board debt forgiveness or maybe the total amount of outstanding student debt has simply grown so large ($1.3 trillion) that even those with no conception of how much money that actually is realize that it’s simply never going to paid back so there’s no point worrying about, but whatever the case, the general level of concern regarding America’s student debt bubble doesn’t seem to be at all commensurate with the size of the problem.
And it’s not just the sheer size of the debt pile that’s worrisome. There’s also the knock-on effects, such as delayed household formation and the attendant downward pressure on the homeownership rate, and of course hyperinflation in the rental market.
Of course one reason no one is panicking – yet – is that the severity of the problem is masked by artificially suppressed delinquency rates. As we’ve documented in excruciating detail, if one excludes loans in deferment and forbearance from the numerator in the delinquency calculation, but includes those loans in the denominator then the delinquency rate will be deceptively low. In any event, as WSJ reports, even if one looks at something very simple like, say, the number of borrowers who haven’t made a payment in a year, the picture is not pretty and it’s getting worse all the time. Here’s more:
Nearly seven million Americans have gone at least a year without making a payment on their federal student loans, a staggering level of default that highlights how student debt continues to burden households despite an improving labor market.
As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this week. That was up 6%, or 400,000 borrowers, from a year earlier.
The figures translate into about 17% of all borrowers with federal loans being severely delinquent—and that share would be even higher if borrowers currently in school were excluded.Additionally, millions of other borrowers who haven’t hit the 360-day threshold that the government defines as a default are months behind on their payments.
Each new crop of students is experiencing the same problems” with repaying, said Mark Kantrowitz, a higher-education expert and publisher of the information website Edvisors.com. “The entire situation isn’t getting better.”
The development carries big implications for borrowers, taxpayers and the economy. Economists have warned of student-debt defaults damaging borrowers’ credit standing, which would hurt their ability to borrow for things like cars and homes. That in turn would hamper the economy, which relies heavily on consumer purchases for economic activity. Delinquencies also drain government revenues, which are used to make future loans.
Education Secretary Arne Duncan said declines [in some categories of delinquencies] resulted from rising participation in income-based repayment plans, which lower borrowers’ monthly bills by tying payments to their incomes. Enrollment in the plans surged 56% over the past year among direct-loan borrowers.
The administration has urgently promoted the plans, mainly through emails to borrowers, over the past two years in an effort to stem defaults. The plans set payments as 10% or 15% of their discretionary income, defined as adjusted gross income minus 150% the federal poverty level.
The plans carry risks, though, for both borrowers and the government. Many borrowers’ payments aren’t enough to cover the interest on their debt, allowing their balances to grow and threatening to trap them under debt for years.
At the same time, the government could be left forgiving huge amounts of debt if borrowers stay in the plans. The government forgives balances after 10, 20 or 25 years of on-time payments, depending on the plan.
But aside from the fact that these plans will cost taxpayers an estimated $39 billion over the next decade – and that’s just counting those expected to enroll in plans going forward and ignoring the $200 billion or so in loans already enrolled in an IBR plan – the most absurd thing about Duncan’s claim is that, as we’ve shown, IBR programs don’t drive down delinquency rates, they just change the meaning of the term “payment”:
See how that works? If you can’t afford to pay, just tell the Department of Education and they’ll enroll you in an IBR plan where your “payments” can be $0 and you won’t be counted as delinquent.
So we suppose we should retract the statement we made above. You are correct Mr. Duncan, these plans are actually very effective at bringing down delinquencies and the method is remarkably straightforward: the government just stopped couting delinquent borrowers as delinquent.